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Friday’s spike in the July contract for light crude on the New York Mercantile Exchange marks the largest single-day increase in oil prices on record. The contract hit an intraday record of $139.12, breaking the previous trading record of $135.09.

“The bulls are running rampant and the bears have panicked,” said oil industry analyst Stephen Schork, editor of the Schork Report. “It’s pure hysteria, absolute panic,” he added.

The rally highlighted concerns that retail gas prices, which have surged near a nationwide average of $4 a gallon, will continue to crimp consumer spending and fuel inflation.

Stocks fell more than 400 points Friday due to the rally in crude prices and a report from the Labor Department that showed the unemployment rate rose to 5.5% in May from 5% in April, the biggest monthly jump in more than two decades. The economy lost 49,000 jobs, marking the fifth straight month of job losses.

Meanwhile, the dollar continued its slide versus the euro on the weak jobs report and comments Thursday that the European Central Bank could potentially raise interest rates. The dollar also tanked versus the yen.

Concerns about instability in the Middle East flared after hawkish comments from Israeli Deputy Prime Minister, Shaul Mofaz, about possible attacks on Iran.

Also contributing to the surge: Morgan Stanley (MS, Fortune 500) analyst Ole Slorer released a report saying that he expected a “short-term spike in oil prices,” as high as $150 a barrel by July 4.

Softening dollar

The dollar began its slide Thursday after European Central Bank president Jean-Claude Trichet said the bank might raise interest rates, which would strengthening the value of the euro. If the euro gains, oil becomes cheaper, European investors buy more oil, raising the price of oil in U.S. dollars, according to Phil Flynn, senior market analyst at Alaron Trading.

The “European Central Bank pulled the rug out from under us,” said Flynn.

Trichet’s comments came the day after Federal Reserve Chairman Ben Bernanke said he wanted to try to support the dollar to bring energy prices into check. “The two central banks are out of step with each other,” he said.

Global demand, especially for gas and distillates in emerging markets, supported the record build in crude prices.

Consider the following: Since January 2007, global crude oil prices have risen by 109%; gasoline prices in the U.S. have risen by 77% (roughly apace); gasoline prices in China have risen only 9%.

Gasoline in the U.S. now sells for around $4 per gallon, but it sells for $2.49 per gallon in China. Beijing last raised domestic gasoline prices in November 2007, by 9%, and that was the first and only hike since January 2007, when crude was $87 per barrel. A recent rumor that China was about to lift its gasoline-price controls was quickly dismissed by Beijing.

China’s energy sector, regarded as “strategically vital,” is dominated by three giant state-owned enterprises. If Beijing wants anything in energy, it is control. But as China becomes more integrated into the global economy, global rules–not China’s rules–are increasingly intervening.

So here is where it gets really crazy. China National Offshore Oil Corporation, largely an exploration and development driller, sells its output at roughly the globally-set crude oil price to the state-owned refiners, primarily PetroChina and Sinopec. CNOOC’s earnings were up 56% in the first quarter of this year, in a global bull market for oil. No surprise.

Sinopec, conversely, with little drilling capability, buys crude at the global price and sells at the state-controlled retail price, taking a giant bath on every gallon of product they sell. During the first quarter of 2008, their earnings were down 81%. Ouch.

Then there is PetroChina, which has considerable domestic production but also must buy some oil at world prices and sell at the below-market state-set price. PetroChina’s earnings were down 56% in the first quarter.

Beijing will subsidize the domestic gasoline retailers, mostly Sinopec and PetroChina, about $40 billion this year for the price-cost squeeze just described. The oil bureaucrats in Beijing mean well, but what a tangle! How can global investors make any sense of this?

At some point, the domestic oil price in China must rise to the world price, but, at present, that would unacceptably lift inflation. So Beijing watches and waits with a price system that is not functioning. Beijing can afford this massive subsidy to China’s oil consumers with its current favorable budget situation.

The terms of the impending deal, details of which have been leaked to The Independent, are likely to have an explosive political effect in Iraq. Iraqi officials fear that the accord, under which US troops would occupy permanent bases, conduct military operations, arrest Iraqis and enjoy immunity from Iraqi law, will destabilise Iraq’s position in the Middle East and lay the basis for unending conflict in their country.

