At a Christmas party in Dallas last year, the conversation turned to the then most recent government data release, which included sales reports and revised the Gross Domestic Product. It was a strange discussion for a holiday get-together, and I added only one comment: The government’s continued insistence that our economy was in great shape, actually growing — and that the likelihood of a recession was simply out of the question — was not credible. One gentleman whirled to glare at me; furrowing his eyebrows, he pursed his lips and literally barked, "Oh? I think it’s VERY credible!"

His emotional response shocked me. My first impulse was to ask him if he’d actually read the entire series of reports, because the information they contained did not line up with the government’s one-page synopsis of the economic picture. Instead I simply rolled my eyes and let it go. Now, a year later, we know that whatever recession has hit the country was happening even as those sunny government "reports" were being released.

Similarly, the Organization for Economic Co-operation and Development recently released its long-term charts on oil consumption demand by the 20 industrialized nations; and guess what? Their data shows that oil demand destruction and a subsequent decline in the use of oil by the 20 major world players started in the first quarter of 2006. That’s right, oil demand for the 20 largest users of crude started declining not in the summer of 2008, but fully 2½ years earlier. That same chart also shows that oil demand literally fell off a cliff at the beginning of this year.

In a nutshell, oil supply and demand haven’t been a problem since 2005. Yet, all the time prices were heading toward $147 a barrel, experts continued to fill the media’s columns and screens with story after story explaining that oil demand was skyrocketing and supply was short — the day of cheap oil had come and gone.

Propaganda Works

I went back and reread my article, "Thank You, Bubble Boys." Published in the Star-Telegram in late March and reprinted in BusinessWeek online the first of April, the piece opened with these two quotes:

"They see speculation in the market, I see decline in global inventories. …I don’t think this is a big surprise, that we’ve had a jump in price when there has been a decrease in crude inventories." — Energy Secretary Sam Bodman, Bloomberg News, March 5, 2008

"It should be obvious to you all that the [gasoline] demand is outstripping supply, which causes prices to go up." — President G.W. Bush, Associated Press, March 5, 2008

The article’s point: While the president was saying that gas supply couldn’t meet demand, the Department of Energy’s own data was showing that we had a 16-year-record supply of gasoline on hand, the reverse of what was being sold to the public. Likewise, our Energy Secretary’s statement on oil inventories was in diametric opposition to the truth: OECD charts then showed crude inventories in the 20 largest industrialized nations at a 20-year high.

Platts, the world’s leading provider of energy information, published an article on December 8, 2008, covering oil analyst Philip Verleger’s position: Worldwide oil demand has fallen this year by an astonishing 5.2 million barrels a day, while new oil production has increased. Therefore, Verleger states, OPEC would have needed to cut oil production by 7.7 million barrels per day just to restore equilibrium to the market.

It wasn’t just our President and Secretary of Energy that were misleading the public about oil, either. Virtually a non-stop parade of so-called experts, quoted and appearing in newspapers, radio and television, painted the most dire picture possible for oil. And the blitz worked: No matter how often or strenuously I laid bare the facts in both local and national publications, most Americans were convinced that $4 gasoline was here to stay — assuming it didn’t climb to $6 – 10.

"Shut Up and Let Us Steal the Economy"

In no small part, that unwarranted energy price spike helped create the current economic crisis. At its peak, the inflated price of oil was stealing $2 billion a day from our economy, half of that directly via high consumer gas prices. The speculated high price for oil seriously increased our foreign trade deficit. Falsely inflated oil prices were one of the main reasons that our economy started falling, and they’re a primary reason why so many American families’ credit card debt soared.

Let’s put it another way. In just the first half of this year, what America lost from oil priced far beyond what supply and demand justified far exceeded the $50 billion that Bernard Madoff’s Ponzi scheme bilked from investors. (Worse, we now know that investment analysts looked at Madoff’s claims as far back as 1999 and realized that what he was selling was fraudulent. One actually gave his research to the Securities and Exchange Commission — which turned right around and gave Madoff’s operations a clean bill of health.)

Finally, anyone can find hundreds of stories on the known fraud involved in the financial statements of Freddie Mac and Fannie Mae’s mortgage operations, going back into the nineties — yet nothing was done. Lobbyists successfully stifled or prevented any legislation that would have brought their clients’ businesses back to prudent accounting.

"Chicken (Be)Littled"

The list is depressingly long. It's easy to find articles and professional analyses of the housing boom’s inherent risk going back to 2002. But the official word was always that the booming value of the nation’s housing market was the surest sign that our economy was strong and growing stronger. And the high price of oil "proved" that America’s and the world’s economy was unstoppable. Anyone who doubted that the economic fundamentals were as represented was told to look at the stock market, see how stupid they were being, and shut up.

Ignored were the warnings of Stephen Roach, at the time the head economist for Morgan Stanley. So were the charts released by the oil analysts at Lehman Brothers; who never bought into the prophecies of $200-a-barrel oil, but instead continued to show that oil was not scarce at all.

Edward Gramlich, the head of the Federal Reserve Board’s Committee on Consumer and Community Affairs, warned Alan Greenspan of the serious dangers of the nation’s push for mortgages for everyone, proper underwriting be damned. He was ignored not only by the Maestro but by the media. And, even with 1,500 pages of source notes to prove my assertions, I still got roundly bashed when I began to expose the facts in the oil market.

This brings up an important question. Why were some of the finest experts on these issues ignored or dismissed as gadflies? Had their expertise and their warnings been respected, the nation would not be facing any of our current economic crises.

A more important question hurts to even ask: Why did our government protect, promote and mislead to cover the malfeasance being committed in mortgages, oil and the financial sector? Looking back on it, "government" of both political parties has protected virtually everyone and every entity that got us into this mess.

The media could have done a better job to verify the underlying data — which was easy both to find and to comprehend — to prove or disprove what the government and so-called experts were telling the public.

Today individuals with local energy companies are asking me how I found out so long ago that the entire oil supply and demand crisis was not as portrayed. All I did was what was supposed to be done: I looked up the original source data.

A Gift Past Price

If I could choose one wish to be granted this New Year, I’d wish that the government would quit covering for people and companies that don’t have the nation’s or the economy’s best interests at heart. Seriously, it’s as if everything Washington releases these days is another Warren Commission Report: "Oswald did it" — unless you actually read the report. Then their conclusion isn’t nearly so clear.

Even now, the government says it is "not the time" to find the villains behind the economic issues the nation faces. That logic is the equivalent of the police not trying to find a murderer until your family has long forgotten the funeral and loss. Of course, politicians know that once the economy recovers, and in time it will, the emotions of the crisis will have passed. So will the public’s angry demand that those responsible somehow be punished. And, because no one will be held accountable, it will happen again.

After all, if there is one thing that we learn from history is that we don’t learn anything from history.

Having said all that, I am again thankful that I will be in Texas for the coming year. We will escape most of the issues the rest of the nation faces, because we didn’t fall for the financial foolishness as so many other states did. The old adage that Texas is last in and first out of any downturn seems still seems to be true. As this New Year begins, Texans have a blessing we can be thankful for.

© 2008 Ed Wallace

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, given by the Anderson School of Business at UCLA, and is a member of the American Historical Society. He reviews new cars every Friday morning at 7:15 on Fox Four’s Good Day, contributes articles to BusinessWeek Online and hosts the talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF. E-mail: wheels570@sbcglobal.net

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