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Energy and Interest Rates

by coldwarrior ( 142 Comments › )
Filed under Economy, Open thread at January 14th, 2015 - 7:00 am

This article ties the the two together in a nice bow:

Government borrowing costs tumble

Government borrowing costs tumbled on Tuesday as the spectre of exceptionally low inflation, driven downwards by the collapse in oil prices, loomed over advanced world economies.

Yields on government bonds – which move inversely with prices – fell across Europe amid mounting scepticism about the ability of central banks to lift inflation in the face of crude oil’s sharp decline.

The falling yields also reflected a growing conviction among investors that central banks will delay still further any official interest rate hikes.

Yields on five-year UK Gilts fell below 1 per cent – their lowest level for more than a year – after official data showed UK annual inflation was just 0.5 per cent in December, a 15-year low. Meanwhile, German five-year yields have been hovering around zero since the start of the year.

US 30-year yields have also fallen closer to historic lows recently, although they edged higher on Tuesday. UK Gilts also rebounded later in the day.

The collapse in crude oil prices, which on Tuesday approached six-year lows, is proving a mixed blessing for central banks. While lower energy costs should stimulate economies, in continental Europe in particular they risk creating damaging deflation pressures — expectations of further general price falls that prompt consumers and businesses to shelve spending decisions, weakening growth.

“Bond markets are taking the view that central banks won’t be able to reverse the deflationary trend triggered by falling oil prices,” said Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment.

“It is all about central banks pushing inflation expectations higher,” said Joachim Fels, chief economist at Morgan Stanley “I think they have already lost a lot of credibility.”

In Japan, yields on five year government bonds also fell, touching zero for the first time. That decline highlighted the stranglehold the Bank of Japan enjoys on the bond market, with its aggressive quantitative easing or large scale asset purchase programme aimed at pushing Japanese inflation higher.

Buying by the BoJ had already pushed yields on debt of up to four years’ duration into negative territory.

Analysts said negative Japanese government bond yields – which mean investors are guaranteed to lose money – reflected the extraordinarily tight market conditions caused by the BoJ in its headlong pursuit of its 2 per cent inflation target.

Gauges of markets’ long-term inflation expectations watched closely by central banks have fallen sharply this week. In the US, they have dropped below even the exceptionally low levels seen after the collapse of Lehman Brothers investment bank in 2008. A comparable eurozone yardstick showed inflation rates over five years starting in five years’ time were expected to average less than 1.5 per cent – a record low.

Markets have pushed out the expected date of a first US Federal Reserve interest rate hike until at least September — and do not expect the Bank of England to act until next year. The first eurozone rate hike is expected only in 2020, according to Barclays data.

 

Krugman Slapped Down Again

by coldwarrior ( 54 Comments › )
Filed under Economy, History, Inflation, Open thread at January 13th, 2015 - 7:00 am

Sadly, Economist Paul Krugman has sold his once powerful and brilliant mind to the left in NYC. He shills almost daily for propaganda rag of a paper not really read out here in Flyover Country, the New York Times.

Below is one of my favorite economics stories. How Volker and Reagan slew the Inflation Dragon. It’s one of those things where I get to say, “I don’t need any links, I saw it with my own eyes”.

 

To whit:

Volcker, Reagan & History

By Robert Samuelson – January 12, 2015

WASHINGTON — It’s important to get history right — and economist and New York Times columnist Paul Krugman has got it maddeningly wrong.

Krugman recently wrote a column arguing that the decline of double-digit inflation in the 1980s was the decade’s big economic event, not the cuts in tax rates usually touted by conservatives. Actually, I agree with Krugman on this. But then he asserted that Ronald Reagan had almost nothing to do with it. That’s historically incorrect. Reagan was crucial.

In nearly four decades of column-writing, I can’t recall ever devoting an entire column to rebutting someone else’s. If there were instances, they’re long forgotten. But Krugman’s error is so glaring that it justifies an exception. It’s also a subject about which I know something, having written a book on it: “The Great Inflation and Its Aftermath: The Past and Future of American Affluence.” This column draws from that book.

For those too young to remember, here’s background.

From 1960 to 1980, inflation — the general rise of retail prices — marched relentlessly upward. It went from 1.4 percent in 1960 to 5.9 percent in 1969 to 13.3 percent in 1979. The higher it rose, the more unpopular it became. People feared that their pay and savings wouldn’t keep pace with prices.

Worse, government seemed powerless to defeat it. Presidents deployed complex wage and price controls and guidelines.

They didn’t work. The Federal Reserve — custodian of credit policies — veered between easy money and tight money, striving both to subdue inflation and to maintain “full employment” (taken as a 4 percent to 5 percent unemployment rate).

It achieved neither. From the late 1960s to the early 1980s, there were four recessions.

Inflation became a monster, destabilizing the economy and destroying trust in national leadership. The Gallup Poll routinely asks respondents to select “the most important problem facing the country.” From 1973 to 1981, the “high cost of living” ranked No. 1. People lost faith in the future, as they have now.

Krugman’s story is simple. The Fed is “largely independent of the political process” and, under chairman Paul Volcker, “was determined to bring inflation down,” he wrote. “It tightened policy, sending interest rates sky high, with mortgage rates going above 18 percent.” The result was “a severe recession that drove unemployment to double-digits but also broke the wage-price spiral.”

