While much of the run-up in the price of oil is driven by tightening supply and growing demand, especially in the developing world, the entrance of new investors into the energy markets--from hedge funds to university endowments--has flooded the markets with money and caused the price of oil to diverge from fundamentals. 

"The bubble is superimposed on an upward trend in oil prices that has a strong foundation in reality," said Soros. 

Soros cautioned that regulation can have unintended consequences, such as pushing trading into even less transparent, unregulated markets. One way to control these markets: Increase margin requirements on future purchases, making them less attractive to speculators borrowing money to delve into the market.  

Soros also said that if institutions like pension funds cannot be convinced that they are acting as a herd, they could be disqualified from purchasing commodities.

But [Phil] Gramm's most cunning coup on behalf of his friends in the financial services industry—friends who gave him millions over his 24-year congressional career—came on December 15, 2000. It was an especially tense time in Washington. Only two days earlier, the Supreme Court had issued its decision on Bush v. Gore. President Bill Clinton and the Republican-controlled Congress were locked in a budget showdown. It was the perfect moment for a wily senator to game the system. As Congress and the White House were hurriedly hammering out a $384-billion omnibus spending bill, Gramm slipped in a 262-page measure called the Commodity Futures Modernization Act. Written with the help of financial industry lobbyists and cosponsored by Senator Richard Lugar (R-Ind.), the chairman of the agriculture committee, the measure had been considered dead—even by Gramm. Few lawmakers had either the opportunity or inclination to read the version of the bill Gramm inserted. "Nobody in either chamber had any knowledge of what was going on or what was in it," says a congressional aide familiar with the bill's history. 

It's not exactly like Gramm hid his handiwork—far from it. The balding and bespectacled Texan strode onto the Senate floor to hail the act's inclusion into the must-pass budget package. But only an expert, or a lobbyist, could have followed what Gramm was saying. The act, he declared, would ensure that neither the sec nor the Commodity Futures Trading Commission (cftc) got into the business of regulating newfangled financial products called swaps—and would thus "protect financial institutions from overregulation" and "position our financial services industries to be world leaders into the new century."  . . .  

For starters, the legislation contained a provision—lobbied for by Enron, a generous contributor to Gramm—that exempted energy trading from regulatory oversight, allowing Enron to run rampant, wreck the California electricity market, and cost consumers billions before it collapsed. (For Gramm, Enron was a family affair. Eight years earlier, his wife, Wendy Gramm, as cftc chairwoman, had pushed through a rule excluding Enron's energy futures contracts from government oversight. Wendy later joined the Houston-based company's board, and in the following years her Enron salary and stock income brought between $915,000 and $1.8 million into the Gramm household.)

[T]the CFTC's latest actions do not go far enough and that the agency must fully regulate all trading of U.S. energy products and close foreign-based trading loopholes. 

"It is abundantly clear to me that the CFTC is not doing everything it can to protect American families and businesses from the possible oil price manipulation," Cantwell said, adding that if the commission does not do so on its, she will introduce legislation to force them to do so. 

Sen. Byron Dorgan noted that the CFTC's staff is roughly 10 percent smaller than a few years ago, while commodity trading has exploded.

Gramm's record as a reckless deregulator has not affected his rating as a Republican economic expert. Sen. John McCain has relied on him for policy advice, especially, according to the campaign, on housing matters. The two have been buddies ever since they served together in the House in the 1980s; in 1996, McCain chaired Gramm's flop of a presidential campaign. (Gramm spent $21 million and earned only 10 delegates during the GOP primaries.) In 2005, McCain told a Wall Street Journal columnist that Gramm was his economic guru. Two years later, Gramm wrote a piece for the Journal extolling McCain as a modern-day Abraham Lincoln, and he's hailed McCain's love of tax cuts and free trade. Media accounts have identified Gramm as a contender for the top slot at the Treasury Department if McCain reaches the White House. "If McCain gets in," frets Lynn Turner, a former chief sec accountant, "we'll have more of the same deregulatory mess. I like John McCain, but given what I know about Phil Gramm, I wouldn't vote for McCain."

The conclusion that we are in trouble is unavoidable. I report the assault on nature evidenced in coal mining that tears the tops off mountains and dumps them into rivers, sacrificing the health and lives of those in the river valleys to short-term profit, and I see a link between that process and the stock-market frenzy which scorns long-term investments — genuine savings — in favor of quick turnovers and speculative bubbles whose inevitable bursting leaves insiders with stuffed pockets and millions of small stockholders, pensioners, and employees out of work, out of luck, and out of hope. 

And then I see a connection between those disasters and the repeal of sixty-year-old banking and securities regulations designed during the Great Depression to prevent exactly that kind of human and economic damage. Who pushed for the removal of that firewall? An administration and Congress who are the political marionettes of the speculators, and who are well rewarded for their efforts with indispensable campaign contributions. Even honorable opponents of the practice get trapped in the web of an electoral system that effectively limits competition to those who can afford to spend millions in their run for office. Like it or not, candidates know that the largesse on which their political futures depend will last only as long as their votes are satisfactory to the sleek “bundlers” who turn the spigots of cash on and off.

George W. Bush's policies on the economy, other than on taxes, have been a failure, suggested John McCain's top economic policy adviser.  

Douglas Holtz-Eakin said the only similarity between McCain's economic plan and Bush's is a commitment to keep taxes low.  

