America for Sale

October 2, 2009 marked the launch of "America For Sale: How the Foreign Pack Circled and Devoured Esmark," co-authored by Esmark Inc. Vice Chairman and co-founder Craig T. Bouchard and noted economist, Dr. James V. Koch. Hundreds of news organizations around the world carried stories about the book and the authors bold predictions about the future of the U.S. economy. Here's just sampling of the the kinds of media organizations that covered the book launch and several select stories.

Visit our News page often for additional coverage results and updates.

View the Press Release on these sites:

From THE AMM BOOK NOOK

Bouchard takes you inside the global tug-of-war for the control of Esmark

By Scott Robertson
Published: Nov 1 2009 9:26AM

Read the original article on AMM.com

Subscribers to AMM have read for years of mergers and acquisitions in metals, efforts to consolidate the steel industry and the motives of industry magnates like Lakshmi Mittal, Alexei Mordashov, Wilbur Ross and others.

As numerous, as complex and as detailed as many of those stories are—and surely will be in the future—AMM never had a reporter sitting in a closed-door meeting with the principals when a deal was on the table.

Craig Bouchard was there. As president of the former Esmark Inc., a Chicago-based company that started in steel with service center holdings but grew steadily in influence, strength and headline-grabbing activity, he lived through the twists and turns of one of the most interesting and volatile battles the steel industry has seen.

Bouchard, together with Old Dominion University professor and economist James V. Koch, delivers a firsthand account of the roller-coaster ride that Craig and his brother, James Bouchard, took as they led Esmark from a service center consolidator to a steel industry player with the acquisition of Wheeling-Pittsburgh Steel Corp. and the subsequent sale of Esmark to Russian steel giant OAO Severstal.

In their recently published book, America for Sale: How the Foreign Pack Circled and Devoured Esmark, Craig Bouchard and Koch recount the beginnings of Esmark, its rise and decision to go after the venerable Wheeling-Pittsburgh Steel and the subsequent bidding war for Esmark between Severstal and India-based Essar Steel, a battle which ultimately more than doubled Esmark's share price.

The book's cover illustrates some of the story. It pictures an American eagle clutching a steel beam but surrounded by tigers and bears, essentially representing India's Essar and Russia's Severstal.

The book, published by Praeger, opens with a lot of economic basics that help to describe how Esmark rose in stature in steel, and includes the beliefs of Bouchard and Koch about how and why foreign investors like Severstal, fellow Russian steelmaker Evraz Group SA, Essar and Brazilian steelmaker Cia. Siderúrgica Nacional (CSN), among many others, have set their sights on the U.S. steel industry and how they have been able to gain control of more than 50 percent of American steelmaking assets.

Bouchard believes that another round of "America for sale" is coming in 2010 as the value of the dollar falls, leading more foreign companies to look to the United States to invest. The book describes in detail the dangers and risks associated with foreign ownership of U.S. steel assets, but at the same time dispels many economic myths about the manner in which deals are constructed and executed.

Much of the economic discussion in the book is elementary, although at times it becomes very detailed. The details, however, are critical to understanding Esmark's position in the U.S. steel industry and provide some of the answers observers were seeking as the story of Esmark and its sale to Severstal developed.

It was commonplace, for example, to hear steel industry veterans ask, "How are they (the Bouchards) doing this?" or "How do they think they can pull this off?" America for Sale tells how it was done, complete with all manner of emotion and activity from quiet confidence to brashness, hard negotiation to hand-wringing, threats to compliments and back-room dealing to back-stabbing.

There is something in the book for students interested in economic lessons and for steel veterans wanting the inside story to sports fans wondering how Stanley Cup playoff hero Evgeni Malkin ended up playing with the Pittsburgh Penguins.

Among the more interesting sections of the book are stories relating how the former management of Wheeling-Pittsburgh Steel initially aligned itself with CSN against the Bouchards when Esmark first broached a takeover of the steel operations, and the dealings of the United Steelworkers union and Ron Bloom, one of its main operatives and now a key figure in the Obama administration.

Another is the alignment of the USW with Severstal even as Essar offered a higher share price for Esmark. Bouchard and Koch explore and share the reasons why they believe such an arrangement was made.

Ultimately, the authors offer a number of predictions for the future and a list of winners and losers in the battle for control of Esmark. Predictions include another wave of "America for sale" next year.

Winners include Esmark shareholders, who got more than they expected for their shares. Losers include Severstal and the USW (for now at least), given that Severstal is losing money and has had to close plants and that the USW has seen massive worker layoffs and a reduction in its all-important collection of union dues.

Readers also will be winners. America for Sale: How the Foreign Pack Circled and Devoured Esmark answers many questions and poses more. Those who read it likely will come away with a better understanding of the moods and motivations of major business leaders as they construct merger deals.

Such information could prove invaluable if Bouchard's and Koch's predictions of another round of "America for sale" are realized.

Scott Robertson

Just Released

View the Press Release

FOR IMMEDIATE RELEASE
CO-AUTHORS OF ‘AMERICA FOR SALE’ WARN OF LOOMING RISKS FOR U.S. ECONOMY, CRITICAL INDUSTRIES

Vice Chairman of Esmark Inc. Briefs Executives at Chicago’s Association for Corporate Growth Forum on Risks Related to Securing Our Domestic Infrastructure Future

CHICAGO, OCTOBER 2, 2009 -- Craig T. Bouchard, Vice Chairman and co-founder of Esmark Inc., speaking to the executives attending Chicago’s Association for Corporate Growth forum, signaled new risks percolating under the surface of the U.S economy, namely significantly higher interest rates, re-inflation of commodity prices, a further weakening of the U.S. dollar, and a coming rush by foreign companies to purchase equity in industries potentially critical to national defense.

