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Energy, economics and world power - Dec 16

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Mr. Putin Makes an Audacious Offer

Immanuel Wallerstein, Fernand Braudel Center, Binghamton University
Prime Minister Vladimir Putin of Russia visited Germany in the end of November. Before arriving there, he published an op-ed in the German newspaper, Süddeutsche Zeitung, which commented on this interview under the headline, "Putin hugs Europe."

The contents of the op-ed were quite remarkable. Putin said that the lesson to be drawn from the severest economic crisis of the world economy in eight decades was the need for Russia to work more closely with the European Union. "We propose the creation of a harmonious economic community stretching from Lisbon to Vladivostok." He said that "in the future, we could even consider a free trade zone or even more advanced forms of integration." He suggested that such a continental market would be worth trillions of Euros.

Putin suggested that the EU and Russia needed to work closer together in the fields of industry and energy.

... In the field of energy supplies, Putin called for "active exchanges." It was necessary, he said, to work together at "all phases of the technological value creation chain - from the uncovering of demand for energy resources up to the delivery to the consumer." Thereupon, Russia and the EU can move forward to the elimination of visas which would manifest "not the end but the beginning of a true integration of Russia and the EU."

... Putin continued his "charm offensive" with the German economic elite. He suggested they stood together on currency questions. "We need a new multipolarity in the currency system. We must break the excessive dollar monopoly." He spoke of the example of the Roman Empire, whose policies led to a 500-year-long economic stagnation. He then gave a strong endorsement to the euro, which he called an important balance to the dollar in the world economy. He suggested the possibility of trade being denominated in rubles and Euros, and not in dollars.

... It seems a quite specific attempt to encourage a strengthening of ties with Europe at the expense of the United States. While this is not entirely new in terms of Russia's geopolitical stance, it has up to now not been stated so publicly and so boldly. ... Note too that Putin is not talking of remaining merely or even principally an energy-exporter to Europe. Putin is talking of a new wave of industrialization in which Russia will participate fully.

This open diplomacy by Putin should probably worry U.S. leaders more than the modest revelations of Wikileaks.
(15 December 2010)




Inequality and Economic Collapses

Kevin Drum, Mother Jones
"Inequality, Leverage and Crises," an IMF paper written by Michael Kumhof and Romain Rancière, is full of long equations populated by many Greek letters. I won't even pretend that I can evaluate it.

However, their introduction is pretty easy to understand: they've constructed a simple model for financial crises that essentially proposes the following narrative: (a) growing inequality produces less money for the middle class and more money for the rich, (b) the rich loan much of this money back to the middle class so they can continue to improve their living standards even with stagnant incomes, (c) the financial sector balloons to mediate all this, and (d) the system eventually collapses since, after all, this kind of thing can't last forever. Here it is in their words: ...
(15 December 2010)



Rising oil prices, the recession and a new world order

Michio Ushioda, Mainichi Japan
A discussion between economist Kazuo Mizuno and Tsuda College associate professor Toshihito Kayano, which was carried in a book, is based on a bold hypothesis and is inspiring.

In the book, titled "Cho-Makuro Tenbo, Sekai Keizai no Shinjitsu" ("Ultra-macro Outlook -- The Reality of the World Economy"), Mizuno and Kayano discuss the global economy from an ultra-macro economic viewpoint. They assert that the current recession is not just a problem involving the cycle of business conditions but is a result of a drastic change in the current of capitalism.

They pay close attention to the fact that the trade bargaining position of developed countries has declined because they have become unable to beat down the prices of natural resources, particularly oil, with the rise of emerging economies. Furthermore, developed countries have lost their superior positions as economic nationalism has heightened.

In plain words, developed countries are no longer able to make profits if they maintain their policies that had long been regarded as orthodox.
(15 December 2010)



Oil or Terrorism: Which Motivates U.S. Policy More?

Nafeez Mosaddeq Ahmed, Foreign Policy in Focus
Among the batch of classified diplomatic cables recently released by the controversial whistle-blowing website WikiLeaks, several have highlighted the vast extent of the financial infrastructure of Islamist terrorism sponsored by key U.S. allies in the ongoing "War on Terror."

One cable by U.S. Secretary of State Hillary Clinton in December 2009 notes that “donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide.” Despite this, “Riyadh has taken only limited action to disrupt fundraising for the UN 1267-listed Taliban and LeT [Lashkar e-Tayyiba] groups that are also aligned with al-Qaeda.”

Clinton raises similar concerns about other states in the Gulf and Central Asia. Kuwait remains reluctant “to take action against Kuwait-based financiers and facilitators plotting attacks outside of Kuwait.” The United Arab Emirates is “vulnerable to abuse by terrorist financiers and facilitation networks” due to lack of regulatory oversight. Qatar’s cooperation with U.S. counter-terrorism is the “worst in the region,” and authorities are “hesitant to act against known terrorists.” Pakistani military intelligence officials “continue to maintain ties with a wide array of extremist organizations, in particular the Taliban [and the] LeT.”

Despite such extensive knowledge of these terrorism financing activities, successive U.S. administrations have not only failed to exert military or economic pressure on these countries, but in fact have actively protected them, funnelling billions of dollars of military and economic assistance. The reason is oil.
It's the Hydrocarbons, Stupid

Oil has always been an overwhelming Western interest in the region, beginning with Britain’s discovery of it in Persia in 1908. Britain controlled most Middle East oil until the end of World War II, after which the United States secured its sphere of influence in Saudi Arabia. After some pushback, Britain eventually accepted the United States as the lead player in the region. “US-UK agreement upon the broad, forward-looking pattern for the development and utilisation of petroleum resources under the control of nationals of the two countries is of the highest strategic and commercial importance”, reads a 1945 memo from the chief of the State Department’s Petroleum Division.

Nafeez Mosaddeq Ahmed is executive director of the Institute for Policy Research & Development in London and a contributor to Foreign Policy In Focus. His latest book is A User's Guide to the Crisis of Civilization: And How to Save It (2010). He blogs at The Cutting Edge.
(15 December 2010)

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