But the accord also threatens to provoke a political crisis in the US. President Bush wants to push it through by the end of next month so he can declare a military victory and claim his 2003 invasion has been vindicated. But by perpetuating the US presence in Iraq, the long-term settlement would undercut pledges by the Democratic presidential nominee, Barack Obama, to withdraw US troops if he is elected president in November.

The timing of the agreement would also boost the Republican candidate, John McCain, who has claimed the United States is on the verge of victory in Iraq – a victory that he says Mr Obama would throw away by a premature military withdrawal.

America currently has 151,000 troops in Iraq and, even after projected withdrawals next month, troop levels will stand at more than 142,000 – 10 000 more than when the military “surge” began in January 2007. Under the terms of the new treaty, the Americans would retain the long-term use of more than 50 bases in Iraq. American negotiators are also demanding immunity from Iraqi law for US troops and contractors, and a free hand to carry out arrests and conduct military activities in Iraq without consulting the Baghdad government.

Payrolls fell by 49,000 after a 28,000 drop in April, the Labor Department said today in Washington. The jobless rate increased by half a point to 5.5 percent, higher than every forecast in a Bloomberg News survey, partly because an influx of teenagers into the workforce exceeded jobs available.

The ratings were lowered two levels to AA, New York-based S&P said in a statement today. S&P said it would keep the ratings under review pending “clarification of ultimate potential losses as well as future business prospects, the outcome of strategic business decisions, and potential regulatory developments.”

Ambac, which pioneered municipal bond insurance in 1971, and MBIA, which followed three years later, are succumbing to a loss of confidence after straying into backing securities linked to subprime mortgages and home-equity loans that are now defaulting at record rates. The companies, which have raised $4.1 billion combined in the past six months to cover potential losses, said yesterday they were unlikely to meet demands for more capital.

“The rating agencies have been plain that capital ratios are a moving target, and with economic and spread conditions getting worse, these downgrades shouldn’t be a surprise,” said Matt Fabian, a managing director at Concord, Massachusetts-based researcher Municipal Market Advisors. “It’s the end of an era.”

Including gains in the previous floor session, that put oil more than $8 higher than at the middle of the week.

The dramatic reversal in what had been a weakening market came after ECB President Jean-Claude Trichet suggested the bank could raise interest rates and the euro climbed against the dollar. When interest rates rise in Europe, or fall in the U.S., the dollar tends to weaken against the euro. Many investors tend to buy commodities such as oil as a hedge against inflation when the dollar is falling.

Also, a weaker dollar makes oil less expensive to investors dealing in other currencies, and analysts believe the dollar’s protracted decline has been a major reason why oil prices have nearly doubled in the past year.

Meanwhile, the dollar held relatively steady against the yen, changing hands above ¥106 yen in Tokyo’s currency market. The euro was trading at levels near $1.56 after dropping back some from the day before.

Mr. Trichet spoke Thursday after the bank left a key interest rate unchanged amid concerns about inflation. While Mr. Trichet said a change in rates wasn’t a certainty, he said some of the bank’s governors favor an increase.

Light, sweet crude for July delivery rose $5.49 overnight — its biggest single-day price increase in the history of the New York Mercantile Exchange crude contract — to settle at $127.79 a barrel. Larger one-day percentage jumps have taken place in the past.

Late afternoon in Singapore, the contract was up $2.64 at $130.43 a barrel in electronic trading.

Earlier this week, Federal Reserve Chairman Ben Bernanke indicated that more interest rate cuts are unlikely in the U.S., sending the dollar higher and pushing oil prices lower.

On Wednesday night Contact Energy took its Otahuhu B gas-fired power station near Auckland offline to repair a fault, which may take four days. The 10-year-old station has a capacity of 400 megawatts.

National hydro lake storage is down to 53 per cent of average and is likely to fall further because Otahuhu is out of action. Low lake levels have driven wholesale electricity prices to record levels.

Big power company bosses are due to meet on Monday to decide if a public power savings campaign should start, possibly by the middle of the month. Without significant rain, it is possible “ripple control” hot water heating may be cut back by early July, sources said.