Bouchard sees new risks ahead for US

Scott Robertson

American Metal Market

2 October 2009

Craig T. Bouchard has managed his way through the global financial crisis and learned a few lessons along the way. Among them are that more such crises can be expected in the future.

Bouchard, president and co-founder of the former Chicago-based Esmark Inc., warned executives attending Chicago's Association for Corporate Growth Forum on Friday that new risks are percolating below the surface of the U.S. economy. Some of those risks include significantly higher interest rates, re-inflation of commodity prices, a further weakening of the U.S. dollar and a coming rush by foreign companies to purchase equity in industries potentially critical to national defense, most notably steel.

Bouchard, co-author of a new book, America for Sale: How the Foreign Pack Circled and Devoured Esmark, has been through this before. He and his brother, James, founded and spearheaded the growth of Esmark Inc. from a steel service center company into one that eventually acquired Wheeling-Pittsburgh Steel Corp. before it was sold to Russian steel giant OAO Severstal.

The story of the creation and growth of Esmark and the back-room battles that led up to a bidding war for the company between Severstal and India's Essar Steel are described in the book, along with the role of the United Steelworkers union and Ron Bloom in the deals; an in-depth discussion of how deals are done; and what issues face the U.S. and global economies in years to come. Bloom is now President Obama's manufacturing czar and heads his Auto Task Force.

Bouchard cautioned attendees at the Chicago forum on the impact a number of factors will have on the U.S. economy post-recession.

"The chaos currently sweeping the economic and political foundation of the United States is facilitating the risk of America losing control of key commodity industries, including the steel industry," Bouchard said. "While the recession has slowed M&A (merger and acquisition) activity dramatically, our eventual recovery combined with a very weak dollar will facilitate a flood of foreign capital into the U.S. industrial sector."

Bouchard and his co-author, Old Dominion University professor and economist James V. Koch, say the growing deficits and dramatic growth of the monetary supply base in the U.S. include unrecognized consequences.

"2010 will see an inflationary spike beyond current market expectations, accompanied by a significant weakening of the dollar from current levels," Bouchard said.

He noted there is a good case to be made that interest rates on long-term government debt will exceed 10 percent by 2010 and that possibility, combined with a lack of available bank credit, will hinder the recovery of the real estate, retail and manufacturing sectors.

In his address, Bouchard outlined how the U.S. steel manufacturing base, which he described as a critical component to national defense, already is majority-owned by foreign companies. Chinese and Japanese concerns, he said, own more than $3 trillion of U.S. Treasury securities, leaving the U.S. in a very vulnerable position during any negotiations with those countries. Bouchard said that if the Chinese and Japanese stop buying U.S. securities, interest rates will skyrocket.

He said he expects crude oil prices to return to more than $100 per barrel during 2010, further complicating any efforts by the Federal Reserve and Treasury Department to extract the U.S. from the aftershock of the federal stimulus programs.

Koch, meanwhile, believes the Committee on Foreign Investments in the United States (CFIUS), the U.S. government body that oversees national security implications of foreign investments in U.S. companies, "has been a rubber stamp," with applications for foreign purchase of U.S. companies having grown dramatically since 2005.

"Of the last 300 applications made by foreign entities, only a handful have ever been reviewed," Koch said. "CFIUS simply can't seem to say no."

Bouchards back on prowl for steel assets

By Scott Robertson Published: Sep 4 2009 2:41PM

View AMM.com for original article

The Bouchard brothers are ready to move back into steel.

James and Craig Bouchard, chairman and vice chairman, respectively, of Esmark Inc., Chicago, again are looking at acquiring steel assets to add to the company's portfolio now that their no-compete agreement with Russia's OAO Severstal has expired.

"We're kicking the tires on a number of things," James Bouchard told AMM Friday. "We've got the team back together. Right now we are focusing on building the energy group and the aviation group, but there are a few steel deals we're looking at, too. There are a lot of distressed guys out there."

Bouchard wouldn't specify the types of deals under discussion, but said both large and smaller transactions are on the company's radar screen. He declined to comment on any potential interest Esmark might have in reacquiring the assets of the former...

Obama to Tap Bloom as Manufacturing Adviser

September 7th, 2009

View Newssponge.com for original article

By GARY FIELDS

WASHINGTON – President Barack Obama will name Ron Bloom as his senior counselor for manufacturing during a presidential trip Monday to Cincinnati to mark Labor Day, the White House said.

Mr. Bloom, who will keep his role as senior adviser to Treasury Secretary Tim Geithner, will be helping the administration develop policies to assist the beleaguered U.S. manufacturing industry. According to the White House, he will be working with a variety of agencies, including the Departments of Commerce, Treasury, Energy and Labor, to implement Obama administration’s strategies.

China alarmed by US money printing

The US Federal Reserve's policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.

By Ambrose Evans-Pritchard, in Cernobbio, Italy
Published: 9:06PM BST 06 Sep 2009

View telegraph.co.uk for original article

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive, said Beijing was dismayed by the Fed's recourse to "credit easing".

"We hope there will be a change in monetary policy as soon as they have positive growth again," he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

"If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.

China's reserves are more than – $2 trillion, the world's largest.

"Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added.

The comments suggest that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction.

Mr Cheng said the Fed's loose monetary policy was stoking an unstable asset boom in China. "If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise.

"Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down."

Mr Cheng said China had learned from the West that it is a mistake for central banks to target retail price inflation and take their eye off assets.

"This is where Greenspan went wrong from 2000 to 2004," he said. "He thought everything was alright because inflation was low, but assets absorbed the liquidity."

Mr Cheng said China had lost 20m jobs as a result of the crisis and advised the West not to over-estimate the role that his country can play in global recovery.

China's task is to switch from export dependency to internal consumption, but that requires a "change in the ideology of the Chinese people" to discourage excess saving. "This is very difficult".

Mr Cheng said the root cause of global imbalances is spending patterns in US (and UK) and China.

The US spends tomorrow's money today," he said. "We Chinese spend today's money tomorrow. That's why we have this financial crisis."

Yet the consequences are not symmetric.

"He who goes borrowing, goes sorrowing," said Mr Cheng.

It was a quote from US founding father Benjamin Franklin.

Steelworkers Hail Esmark Sale as a Victory for Workers

Jun 26, 2008

View Mywire.com for original article

PITTSBURGH , June 26 /PRNewswire-USNewswire/ -- The United Steelworkers (USW) today welcomed the news that Esmark has entered into a definitive merger agreement with OAO Severstal and that Esmark's board of directors now recommends that shareholders tender their shares to Severstal

The union called the outcome a victory for longtime Wheeling Pittsburgh Steel employees, whose jobs will be more secure as a result. After the actions of Esmark's board of directors, Essar Steel, Ltd. has withdrawn its competing bid for Esmark's stock.

"From the beginning, our support for Severstal was based on the company's willingness to improve upon our current contract and its commitment to invest specific, substantial capital in our plants," said USW District 1 Director Dave McCall, who chairs the union's Wheeling Pittsburgh Steel negotiating committee. "The synergy of Severstal operating Sparrows Point, WCI and Esmark as one consolidated company creates a long-term, viable entity, which will obviously provide the most security for our members, their families and our retirees at all of the operations." ...

View Rest of Article. Mywire.com subscription required

James P. and Carolyn K. Bouchard Family Complete Three-Year, $3.1 Million Commitment...

Fri Oct 31, 2008 8:46am EDT

View Reuters.com for original article

James P. and Carolyn K. Bouchard Family Complete Three-Year, $3.1 Million Commitment to Support Charitable and Educational Organizations in Pennsylvania and Illinois

Campaign Culminates With $1 Million Donation to Quaker Valley Recreation Association for The Legacy Fields at Bouchard Family Park PITTSBURGH & CHICAGO--(Business Wire)-- James P. and Carolyn K. Bouchard today announced that they have contributed more than $3 million to support a diverse group of children's charities, healthcare and educational institutions in Pennsylvania and Illinois.

The Bouchard family's philanthropic endeavors culminate today with a $1 million contribution to the Sewickley, Pennsylvania-based Quaker Valley Recreation Association for the construction of the Legacy Fields at Bouchard Family Park facility. The recreation complex at Bell Acres will include ten turf playing fields for baseball, soccer and lacrosse, as well as a park facility for family-based activities.

Mr. and Mrs. Bouchard, who were both raised in Hinsdale, Illinois, and now reside in Sewickley, Pennsylvania, have contributed or pledged the financial resources to support a wide range of worthy educational and charitable organizations that serve families and children of all ages in need of academic, health and fitness, leadership and sports and recreational opportunities.

"Growing up in suburban Chicago, both my wife and I were fortunate to have benefited greatly from outstanding academic institutions and participation in a number of quality health and fitness, sports and recreation programs and organizations," said James P. Bouchard. "But there are far too many families and children in our communities today that have not been afforded those same opportunities for personal growth and development. Together with our children, The Bouchard Group and Esmark Inc. we are fully committed to providing critical resources and support for families and children in Pennsylvania and Illinois so they too can build better lives for themselves."

Bouchard, Chairman and Chief Executive Officer of Esmark Inc., highlighted the organizations and institutions that have already received financial or other valuable support from the Bouchard family, as well as those selected to receive contributions or endowments this year, including:

-- Pennsylvania

-- The Imani Christian Academy School, Pittsburgh - The Bouchard family and Esmark have contributed $500,000 toward their $750,000 commitment to the pathfinder inner-city K-12 school for the construction of the Bouchard Family Science Center. The Bouchard family and Esmark Inc. has been longtime supporters of the Academy through previous contributions and sponsorship of the Imani Gala an annual golf tournament fundraising events.

-- The Mel Blunt Youth Home, Pittsburgh - The Bouchard family made a $50,000 contribution to former Pittsburgh Steeler and NFL Hall of Famer Mel Blunt's organization that provides housing, education, recreation and leadership programs to inner city kids from Pittsburgh.

-- The Doorway, Bellevue - The Bouchard family made a $20,000 contribution to the organization that provides a safe haven and after-school recreation programs to kids in the Bellevue area.

-- Child Health Association of Western Pennsylvania - The Bouchard family and Esmark have contributed $30,000 toward their five-year pledge of $50,000 to support a wide range of children's health and wellness programs for children living in the western part of the state.

-- The Sewickley Valley Hospital - The Bouchard family has donated $25,000 toward the purchase of a radiology lab to serve patients.

-- Quaker Valley Hockey Association, Sewickley - Through its team sponsorship and collaboration on community outreach programs with the NHL's Pittsburgh Penguins, the Bouchard family, The Bouchard Group and Esmark have contributed $115,000 towards their five-year pledge of $175,000 to the Quaker Valley Hockey Association's "Hockey in the 'Hood" youth development program for inner-city Pittsburgh children. The contribution will help subsidize 50 percent of the organization's annual operating budget.

