Economics - Mar 22
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Author Lewis Says Wall Street Reckoning Is Coming
Reuters via the New York Times
Wall Street's biggest banks could be broken up by the Congress in the coming year in an eventual reckoning over the financial meltdown of 2008, "Liar's Poker" author Michael Lewis said on Tuesday.
Lewis, promoting his latest book "The Big Short: Inside the Doomsday Machine" about the crisis, predicted a war will be waged in Washington as Senate Banking Committee Chairman Christopher Dodd tries to revamp U.S. financial rules.
"Things can be busted up. I really think there is this collision coming that is just starting to happen with the Dodd bill," Lewis said. "There is a war that is about to happen over not just who regulates Wall Street but what the rules are."
"To put it in the crudest possible way, these firms have to be smaller and less profitable," Lewis told Reuters. "If they were regulated properly and the rules of their game were sane, it would be less profitable to be a trader at a big Wall Street firm ... It is really a war over money."
The new book by Lewis, who exposed the culture of excess at Salomon Brothers in "Liar's Poker," recounts the meltdown through the prism of a few Wall Street players who spotted flaws of the U.S. subprime mortgage market and made fortunes betting against it.
Lewis said he wants to make amends for his 1989 bestseller, which he wrote as a cautionary tale but instead was seen by many as a guidebook for the greed-is-good set.
"All these people who created the crisis went to (work on) Wall Street because they read 'Liar's Poker'," he said. And many of them told Lewis it "was why I got into the business."...
(16 March 2010)
More about the book here.
Coming soon: "oil-less" economic growth
Rising efficiency, conservation and substitution are steadily reducing the amount of oil needed to fuel an increase in the goods and services produced around the world.
Oil demand in the rich, industrialized countries of the West already appears to have peaked and the trend in developing economies is toward an ever-smaller increase in the amount of oil consumed for every extra unit of economic growth.
Global oil intensity -- oil demand growth divided by economic growth -- has fallen by about 2 percent a year over the last decade and the decline is now accelerating, spurred by high oil prices, moves to alternative fuels and measures to curb global warming.
This does not yet mean that absolute oil consumption is falling because population growth and rising wealth in poorer parts of the world will push up oil consumption for some time.
But it does mean global oil use will eventually peak and start declining -- and "oil-less growth" may not be far away.
"The rate of decline of oil intensity will accelerate," said Eduardo Lopez, oil demand analyst at the International Energy Agency (IEA) in Paris, which advises industrialized countries.
"There is a structural change -- difficult to measure admittedly, but clear -- that demand for burning fuels is no longer what it used to be."
David Fyfe, head of the IEA's oil industry and markets division, says price controls and subsidies as well as economic stimulus packages in China and elsewhere, will help prop up oil demand short-term, but longer-term the trend is downwards.
"Globally speaking, oil intensity has been declining by around 2 percent annually over the past decade," Fyfe said...
(16 March 2010)
Arcane Currency Battle Masks Deeper Economic Tensions with China
Los Angeles Times
For much of the last decade, the economic relationship between the United States and China was like a bartender and his favorite patron. American consumers knocked back flat-panel TVs, laptops and lots of other made-in-China products while Beijing rang up the charges, but extended more and more credit so the customer could keep drinking.
On paper, the Chinese accumulated hundreds of billions of U.S. dollars. But instead of cashing in its horde, China loaned much of it back to Americans to help finance ever-higher consumer borrowing, as well as federal deficits and cheap mortgages.
It was a mutually beneficial arrangement while it lasted. But the Great Recession put that mountain of debt in a new, unsettling light. Now, the two partners are eyeing each other with growing resentment – each showering the other with unwelcome demands for policy changes.
And the tensions are being aggravated by domestic politics in both countries.
"The proverbial train wreck may be coming to pass," said Nicholas Lardy, a prominent China expert at the Peterson Institute for International Economics in Washington.
Chinese officials have begun to warn that, if Washington doesn't curb its rising deficits and stop badgering China to make concessions on currency and export policies, Beijing may begin dumping dollars. Or it might at least cut back on the massive buying of Treasury bonds that Washington depends on to finance its deficit.
Any such action could inflict economic pain on millions of Americans, costing jobs and hurting the recovery, some economists say.
But China is over a barrel too. If Beijing tightened the screws, the dollar would decline. The value of China's holdings would shrink. So would Americans' consumption of Chinese products. Even with the recession, U.S. imports from China amounted to a whopping $296 billion last year, while exports to China were just $70 billion, according to U.S. data...
(16 March 2010)
‘I=PAT’ means nothing, proves nothing
Ben Courtice, Green Socialist via Climate and Capitalism
I=P×A×T (commonly pronounced “eye-pat”) is a formula, often cited, describing the factors that cause environmental degradation.
