Tag Archives: economics

Big Oil Is Changing It’s Mind

Oil drilling in AlaskaMy Comments: For me, economics is a fascinating subject. For you, probably not so much.

Environmentalists are cheering the announcement by Shell they are abandoning their efforts to drill for oil in the Arctic waters for which they own the rights. Some will attribute this to media pressure about the likely environmental costs, but I suspect the reality is an accounting issue.

Time and again, the human experience has been to adapt. More and more of us are living in cities, meaning we tend to drive smaller and more efficient cars. New sources of energy are coming along; wind power, solar power, and if a recent article I saw is to be believed, small scale fusion reactors.

All of this implies opportunities for the rest of us as we invest our money so that when the time comes for us to retire and stop working for money, there will be money somewhere working for us.

Nick Butler September 28, 2015

One hundred and fifty miles from the Alaskan coast lies what must be the most expensive oil well ever drilled. Shell’s decision to abandon the Burger J prospect, along with its entire Arctic exploration campaign, marks an outcome that many at the oil major must have dreaded since it bought the leases in 2008.

That is not because of the cost — enormous though it is — of setting up remote platforms and drilling into rock that lies beneath 140ft of water. Shell is reckoned to have spent about $7bn on the exploration effort; some estimates put the figure even higher. But its balance sheet is strong enough to absorb the loss.

Nor will the public ill-will generated by years of exploration in pristine Arctic waters last for ever. Indeed, for some senior executives at Shell, the prospect of success in the Arctic was more worrying than the possibility of failure. Building the permanent facilities needed for actual production would have been far more contentious than the limited (if sometimes hapless) exploration work. Among the people on record as opposing Arctic drilling is Hillary Clinton, the frontrunner for the Democratic nomination for president. That is a battle that Shell will no longer have to fight.

More worrying, from Shell’s point of view, is the prospect of a declining reserves base. In common with several of the other oil majors, it is pumping oil faster than it can book new reserves of bankable assets. This was the reason for pushing on in the Arctic against public criticism and deteriorating economic prospects for so long. If, as some of the company’s executives believed, the Chukchi Sea blocks held about 35bn barrels of oil, Shell’s reserve base would have been secured and much effort would have been devoted to winning hearts and minds and pushing down costs. As it stands, the reserve base will continue to decline. Shell’s $70bn purchase of BG Group, if completed, will bring access to some identified resources — for instance off the coast of Brazil — but the cost of development is high and success is very uncertain.

In the long run, this is little short of an existential challenge. Can the existing reserves base be replaced with resources that can be developed commercially? Or is a period of corporate decline inevitable? For the past three years Shell has failed to find sufficient resources to replace production despite heavy exploration expenditure. In 2014 it replaced only 26 per cent of its oil and gas production. Over the past three years the figure is just 67 per cent.

The problem is not a shortage of oil and gas. The problem is access. Over the past decade, according to the BP Statistical Review, global oil reserves rose 24 per cent, despite 10 years of growing production, and gas reserves climbed 20 per cent. But the majors do not have access to much of it. Saudi Arabia and Venezuela are closed to foreign ownership. Much of Iraq is a war zone and politics limits access in areas such as Kurdistan even for the boldest independents. Libya is in a state of civil war. Iran is walled off by sanctions, which the nuclear deal only partially removes. Russia is also subject to sanctions. There are significant volumes of oil and gas to be developed from shale rocks in the US and elsewhere but the economics do not look good at $50 a barrel.

For understandable reasons companies do not like the idea of shrinkage and decline. So acquisition becomes a powerful temptation. Those in the sector with cash and the ability to raise capital will now be in predatory mode. No doubt there are bargains — even if BG at the offered price is not one of them. But many are cheap for good reasons.

For all these reasons, some will wonder whether Shell’s retreat from the Arctic was premature. Exploration is a risky business, and first impressions can be misleading. Oil and gas might never have been developed in Iran, Alaska or the North Sea if the industry had given up after initial wells drilled were unsuccessful. A single hole in the ground tells you only about a narrow slice of geology within an area of thousands of square miles. The success of Eni, the Italian group, in the Barents Sea shows that the Arctic does contain resources. Were it not for the political uncertainty surrounding Arctic drilling, Shell might well have carried on.