-- Pittsburgh FC Soccer Club - The Bouchard family founded the FC Soccer Club for youth soccer development and have contributed $125,000 toward their five-year pledge of $250,000.

-- St. James Catholic Church, Sewickley - The Bouchard family and Esmark have donated $25,000 to the church for installation of a new gymnasium floor.

-- Illinois

-- The J. Kyle Braid Leadership Foundation, Hinsdale, Illinois - Through Esmark Inc. and the Bouchard Family more than $200,000 has been raised in the past three years to support a unique leadership development program that brings promising high school students from the Midwest to the J. Kyle Braid Foundation ranch in Colorado for two-week leadership development and training programs.

-- Bouchard Family Fitness Center, Hinsdale Central High School, Hinsdale, Illinois - Together with his brother, Craig T. Bouchard, the Bouchard family contributed $250,000 to the recently dedicated Bouchard Family Fitness Center, a health and wellness facility available to Hinsdale Central High School students and athletes. In addition, the Bouchard family donated $10,000 to the Hinsdale Central High School Foundation for ongoing support of the foundation's programs and services. Mr. Bouchard is a 2008 inductee into the Hinsdale Central High School Hall of Fame.

-- Loyola University, Chicago - Established the $250,000 James and Carolyn Bouchard Endowment Scholarship Fund. Mr. Bouchard is a graduate of the university and serves on its Board of Trustees.

-- Esmark College Scholarships, Chicago area - Since 2004 the Bouchard family and Esmark Inc. have awarded $2500 college scholarships to children of Esmark employees in honor of their mother, Helen E. Bouchard. To date, 22 scholarships have been awarded.

-- Other Bouchard Family Contributions

-- Duke University, North Carolina - Together with his brother, Craig T. Bouchard, James Bouchard has contributed $250,000 to endow the Craig and James Bouchard Scholarship to annually recognize outstanding female student athletes and citizens.

About The James P. and Carolyn K. Bouchard Family

James P. and Carolyn K. Bouchard are committed to providing ongoing financial and in-kind support to worthwhile charitable and educational organizations and institutions serving families and children. The family seeks to identify and reward recipients that have demonstrated a strong commitment to family values, educational excellence, heath and wellness and social responsibility through community-based programs and services. The couple resides in Sewickley, Pennsylvania with their three children; Natalie (17), Clayton (14) and Aubrey (11).

Edelman
Media Contact:
Bill Keegan
312.240.2624 or 312.927.8424
bill.keegan@edelman.com

Copyright Business Wire 2008

Read the Union Health-Care Label

Get ready for Detroit-style labor relations in our hospitals.

By Mark Mix SEPTEMBER 10, 2009, 9:35 A.M. ET

View wsj.com for original article

In the heated debates on health-care reform, not enough attention is being paid to the huge financial windfalls ObamaCare will dole out to unions—or to the provisions in the various bills in Congress that will help bring about the forced unionization of the health-care industry.

Tucked away in thousands of pages of complex new rules, regulations and mandates are special privileges and giveaways that could have devastating consequences for the health-care sector and the American economy at large.

The Senate version opens the door to implement forced unionization schemes pursued by former Govs. Rod Blagojevich of Illinois in 2005 and Gray Davis of California in 1999. Both men repaid tremendous political debts to Andy Stern and his Service Employees International Union (SEIU) by reclassifying state-reimbursed in-home health-care (and child-care) contractors as state employees—and forcing them to pay union dues.

lowing this playbook, the Senate bill creates a "personal care attendants workforce advisory panel" that will likely impose union affiliation to qualify for a newly created "community living assistance services and support (class)" reimbursement plan.

The current House version of ObamaCare (H.R. 3200) goes much further. Section 225(A) grants Secretary of Health and Human Services Kathleen Sebelius tremendous discretionary authority to regulate health-care workers "under the public health insurance option." Monopoly bargaining and compulsory union dues may quickly become a required standard resulting in potentially hundreds of thousands of doctors and nurses across the country being forced into unions.

Ms. Sebelius will be taking her marching orders from the numerous union officials who are guaranteed seats on the various federal panels (such as the personal care panel mentioned above) charged with recommending health-care policies. Big Labor will play a central role in directing federal health-care policy affecting hundreds of thousands of doctors, surgeons and nurses.

Consider Kaiser Permanente, the giant, managed-care organization that has since 1997 proudly touted its labor-management "partnership" in scores of workplaces. Union officials play an essentially co-equal role in running many Kaiser facilities. AFL-CIO President John Sweeney called the Kaiser plan "a framework for what every health care delivery system should do" at a July 24 health-care forum outside of Washington, D.C.

The House bill has a $10 billion provision to bail out insolvent union health-care plans. It also creates a lucrative professional-development grant program for health-care workers that effectively blackballs nonunion medical facilities from participation. The training funds in this program must be administered jointly with a labor organization—a scenario not unlike the U.S. Department of Labor's grants for construction apprenticeship programs, which have turned into a cash cow for construction industry union officials on the order of hundreds of millions of dollars each year.

There's more. Senate Finance Committee Chairman Max Baucus has suggested that the federal government could pay for health-care reform by taxing American workers' existing health-care benefits—but he would exempt union-negotiated health-care plans. Under Mr. Baucus's scheme, the government could impose costs of up to $20,000 per employee on nonunion businesses already struggling to afford health care plans.