Indeed. By 1982, the gain in consumer prices had dropped to 3.8 percent. Volcker crushed inflation.

Story over? Not really.

What Reagan provided was political protection. The Fed’s previous failures to stifle inflation reflected its unwillingness to maintain tight-money policies long enough to purge inflationary psychology. Successive presidents preferred a different approach: the wage-price policies built on the pleasing (but unrealistic) premise that these could quell inflation without jeopardizing full employment.

Reagan rejected this futile path. As the gruesome social costs of Volcker’s policies mounted — the monthly unemployment rate would ultimately rise to a post-World War II high of 10.8 percent — Reagan’s approval ratings plunged. In May of 1981, they were 68 percent; by January 1983, 35 percent.

Still, he supported the Fed. “I have met with Chairman Volcker several times during the past year,” he said in early 1982. “I have confidence in the announced policies of the Federal Reserve.”

This patience enabled Volcker to succeed, though it took about two years of tight money. It’s doubtful that any other plausible presidential candidate, Republican or Democrat, would have been so forbearing. During Volcker’s monetary onslaught, there were many congressional proposals, backed by members of both parties, to curb the Fed’s power, lower interest rates or fire Volcker. If Reagan had endorsed any of them, the Fed would have had to retreat.

What Volcker and Reagan accomplished was an economic and political triumph. Economically, ending double-digit inflation set the stage for a quarter-century of near-automatic expansion (indeed, so automatic that it bred the complacency that led to the 2008-09 financial crisis — but that’s another story). Politically, Reagan and Volcker showed that leaders can take actions that, though initially painful and unpopular, served the country’s long-term interests.

But their achievement was a joint venture: If either hadn’t been there, the outcome would have been much different.

There was no explicit bargain between them. They had what I’ve called a “compact of conviction.” Volcker later said of Reagan: “Unlike some of his predecessors, he had a strong visceral aversion to inflation.” So did Volcker. Both believed the country could not flourish with high inflation. Both acted on that faith.

Volcker needed presidential support, because the Fed’s formal “independence” is highly qualified by political realities. The Fed, Volcker has said, “has got to operate … within the range of understanding of the public and the political system.” Reagan widened that range.

To exclude him from this narrative is not history. It’s fiction.

 

DOOM!!! (inc) Fail: Dollar Replaced

by coldwarrior ( 81 Comments › )
Filed under Economy, Open thread at January 12th, 2015 - 8:00 am
  • The US Dollar was to be replaced by a BRIC – Iran currency for world trade….especially for oil and commodities permanently knocking America out of the top spot on world currency and power
  • FAIL!!!!

http://finance.yahoo.com/news/pf_article_112563.html

 

http://www.forbes.com/2009/07/09/currency-reserve-bric-intelligent-investing-dollar.html

 

http://money.cnn.com/2011/02/10/markets/dollar/index.htm

 

i could go on but BING “US Dollar Replace by BRIC” should get you there.

The reality on the ground is that the dollar is still per-eminent and the BRIC’s are all in bigger trouble than the US. Therefore, a flight to quality occurs, raising demand for dollar denominated investments, when one raises demand for the dollar vis-a-vis other currencies, other currencies become worth less in the World Market.. Yes the US economy is sub-optimal, but it is a lot less sub-optimal than everywhere  else.

The DOOM ™ Inc crew failed again. They sold a lot of blog advertising tho!

 

:lol:

 

 

Mars Presents: From The New American: Obama Hides Executive Abuses by Calling Decrees “Memoranda”

by Mars ( 170 Comments › )
Filed under Barack Obama, Blogmocracy, Communism, Corruption, Cult of Obama, Debt, Democratic Party, Energy, Fascism, government, Guest Post, Immigration, Liberal Fascism, Marxism, Politics, Progressives, Regulation at January 7th, 2015 - 8:00 am

While everyone is watching and tracking his executive orders Obama is throwing out decrees left and right through Presidential Memorandas.

Despite promising repeatedly on the campaign trail to rein in George W. Bush’s executive-branch usurpations of power, Obama has been spewing a particular type of unconstitutional decree at a rate unprecedented in U.S. history. While the Obama administration has indeed unleashed a full-throated attack on the Constitution using “executive orders,” even more of his decrees have come in the form of so-called “presidential memoranda” — an almost identical type of executive action that he has used more than any previous U.S. president, according to a review published this week by USA Today.

Since taking office, Obama has issues 198 decrees via memoranda — that is 33 percent more than Bush, the runner up for the record, issued in eight years — along with 195 executive orders. Among other policy areas, Obama’s memoranda edicts have been used to set policy on gun control, immigration, labor, and much more. Just this week, Obama issued another memoranda decree purporting to declare Bristol Bay in Alaska off limits to oil and gas exploration — locking up vast quantities of American wealth and resources using his now-infamous and brazenly unconstitutional “pen and phone.”

