He was speaking in Washington at the end of the spring meetings of the World Bank and International Monetary Fund.

Meanwhile, G20 finance chiefs, who also met in Washington, pledged financial support to help new governments in the Middle East and North Africa.

Mr Zoellick said such support was vital.

“The crisis in the Middle East and North Africa underscores how we need to put the conclusions from our latest world development report into practice. The report highlighted the importance of citizen security, justice and jobs,” he said.

He also called for the World Bank to act quickly to support reforms in the region.

“Waiting for the situation to stabilise will mean lost opportunities. In revolutionary moments the status quo is not a winning hand.”

At the Washington meetings, turmoil in the Middle East, volatile oil prices and high unemployment were also discussed.

IMF chief Dominique Strauss-Kahn raised particular concerns about high levels of unemployment among young people.

“It’s probably too much to say that it’s a jobless recovery, but it’s certainly a recovery with not enough jobs,” he said.

“Especially because of youth unemployment… there is now a risk that this will be turned into a life sentence, and that there is a possibility of a lost generation,” he said.

Buried among yesterday’s headlines about Libya, oil, and the assertion that higher oil and gas prices don’t hurt the economy was a little noticed headline about Bridger Commercial Funding and how they were planning on scuttling the ship, so to speak, regarding commercial lending. On the surface this looks like a no-brainer. Sure, the market is weak, securitization is down, etc. Not so fast. If you dig into the second paragraph of the article, you find out WHY they’re getting out of the business – increased competition from megabanks. It gets better. The big Wall Street banks have decided that they are going to provide their own fuel for securitization of commercial loans by originating them themselves instead of relying on downstream providers. According to the Bloomberg article, roughly 20 to 25 players are now seeking regulatory approval to originate loans in the commercial space. This is a 25% increase from a year ago.

Amazingly all this action is happening even as demand for commercial loans remains tepid. Normally one would expect the general lack of demand for loans to drive players from the market as it is in the case of Bridger, not INTO the market as is the case of the 20-25 presently un-named institutions mentioned. Banks are only expected to securitize around $6.5 billion in commercial loans this year compared to $11.5 billion all of last year. Incidentally, this segment of the market peaked in 2007 with over $234 billion securitized. So why is everyone scrambling to get back into a market that is not even 10% of the size it was at its peak? Clearly there is either something amiss in the thinking of these institutions or else logic is once again failing.

Pump and Dump II?

We can clearly draw the conclusion that these arrogant drains on society have learned absolutely nothing from the past few years or we can draw the conclusion that they learned quite well and are back for another try at the excess leads to bailout game, opting to try to get in at the bottom and hoping the pump and dump works again. At this point I’m going to put an interesting spin on this to provide some food for thought. Back in 2006 when I first started blogging, I noted that the residential real estate bubble was nothing more than a property grab by the banks. The American people willingly gave themselves over to this by going in way over their heads on pretty much everything and losing a record amount of real estate in the process. The banks were dinged a bit in the form of credit card write-offs etc, but so what? They ran to Congress and told them the economy would collapse if they weren’t bailed out and Congress bought it hook, line, and sinker. Why not do it again? After all, America is apparently still hooked on shopping. Anywhere you look we continue to build more malls, shopping centers, and the like even while you can find empty commercial real estate almost anywhere you look. It is my opinion that at some point very soon, banks will own almost all of it. And we’ll have paid for it. All in the name of preserving the precious status quo because we were afraid of the day of reckoning.

Trade Deficits and ‘Prosperity’

Which brings us to the second point – the trade deficit. In reading the analysis of last month’s huge increase in the trade deficit to over $46 billion, the assertion was actually made that this is a good thing because the numbers indicate a healthy demand for imported goods. We still haven’t learned a thing. Of course, totally discounted in the report was the erosion of the dollar over the same period, which was notable. What also wasn’t noted was the effect of rapidly increasing energy prices on finished goods. Double that for increases in commodity prices in general. It is much the same as the situation with retail sales. Much emphasis is put on the headline numbers while little is done in the way of analyzing what the numbers actually mean or how they were derived.