National’s energy spokesman Gerry Brownlee said Otahuhu’s failure should be the cue for Energy Minister David Parker to announce “the crisis measures he’s been trying so hard to avoid”.

The southern hydro lakes would be using water that would otherwise be held in reserve for winter.

The set the government doesn’t talk about is the audited financial statement produced by the government’s accountants following standard accounting rules. It reports a more ominous financial picture: a $760 billion deficit for 2005. If Social Security and Medicare were included — as the board that sets accounting rules is considering — the federal deficit would have been $3.5 trillion.

Congress has written its own accounting rules — which would be illegal for a corporation to use because they ignore important costs such as the growing expense of retirement benefits for civil servants and military personnel.

Last year, the audited statement produced by the accountants said the government ran a deficit equal to $6,700 for every American household. The number given to the public put the deficit at $2,800 per household.

A growing number of Congress members and accounting experts say it’s time for Congress to start using the audited financial statement when it makes budget decisions. They say accurate accounting would force Congress to show more restraint before approving popular measures to boost spending or cut taxes.

“We’re a bottom-line culture, and we’ve been hiding the bottom line from the American people,” says Rep. Jim Cooper, D-Tenn., a former investment banker. “It’s not fair to them, and it’s delusional on our part.”

The Australian Broadcasting Corporation’s “Planet Slayer” site invites young children to take a “greenhouse gas quiz”, asking them “how big a pig are you?”. At the end of the quiz, the pig explodes, and ABC tells children at “what age you should die at so you don’t use more than your fair share of Earth’s resources!”

If you follow the reasoning of the United Nation’s World Food Program, then Kenya is a unique region when it comes to hunger catastrophes. In this east African country, a popular vacation destination with 32 million inhabitants, UN workers hand out more food on an annual basis than they do in southern Sudan, which civil wars have ravaged for decades. But is Kenya really dying of hunger?

If that were the case, Africa’s prospects of ever being able to feed itself would look really dismal. Take a look at a map and you’ll see that Kenya lies on Lake Victoria. The lake got its name from its British “discoverer,” John Hanning Speke, who named it after the British queen at the time. It’s really much more like an ocean than a lake, despite a constantly sinking water level. This inland sea connects Tanzania and Uganda with Kenya. Covering an area of 68,000 square kilometers (26,250 square miles), it’s Africa’s largest lake. And it is full of freshwater.

For Kenya, the question — which also applies, incidentally, to Malawi, about which there are regular reports about hunger emergencies — is really this: Can you starve if you live right next to such a gigantic freshwater reservoir?

Sure, Kenya is large. It has savannahs, highlands, arid lands in the north, mountains and sultry regions, such as the 480-kilometer (300-mile) east coast on the Indian Ocean or the Kakamega rainforest in the west, which is a virtual greenhouse. If you got things only halfway right in such a country, it seems that nobody should go hungry — and especially if it is getting assistance from the philanthropists of the world community.

Whatever surplus is produced in the western part of this blessed country only needs to be to be delivered to the north and sold. That would give the farmers more incentive to produce more. And producing more means earning more, which in turn also means that more tax money would pour into the government’s coffers and could be used to make improvements to the country’s disastrous infrastructure.

What is going on in Africa ?

Of course, Kenya would be far from thrilled to take the money it brings in and put it into improvements in the road network. It was just recently that Kenya’s minister of finance, Amos Kimunya, announced that it was urgent for him to reduce infrastructure spending because otherwise he wouldn’t be able to pay the government cabinet. Kenya currently has 94 ministers and assistant ministers, each of whom earns more than $20,000 (€12,940) a month on top of having their own state-funded compound. As a result, Kenya’s budget now has a huge deficit of nearly $300 million, and it will soon have to announce to the international community that the world’s rich countries need to foot the bill. If they don’t, the Kenyans will starve and the peace that was so painfully won — primarily by creating this enormous cabinet — will be in imperiled.

The roads are in horrid disrepair, and they’ll stay that way for a while. As a result, it would take days or even weeks to get the corn from the west to the northern parts of the country. But why would they need it there anyway? There’s a shortage in the north because the World Food Program is usually there to hand out food for free. The UN’s employees are paid to fight hunger, and that’s why they usually write reports in which they dramatically portray the situation in Africa and which they usually end with appeals demanding more donated food.