“Like executive orders, presidential memoranda don’t require action by Congress,” reported USA Today as part of its investigation into Obama’s decrees. “They have the same force of law as executive orders and often have consequences just as far-reaching. And some of the most significant actions of the Obama presidency have come not by executive order but by presidential memoranda.” However, despite the newspaper’s obvious confusion on constitutional matters — only Congress can make law, not the White House — the review raises a number of important issues.

For instance, as the paper implies, Obama has been using deception to conceal his radical — imperial or dictatorial, according to many lawmakers — machinations purporting to change policy and law by fiat. “The truth is, even with all the actions I’ve taken this year, I’m issuing executive orders at the lowest rate in more than 100 years,” Obama claimed in a speech last July, without mentioning that he has issued more “memoranda” than any American president in history. “So it’s not clear how it is that Republicans didn’t seem to mind when President Bush took more executive actions than I did.”

Other leading Democrats have made similarly deceptive arguments to dupe “stupid” voters, as ObamaCare’s Gruber put it. Aside from the fact that previous abuses by Republicans do not legitimize or excuse current abuses, the oft-heard claim that Obama has issued fewer “executive order” decrees than other presidents is more a matter of semantics than substance. “There’s been a lot of discussion about executive orders in his presidency, and of course by sheer numbers he’s had fewer than other presidents,” Andrew Rudalevige, a presidency scholar at Bowdoin College, told USA Today.

“So the White House and its defenders can say, ‘He can’t be abusing his executive authority; he’s hardly using any orders,” Rudalevige continued. “But if you look at these other vehicles, he has been aggressive in his use of executive power.” Indeed, as The New American has documented extensively, Obama has been purporting to rule by executive fiat on everything from gun rights and the “climate” to immigration, education, national security, foreign relations, and health.

However, according to constitutional experts and even the president himself (before he took office), none of the “law”-making by presidential decree is actually legitimate. According to the U.S. Constitution, which created the federal government and granted it a few limited powers, only Congress has the power to make laws — assuming they are constitutional. The president’s job, by contrast, involves merely enforcing the laws passed by Congress and signed by the president, not making them up while hiding behind patently bogus claims of imagined “executive authority.”

Obama, of course, understands that well — or at least he claimed to less than seven years ago. “I taught constitutional law for ten years,” then-Senator Obama told gullible voters in 2008 amid his first run for the presidency. “I take the Constitution very seriously. The biggest problems that were facing right now have to do with George Bush trying to bring more and more power into the executive branch and not go through Congress at all, and that’s what I intend to reverse when I’m President of the United States of America.”

Except rather than reversing the illegitimate usurpation of unconstitutional power, Obama expanded it by leaps and bounds — to the point where his administration openly creates pseudo-“law” and pseudo-“treaties,” and then mocks Congress about it. Among the “memoranda” used by Obama thus far was the purported creation of the MyRA “savings” scheme, a widely ridiculed and criticized unconstitutional plot that analysts said would be used to extract more wealth from Americans under the guise of “helping” them. Even Congress does not have the authority to create such a program — much less the administration.

Obama, though, regularly brags about his lawless pseudo-lawmaking. “One of the things that I’ll be emphasizing in this meeting is the fact that we are not just going to be waiting for a legislation [sic] in order to make sure that we’re providing Americans the kind of help that they need,” Obama announced at the beginning of the year, right before his first cabinet meeting. “I’ve got a pen and I’ve got a phone — and I can use that pen to sign executive orders and take executive actions and administrative actions that move the ball forward.”

Shortly after that, in his State of the Union speech to Congress, he brazenly told the American people’s elected representatives that he would ignore them if they did not promptly submit to his demands. “America does not stand still — and neither will I,” Obama threatened before lawmakers stood up and applauded the outlandish behavior. “So wherever and whenever I can take steps without legislation to expand opportunity for more American families, that’s what I’m going to do.” Many lawmakers were furious, blasting Obama as a “socialistic dictator,” calling for his impeachment, and more, and the public was horrified, but the rule-by-decree continued.

Indeed, unlike his false campaign promises, Obama did indeed make good on his threats to continue ignoring Congress and the Constitution to rule by unconstitutional decree. Behaving more like a Third World dictatorship than a U.S. presidential administration, the White House even trotted out senior officials to tell the press that even the American people’s elected representatives would be unable to stop the usurpations and abuses. In addition to the “executive orders” and “presidential memoranda,” which the administration itself considers to be essentially the same, Obama has also unleashed dozens of so-called “presidential policy directives.”

Of course, there can be some legitimate functions for executive orders — outlining the manner in which the administration plans to faithfully execute the constitutional laws passed by Congress, for example. However, purporting to make and change law — or even contradict existing federal law, such as Obama’s radical amnesty-by-decree scheme supposedly preventing the enforcement of immigration law — are certainly not among those legitimate functions.

The solution to the imperial decrees and pretended acts of legislation from the White House is simple: Congress must refuse to fund it. However, despite being elected on a wave of popular outrage against the Obama administration’s usurpations of power, lawmakers on both sides of the aisle recently voted to fund virtually all of the White House’s illegal decrees through next September. The only way to put a stop to the scheming will be for an educated American electorate to hold their elected representatives accountable to the oath they swore, with a hand on the Bible, to uphold the U.S. Constitution.