In this formula, I stands for impact; P stands for Population; A stands for Affluence (or amount consumed); T stands for Technology.
The population, multiplied by the “affluence” (or amount of stuff consumed), multiplied by the technology used to produce the stuff that is consumed, gives the impact of humans.
At first glance this is an indisputable description of the overall impact of humanity taken as a whole. It’s use lies in this division of impact into different factors: having done so, we can consider how each separate factor works in our further inquiry.
But by itself, eye-pat is really not a useful description of the problem. It is almost mathematically meaningless, because A and T simply describe averages, per capita. Taken together, they add up to the average ecological footprint of each unit of population (each person, that is). So the total impact equals the average impact multiplied by the number of people.
The mathematics of this is as profound as saying that a number equals half of itself multiplied by two.
The formula is also based on, and biased toward a population focus. It divides impact by person, not by income bracket, nation, bio-region, or any of the other possible ways of dividing up society’s overall impact. This predisposes the formula to an individualist and consumerist approach to solving environmental impact and it predisposes the formula to suggesting population control measures. Yet population is just one arbitrary factor among many that could have been chosen, and our impact as individuals is only caused by our interactions with others, through work as much as through consumption...
(17 March 2010)
The Broken Society
David Brooks, The New York Times
The United States is becoming a broken society. The public has contempt for the political class. Public debt is piling up at an astonishing and unrelenting pace. Middle-class wages have lagged. Unemployment will remain high. It will take years to fully recover from the financial crisis.
This confluence of crises has produced a surge in vehement libertarianism. People are disgusted with Washington. The Tea Party movement rallies against big government, big business and the ruling class in general. Even beyond their ranks, there is a corrosive cynicism about public action.
But there is another way to respond to these problems that is more communitarian and less libertarian. This alternative has been explored most fully by the British writer Phillip Blond.
He grew up in working-class Liverpool. “I lived in the city when it was being eviscerated,” he told The New Statesman. “It was a beautiful city, one of the few in Britain to have a genuinely indigenous culture. And that whole way of life was destroyed.” Industry died. Political power was centralized in London.
Blond argues that over the past generation we have witnessed two revolutions, both of which liberated the individual and decimated local associations. First, there was a revolution from the left: a cultural revolution that displaced traditional manners and mores; a legal revolution that emphasized individual rights instead of responsibilities; a welfare revolution in which social workers displaced mutual aid societies and self-organized associations.
Then there was the market revolution from the right. In the age of deregulation, giant chains like Wal-Mart decimated local shop owners. Global financial markets took over small banks, so that the local knowledge of a town banker was replaced by a manic herd of traders thousands of miles away. Unions withered.
The two revolutions talked the language of individual freedom, but they perversely ended up creating greater centralization. They created an atomized, segmented society and then the state had to come in and attempt to repair the damage.
(18 March 2010)
Natural resources: The curse of developing countries?
Harjo Winoto, Upiasia
People are dying while sitting in a land full of riches. Perhaps this is the horrid yet true picture of reality in most developing countries in the world; certainly it is true in Indonesia.
Covering approximately 1.9 million square kilometers, Indonesia is extremely rich in natural resources. Due to active volcanic activity, its soil is fertile and resources are abundant. Salt, for instance, is believed to have originated in Indonesia. The term “salary” originates from salt because it was once used as a form of payment. In old times, the person sitting closest to the salt at a table held the highest rank.
Many Indonesians are proud of their motherland. Every elementary school student is taught that the country is rich in natural resources. The citizens’ pride is rooted in the fact that the country is geopolitically important and can survive on its own – unlike Singapore, for example, which basically lives from its neighbors’ resources.
Ironically, these same children have to grow up witnessing or experiencing extreme poverty. This is more painful given the dreams they hold after being taught about the tishness of their land.
There is a long list of cases in which corporations – local and foreign – exploited and polluted the land, leaving toxic waste behind for the local people. From the human rights violations and destruction of peoples’ livelihoods caused by mining companies Freeport and Newmont, to the environmental damage by the pulp industry in Sumatra, to a plethora of cases of mercuric materials in drinking reservoirs, corporations have brought evil consequences to Indonesian people.
This excrutiating picture is replicated the world over. John Perkins, in his “Confessions of an Economic Hitman,” described foreign corporations’ agressive pursuit of oil and natural resources in Ecuador, Indonesia and Panama, where extraction plants are built for the benefit of elite groups of foreigners and their mercurial domestic counterparts while wastes and hazards are left behind for the locals.
