LONDON, England – The G-8 summit is meeting once again, and it’s once again a reminder of how absurd the gathering is in the new world order.

We in the media slavishly follow and report on it, despite the fact that usually little if anything of substance is accomplished. It’s time to have a rethink of its relevance or how it could make itself relevant.

For starters, let’s acknowledge that the G-8 accounts for almost half the world’s economic output, but it is developing countries and emerging economies that account for 70 percent of the economic growth. China isn’t a a member of the G-8, but given its importance in the world economy it certainly should be, so should India and Brazil.

The G-8 will discuss climate change, and China is the world’s biggest emitter of carbon. It’s been invited to an outreach group at the summit to discuss climate change, but it should be at the center of the table.

High oil prices will also be high on the agenda. The United States, Canada, Russia, and Britain (all members of the G-8 produce 29 percent of the world’s oil. But the G-8 plus China consume two thirds of the world’s oil output.

Of course, the G-8 will express its concern, and possibly blame speculators for part of the reason for high prices. They’ll also undoubtedly ask OPEC to pump more oil. How convienent to look outside their own borders for solutions. Instead, they should be strongly urging conservation in their own countries and giving business massive incentives to come up with cleaner fuel supplies and cars.

Also, if you were going to have a serious discussion about oil prices, wouldn’t it make sense to have Saudi Arabia, the world’s biggest oil producer at the center of the table.

They’ll also acknowledge the need to do something about high food prices. But here are the facts thanks to economist Carl Weinberg of High Frequency Economics. The G-8 countries produce 41 percent of the world’s wheat, 58 percent if you add in China,and consume the most of it.

The G-8 produces 48 percent of the world’s corn, or 68 percent if China is included. As Weinberg points out, “You would think that the assembled majority of world suppliers and buyers of foodstuffs could cook up an answer to falling global grain inventories, which are already at the lowest levels seen in the 60 years that the USDA has produced estimates.

“You might think that the right places to start addressing global food shortages would be in the United States and Euroland - the world’s biggest producers of corn and wheat respectively - where farmers are offered subsidies not to plant crops. However, the U.S. and Euroland hold on to their agricultural support programs tenaciously. The Heads are unlikely even to consider tinkering with these entrenched systems,” Weinberg concludes. I couldn’t agree more.

So the G-8 will address the major issues affecting the global economy, but if it wanted to really be relevant it would take bold measures instead of making vacuous statements. But that would take political courage, something in short supply.

It would also expand membership in the club. The outcome might not be any different, but it would at least be more reflective of the new world order, and that alone might give the summit gathering more relevance.

Tell me what you think, should the G-8 be expanded, does it have any relevance, or do you agree with me that these summits are pretty much a waste of time, and that if they are going to become more relevant, they need to reflect the new world economic order?

Anyone who has listened to me doing commentary on CNN or read these blogs knows I am bearish, and have been for a long time. It’s been the right call, and I have no reason to feel any optimism now.

Stock markets which rallied sharply following the rescue of Bear Stearns in March, have stumbled badly again.

The belief that the worst of the credit crunch was over has been proven wrong. Banks continue to reel from their ill judged decisions, with predictions that the write downs from the sub-prime crisis could total $1.2 trillion, or about three times the current amount.

Oil prices as I write are now over $140 a barrel, and could rise as high as $170 a barrel in the coming months, according to Chakib Khelil, president of OPEC.

Add in high food prices and inflation has become a primary worry for investors.

The rise of inflation is a global phenomenon. Close to thrre billion consumers are now living with double digit rates of inflation, according to economist Joachim Fels of Morgan Stanley.

Fifty countries now have inflation running at more than 10 percent, accounting for 42 percent of the world’s population and including six of the world’s most populous countries.

How far central banks will go in terms of fighting inflation is unclear, but it’s a big worry for investors.

Rising inflation comes at time when worries over growth now have some talking about the possibility of stagflation in major countries like the United States. Hopes of a second half rebound in the U.S. have now faded.

It’s the worst of possible worlds for investors, and anyone who thinks the worst is over, better think again.

Tell me what you think.