Alex Newman is a correspondent for The New American, covering economics, education, politics, and more. Follow him on Twitter @ALEXNEWMAN_JOU. He can be reached at

http://www.thenewamerican.com/usnews/constitution/item/19739-obama-hides-executive-abuses-by-calling-decrees-memoranda

Some Reading on Russia

by coldwarrior ( 1 Comment › )
Filed under Academia, Economy, History, Politics, Russia, Special Report at December 19th, 2014 - 8:21 pm

As this is a special report, Please take your time and read the following article here before commenting, it is worth you effort:

 

…I thought the economic problems of Russia would be foremost on people’s minds. The plunge of the ruble, the decline in oil prices, a general slowdown in the economy and the effect of Western sanctions all appear in the West to be hammering the Russian economy. Yet this was not the conversation I was having. The decline in the ruble has affected foreign travel plans, but the public has only recently begun feeling the real impact of these factors, particularly through inflation.

But there was another reason given for the relative calm over the financial situation, and it came not only from government officials but also from private individuals and should be considered very seriously. The Russians pointed out that economic shambles was the norm for Russia, and prosperity the exception. There is always the expectation that prosperity will end and the normal constrictions of Russian poverty return….

Welcome to New York, Fun Not Allowed

by Mars ( 79 Comments › )
Filed under America, Blogmocracy, Democratic Party, Guest Post, Regulation at December 15th, 2014 - 6:00 pm

http://www.dnainfo.com/new-york/20141205/park-slope/parks-dept-puts-stop-spinning-playground-equipment-after-injuries

Parks Dept. Puts a Stop to Spinning Playground Equipment After Injuries

PARK SLOPE — The city is putting the brakes on spinning playground equipment following reports of injuries, a Parks Department spokeswoman said.

Rotating metal saucers that kids ride at two Park Slope playgrounds were recently welded into place so they can’t move, and the city has made similar modifications or removed a total of seven disks citywide “in the interest of public safety,” the spokeswoman said.

The spokeswoman declined to discuss how many injuries had been reported or other specifics.

Turning the spinning disks into statues angered Park Slope parents, who said the city was going too far to protect kids.

“I think it sucks,” said dad David Friedlander, whose 2-year-old was disappointed to find the the spinning disk at Vanderbilt Playground in Prospect Park suddenly stuck in place in late November. “I think it’s a sad commentary on how litigious and afraid we’ve become of having our children get a few boo-boos.”

Friedlander said his son had tumbled off the disk — which is about 4 feet wide and stands about 2 feet off the ground — onto the rubberized ground below, but he doesn’t consider the equipment a safety hazard. Friedlander said it should be up to parents to decide if their children can handle playing on the saucer, not the city.

“This makes me completely insane. What’s the point of even going to the playground? Better lock up the swings, too,” wrote one frustrated mom of a 3-year-old on a South Slope email list.

Parents in that neighborhood said they’re bummed a similar rotating saucer at Slope Park on Sixth Avenue and 18th Street was also recently welded so that it can’t move.

The city removed a swing at Slope Park last year after several kids broke their legs while playing on it, but parents said the spinning metal disk didn’t seem to present nearly the same risk. Parents who visit Slope Park frequently said they’ve never seen kids injured while playing at the saucer.

Though several families filed claims against the city regarding the Slope Park swing, no claims have been filed regarding the spinning disks there, according to the City Comptroller’s Office.

The Parks Department altered the following spinning disks:

► Union Square Park, Manhattan — welded stationary

► McNair Park, Manhattan — welded stationary

► Central Park, Manhattan — removed

► Utopia Park, Queens — removed

► Mullaly Park, The Bronx — removed

► Slope Park, Brooklyn — welded stationary

► Prospect Park, Brooklyn — welded stationary

A spokesman for City Councilman Carlos Menchaca, who represents the South Slope, said his office hadn’t received any complaints about the rotating saucer at Slope Park, and a spokesman for City Councilman Brad Lander said no one complained about the metal disk at Vanderbilt Playground until after it was welded into a stationary position.

Mom Rebecca Stein said both her daughters, who are 5 and nearly 2, love to play on the rotating saucers at Vanderbilt Playground and Slope Park. The equipment lets her kids test boundaries and get a feel for how their little bodies balance and move, Stein said.

“They think it’s fantastic,” Stein said. “They love the thrill of balancing and sort of playing risky. It’s being close to danger, but without any real danger.”

Stein said both her children had slipped off the saucers, but the worst that ever befell them was an extreme case of dizziness. She lamented the loss of the disks as part of a larger trend away from letting children play freely.

“Playgrounds are so sanitized now,” Stein said. “There’s no thrill. In the playgrounds of our youth you could climb and feel like you were above things and use more of your imagination. I don’t think that happens anymore.”

To be fair, this time it isn’t the government that’s out of control, this was the determination made by the judge in a law suit. Remember, the libs say we have no need for tort reform.

If anyone has noticed, this isn’t just a New York problem though. All over the country places like malls have either eliminated their playgrounds or made them into new “safe, soft” playplaces that kids just frankly don’t find fun in the least. Play areas that used to be packed by kids are now largely ignored due to the utter lack of enjoyable activities. Fortunately places like McDonalds have managed to find a middle ground with enjoyable “soft” activities that have electronic elements involved giving the kids added enjoyment.