Keynesian apologists love the big trade deficit because it indicates that the borrow- and-spend engine is getting revved up for another round. Maybe. Never do they look at the ability of the economy, particularly consumers, to support another round of excess. I wouldn’t go nearly as far as calling the consumer dead. The American consumer is like Sanka – good to the last drop, and will be around until it is absolutely impossible to remain. But we must wonder if consumer will be able to spend money at a rate that will cause another bubble to form with enough velocity and be of a large enough magnitude to keep the system afloat? More than likely, this endeavor will require additional rounds of QE by the Fed. Make no mistake about it – QE is now a permanent part of the discussion.

Similarly, Keynesian apologists also love the concomitant decline in the Dollar because it helps inflate things like asset prices (the ‘good’ inflation), thereby supporting the idea that somehow all of this is a good thing. They are breathing a sigh of relief because their precious status quo has seemingly returned. The fact that so many people are paying attention to the debt is something they find offensive and annoying. After all, debt hasn’t mattered before, why should we be worried about it now?

And so it would seem we are back to 2005 and it is déjà vu all over again. There are, however, some significant differences between now and then. In 2005, there was little awareness and discussion about America’s debt levels, which were already very significant. As recently as 2006, the US fiscal gap was around $65 trillion – already a massive number. Now, just four and a half years later, the gap is more than 3 times that – and growing rapidly. Many would argue it is already beyond help. States are coming to grips with their own insolvency, and austerity, while not specifically mentioned yet, is already on the table in most areas. Foreign creditors have backed away from buying additional US debt and have been diversifying for several years now. This gap in demand has been filled by the Fed, first covertly, and now, overtly in the form of quantitative easing. Direct monetization. The end game common to all fiat currencies has begun. Our world is clearly not the same one we left back in 2005.

Since 2005, we’ve had one global financial meltdown, an oil shock, the European mess, and are working on our second oil shock and a food shock simultaneously. While our thinking and desires for respite may be stuck in 2005, our world is well past that.

This month’s Centsible Investor, due out March 15th, will take a detailed look at the situation with global food stocks, the agricultural markets, and the fundamental drivers in these critical areas. We’ll also provide specifics about how to get exposure to these areas both in and out of your paper portfolio. For more information about the newsletter or to subscribe, click here. We’re currently running a special for a one-year subscription as well. Don’t miss it!

The flow of Libyan oil has so far fallen by 1m bpd. This may not sound much against global supply of 88m, but oil prices are determined by levels of spare capacity once supply tightens.

Beyond a certain point, the price spiral can kick in with explosive force until the economic damage crushes demand.

Libya’s conflict has already cut spare capacity by a third. Hopes for a quick solution are fading as the country succumbs to civil war along ancient lines of tribal cleavage. A raft of new projects planned for the Sirte Basin by mid-decade will be mothballed.

Chris Skrebowski, editor of Petroleum Review, said the long-denied oil crunch is starting to bite. “We cling to the comfort blanket that spare capacity exists, but it is mostly fictional, or inoperable. If you take 2m bpd off the figure, the whole dynamic of global oil supply changes,” he said.

A Wikileaks cable cited a Saudi geologist claiming that the kingdom’s reserves had been overstated by 40pc. A second cable questioned whether the Saudis “any longer have the power to drive prices down for a prolonged period”.

Some investors see trouble. They are buying oil options contracts for $150 and $200 a barrel with expiry dates late this year, either as a bet or as an insurance against Mid-East mayhem. Barclays Capital said the options “call skew” is more stretched now that it was during the 2008 spike.

The implication is that markets are less sure this time that the crisis will blow over quickly, perhaps because the events the last month amount a strategic rupture.