LONDON, England – Never have so many come for so little. For many, the outcome of the Saudi oil gathering at Jeddah is a huge disappointment.The Saudis announced they would raise daily production by 200,000 barrels a day to 9.7 million barrels.

But let’s put this in perspective. It’s doesn’t even make up for the 300,000 barrels of lost production suffered by Royal Dutch Shell and Chevron in the past week due to militant attacks in Nigeria.

The Jeddah gathering had a huge build-up and came at a time when governments and consumers are feeling the double burden of record high oil prices and food prices. Some had hoped that Saudis would increase production by as much as 500,000 barrels a day.
The Saudis said they would expand production capacity, but that’s in the future, not now.

The world is crying out for more oil. World oil demand is expected to rise by 800,000 barrels a day, according to the International Energy Agency.

So where does this leave all of us? With high oil prices continuing. As I’ve written prveviously, don’t blame the speculators. What’s going on in the oil market right now isn’t a short-term problem but a structural shift, based on increased demand, and not enough production.

At close to $140 a barrel oil is trading at five times the average six years ago.

And there are predictions that it could even higher, possibly to $200 a barrels in less than two years.
Given the outcome of the Jeddah gathering, there’s no reason to think those assumptions aren’t corrrect.

The Saudis along with others attending the summit had to look like they are concerned. They touched on several issues surrounding the oil market, but with the exception of the Saudi production announcement, there’s no real outcome.

Given how little the summit produced, it probably would have been better for everyone to stay home, at least that would have saved some jet fuel.

Tell me what you think.

LONDON, England – Anytime you read an article or get an explanation about why oil prices are rising, soaring demand from China is always on the list.Now the Chinese government is taking some of the subsidy consumers enjoy by raising retail prices on gasoline and diesel by at least 17 percent. It’s the first rise in Chinese fuel prices in eight months. Oil prices fell nearly $5 a barrel on the news to just under $132 a barrel.

The market’s reaction underscores the idea that it isn’t speculators driving the price higher, but issues about fundamental demand. And the market thinks that the higher prices the Chinese will have to pay at the pump will lead to less demand.

But not everyone is buying the argument. Why? First of all, even though its a big hike, it may not be enough to discourage people from driving. Secondly, refiners who have to pay world prices for oil have been operating at losses because they haven’t been able to pass on the true cost. Refiners have cut production. Now, that prices are higher production could actually rise, helping to meet demand where they have been shortages and rationing.

Even with the price announcement, what the Chinese pay for their petrol is still way below market prices. One estimate said that China would have to raise fuel prices by 60 percent to come into line with international levels.

Of course, China isn’t the only country to subsidise fuel. Other nations, in Asia, the Middle East and parts of Latin America all help foot the fuel bill. These countries make up half the world’s population and their increased oil needs is what is pushing up prices. In places like the United States, Japan, and Europe, demand is is either flat or contracting.

If all those developing countries did away with subsidies, then that would probably would lead to less demand. But polticians know that would also likely lead to widespread social unrest, which has happened in some parts of the world. It would also mean less growth and higher inflation.

So even though the Chinese have raised prices, they are still way below market prices — and until that changes, and changes elsewhere, expect oil prices to remain high.

Tell me what you think — should the Chinese have raised prices more? Should governments do away with subsidies altogether? Looking foward to hearing your thoughts.

LONDON, England – If you think the price of oil can’t go any higher, you could be disappointed. On Monday, oil shot up towards a $140 a barrel, a record, before settling the day at $134 a barrel.

Even word that Saudi Arabia would increase production wasn’t enough to keep oil from ratcheting higher. And even though it ended well off its high of the day, we’re still above $130 a barrel, with predictions it could hit $150 by year end, and eventually move to $200 a barrel.

Saudi Arabia has called a meeting for June 22 to help stabilize prices. But will that really make any difference. Barring some dramatic announcement, I’m skeptical. I’m in the camp that believes what’s going on in the oil market isn’t just the result of a weak dollar, or speculation. It’s based on the belief that there is a structural shift going on, based on a need for increased oil as developing nations continue to grow their own economies, and not enough supply.