I will, however, miss playgrounds.

OPEC, The Fed, Frac!, Debt, and Depression

by coldwarrior ( 146 Comments › )
Filed under Economy, Energy, Open thread at December 11th, 2014 - 6:00 am

Yes it is a pretty thick article and will require some effort to get through. But is is worth the read.

 

Here is more from AEP on cheap oil and islam.  There is a very good video on how oil is priced at the link below.

Bank of America sees $50 oil as Opec dies

“Our biggest worry is the end of the liquidity cycle. The Fed is done. The reach for yield that we have seen since 2009 is going into reverse”, said Bank of America.

 The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over the coming months as market forces shake out the weakest producers, Bank of America has warned.

Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a much cheaper source of gas for Europe.

Francisco Blanch, the bank’s commodity chief, said Opec is “effectively dissolved” after it failed to stabilize prices at its last meeting. “The consequences are profound and long-lasting,“ he said.

The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefits only the Mid-East petro-states with deepest pockets such as Saudi Arabia. If so, the weaker peripheral members such as Venezuela and Nigeria are being thrown to the wolves.

The bank said in its year-end report that at least 15pc of US shale producers are losing money at current prices, and more than half will be under water if US crude falls below $55. The high-cost producers in the Permian basin will be the first to “feel the pain” and may soon have to cut back on production.

The claims pit Bank of America against its arch-rival Citigroup, which insists that the US shale industry is far more resilent than widely supposed, with marginal costs for existing rigs nearer $40, and much of its output hedged on the futures markets.

Bank of America said the current slump will choke off shale projects in Argentina and Mexico, and will force retrenchment in Canadian oil sands and some of Russia’s remote fields. The major oil companies will have to cut back on projects with a break-even cost below $80 for Brent crude.

It will take six months or so to whittle away the 1m barrels a day of excess oil on the market – with US crude falling to $50 – given that supply and demand are both “inelastic” in the short-run. That will create the beginnings of the next shortage. “We expect a pretty sharp rebound to the high $80s or even $90 in the second half of next year,” said Sabine Schels, the bank’s energy expert.

Mrs Schels said the global market for (LNG) will “change drastically” in 2015, going into a “bear market” lasting years as a surge of supply from Australia compounds the global effects of the US gas saga.

If the forecast is correct, the LNG flood could have powerful political effects, giving Europe a source of mass supply that can undercut pipeline gas from Russia. The EU already has enough LNG terminals to cover most of its gas needs. It has not been able to use this asset as a geostrategic bargaining chip with the Kremlin because LGN itself has been in scarce supply, mostly diverted to Japan and Korea. Much of Europe may not need Russian gas at all within a couple of years.

Bank of America said the oil price crash is worth $1 trillion of stimulus for the global economy, equal to a $730bn “tax cut” in 2015. Yet the effects are complex, with winners and losers. The benefits diminish the further it falls. Academic studies suggest that oil crashes can ultimately turn negative if they trigger systemic financial crises in commodity states.

Barnaby Martin, the bank’s European credit chief, said world asset markets may face a stress test as the US Federal Reserve starts to tighten afters year of largesse. “Our biggest worry is the end of the liquidity cycle. The Fed is done and it is preparing to raise rates. The reach for yield that we have seen since 2009 is going into reverse”, he said.

Mr Martin flagged warnings by William Dudley, the head of the New York Fed, that the US authorities had tightened too gently in 2004 and might do better to adopt the strategy of 1994 when they raised rates fast and hard, sending tremors through global bond markets.

Bank of America said quantitative easing in Europe and Japan will cover just 35pc of the global stimulus lost as the Fed pulls back, creating a treacherous hiatus for markets. It warned that the full effect of Fed tapering had yet to be felt. From now on the markets cannot expect to be rescued every time there is a squall. “The threshold for the Fed to return to QE will be high. This is why we believe we are entering a phase in which bad news will be bad news and volatility will likely rise,” it said.

What is clear is that the world has become addicted to central bank stimulus. Bank of America said 56pc of global GDP is currently supported by zero interest rates, and so are 83pc of the free-floating equities on global bourses. Half of all government bonds in the world yield less that 1pc. Roughly 1.4bn people are experiencing negative rates in one form or another.

These are astonishing figures, evidence of a 1930s-style depression, albeit one that is still contained. Nobody knows what will happen as the Fed tries to break out of the stimulus trap, including Fed officials themselves.

I do have to disagree with AEP on the future ‘wild price swings’ I am sure that American energy corporations can do a rather good job judging demand and adjust as needed.

 

We will see if this is a slow down on demand of oil globally, an overproduction globally, or a mix of the two. I’m going to bet its a bit of both and the world won’t collapse in a gloom and doom scenario as the free market is allowed to work again without the interference of the oil tick cartel. The only change I might make is to randomly make 10-20% of oil speculators actually take delivery of the amount of oil that they are betting on.  :lol:

 

More from Bloomberg. PLEASE read the article here and watch the video.