Joseph Stiglitz, the 2001 Nobel Prize recipient for economic sciences, famously remarked, “Most countries with large (production) of natural resources do more poorly than those without, which is an irony.” The film “Blood Diamond” depicts a related situation in Africa, where exploration for diamonds institutes a civil war, disrupts a nation’s political stability and subjects its people to torment and anguish. One character vividly remarks, “I hope they do not find any more diamonds, otherwise we will start killing each other again.”
Though it may sound treacherous, at some points I almost wish this land were poor – and that may indeed be the wish of many Africans in Sierra Leone. The very inception of economic principles stems from resource scarcity; that is why their core mantra is one advocating efficiency in modes of production...
(5 March 2010)
Money Out Of Thin Air: Now Federal Reserve Chairman Ben Bernanke Wants To Eliminate Reserve Requirements Completely?
The Economic Collapse
Up until now, the United States has operated under a "fractional reserve" banking system. Banks have always been required to keep a small fraction of the money deposited with them for a reserve, but were allowed to loan out the rest. But now it turns out that Federal Reserve Chairman Ben Bernanke wants to completely eliminate minimum reserve requirements, which he says "impose costs and distortions on the banking system". At least that is what a footnote to his testimony before the U.S. House of Representatives Committee on Financial Services on February 10th says. So is Bernanke actually proposing that banks should be allowed to have no reserves at all?
That simply does not make any sense. But it is right there in black and white on the Federal Reserve's own website....
The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system.
If there were no minimum reserve requirements, what kind of chaos would that lead to in our financial system? Not that we are operating with sound money now, but is the solution to have no restrictions at all? Of course not.
What in the world is Bernanke thinking?
But of course he is Time Magazine's "Person Of The Year", so shouldn't we all just shut up and trust his expertise?
The truth is that Bernanke is making a mess of the U.S. financial system...
(17 March 2010)
America's "Houdini Recovery" under IMF-Type Austerity
Stephen Lendman, uruknet
It's what economist David Rosenberg calls recovery given plenty of supportive evidence, including:
-- over five million homeowners behind on their mortgage payments;
-- at record levels, foreclosures are alarmingly high; moreover, "the foreclosure pipeline is enormous;"
-- "housing, the quintessential leading indicator," turning lower again in starts, sales and prices;
-- instead of a normal 5 - 6 months home supply, the market has a 21 month overhang, including shadow inventory from the foreclosure pipeline;
-- mortgage applications for new home purchases down 13.9% on top of last year's 29.4%;
-- over six million Americans unemployed for at least six months, "a record 40% of the ranks of the joblessness;"
-- over 11 million full-time jobs lost since late 2007, and well over four and a half million since Obama took office, despite pledging to create them;
-- millions of jobs lost despite massive economic stimulus, and when it slows, watch out;
-- a federal deficit over 10% of GDP, twice the 1930s ratio;
--private capital growing at its slowest rate in nearly two decades;
-- 30% of manufacturing capacity idle;
-- 19 million vacant residential housing units - about 15% of the total;
-- one in six Americans unemployed or underemployed;
-- the adult male employment-to-population ratio at a record low 67% compared to 73% when the recession began;
-- at this stage of the economic cycle (two and a half years after Fed easing began), employment typically expands at least 150,000 per month; instead, it's still contracting, the level is 8.4 million lower than before the recession began, and the economy is 12 million jobs shy of full employment, a gap that will take years of sustainable growth to close;
-- commercial real estate values down 30% in the past year and falling;
-- the average American worker $100,000 poorer (including loss of home equity), even with the stock market rally;
-- bank credit contracting at an unprecedented 15% annual rate this year "as lenders sit on a record $1.3 trillion in cash;"
-- collapsed commercial and industrial loans;
-- Falling Gross Domestic Income, approaching an annualized minus 4% compared to the 1982 recessionary low of plus 4% and 2001 low of plus 2%; "the discrepancy between the income and spending accounts has never been so wide as" today; and
-- unit labor costs down 4.7% in the past year, meaning workers earn and spend less.
Conclusion - "the era of 'green shoots' is officially dead." Now you see them, now you don't because they never were there in the first place.
...IMF Austerity Arriving in America
It's not coming. It's here, being incrementally rolled out, including painful structural adjustments - some legislated, others unavoidable like the possibility suggested in Jonathan Laing's March 15 Bloomberg.com article, titled "The $2 Trillion Hole" in public-employee retirement plans.
About 80% of them are defined benefit plans, meaning monthly payments are guaranteed, but can insolvent states and municipalities comply, especially given years of under-funding, fewer contributing workers at lower pay, and continuing large budget cuts, including mass layoffs and reduced benefits making a bad situation worse...
(19 March 2010)