Mr. Baucus's proposal would give union officials another tool to pressure employers into turning over their employees to Big Labor. Rather than provide the lavish benefits required by Obamacare, employers could allow a union to come in and negotiate less costly benefits than would otherwise be required. Such plans could be continuously exempted.

Americans are unlikely to support granting unions more power than they already have in the health-care field. History shows union bosses could abuse their power to shut down medical facilities with sick-outs and strikes; force doctors, nurses and in-home care providers to abandon their patients; dictate terms and conditions of employment; and impose a failed, Detroit-style management model on the entire health-care field.

ObamaCare is a Trojan Horse for more forced unionization.

Mr. Mix is president of the National Right to Work Committee.

Warning: Oil supplies are running out fast

Catastrophic shortfalls threaten economic recovery, says world's top energy economist

By Steve Connor, Science Editor Monday, 3 August 2009

View Independent.co.uk for original article

The world is heading for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production, a leading energy economist has warned.

Higher oil prices brought on by a rapid increase in demand and a stagnation, or even decline, in supply could blow any recovery off course, said Dr Fatih Birol, the chief economist at the respected International Energy Agency (IEA) in Paris, which is charged with the task of assessing future energy supplies by OECD countries.

In an interview with The Independent, Dr Birol said that the public and many governments appeared to be oblivious to the fact that the oil on which modern civilisation depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.

But the first detailed assessment of more than 800 oil fields in the world, covering three quarters of global reserves, has found that most of the biggest fields have already peaked and that the rate of decline in oil production is now running at nearly twice the pace as calculated just two years ago. On top of this, there is a problem of chronic under-investment by oil-producing countries, a feature that is set to result in an "oil crunch" within the next five years which will jeopardise any hope of a recovery from the present global economic recession, he said.

In a stark warning to Britain and the other Western powers, Dr Birol said that the market power of the very few oil-producing countries that hold substantial reserves of oil – mostly in the Middle East – would increase rapidly as the oil crisis begins to grip after 2010.

"One day we will run out of oil, it is not today or tomorrow, but one day we will run out of oil and we have to leave oil before oil leaves us, and we have to prepare ourselves for that day," Dr Birol said. "The earlier we start, the better, because all of our economic and social system is based on oil, so to change from that will take a lot of time and a lot of money and we should take this issue very seriously," he said.

"The market power of the very few oil-producing countries, mainly in the Middle East, will increase very quickly. They already have about 40 per cent share of the oil market and this will increase much more strongly in the future," he said.

There is now a real risk of a crunch in the oil supply after next year when demand picks up because not enough is being done to build up new supplies of oil to compensate for the rapid decline in existing fields.

The IEA estimates that the decline in oil production in existing fields is now running at 6.7 per cent a year compared to the 3.7 per cent decline it had estimated in 2007, which it now acknowledges to be wrong.

"If we see a tightness of the markets, people in the street will see it in terms of higher prices, much higher than we see now. It will have an impact on the economy, definitely, especially if we see this tightness in the markets in the next few years," Dr Birol said.

"It will be especially important because the global economy will still be very fragile, very vulnerable. Many people think there will be a recovery in a few years' time but it will be a slow recovery and a fragile recovery and we will have the risk that the recovery will be strangled with higher oil prices," he told The Independent.

In its first-ever assessment of the world's major oil fields, the IEA concluded that the global energy system was at a crossroads and that consumption of oil was "patently unsustainable", with expected demand far outstripping supply.

Oil production has already peaked in non-Opec countries and the era of cheap oil has come to an end, it warned.

In most fields, oil production has now peaked, which means that other sources of supply have to be found to meet existing demand.

Even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it is to keep up with the expected increase in demand between now and 2030, Dr Birol said.

"It's a big challenge in terms of the geology, in terms of the investment and in terms of the geopolitics. So this is a big risk and it's mainly because of the rates of the declining oil fields," he said.

"Many governments now are more and more aware that at least the day of cheap and easy oil is over... [however] I'm not very optimistic about governments being aware of the difficulties we may face in the oil supply," he said.

Environmentalists fear that as supplies of conventional oil run out, governments will be forced to exploit even dirtier alternatives, such as the massive reserves of tar sands in Alberta, Canada, which would be immensely damaging to the environment because of the amount of energy needed to recover a barrel of tar-sand oil compared to the energy needed to collect the same amount of crude oil.

"Just because oil is running out faster than we have collectively assumed, does not mean the pressure is off on climate change," said Jeremy Leggett, a former oil-industry consultant and now a green entrepreneur with Solar Century.

"Shell and others want to turn to tar, and extract oil from coal. But these are very carbon-intensive processes, and will deepen the climate problem," Dr Leggett said.

"What we need to do is accelerate the mobilisation of renewables, energy efficiency and alternative transport.

"We have to do this for global warming reasons anyway, but the imminent energy crisis redoubles the imperative," he said.

Oil: An unclear future

*Why is oil so important as an energy source?

Crude oil has been critical for economic development and the smooth functioning of almost every aspect of society. Agriculture and food production is heavily dependent on oil for fuel and fertilisers. In the US, for instance, it takes the direct and indirect use of about six barrels of oil to raise one beef steer. It is the basis of most transport systems. Oil is also crucial to the drugs and chemicals industries and is a strategic asset for the military.

*How are oil reserves estimated?

