Libyan Rebels Close In on Capital; Qaddafi Blames Violence on �Hallucinogenic� Drugs and bin Laden; PIMCO Co-CEO Calls Oil Spike "Stagflationary"

Libyan Rebels control most of the oil coast and have moved within 30 miles of Tripoli. Oil prices have risen along with the violence and PIMCO Co-CEO Calls Oil Spike "Stagflationary".

The New York Times reports Qaddafi Strikes Back as Rebels Close In on Libyan Capital

Thousands of mercenary and irregular forces struck back at a tightening circle of rebellions around the capital, Tripoli, on Thursday, trying to fend off an uprising against the 40-year rule of Col. Muammar el-Qaddafi, who blamed the violence on �hallucinogenic� drugs and Osama bin Laden.

The fighting on Thursday centered on Zawiya, a gateway city to the capital, just 30 miles west of Tripoli, where government opponents had briefly claimed victory. Colonel Qaddafi�s forces � a mixture of special brigades and African mercenaries � fought back, blasting a mosque that had been used as a refuge by protesters, a witness told The Associated Press.

An exiled Libyan who had been in contact with members of the opposition in Zawiya said Colonel Qaddafi�s forces attacked beginning about 5 a.m., initiating a battle that lasted 4 hours. The rebel forces fought back with hunting rifles and about 100 were killed, he said.

Fighting intensified in other cities near Tripoli � Misurata, 130 miles to the east, and Sabratha, about 50 miles west. There were also reports that Zuara, 75 miles west of the capital, had fallen to anti-government militias.

To the east, at least half of the nation�s 1,000-mile Mediterranean coast, up to the port of Ra�s Lanuf, appeared to have fallen to opposition forces, a Guardian correspondent in the area reported.

Rebels Control Much of Oil-Rich East

Bloomberg reports Qaddafi Urges End to Violence as Foes Increase Control in East

Libya�s Muammar Qaddafi, who has lost control of much of the country�s oil-rich east, appealed to citizens to end violence as his forces stepped up a crackdown on opponents and more than 100 people were reportedly shot dead.

Qaddafi blamed the uprising against his 41-year rule on �drugged kids� and al-Qaeda, speaking by telephone on state television today for the first time since a Feb. 22 speech in which he vowed to fight �until his last drop of blood.� He said he regretted the deaths during the unrest.

In the east, Qaddafi�s opponents organized committees of civilians to run and defend their cities with the help of troops who deserted his forces. In Benghazi, the country�s second- largest city, anti-Qaddafi militias in front of the courthouse were collecting weapons from people who had seized them from army supplies, a local resident said by phone, declining to be identified due to concern over reprisals.

Anti-government protesters appeared to be in control of the entire eastern coastline, Al Jazeera reported today, as clashes between pro- and anti-government forces broke out in other cities, including Sabha in the southwest, and Sabhatha and Az- Zawiyah, both west of Tripoli.

Major General Suleiman Mahmoud, commander of the Libyan army in Tobruk, told Al Jazeera that his forces have deserted Qaddafi and are siding with local residents. �We are supporting the Libyan people,� he said in a phone interview with the channel. He said Tobruk was peaceful and that residents were organizing themselves.
Civil War

�The possibility of civil war only exists if Qaddafi stays,� Mohammed Ali Abdallah, deputy head of the National Front for the Salvation of Libya, the main exiled opposition group, said today.

Possibility of Civil War is 100%

I wonder what definition of "civil war" the deputy head of the National Front for the Salvation of Libya is using. That name alone implies a civil war movement, but more importantly what else can it be called with the military splits between pro and anti-government forces with rebels attacking the capital?

Clinton, El-Erian, Khelil Own Words on Libya, Oil Prices

Bloomberg has an interesting video on Libya and oil prices with Secretary of State Clinton, and PIMCO co-CEO Mohamed El-Erian.

Select El-Erian Points From Video

• Western world will not grow as rapidly as before
• Unemployment will be a persistent issue
• Social safety nets will be stretched
• On top of that we have headwinds of higher oil prices and higher geopolitical risk
• Commodity prices may overshoot on stockpiling, just as happened in 2008. That is the concern of a stagflationary headwind.

If one views inflation as a function of prices there may be merit to a stagflation argument. If one properly views inflation in terms of money supply and credit, the term is confusing, because it is about prices, regardless of cause.

Please remember the origin of the term came about in the 70's when the Keynesian theory at the time was that inflation and recession could not happen at the same time. Obviously it did, proving Keynesian theory belongs in the ashcan.

This is not 1970, and the ability and willingness of consumers to expand credit at this point in time is not the same, no matter how hard Bernanke tries.

However, we are in the midst of another oil price shock, compounded by peak oil and a rapidly overheating Chinese economy. Thus the idea of "headwinds" is very real, regardless of what "flation" label one chooses to use.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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