Monday, October 13, 2008


It is probably too late for any international deal to help McCain become president, but international deals are still simmering. Indeed, the deal just made with North Korea is an important one. North Korea is no longer listed as a sponsor of terrorism and it is dismantling its nuclear bomb making facilities. North Korea had been a supplier to Syria and Iran.

Iran: the economy is suffering like few others. Shop keepers have closed doors in protest of new taxes. There are shortages of necessities. With each drop in the price of oil, the outlook gets worse. The government has lost its bargaining chips but it still wants to make a deal. In recent weeks the Iranian government has been in the position of the young fellow trying to buy a $30,000 new car for $15,000. He has heard that there are huge mark ups on new cars and he wants the best deal he can get, but no matter how many times he tries, he will not buy that new car for $15,000. He might have success at $22,000 or he might not but it does him no good to stick with his $15,000 offer. Iran has to make a move or it must continue to suffer.

In another sign that deals are simmering, Russia has backed away from selling sophisticated defense systems to Syria and Iran. Russia has no interest in seeing Iran or Syria become strong, nuclear armed, world powers. In the meantime, yet another of Iran's neighbors has struck deals for the peaceful development of nuclear power. Iran is spinning small quantities of nuclear fuel while its neighbors are buying many tons.

Iran and Iraq sat still for about 30 years. Iraq is now moving forward rapidly; it is about to let 20-year contracts for the development of several massive fields. Iran is going the same direction as Venezuela. Iran and Venezuela produce fewer barrels of oil each year because they do not have the expertise to develop rich resources. Unless there is a deal, the revenues or Iraq are going to soar past the revenues of Iran within a few years.

The world wide recession is hitting oil producers particularly hard. Countries that saw nirvana when oil was at $147 will be hit very hard by $60 prices. The effect is similar to the fellow who lost his $150 a day job and replaced it with a $60 a day job. His family has a lot of cutting back to do.

The difference is that Iran has incredible resources. It can make the deal to develop these resources if it wants. In the short run, it appears that the Iranian leadership is holding out to help prevent a republican "victory", but the pressure continues to build.

Iran's partners in crime are gradually going away. The deal with North Korea is one more deal that isolates Iran. There is even talk of peace negotiations between the Taliban and Afghanistan Government. The US is skeptical about the supposed break between the Taliban and Al Qaeda, but anything is possible in the Middle East. The Taliban has switched its allegiance many times before. The key change in Iraq was when Sunnis switched their allegiance from Al Qaeda. Al Qaeda's leaders are being pounded in Pakistan daily.

It would not take much for a couple of great victories in the war on terror. While we still cannot declare victory in Iraq, the battles with Iran, Lebanon, Syria, Afghanistan and Pakistan are all at least close to tipping points. There are 157 terrorist camps in Pakistan, but they are being hit from both directions and there are indications that some leaders are ready to sue for peace.

Deals are cooking. Ethanol plants are closing.

What if the Pony Express had been a government corporation? During its short life, the Pony Express reached the level of having 60 riders in the saddle at all times. They road day and night, through Indian territories. They rode without guns because each letter, written on very thin paper, collected a huge $5 fee (10 days pay). As telegraph wires were strung, the Pony Express quickly closed down routes. Had it been sponsored by the government, we would still have the Pony Express today.

Even with government subsidies and even with the average gallon of gas at $3.25, ethanol plants are going broke. Many are shutting down. Our government mandates the use of certain quantities so the stuff will be around for a long time. Same with windmills and solar panels. They will be around due to government subsidy and mandate. The good news is that the nonsense of government mandate has been at least crippled. For the first time in many years, nuclear power plants are being permitted. The invention of the telegraph continues to change the world (it is now wireless throughout Baltimore). The change to the world from the innovation of nuclear power is just underway. In 10 years, North Korea will be enjoying abundant supplies of low cost electricity and the price of a gallon of gas will be less than $1.50 (in today's dollars).