You can point the finger at speculators, as many do, but they aren’t the problem. They just follow trends, they don’t create them.

Even a CNN quickvote shows the public is skeptical that a production increase by the Saudis will ease prices. 43 percent said yes, 57 percent said No.

Oil producers have lost control over pricing. And while high prices are great for producers’ revenues, they always worry that if the price gets too high, it could lead to a sharp slowdown in the global economy, hurting demand, and causing a sharp fall in the price of oil.

I don’t think that’s a worry for the oil producers right now. The bigger worry is their inability to keep prices from rising, and the political pressures that brings. That’s what’s triggering the upcoming meeting, the Saudis have to appear like they are doing something.

The problem is, the market has moved beyond their ability to control it.

Tell me what you think.

LONDON, England – I want to ask a controversial question. What do you fear more, terrorism or a recession? Now before you think I’m insensitive or have gone off the deep end, let me explain how I came to ask this.

Which do you fear more: Terrorism or recession?

Terrorism

Recession

or see results

I was leaving the CNN building and outside, one of our camera crews had set up to do a live report. I asked the producer what the reporter would be talking about. “Terrorism,” she replied.

So I asked her, what do you fear more, terrorism or a recession? She gave me one of those looks which said, you can’t be serious Todd, suggesting that the one and only correct answer is terrorism.

But it’s not the only answer, and here’s why.

The cameraman said he actually feared a recession more. “What do you mean?” the producer asked, incredulously.

The cameraman said he figured his chance of being a victim of terrorism was pretty low, so he feared a recession more. And this is a guy who has seen death up close.

In no way am I downplaying a terrorist attack. Obviously when it happens, it has a devastating effect. We have seen the aftermath of 9/11, the Madrid bombings, the London bombings, and elsewhere.

The image of those planes flying into the World Trade Center in New York City, smoke billowing as people ran from the towering infernos, will forever be etched in our minds.

I can also remember feeling uneasy the first few days after the bombings in London in July of 2005, but then life regained its normalcy, its everyday rhythm.

Even in the immediate aftermath, I was struck by how many people went on with their daily lives, taking public transportation or standing and drinking outside pubs, refusing to give in to the fear that terrorists want to instill.

However, right now, I suspect if I asked many people what do you fear more, an act of terrorism or recession? Many would answer a recession.

I think for many of us, an act of terror is something we can’t control, because we don’t know when or where it will happen.

When it happens our hearts go out to the victims, and families, and we also feel angry and violated because innocent people die or are seriously injured and traumatized.

But as horrible as terrorism is, it could be argued that a recession affects many, many more people, millions who don’t lose their lives, but lose their jobs, their identities, homes, and possibly relationships also with devastating effect.

So is it any small wonder that the cameraman and others might fear a recession more than a terrorism attack?

As I said in the first sentence, it’s a controversial question, but in these times when there’s so much talk of recession, it’s a question I’m asking.

Tell me what you fear more, I’d like to know where you stand on the issue.

Obviously for the markets, it’s what the Fed chairman thinks. And while some on Wall Street say the worst is over, Ben Bernanake has a more sobering assessment.

He says it will take “some time” for financial institutions to work through the crisis, including raising capital and improving risk management.

Meanwhile, the Fed is doing some soul searching of its own.

A front page article in the Financial Times says the Fed is rethinking the way it deals with asset bubbles, including extra regulation.

The treasury has already proposed that the Fed have more authority to make financial institutions change behavior that is a risk to financial stability.

“Top officials are re-examining the Alan Greenspan doctrine that central banks should not try to tackle asset bubbles and should focus on mitigating the fallout when they burst,” the FT wrote.

“Any move by the Fed to focus more explicitly on asset prices rather than take into account their expected effect on growth and inflation would be a radical break. The Fed has long stood out among the central banks as the least willing to embrace the idea that it should ‘lean against the wind’ when asset prices are rising rapidly,” the FT added.

Greenspan believed it wasn’t possible to identity bubbles before they broke, and raising interest rates beforehand could be counterproductive.