The entire political order of the Middle East has effectively disintegrated, risking of years upheaval in a region that provides 36pc of global oil supply and holds 61pc of proven reserves.

Mass protest by Bahrain’s Shi’ite majority against the ruling Sunni dynasty has been a rude awakening for investors who thought oil wealth would shield the Gulf against turmoil.

“We in the West have been listening to the wrong people,” said Mr Skrebowski. “We have not been talking to the young: we missed what was happening underneath.”

Bahrain sits at the epicentre of the world’s energy system. It is a hop to Saudi Arabia’s Eastern Province, home to an equally aggrieved Shi’ite population and the kingdom’s giant oil fields.

Bahrain’s Al Khalifa family has sought to defuse the island’s crisis since the original crack-down, when seven people died. Yet protesters have refused to drift away, digging in at the financial hub and staging rallies outside the interior ministry. Sectarian violence between Sunni and Shia has been escalating.

What happens on the tiny island is being watched with alarm across the Gulf. The “demonstration effect” has already led to Shia protests in the Saudi oil region. Saudi police have released a Shia cleric arrested last week for demanding a constitutional monarchy.

Yet the country’s Wahabi clerics also warned against “sedition” and violations of Islamic law, while the interior ministry said all rallies were banned and warned that police would use “all measures to prevent any attempt to disrupt public order.”

The threats aim to quash a “Day or Rage” planned by cyber-protesters for Friday, allegedy swollen to 17,000. A similar event in Syria was nipped in the bud by secret police.

The world’s economic fate now hangs on the success of Wahabi repression. Any sign that the Saudis are losing their grip risks an oil shock large enough to derail the global recovery.

Nobody knows where the “inflexion point” is. Bank of America says we are already in the danger zone since energy costs as a share of global GDP have reached 8.5pc, near historic peaks.

Deutsche Bank said the outcome differs depending on whether spikes are driven by booming demand or a supply crunch. It warns that a sudden jump to $150 will abort world recovery.

Former Fed chief Alan Greenspan said economists have been “bedevilled by over the years” trying to quantity the effect of oil shocks. “We don’t know fully where all the channels are. My view is that when oil prices get up to this area and start to move up even higher, you do have to start to worry.”

The behind-the-scenes move by Kuwait, the United Arab Emirates and Nigeria reflects growing unease among Opec members over the threat to the global economic recovery from crude’s runaway rise amid the worsening crisis in Libya.

US oil prices increased to their highest levels since September 2008 on Monday, trading at an intraday high of $106.95 a barrel, as Brent, the European benchmark, hit a session high of $118.50. Gold jumped to a fresh record of $1,444 an ounce.

Industry officials said the production increase, expected by early April, would – together with an earlier rise by Saudi Arabia – almost make up the shortfall in supply from falling Libyan crude exports.

They said that Kuwait, the UAE and Nigeria were to ramp up their production by as much as 300,000 barrels a day in coming weeks. Riyadh has raised its output by about 700,000 b/d. The surge in output is the result of both a policy decision that reduces the need for an emergency Opec meeting and oilfields coming back into production after maintenance.

Oil prices fell back on Tuesday as reports of the expected increase in output calmed worries about restrictions on output. Brent crude fell as much as $2.25 to $112.79, nearly $7 below its recent peak reached last month.

US crude, which closed above $105 on Monday, was down $1.36 at $104.08.

The International Energy Agency, the western countries’ oil watchdog, estimates Libya’s oil production has fallen by about 1m b/d, down two-thirds from a prevailing output level of 1.58m b/d before the start of the crisis three weeks ago.

In Libya, troops loyal to Muammer Gaddafi battled with rebel forces outside the Ras Lanuf oil terminal and launched a number of air strikes on Monday, continuing a counter-offensive to prevent the rebels’ advance west.

Traders voiced fears that the fighting was turning into a civil war.

“The oil markets are pricing in an extended Libyan shutdown of crude exports,” said Michael Wittner, head of oil research at Société Générale.