The amount of oil recoverable is always going to be an assessment subject to the vagaries of economics – which determines the price of the oil and whether it is worth the costs of pumping it out –and technology, which determines how easy it is to discover and recover. Probable reserves have a better than 50 per cent chance of getting oil out. Possible reserves have less than 50 per cent chance.

*Why is there such disagreement over oil reserves?

All numbers tend to be informed estimates. Different experts make different assumptions so it is under- standable that they can come to different conclusions. Some countries see the size of their oilfields as a national security issue and do not want to provide accurate information. Another problem concerns how fast oil production is declining in fields that are past their peak production. The rate of decline can vary from field to field and this affects calculations on the size of the reserves. A further factor is the expected size of future demand for oil.

*What is "peak oil" and when will it be reached?

This is the point when the maximum rate at which oil is extracted reaches a peak because of technical and geological constraints, with global production going into decline from then on. The UK Government, along with many other governments, has believed that peak oil will not occur until well into the 21st Century, at least not until after 2030. The International Energy Agency believes peak oil will come perhaps by 2020. But it also believes that we are heading for an even earlier "oil crunch" because demand after 2010 is likely to exceed dwindling supplies.

*With global warming, why should we be worried about peak oil?

There are large reserves of non-conventional oil, such as the tar sands of Canada. But this oil is dirty and will produce vast amounts of carbon dioxide which will make a nonsense of any climate change agreement. Another problem concerns how fast oil production is declining in fields that are past their peak production. The rate of decline can vary from field to field and this affects calculations on the size of the reserves. If we are not adequately prepared for peak oil, global warming could become far worse than expected.

Steve Connor, Science Editor

From Seekingalpha.com

Welcome to the New Normal

by John Mauldin September 27, 2009

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Unemployment is high and rising. But if the recession is over, won't employment start to rise? The quick answer is no. We look deeper into the Statistical Recovery and find yet more reasons to be concerned about near-term deflation.

This week we consider all things unemployment and ponder the need to create at least 15 million jobs in the next five years to return to a full-employment economy - and the implications for both the US and world economies if we don't. Economic is often about what we can clearly see, and yet it is understanding what we can't see that gives us true insight. We start with a collection of facts that we can see and then begin a thought exercise to find the implications.

Thoughts from the Frontline Weekly Newsletter

Europe on the Brink

by John Mauldin July 17, 2009

We have avoided Armageddon, at least for now. The cost to the US taxpayer has been a few trillion. Some in the media are loudly announcing the end of the recession. But we are not out of the woods yet. There are a few more bumps in the road. Actually, some of them are quite steep hills. As big as the subprime problem? Maybe.

When asked a few weeks ago what was my biggest short-term concern, I quickly replied, "European banks have the potential to create significant risk for the entire worldwide system." This week we will glance "over the pond" to see what gives me cause for concern. Then we briefly look at a few of the bumps I mentioned, which are likely to stretch out any recovery, and maybe even dip us back into recession.

But first, a quick announcement. We are making dramatic changes to my free Accredited Investor E-Letter and service, and will have a new web site and much improved content in a month or so. But in the meantime, I have just finished a new letter; and if you sign up at the current site, you will of course get all the new services and benefits when we make the changes, as well as this new letter. Basically, this service is for accredited investors (net worth of $1.5 million or more) who are interested in learning more about and investing in alternative funds like hedge funds, commodity funds, and so on. You will get a call from one of my worldwide partners (Altegris Investments in the US, Absolute Return Partners in Europe, Nicola Asset Management in Canada, Plexus Asset Management in Africa, and Fynn Capital in Latin America) and gain access to a lot of information and an easy way to preview what I think is a great line-up of quality funds and managers. You can go to www.accreditedinvestor.ws and sign up today. Don't procrastinate!

And for those of you in the US who are on your way to becoming accredited investors (but not there yet), my friends at CMG have a platform of alternative managers that can be tailored to your specific needs. You really owe it to yourself to see the managers on their platform. The link to their form is http://www.cmgfunds.net/public/mauldin_questionnaire.asp. And now, let's jump into the letter.

Europe on the Brink

Globalization is a two-edged sword. On balance, it has brought prosperity to those who have embraced it, with rising lifestyles, better health, longer lives, and more. The more we need each other, the less likely it is that we'll shoot each other. Shooting your customers is not a good business strategy. And while the growth has not been even or smooth, only a Luddite would want to return to the early 1800s or 1900s, or even 1975.

The other edge of that sword? We are connected in so very many ways, far more than most of the world suspected. Who thought that insane lending policies at US mortgage banks would bring the world financial system to its knees, increasing unemployment and leading to a global recession? World trade is down 20% or more. US railroad shipments are down more than 20% year-over-year. Chinese (and Asian) factories have seen their orders drop, as US consumers have gone on strike. The US trade deficit was just $25 billion last month; and while our exports are still dropping, our imports are dropping more. Oil is becoming a bigger and bigger share of imports, and that does not come from Asian exporters.

The US is far and away the country with the largest gross domestic product (GDP). California would be the 7th largest country, but few think of California in such terms. For this letter, at least, I would like to think of Europe as a whole rather than as 27 countries. From that perspective, Europe is as economically important to the world as the US. What happens in Europe makes a difference in the US.

Last week we looked at the precarious position of Japan, the second largest economy (or third if you think of Europe as a whole). It was a sobering letter. When you realize the extent to which Japan has funded Asian expansion, what is happening there cannot be good for the world.