Should the Fed raise interest rates higher than they would otherwise be to try and prick an asset bubble? Who determines that prices have gone beyond where they should be? Interesting questions.

But given this housing and credit bubble isn’t the first this decade — remember the dot.com bubble and its shattering aftermath — the idea of trying to do something preemptive is intriguing. Whether its practical is another matter. Tell me what you think!

LONDON, England – As many of you know, I’ve been extremely bearish on the economy and the fall out from the sub-prime crisis. The rescue of Bear Stearns in March dramatically improved sentiment. Had the Fed allowed Bear Stearns to fail, the financial fallout on the system could have been horrific. Its rescue led some on Wall Street to declare the worst was over in the sub-prime crisis.

Many still have their doubts. When I interviwed Alan Greenspan, former chairman of the U.S. federal reserve, he said he certainly wouldn’t say the worst is over.

And Warren Buffet thinks banks are going to feel the pain for a long time. Banks and securities firms have reported credit losses and asset writedowns of $323 billion since the start of 2007, and that figure will rise as the fallout from the sub-prime crisis continues to take its toll.

I’m not so concerned about a major bank failing. My concern is the impact on the real economy. House prices continue to fall in the United States, and the pace of decline has accelerated each month in the last 10 months.

Meanwhile, bankruptcy filings in April increased nearly 50 percent compared to a year ago has businesses feel the pain from a slower economy. Even more worrrying, banks continue to tighten lending standards.

According to ING: “There are only one or two periods when tightening standards have ever been tigher, and the pick up this quarter from last quarter, rather than looking like the last gasp of a failing trend, was actually an acceleration from the previous quarter.

“In other words, we would not be at all suprised if lending standards next quarter were substantially tighter, perhaps tighter than at any time since the data began to be compiled in 1990.

“Consequently, corporate default rates look likely to rise substantially from the very low rates we observe today,” ING adds.

Add to that tapped out consumers, and the worst doesn’t look over to me.

If you agree or disagree, let me know, I always like to hear from you, all your responses to my previous blogs have been fantastic. Keep it coming!

LONDON, England – If you think the price of crude oil can’t go any higher, think again. It could hit $150 to $200 a barrel. That’s not the prediction of some madman, but the prediction of analysts at Goldman Sachs, led by Arjun N. Murti.

Murti and his team have credibility. He’s the one who first wrote of a “super spike” in oil back in March of 2005. At that time he said oil could cost between $50 dollars and $105 a barrel through 2009.

Now they’ve upped the ante. “The possibility of $150-$200 per barrel seems increasingly likely over the next six to 24 months, though predicting the ultimate peak in oil prices as well as the remaining duration of the upcycle remains a major uncertainty.”

In short, supply is failing to keep pace with demand. “Non-OPEC supply is strugggling to grow with notable declines being seen in Mexico and Russia showing signs of rolling over following an extended period of rapid growth,” the Goldman Sach analysts pointed out.

While OPEC producers say spare capacity is low and there’s rising consumption in their own countries.

Another reason for higher prices is because major oil exporting countries are limiting foreign investments, hurting supply growth. At the same time, demand from developing countries is rising on the back of booming economies and power shortages, increasing demand for gasoil and fuel oil.

“The core of our super-spike view has been that a lack of adequate supply growth coupled with price insulated non-OECD demand growth” means higher prices, according to the Goldman Sachs analysis.

And if you’re looking for a scapegoat, its easy to blame the speculators for high oil prices, but that’s misguided according to the Goldman analysis. “Unfortunately, we do not think the energy crisis will be solved by finding and punishing the big bad speculator.”

As I write this, oil remains above $120 a barrel. Even looking out as far as 2016, the market is betting that oil will remain above $100 a barrel.

We all want cheaper goods made in developing countries, but that means higher oil consumption to manufacture them, and rising salaries in places like China mean more demand for cars and electricity.

So is it so far fetched to think that oil could hit $200 a barrel within two years? I don’t think so.

Something to think about the next time you’re waiting in you’re in your car in traffic, cursing the high price of petrol or your electricity bill, watching all those people riding past you on their bikes.