Still, the Arctic debacle is a salutary reminder to oil majors that their old business model is reaching the end of its life. Change might mean a different energy mix — taking the lead in the global transition away from hydrocarbons. Or it might mean accepting new relationships with the state-owned companies that control the world’s remaining resources. Only one thing is certain — the oil majors will have to change, or accept decline.

The writer, formerly an executive at BP, is a visiting professor at King’s College London. He writes an FT.com blog

The Fed’s Dilemma

moneyMy Comments: Last week the Fed board of governors met and nine of the ten voted to NOT raise the Federal Funds Rate. That’s the rate charged to commercial banks who borrow money from the Federal Reserve. It’s the fundamental tool used by the central bank to influence the economy.

For those of you who are confused, the only other tool available to the government to help or hinder the economy is called ‘fiscal policy’. This is when the Congress chooses to spend or not spend money. It’s in our best interest as consumers and citizenry to limit the potential for massive ups and downs that disrupt lives and lead to social chaos. It’s far from perfect, but no one has yet found a better way to make it happen.

A decision by the Fed to increase interest rates is going to happen. The bigger question is when. It’s impact will be felt globally for the next two decades, at the very least.

September 15, 2015 – Guggenheim Partners

As appeared in the Financial Times global print edition, September 15

Twice in the past 30 years the US Federal Reserve has faced the prospect of prematurely abandoning tightening during market turmoil. Today, global currency devaluations, market volatility and plunging commodity prices have trapped the Fed in a similar policy dilemma.

In 1987, the central bank aborted rate rises and reversed course after a stock market crash. Again, in 1998, after the failure of Long-Term Capital Management, a highly leveraged hedge fund, the Fed abandoned its planned rate increases to stabilize markets and avoid a global crisis. In both cases, the unintended result of delaying was inflated asset prices, which ultimately destabilized the economy and led to severe financial consequences and recession.

In 1986, inflation slowed as oil prices collapsed, raising serious concerns about US economic expansion following the worst postwar recession up to that time. Policymakers were slow to raise rates, allowing for a surge in equity prices in early 1987 as energy prices rebounded.

After falling behind the curve, aggressive Fed actions to address inflation inadvertently pricked the stock market’s speculative bubble. In October 1987, US equities plummeted more than 30 per cent. The Fed quickly reversed course and reduced rates.

By mid-1988, markets stabilised and the Fed again raised rates to head off inflation. By this time, more than four years of accommodative monetary policy had led to a commercial real estate boom with a glut of new properties. As the economy tumbled toward recession in 1990, a sharp decline in property values caused defaults and the failure of financial institutions. The government-sponsored Resolution Trust Corporation was set up in response to resolve troubled banking assets.

After the ensuing recession and another period of accommodation, the Fed again raised rates in the mid-1990s. During this time, many Asian nations had pegged their currencies to the US dollar. By 1997, the pressure to maintain these pegs amid rising US rates became too much for some. Thailand was first to break its peg, allowing the baht to collapse and increasing pressure on neighbouring economies in a dramatic round of competitive devaluation.

By 1998, contagion from emerging markets reached the United States, pressuring domestic markets. A collection of 14 major financial institutions convened by the Fed intervened to stem the collapse of the LTCM hedge fund that threatened the solvency of the global financial system.

Once again, the Fed aborted plans to raise rates, allowing equity prices to skyrocket. When the Fed finally tightened, stocks began a long, deep slide. Numerous companies that flourished amid the speculative wave failed.

Today, policymakers are caught in this familiar dilemma. Labour markets are moving toward full employment, and declining energy prices and a stronger dollar have resulted in languishing inflation. Still, questions remain about the viability of sustained economic expansion in the United States and around the world, and volatility is rising.

At the same time, currency devaluation, particularly in Japan and the eurozone, is putting pressure on countries to devalue to improve export competitiveness. Those countries slow to devalue, like China, are feeling economic pressure at home, driving down asset prices and increasing deflationary pressures, escalating the risk of financial contagion abroad.