The Opec cartel, which controls 40 per cent of global oil supplies, is divided about the need to increase output.

While Saudi Arabia has responded quickly by pumping more oil and some members are now quietly following, others including Iran and Algeria oppose an increase and see no shortage of oil in the market.

“Opec is evaluating whether [it] needs to meet or not,” Qatar’s oil minister, Mohammed Saleh al-Sada, told reporters in Doha. The cartel has been debating in recent days whether to call an emergency meeting but has so far decided against it, officials said.Riyadh is pumping about 9.2m-9.3m b/d, after raising production by 700,000 b/d, according to a senior western oil official.

Other officials said Kuwait and the UAE were boosting output jointly by about 100,000-150,000 b/d in the next few weeks. Nigeria is set to add another 150,000-200,000 b/d in April with the return from maintenance of the Qua Iboe and Bonga oil fields, which produce high quality oil.

As the crisis in the Middle East has worsened, the latest exchange data show that traders are selling “short” the currency. The big US fiscal deficit and concerns about the effect of rising oil prices have been blamed by some for the dollar’s slide.

Figures from the Chicago Mercantile Exchange, which are often used as a proxy for hedge fund activity, showed that short dollar positions surged from 200,564 contracts in the week ending February 22 to 281,088 on March 1.

This meant that the value of bets against the dollar on the CME rose $11.5bn in the week to March 1 to $39bn, $3bn more than the previous record of $36bn in 2007.

In contrast, speculators have added to their euro holdings amid expectations that the European Central Bank will soon raise interest rates to head off rising inflation.

Jean-Claude Trichet, ECB president, said last week that “strong vigilance” was warranted, a phrase used throughout the bank’s 2005-08 rate-tightening cycle to pave the way for a rate increase at the next governing council meeting. That strengthened the market view in financial markets that the ECB could raise rates at its April meeting and the euro last week rose to a four-month high of $1.3997 against the dollar, taking its gains from a 16-week low of $1.2871 in January to nearly 9 per cent.

“Dollar bears have become a marauding horde,” said David Watt, analyst at RBC Capital Markets. Given the continued losses for the dollar this month, he said it was likely that investors had since added to their bets against the US currency, short of an “absolutely stunning” reversal in sentiment.

“We may be seeing a turn in the longer-term outlook for the dollar – for the worse,” said Kit Juckes, head of FX strategy at Société Générale. He said the US Federal Reserve was likely to react more dovishly to a supply-side inflationary shock caused by rising oil prices than other central banks.

The figures showed that speculators on the CME had raised the value of their bets that the euro would rise against the dollar to $8.8bn, the largest since January 2008, in the week to March 1.

The data confirm the sharp turnround in sentiment towards the single currency from speculative investors, who as recently as January were betting on losses for the single currency on worries over the eurozone sovereign debt crisis.

Analysts said the prospect of ECB monetary tightening was outweighing investors’ concerns over the eurozone’s fiscal problems.

Indeed, since March 1, it is likely that speculators added to their long euro positions. Beat Siegenthaler, forex strategist at UBS, said further gains for the euro against the dollar were likely given that other investors, such as pension funds and asset managers, had not yet joined short-term, leveraged investors such as hedge funds in adjusting their bets against the single currency.

“Clearly some asset managers, presumably the more speculative in orientation, joined hedge funds in putting on long euro exposure, but on a longer view, asset managers remain significantly short and private clients have not even started to turn round their bearish euro positioning,” Mr Siegenthaler said.

He said an April interest rate rise from the ECB could therefore boost the single currency as these investors turned their positions round.

“For real money investors, the ECB decision could mean more euro buying over the medium term,” he said. “Longer-term positioning still looks short the euro.”

Beijing, which has converted much of a huge trade surplus with the United States over the past two decades into buying up US treasuries and other securities, held 26.1 percent of the total of $4.44 trillion held by foreigners, the Treasury said.