PPP, GDP, and Morons.

by coldwarrior ( 127 Comments › )
Filed under Academia, Economy, Open thread at December 5th, 2014 - 6:00 am

This article is a prime reason why journalists should not be allowed to have grown up data sets. Nor should they be alowed around Economics as a mathematical and statistical field. Yeah, I know, Dorian…Econ is VOODOO!!! It sure is, it’s the black magic, the dark and dismal science, it’ll poke your eye out! It can also make you say stupid things that prove your total ignorance in all things Economic if you aren’t careful, or are a journalist.

This columnist claims that China is #1 and America is #2 in the global economy. He proves that he has no clue. Notice that he does not give any Bona Fides besides some award that no one ever heard of and that he worked for an accountancy that no one ever heard of. Any formal rigorous Economic training? None listed.

If the above were presented as a serious Economic Paper in an Econ course, the student’s professor would be led away in shackles and the author would be forced to read World Bank Country databases out loud for a year as punishment for being a moron,. This particular J-schooler would have to wear eye protection though, so as not to put his eye out. Yes, China is a huge exporter who also cheats on data, exchange rates, debt, must import massive amounts of food, is running out of clean water, and is systemically corrupt. The reality on the ground is that they are on par with Albania. Albania and China have the same per capita income, but China has more capita.

——/

Now, here is an article, written by a real economist, who actually shows some data, understands the dynamics or global economics, refutes the above article on multiple levels, and well, just gets it. Please Read Here.

The ICP data compare countries’ gross domestic product using purchasing-power-parity (PPP) exchange rates, rather than market rates. This is the right thing to do when looking at real (inflation-adjusted) income per capita in order to measure people’s living standards. But it is the wrong thing to do when looking at national income in order to measure the country’s weight in the global economy.

The bottom line is that, by either criterion — per capita income (at PPP exchange rates) or aggregate GDP (at market rates) — the day when China surpasses the U.S. remains in the future. This in no way detracts from the country’s impressive growth record, which, at about 10% per year for three decades, constitutes a historical miracle.

At market exchange rates, the American economy is still almost double the size of China’s (83% larger, to be precise). If the Chinese economy’s annual growth rate remains five percentage points higher than that of the U.S., with no significant change in the exchange rate, it will take another 12 years to catch up in total size. If the differential is eight percentage points — for example, because the renminbi appreciates at 3% a year in real terms — China will surpass the U.S. within eight years.

The PPP-versus-market-exchange-rate issue is familiar to international economists. This annoying but unavoidable technical problem arises because China’s output is measured in renminbi USDCNY, -0.10%  , while US income is measured in dollars DXY, +0.11%  . How, then, should one translate the numbers so that they are comparable?

The obvious solution is to use the contemporaneous exchange rate — that is, multiply China’s renminbi-measured GDP by the dollar-per-renminbi exchange rate, so that the comparison is expressed in dollars. But then someone points out that if you want to measure Chinese citizens’ standard of living, you have to take into account that many goods and services are cheaper there. A renminbi spent in China goes further than a renminbi spent abroad.

For this reason, if you want to compare per capita income across countries, you need to measure local purchasing power, as the ICP does. The PPP measure is useful for many purposes, such as knowing which governments have succeeded in raising their citizens’ standard of living.

Looking at per capita income, even by the PPP measure, China is still a relatively poor country. Though it has come very far in a short time, its per capita income is now about the same as Albania’s — that is, in the middle of the distribution of 199 countries.

But Albania’s economy, unlike China’s, is not often in the headlines. That is not only because China has such a dynamic economy, but also because it has the world’s largest population. Multiplying a middling per capita income by more than 1.3 billion “capita” yields a big number. The combination of a large population and a medium income gives it economic power, and also political power.

Similarly, we consider the U.S. the No. 1 incumbent power not just because it is rich. If per capita income were the criterion by which to judge, Monaco, Qatar, Luxembourg, Brunei, Liechtenstein, Kuwait, Norway, and Singapore would all rank ahead of the U.S. (For the purposes of this comparison, it does not matter much whether one uses market exchange rates or PPP rates.) If you are shopping for citizenship, you might want to consider one of those countries.

But we do not consider Monaco, Brunei, and Liechtenstein to be among the world’s “leading economic powers,” because they are so small. What makes the U.S. the world’s leading economic power is the combination of its large population and high per capita income.

It is this combination that explains the widespread fascination with how China’s economic size or power compares to America’s, and especially with the question of whether the challenger has now displaced the long-reigning champion. But PPP exchange rates are not the best tool to use to answer that question.

The reason is that when we talk about an economy’s size or power, we are talking about a broad range of questions — and a broad range of interlocutors.

From the viewpoint of multinational corporations, how big is the Chinese market? From the viewpoint of global financial markets, will the renminbi challenge the dollar as an international currency? From the viewpoint of the International Monetary Fund and other multilateral agencies, how much money can China contribute, and how much voting power should it get in return? From the viewpoint of countries with rival claims in the South China Sea, how many ships can its military buy?

For these questions, and most others involving total economic heft, the indicator to use is GDP at market exchange rates, because what we want to know is how much the renminbi can buy on world markets, not how many haircuts or other local goods it can buy back home. And the answer to that question is that China can buy more than any other country in the world – except the U.S.

 

I’ll try to pop my head in and answer questions if needed.

Terms like PPP, and PPP exchange rates, et cetera are easily googled.