``Sadly, it seems that is all President Bush understood in the economy,'' Holtz-Eakin said in an interview to be broadcast this weekend on Bloomberg Television's ``Conversations with Judy Woodruff.'' It is Barack Obama's budget plan, not Senator McCain's, that resembles Bush's policies, he said.  

``It's dedicated to the recent Bush tradition of spending money on everything,'' Holtz-Eakin said.  

This is the latest and most aggressive effort by the McCain campaign to distance the candidate from the unpopular policies of Bush. Illinois Senator Obama has charged that a McCain victory in November would amount to a third Bush term on economics.

John McCain hasn't offered any ideas to seriously address these issues. This isn't surprising. McCain is a free market fundamentalist. And his major economic adviser is former Senator Phil Gramm of Texas, who, while in the Senate, was the key architect of the deregulation of the financial services industry and a fervent opponent of the Community Reinvestment Act. Gramm is now the vice chairman of UBS, the Swiss investment banking giant, and would be a leading candidate to be Treasury Secretary in a McCain administration.

[U]nemployment . . . surged to 5.5 percent in May from 5 percent — the sharpest monthly spike in 22 years — as the economy lost 49,000 jobs, registering a fifth consecutive month of decline, the Labor Department reported Friday.

[H]ow did we show a loss of only 49,000 jobs? As long-time readers will guess, it is our old friend, the birth/death model, which is the estimate of new jobs created by new and small businesses, which are not covered in the survey.  . . .  

As the economy rolls through a recession, the system is overstating the number of jobs created. It is just a function of the model. The BLS is very open with the numbers it uses, if you care to dig into them. In October the BLS will announce new benchmarks and apply them in March 2009, although they will only be applied through March 2008. . . .

 For the record, "March was revised down by 7,000, and April by 8,000. We've now had four consecutive months of downward first revisions, and also four consecutive downward second revisions - unusual strings that support the picture of a weakening employment trend." (The Liscio Report)

And the birth/death model? This month it added in an estimated 217,000 new jobs. But looking into the details, the model suggested that 42,000 construction jobs were added. The survey showed lost jobs in construction, but the birth/death model added more construction jobs than were lost.   

Given the current economic climate, that is highly improbable. Ditto for the 77,000 in leisure and hospitality. Do we really think 9,000 jobs were added in financial services or another 9,000 in small manufacturing start-ups? 

The reality is that we probably saw a decrease in jobs of at least 100,000. The market was upset with 40,000. What will it do when the monthly number prints 100,000 later this year? And it likely will. The Federal Reserve projects that unemployment will rise to 6%. That means there are a lot more jobs to be lost. And that is if unemployment stops at 6%, which would be a very mild recession indeed.

 US Federal Reserve Chairman Ben Bernanke said rising long-term inflation expectations were a "significant concern" for policy-makers but dismissed worry a wage-price inflation spiral was developing. 

"Some indicators of longer-term inflation expectations have risen in recent months, which is a significant concern for the Federal Reserve," Bernanke told graduating students at Harvard University. "We will need to monitor that situation closely." 

He described overall inflation as "significantly higher than we would like," in the second straight day in which he sounded a warning on inflation, which financial markets took as a firm signal that interest rates were likely to be on hold for some time.

a small group of Pentagon officials who'd collected dubious intelligence on Iraq and Iran from Iranian exiles might have "been used as agents of a foreign intelligence service . . . to reach into and influence the highest levels of the U.S. government," a Senate Intelligence Committee report said Thursday.  . . .  

The revelation raises questions about whether Iran may have used a small cabal of officials in the Pentagon and in Vice President Dick Cheney's office to feed bogus intelligence on Iraq and Iran to senior policymakers in the Bush administration who were eager to oust the Iraqi dictator.  

Iran, which was a mortal enemy of Iraqi dictator Saddam Hussein and fought a bloody eight-year war with Iraq during his reign, has been the primary beneficiary of U.S. policy in Iraq, where Iranian-backed groups now run much of the government and the security forces.  

George Bush considered provoking a war with Saddam Hussein's regime by flying a United States spyplane over Iraq bearing UN colours, enticing the Iraqis to take a shot at it, according to a leaked memo of a meeting between the US President and Tony Blair.

The two leaders were worried by the lack of hard evidence that Saddam Hussein had broken UN resolutions, though privately they were convinced that he had. According to the memorandum, Mr Bush said: "The US was thinking of flying U2 reconnaissance aircraft with fighter cover over Iraq, painted in UN colours. If Saddam fired on them, he would be in breach."

He added: "It was also possible that a defector could be brought out who would give a public presentation about Saddam's WMD, and there was also a small possibility that Saddam would be assassinated." The memo damningly suggests the decision to invade Iraq had already been made when Mr Blair and the US President met in Washington on 31 January 2003 ­ when the British Government was still working on obtaining a second UN resolution to legitimise the conflict.

The leaders discussed the prospects for a second resolution, but Mr Bush said: "The US would put its full weight behind efforts to get another resolution and would 'twist arms' and 'even threaten'. But he had to say that if ultimately we failed, military action would follow anyway." He added that he had a date, 10 March, pencilled in for the start of military action. The war actually began on 20 March.

Mr Blair replied that he was "solidly with the President and ready to do whatever it took to disarm Saddam." But he also insisted that “a second Security Council resolution would provide an insurance policy against the unexpected, and international cover, including with the Arabs”.