These developmental aid workers, whose reports largely shape our image of Africa, behave this way to a certain extent out of an instinct for self-preservation that they believe the Africans don’t have. Without help, they say, all the Africans will starve. And, indeed, without aid, all the helpers would also be out of a job.

And what happens when the help comes? First the merchants complain because the cost of food drops through the floor. Nor is it worth it, under the status quo, to build up any surplus stocks. Then, the farmers complain because their crops become worthless. The people who cozy up with the aid workers are the ones following better advice. You can get everything for free there and you don’t even have to lift a finger.

Developing Food and Trade Isn’t Worth It

The aid workers are drawn to the arid lands, where the poor live and the help is urgently needed. Under normal circumstances, such areas don’t contain many starving people because they are thinly populated. In the Sahara, for example, hunger emergencies are comparatively insignificant. But in northern Kenya, and particularly in the region’s bordering desert land, such as the Sahel, they happen all the time.

And that’s why the aid workers dig wells there to provide the inhabitants with clean drinking water. Soon enough, there’s a downright crush around the well. Then, more and more cattle drivers and more and more nomadic shepherds bring their wards to the well. And these herds — and especially the goats — eat everything up. And, there, where you used to have someone coming by only rarely, a dusty little village shoots up, and then a little city. And, now, more and more aid workers are necessary to feed all the people who settle around the well and the feeding stations. Pretty soon, nothing can happen without aid. The area becomes hopelessly over-populated, and there is no way out of the dilemma in sight.

A Planned Economy — without a Plan

Development aid is a planned economy, even if it doesn’t have a plan. The belief that food shortages can be overcome in a planned economy is one that has already proved disastrously wrong in the former Soviet Union, North Korea and Cuba. One has to feel sorry for the Africans for their continued role as human guinea pigs.

Oscar Wilde once quipped that “Philanthropic people lose all sense of humanity.” It looks like he has been once again proven correct.

But one could now argue that the Africans have themselves to blame. They didn’t have to accept the aid. But that’s an insidious argument. The majority of African countries are bitterly poor. For example, even Mexico’s GDP is up to 50 times larger than that of oil-rich Sudan. And, of course, hardly any African is going to turn down any of the so generously offered donations. In the end, they put the money towards building football stadiums or beautiful boulevards that the military can parade down to celebrate the anniversaries of their seizure of power . And you can use it for limousines and to take trips to UN conferences, where you can mull over the world’s hunger problems with other heads of state.

The main reason that there is starvation in Africa is that there are no profits to be made in cultivating or trading foodstuffs. Either developmental aid ruins the profits or corrupt leaders rob their people blind. There’s hardly a country in Africa where private ownership rights are enforced; everything belongs to either the clan or the state.

And in the places in Africa where commercial agriculture has functioned — such as in Zimbabwe, South Africa and Namibia — the spread of white settlers has ruined it. Ironically enough, the land reforms in Namibia, a former German colony, were even financed with the money of Germany’s taxpayers. And it won’t be long before these countries are also on life support paid for by the rest of the world.

Dirty Politicians Cause Hunger

It’s a fairy tale that hunger is simply just part of life in Africa. The lion’s share of Africa is sparsely populated, and many countries enjoy a climate in which anything can thrive. There was even a long period when people believed that the biggest hunger problems would surface at some point in the densely populated Asian countries, such as China and India. In the meantime, however, those countries are now even producing surpluses. And the same holds true in the very densely populated countries of Europe, where there are often massive surpluses despite the fact that only around 3 percent of the population is involved in agriculture.

Where there is hunger, it results from unethical leaders who steal from their people and let them either starve or rush them into wars. Ethiopia’s former socialist leader Mengistu Haile Mariam did this, as did Robert Mugabe, his counterpart in Zimbabwe, whose protection Mariam would go on to enjoy while in exile. And this is also the case these days in Sudan, Chad or among the neolithic communists in Eritrea. But the rest of the continent would benefit much more if people would put a little faith in Africa’s power to heal itself instead of constantly bumping up the dose of harmful medicine.