 

 

Petro-War!

by coldwarrior ( 90 Comments › )
Filed under Economy, Energy, Islam, Open thread at December 2nd, 2014 - 6:00 am

Cheap oil can be both a blessing and a curse as AEP explains in this analysis:

Saudi Arabia and the core Opec states are taking an immense political gamble by letting crude oil prices crash to $66 a barrel, if their aim is to shake out the weakest shale producers in the US. A deep slump in prices might equally heighten geostrategic turmoil across the broader Middle East and boomerang against the Gulf’s petro-sheikhdoms before it inflicts a knock-out blow on US rivals.

Caliphate leader Abu Bakr al-Baghdadi has already opened a “second front” in North Africa, targeting Algeria and Libya – two states that live off energy exports – as well as Egypt and the Sahel as far as northern Nigeria. “The resilience of US shale may prove greater than the resilience of Opec,” said Alistair Newton, head of political risk at Nomura.

Chris Skrebowski, former editor of Petroleum Review, said the Saudis want to cut the annual growth rate of US shale output from 1m barrels per day (bpd) to 500,000 bpd to bring the market closer to balance. “They want to unnerve the shale oil model and undermine financial confidence, but they won’t stop the growth altogether,” he said.

There is no question that the US has entirely changed the global energy landscape and poses an existential threat to Opec. America has cut its net oil imports by 8.7m bpd since 2006, equal to the combined oil exports of Saudi Arabia and Nigeria.

The country had a trade deficit of $354bn in oil and gas as recently as 2011. Citigroup said this will return to balance by 2018, one of the most extraordinary turnarounds in modern economic history.

“When it comes to crude and other hydrocarbons, the US is bursting at the seams,” said Edward Morse, Citigroup’s commodities chief. “This situation is unlikely to stop, even if prevailing prices for oil fall significantly. The US should become a net exporter of crude oil and petroleum products combined by 2019, if not 2018.”

Opec has misjudged the threat. As late as last year, it was dismissing US shale as a flash in the pan. Abdalla El-Badri, the group’s secretary-general, still insists that half of all US shale output is vulnerable below $85.

This is bravado. US producers have locked in higher prices through derivatives contracts. Noble Energy and Devon Energy have both hedged over three-quarters of their output for 2015.

Pioneer Natural Resources said it has options through 2016 covering two- thirds of its likely production. “We can produce down to $50 a barrel,” said Harold Hamm, from Continental Resources. The International Energy Agency said most of North Dakota’s vast Bakken field “remains profitable at or below $42 per barrel. The break-even price in McKenzie County, the most productive county in the state, is only $28 per barrel.”

Efficiency is improving and drillers are switching to lower-cost spots, confronting Opec with a moving target. “The (price) floor is falling and may not be nearly as firm as the Saudi view assumes,” said Citigroup.

Mr Morse says the “full cycle” cost for shale production is $70 to $80, but this includes the original land grab and infrastructure. “The remaining capex required to bring on an additional well is far lower, and could be as low as the high-$30s range,” he said.

Critics of US shale may have misunderstood its economics. There is a fast decline in output from new wells but this is offset by a “long-tail phase” for a growing number of legacy wells. The Bakken field has already reached 1.1m bpd, and this is expected to double again over the next five years.

Other oil projects around the world may be more vulnerable to a price squeeze, including the North Sea, the ultra-deepwater ventures in the Atlantic off Brazil and Angola, Canadian oil sands, or Russia’s contentious plans for the Arctic in the “High North”. But the damage will be gradual.

In the meantime, oil below $70 is already playing havoc with budgets across the global petro-nexus. The fiscal break-even cost is $161 for Venezuela, $160 for Yemen, $132 for Algeria, $131 for Iran, $126 for Nigeria, and $125 for Bahrain, $111 for Iraq, and $105 for Russia, and even $98 for Saudi Arabia itself, according to Citigroup.

Opec may not be worried about countries such as Nigeria, but even there a full-blown economic and political crisis could turn the north into a Jihadi stronghold under Boko Haram.

The growing Jihadi movements in the Maghreb – combining with events in Syria and Iraq – clearly pose a first-order security threat to the Saudi regime itself.

The Libyan city of Derna is already in the hands of the Salafist group Ansar al-Shariah and has pledged allegiance to Islamic State. Terrorist movements in the Egyptian Sinai have also rallied to the black and white flag of IS, prompting Egypt’s leader Abdel al-Sisi to call last week for a “general mobilisation” of all leading Arab and Western powers to defeat the spreading movement.

The new worry is Algeria as the Bouteflika regime goes into its final agonies. “They have an entrenched terrorist problem as we saw in the seizure of the Amenas gas refinery last year. These people are aligning themselves with Islamic State as part of the franchise,” said Mr Newton.

Algeria exports 1.5m bpd of petroleum products. Its gas exports matter more but the price of liquefied natural gas shipped to Europe is indirectly linked to oil over time.

It is an open question what will happen to Algeria, Iraq, and Libya if oil prices hover at half the budget break-even costs for a year or two, given the extreme fragility of the region and political risk of cutting subsidies.