But Europe's banks have been much more aggressive in funding emerging-market expansion than US or Japanese banks. Western European banks have lent $4.5 trillion to various emerging-market countries, businesses, and consumers. Many Eastern European businesses borrowed in low-interest-rate euros. New homeowners in Hungary and the rest of Eastern Europe borrowed in Swiss francs and euros, and as their currencies have collapsed they now find they owe more on their homes than they're worth.

And here's the problem. Europe's banking system is in far worse shape than the US system. The losses may be bigger, and their capital to meet those losses is certainly less. Let's look at some charts. Remove sharp objects or pour another adult beverage.

As I noted last week, one of the real benefits of writing this letter is that I get to see a lot of really interesting information from readers and meet with very savvy investment professionals. I recently had the privilege of sitting with a team of analysts from Hayman Capital here in Dallas. Hayman runs a global macro hedge fund, so they spend a lot of time thinking about how all the different aspects of the global markets fit together. This week we again look at some of their analysis. There was a lot of work (as in months) done here; and Kyle Bass, the founder of the firm, graciously allowed me to share some of it with you (and kudos to Wes Swank, who pulled this together). The graphs are theirs, and my discussion about them is certainly informed by our meeting; but I am using the material as a launching point, so they are not responsible for my conclusions and interpretations.

And Then There Was Leverage

In the first few years of the G.W. Bush administration, the banking authorities decided it would be OK to allow five banks to increase their leverage from 12:1 up to 30:1. Which five banks, you ask? Bear Stearns, Lehman, Merrill Lynch, JPMorgan, and Goldman Sachs. How did that work out, just five years later? Three are gone and two survived with large dollops of taxpayer money.

(Sidebar: Is it really any surprise that Goldman and JPMorgan are making record profits on the underwriting and trading side of the business? Hell, if I could eliminate 50% of my competition, my profits would grow too! JPMorgan's consumer credit, credit card, and other business groups are losing money big-time.)

Thirty times leverage means that if you lose 3.3%, you wipe out all your capital. And we watched as banks too big to fail were bailed out with taxpayer dollars. Slowly, banks are buying time, writing down assets. Remember, this month is the second anniversary of the onset of the credit crisis. I wrote back then that the strategy would be to stretch this out as long as possible. Time heals a lot of bad debts, especially at a 0% Fed Funds rate.

Banks that are reporting so far this quarter seem to be saying that the write-offs will start to level off in about two quarters, although banking expert Chris Whalen says that the level may stay higher than we think for longer than we think. There are a lot of assets to write off, and they are just now getting to the commercial real estate problems. This is going to take time. (For an interesting interview on CNBC with Maine fishing buddy Chris Whalen, click here: http://www.ritholtz.com/blog/2009/07/christopher-whalen-banking/.)

The point, before we get to Europe, is that here there was a central bank and a government that not only could step in but was willing to. I know former Treasury Secretary Paulson had his critics, but I am not one of them. Did he do some things that in hindsight he might like to take a "mulligan" on? Sure. But he dealt with the problems in the best manner he could. The time to have taken action was when we were making liar and no-doc loans and calling then AAA, or allowing banks to go to 30:1 leverage. Paulson had to deal with eggs that were already broken. That the system did not crater is to his credit. Securitizing what he and everyone else should have known would be garbage while he was head of Goldman Sachs is not to his credit. But I digress.

I am going to give you four charts showing the leverage of banks in the US, the United Kingdom, the Eurozone, and Switzerland. The bottom, blue portion is assets to common and preferred stock; the red is assets to common equity, which can include good will; and the purple is assets to tangible common equity.

Tangible common equity is all the rage, and that is what the recent "stress tests" measured, as opposed to tier 1 capital, which includes preferred stock (which would basically be the blue portion.) TCE only includes common shares. Now, let's start with the US. These graphs show leverage. The average leverage of tier 1 capital of the five largest banks is in the range of 12:1, and is actually down from ten years ago. (By the way, a very good and simple explanation of all this can be found at http://baselinescenario.com/2009/02/24/tangible-common-equity-for-beginners/.)

While the TCE has obviously been rising and taking total leverage to rather lofty levels in the mid-40s, banks are raising capital, and over time leverage will come back down. It helps if you can borrow money at almost nothing and lend it out at much higher rates. Now, let's turn to the United Kingdom. This is uglier.

Regulators in the UK allowed 20:1 leverage on a regular basis. It is now almost 40: and with TCE is around 55. The assets of UK banks are about five times as large as UK GDP. By comparison, for the US the ratio is barely 2:1.

Think about that for a second. The UK has banking assets which are five times as large as the annual domestic output of the country. They also had a housing bubble. They have their own bailouts to deal with, which are massive and will potentially get much larger. But at least they have a central bank and government that can try to fix the problems.

But as the commercial says, "But wait, there's more!" Let's look at the Eurozone.

Leverage is now 35:1 and with TCE is almost 55. How did 35:1 work out for the US? Given the massive credit problems that Eurozone banks have with emerging markets (plus Spain's housing bubble, which is every bit as bad as that of the US), will this not end up in wailing and weeping?

Too Big To Save

And here's the real issue. They have no Paulson and Bernanke. Now some of my Austrian-economist friends will say, "Good, they should all be allowed to die;" but that is a very cavalier attitude when you start talking about actually increasing the unemployment rate to something like 20%. I agree that management should be changed (as well as the regulators: 35:1 to 1 - really? What were they thinking?) and shareholders wiped out, but I do not want the system to collapse. And this is a global risk, not just localized to Ireland or Spain or Austria. Sure, the pain might be worse in the local region, but we will all feel it.