The figures came as the US government recalculated its data on foreign holdings of US securities from June 2010.

Chinese-held Treasuries have fallen since hitting a high of $1.18 trillion in October, under the revised figures. Japan remained by far the second largest holder of US government debt, with $882 billion in December, around $1.3 billion less than original estimates.

Britain was third at $272.1 billion.

Gasoline prices rose 4 percent last week to a national average of $3.29 per gallon. That’s the highest level ever for this time of year, when prices are typically low. And with unrest in the Middle East and North Africa lifting the price of oil to the $100-a-barrel range, analysts say pump prices are likely headed higher.

Bryon Gongaware, an owner of The Floral Trunk and Gifts in White Bear Lake, Minn., didn’t raise his $7 flower delivery charge when gas prices spiked in 2008, and he doesn’t plan to do so this time, either.

“I don’t think the economy is solid enough that you can be careless about raising prices,” he said, standing among the flower clippings on the floor of the shop he has run for 21 years.

That means the extra costs that come from driving the store’s delivery van 70,000 miles a year come from only one place: “right out of the bottom line,” he said.

For drivers such as Robert Wagner, 51, a high school teacher from Thornton, Colo., the higher fuel costs mean cutting back on movies and dinners out for him, his wife and their two children. “We’re very, very frugal right now,” he said as he trickled enough $3.09-per-gallon gasoline into his Chevrolet Suburban to get him to his next pay day.

Analysts and economists worry that by lowering profits for businesses and reducing disposable income for drivers, high gasoline prices could slow the recovering economy.

Over a year, analysts estimate, oil at $100 a barrel would reduce U.S. economic growth by 0.2 or 0.3 of a percentage point. Rather than grow an estimated 3.7 percent this year, the economy would expand 3.4 percent or 3.5 percent. That would likely mean less hiring and higher unemployment.

Americans are less prepared to absorb the spike in gasoline prices than they were the last time prices rose this high, in 2008, because unemployment is higher and real estate values are lower, says David Portalatin, an analyst for the market research firm NPD Group.

It has been four months since gasoline rose beyond $3 per gallon. During that time, drivers have spent $14 billion more on gasoline than they did a year ago, Portalatin says.

Diane Swonk, chief economist at Mesirow Financial in Chicago, says this year’s cut in payroll taxes offers consumers a buffer against higher fuel prices. Still, she expects all but the wealthiest Americans to cut back on discretionary spending. And the longer prices stay high, the more damage they do.

Gasoline prices rose throughout last fall as the developing nations of Asia and the recovering economies of the West began using more oil.

In recent weeks, upheaval in the Middle East and North Africa stoked fears that oil supplies would be disrupted, and oil prices exceeded $100 per barrel for only the second time in history.

Much of the most dramatic unrest took place in countries that are not big producers of oil. But when Libya plunged into chaos, there were disruptions in shipments of its high-quality crude, which is well-suited to making gasoline. That sent refiners scrambling to find other sources of high-quality oil. Gasoline prices rose further.

Gasoline prices typically fall in the winter and rise in the spring as refiners switch to more expensive summer blends of gasoline. Since 2000, prices in May have been 52 cents per gallon on average higher than in February, according to the Energy Information Administration.

Tom Kloza, chief oil analyst at the Oil Price Information Service, believes that the normal seasonal rise in prices has been pulled ahead by events in the Middle East, but he still expects prices to rise further. He predicts prices will reach $3.50 to $3.75 per gallon, barring more chaos in the Middle East.

“When we get over $3.75 we are looking at very serious consequences for the economy,” he says.

For every 25-cent increase in the price of gasoline, the nation spends an extra $3 billion filling up its cars and trucks, Kloza says.

For Jay Ricker, who owns 51 convenience stores in Indiana that sell gasoline under BP and Marathon brands, that’s less money for the “affordable luxuries” he offers — cappuccinos and candy bars that people enjoy, but can do without. “I hate these high prices,” he says. “People don’t want to come in and buy something I make money off.”