The Sunni Salafist tornado sweeping across the Middle East – so strangely like the lightning expansion of Islam in the mid-7th century – is moving to its own inner rhythms. It is not a simple function of economic welfare, let alone oil prices.

Yet Saudi Arabia’s ruling dynasty tests fate if it is betting that the Middle East’s fraying political order can withstand a regional economic shock for another two years.

Much more analysis here

Marcellus Shale – SW liquids rich $24.23
Marcellus Shale – Super Rich $25.63
Utica – Wet gas $32.39
Mississippian Horizontal – East $42.15
Utica – Liquids Rich $44.04
Eagle Ford – Liquids Rich $46.05
Niobrara – Wattenberg $46.10
Wolfcamp – N. Midland (Horizontal) $53.92
Eagle Ford – Oil Window $55.29
Wolfcamp – S. Midland (Horizontal) $61.57
Mississippian Horizontal – West $64.05
Wolfberry $64.63
Bakken Shale $64.74
Wolfcamp – N. Delaware (Horizontal) $68.54
Uinta – Green River $68.77
Uinta – Wasatch (H) $72.15
Granite Wash – Liquids Rich $73.10
Horizontal
Uinta – Wasatch (V) $74.95
Barnett Shale – Southern Liquids $84.45

More From Silent Cal…

by coldwarrior ( 28 Comments › )
Filed under Economy, Elections 2016, History, Open thread at November 24th, 2014 - 7:00 am

Yeah,Norquist wrte the following article, as much as i dislike the guy because of his Muslim connections and his torpedoing of the repeal of the ethanol mandate (to keep gas prices high,yeah, THAT isn’t a tax! /), I must say…I enjoy the fact that he agrees with me. Blogmocracy ahead of the curve again! :lol:

Walker in 16? Yeah…I could vote FOR that.

 

What makes Wisconsin’s Republican Governor Scott Walker a good choice for 2016

coolidge at wash mem

After the GOP’s midterm-elections sweep, the Republican Party holds more U.S. House seats and controls more state houses than at any time since 1928. Having reached this goal, the GOP now needs to look for a 2016 presidential nominee to match this success.

President Calvin Coolidge, who sat in the Oval Office from 1923 to 1929, would be a smart model for the party. He reined in spending and reduced tax rates at a time when it was as needed as it is today. President Ronald Reagan admired Coolidge so much that he hung a portrait of the 30th president in his Cabinet Room.

One talked-about possible 2016 presidential candidate who shares many of Coolidge’s policy bona fides is Wisconsin Governor Scott Walker, who won his third statewide race in four years on Nov. 4. The two men have so much in common that it is worth seeing what Coolidge’s experience can tell us about a potential President Walker.

cal w rockefeller

Coolidge took office at an extraordinary period in U.S. history. During his presidency, America advanced from a nation in which the horse and buggy was one of the most efficient methods of travel in many places to one filled with Model T drivers honking at one another to move it. The advent and popularization of modern appliances like electric washing machines allowed women of the 1920s to get out of the house.

Coolidge rose to national prominence largely because of his actions during the 1919 Boston Police Strike. Coolidge was governor of Massachusetts, and he stood down police union bosses to put an end to the strike. He offered a sharp contrast to then-President Woodrow Wilson, silent and timid on an issue of national importance.

Coolidge’s limited-government approach made for both good policy and good politics — it fueled a stunning prosperity. Economic expansion under Coolidge was rapid, with the gross national product rising roughly 4.2 percent a year from 1920 to 1929, as Marquette University’s Gene Smiley explained in an Economic History Association report. This is impressive growth by 19th-, 20th-and 21st-century standards.

Wisconsin Republican Governor Walker addresses his supporters at a rally on election night in Milwaukee

A standoff with powerful bosses of government-employee unions is also what thrust Walker onto the national stage. The 2011 labor reforms that Walker championed and eventually signed into law sparked riotous protests in Madison. It cost $11 million to repair the damage done by union protesters at Wisconsin’s capitol building, considered to have one of the most aesthetically beautiful domes in the United States.

Republicans now have total control of 30 state legislatures — their largest advantage since Coolidge lived in the White House. The government reform and tax-relief measures enacted by Walker and other GOP governors are a big reason for this electoral success. Walker has made clear that more income tax cuts and creating a more competitive business-tax climate in the Badger State are among his top priorities for his second term. Coolidge did that at the federal level — and demonstrated the economic dividends that tax cuts can produce.

Veronique de Rugy of the Mercatus Center at George Mason University laid out the success of these Coolidge tax cuts. From a high of 73 percent, the top rate was reduced to 46 percent in 1924, and then was brought down to 24 percent by the time Coolidge left office.

coolidge signing bill

Walker has adopted the Coolidge tax model, chipping away at his state income-tax rates. He talks about eliminating Wisconsin’s income tax during his second term. He has asked his lieutenant governor, Rebecca Kleefisch, to hold tax-reform roundtables across the state. Given that tax reform is usually the most politically difficult undertaking for lawmakers, Walker is astute in getting constituent buy-in ahead of time.

The day after the 2014 midterms, the national punditry was ready to focus on the 2016 presidential contest. Coolidge’s record and how it compares to what Walker has done in Wisconsin make a strong case for his name to be on the short list of GOP contenders.