The European Central Bank, at least as of now, cannot step in and start saving individual banks. How do you save a Spanish bank and not an Austrian bank? Austria's banks have made large loans to Eastern Europe, in euros and Swiss francs, and are going to have large losses, far more than 3%, which would wipe out their capital. But bank assets in Austria are 4 times GDP. What we have are banks that are too big to save for relatively small Austria. And for Italy, Spain, Greece, et al. More on this below. For now, let's turn our eyes to Switzerland.

Those Wild and Crazy Swiss

We think of Switzerland as a stodgy, by-the-numbers, clockwork type of banking country. I have done business with Swiss private bankers, and they are conservative. But somewhere, somehow, UBS and Credit Suisse ran up a little leverage. Before the crisis, they were over 40:1. And now they're nearly at a nosebleed-high 70!

As an aside, I was in Switzerland about two years ago, meeting with some very well-known Swiss, let's call them dignitaries. In a very off-the-record conversation, they told me UBS was technically bankrupt. As it turns out, there were a lot of banks around the world that were technically bankrupt.

Now, the next graph underscores the problem of "too big to save." Let's say the US will eventually pump $1 trillion into the banking system (in taxpayer losses). That is about 7% of US GDP. We may not like it, but it doesn't stop the game. US bank assets are only twice US GDP. Switzerland and Ireland are over 7 times, the UK is over 5, and the Eurozone is at 4 times. And so it goes.

Eurozone banks are already reeling from losses from US subprime-related problems. They are now getting ready to deal with even deeper losses from their own lending portfolios. If the losses were just 5% of the portfolio (an optimistic assumption), it would be 20% of Eurozone GDP. But each country is responsible for its own banks. While it is thought Germany will be able to handle its problems, the prognostication for Austria and Italy is not so sanguine. Italy is already running a massive deficit, and has no central bank to monetize its debt. The same goes for Portugal, Spain, Greece, and Ireland. 5% loan losses in Ireland would be 40% of GDP, the equivalent for my fellow US citizens of about $5 trillion. Where does Europe find a few trillion dollars?

I was writing in late 2006 that the subprime lending market would end in tears. And I think the European banking crisis that is on the horizon has the potential to be every bit as big a problem as subprime loans. The world depended on Europeans banks for much of the lending that allowed for growth and development. Like their counterparts in the US, they are going to have to reduce their loan portfolios. Deleveraging is not fun.

It takes time to build up a banking infrastructure that can raise the capital necessary to make and process loans. A lot of time. Europe is a big customer of the US and Asia. Their businesses are going to be hit hard by the lack of capital, which is of course no good for employment, etc. We are all connected. What happens in Rome no longer stays in Rome.

Let me reprint a graph from last week. Burn it into your mind. The world is going to need to find $5 trillion to finance government debt issuance. And we need to fund private business and consumer debt. Where is all this money going to come from? "If you lend me $5 trillion today, I will gladly repay you Tuesday."

A Positive Third Quarter?

Those who are calling for the end of the recession are shouting that the third quarter may be positive in terms of GDP. And that is possible. But only for statistical and not for fundamental reasons. For instance, lower imports are a net positive for GDP. But lower imports mean a weaker economy. Government spending adds to GDP. Normally, if the government spends too much, then we get inflation, which is subtracted from nominal GDP to give us real (after-inflation) GDP. But inflation is low and getting lower, so there is not going to be much to subtract from nominal GDP. Are government spending and massive deficits a sign of fundamental strength?

It is quite usual for there to be a positive quarter in the middle of a recession. Watch the fundamentals: industrial production, unemployment, capacity utilization, tax receipts, etc. When those turn up, or at least level off, the recession is over. Then we get to the long recovery.

Quick point. As I have noted, unemployment is at 9.5% and going to 11% and hopefully no higher. Average hours worked per week is at an all-time low. The number of people working part-time but wanting full-time work is another 7%! And that part-time number is rising very rapidly.

When the recovery actually does begin to manifest itself, and it eventually will as we find the New Normal, what do you think employers are going to do? Hire new workers? Or give their current employees more hours? The latter, of course. This is going to be a long, slow, painful, jobless recovery. Unemployment is going to remain stubbornly high.

And this Congress wants to raise taxes on small business. 75% of the "rich" are small businesses. How do you expand your business in California or New York, where taxes will be over 60% by the time you add in local taxes? We will talk about this next week; but as a preview, from an economic viewpoint, massively raising taxes in the middle of a recession is about as dumb as you can get. But it looks like we are headed there. Green shoots, my foot.

New York and Maine

I'll head to Maine in early August with youngest son Trey to fish with my friends and talk economics. Meanwhile, # 2 daughter Melissa will soon have to have her gall bladder removed. Amanda gets married next month. Two more grandchildren (in addition to the one I had last month) in the next five months. Watching #2 son struggle with a budding family, and getting fewer hours as even the health-care business slows down. UPS is giving #1 son fewer hours than he needs. Life is always interesting with seven kids.

I can remember really struggling as a young entrepreneur in my 20s and 30s. There were many nights I couldn't sleep as I worried about payroll or a bill coming due. No one gave me a course in basic business. I had to learn it "on –the –job," as they say. It wasn't always pretty. It was a struggle starting out in the '70s, but you got up every morning and did your best. It was not easy. And now, I watch my kids do the same thing. It is a struggle for them, too. It is a reminder how just lucky I am. I truly feel I am one of the most blessed of men.

Have a great week, and remember that the world will not come to an end. It is important to find the good in life and enjoy it, even in the midst of the fight. Somehow, we will all figure out how to Muddle Through together.