Drivers often get angry when gasoline prices spike for reasons that aren’t apparent, such as refinery problems or overseas demand for oil.

This time, though, the dramatic news reports from the Middle East are making customers more understanding, says Scott Hartman, CEO of Rutter’s Farm Stores, which owns 56 convenience stores and gas stations near Harrisburg, York and Lancaster, Pa.

“Whenever you see chaos in the Middle East, people expect higher prices, and this has been more widespread than most of us have seen in our lifetimes,” he says. “It’s quite clear our customers know what’s going on.”

That doesn’t mean they like it.

When asked about fuel prices at a RaceTrac service station in Dallas, Shaun DuFresne tapped the screen on the pump, showing he had just spent $90.14 for diesel — at $3.50 a gallon — to fill his 2006 Ford F-250 pickup truck. Then he said something unprintable.

Ambrose Evans-Pritchard – UK Telegraph

If you insist on joining the emerging market party at this stage of the agflation blow-off, avoid countries with an accelerating gap between rich and poor. Cairo’s EGX stock index has dropped 20pc in nine trading sessions.

Prime Minister Brian Cowen saw his own hold on power slip another notch, as his ruling Fianna Fail party lost a special election for a long-empty seat in parliament. The winner vowed to force Cowen from office before he can pass an emergency 2011 budget being demanded as part of the international rescue.

The New York-based Standard & Poor’s credit ratings agency said it was lowering Anglo Irish Bank six notches to a junk-bond B grade. It also cut the ratings on Bank of Ireland one notch to BBB+, and downgraded both Allied Irish Banks and Irish Life & Permanent one notch to BBB.

The agency said bonds issued by Anglo are particularly at risk of being discounted as part of an euro85 billion ($113 billion) rescue mission by the European Union and the International Monetary Fund. It says Ireland “may be forced to reconsider its current supportive stance toward Anglo’s unguaranteed debt.”

Junior bondholders at Anglo already have been forced to accept losses of 80 percent to 95 percent on their loans.

“People are already joking on Twitter that Anglo’s move is really an upgrade,” said Constantin Gurdgiev, finance lecturer at Trinity College Dublin, reflecting widespread surprise that S&P’s ratings on Irish banks had been so benign until now. “There really is a serious question as to whether Anglo Irish Bank should even have a banking license.”

Gurdgiev said it was inevitable that the emerging EU-IMF bailout would require even senior bondholders to take “a haircut” — lose part of their stake — on the money they could claim back on their loans to Ireland’s debt-crippled banks.

“It’s becoming clearer by the day there is really no other solution,” he said.

In the northwest county of Donegal, an Irish nationalist who has vowed to vote against Ireland’s austerity plans won a seat in parliament, cutting Cowen’s majority to just two seats.

Sinn Fein candidate Pearse Doherty said his dominant performance in a six-candidate field showed that people want to elect a new government that will force foreign banks, not Irish taxpayers, to bear the cost of Ireland’s enormous financial crisis.

Doherty had successfully sued the government over its 17-month refusal to permit an election in Donegal, given Cowen’s unpopularity and narrow hold on power.

Voters “are telling Brian Cowen to get out of office. It’s not clear that this budget will pass. It is completely unfair and unjust to attack the weakest and most vulnerable in this society,” Doherty said. “The government should suspend the budget, call a general election, and let the people have their say.”

Cowen is unveiling an emergency budget Dec. 7 that seeks to cut euro6 billion ($8 billion) from Ireland’s 2011 deficit. He and European officials say that budget must be passed to clear the way for the EU-IMF bailout loan for Ireland.

Ireland’s 2010 deficit is running at 32 percent of GDP, the highest in Europe since World War II. The country’s severe financial problems are rooted in its enormous bailout of Irish banks who gorged themselves on overpriced real estate.