The Fed is hard-pressed to justify a rate increase based on its self-prescribed metrics, which include rising inflation and an improved employment situation with clearly rising wages.

At best, policymakers can argue that the prospects for wage growth and inflation are improving, but clear evidence is lacking.

A pre-emptive rate increase seems risky and opens the Fed to potential criticism given the fragility in financial markets and the prospect that rising US rates could exacerbate foreign economic turbulence. But while prices and wages remain tame, the risk of another asset bubble is increasing. If policy remains highly accommodative, the likelihood grows that asset classes including commercial real estate, equities or certain categories of bonds could become dangerously overvalued.

Regardless of the path the Fed chooses, after seven years of accommodation and now facing volatile global markets, the likelihood of regret is high.

Capitalism Can Defeat Economic Inequality

Peasant-Wedding-Bruegel-the-ElderMy Comments: I came across this the other day and failed to note the source. As an economist interested in the sustainability of the economy and sensitive to the growing divide between the haves and the have nots in this country, it caught my attention.

I’m not saying whomever wrote this is right. I think there’s more than a little self-delusion going on, but there are kernels of truth that don’t need more rules from government to make it happen. Those efforts have to be on education, health and infrastructure, which does imply the ability to pay for it all.

Posted: 09/11/2015 2:19 pm

A new study from Harvard Business School shows that economic inequality and stagnant middle-class incomes are big concerns for America’s business elite. And while it shows that the rich believe they will get richer and the gap will continue to grow, the study also shows that even the super wealthy prefer there was more equality. The numbers show that the top one-percent predict the distribution of future income gains to be 41 percent, while their preferred distribution of future income gains is 16 percent.

Despite what most people believe, the rich are standing there with open arms wishing more people would join them and experience financial freedom. It’s no surprise that this survey shows that even the ultra-wealthy want more equality. The U.S. economy is driven by consumer spending, so income inequality is bad whether you identify as poor, middle class or wealthy.

While the rich want to invite everyone into the club, the fact remains shared prosperity isn’t likely to happen anytime soon. It’s unfortunate because in my experience, most people are actually a lot closer to staking their fortune than they realize. But due to limiting beliefs the average person has been brainwashed about money, and most people settle for less than their fair share.

The other unfortunate side to economic inequality is that nobody has a viable solution to fix the problem. Democratic Presidential hopeful Bernie Sanders wants to tax the wealthy at 90 percent. He’s not alone as many people have suggested a higher progressive tax rate for the wealthy. This is a terrible idea. Not only will this hold back economic growth, it’s also extremely unfair. Essentially, you’re punishing someone for success and for a job well done.

Joe Lunchbucket, the small business owner who has a thriving business and built his fortune from the ground up, shouldn’t suffer and pay the consequences to make up for everyone else or help fix the deficit. What kind of message does that send? That’s not exactly setting anyone up for success who has big dreams of achieving the American dream and financial freedom. How dare you succeed? If you succeed you are going to pay for it. Where’s the critical thinking on that one?

The answer to fixing the deficit and fixing income inequality is innovation driven through capitalism. Many of the best ideas that work in anything are the non-linear strategies, or the non-obvious ways of getting things done. When the obvious doesn’t work, which it isn’t right now, it’s time to look at the problem in a non-linear fashion.

If you want to help balance the budget and reduce the federal deficit, instead of putting a gun to the head of the wealthy and forcing them to pay more in taxes, play to the vanity of large corporations and sell them the naming writes to streets, parks and other publicly held properties. Instead of I-95 it could be Johnson & Johnson Highway (or whatever company). Imagine that: billions of dollars come trickling into the government and it’s some of the best advertising a large corporation could buy. It’s no different than legalized pot in Colorado and other states bringing in millions of dollars to help support the economy.

We also need to educate the poor and the middle class on how to earn more money. Through capitalism, we can get the ultra-wealthy to sponsor the middle class for education purposes in exchange for a write off. It’s value for value. Capitalism built this country and it’s capitalism that will solve our problems.

The sustained rise in inequality is years in the making, but the truth is making money has never been easier because there are so many problems waiting to be solved. We just need to teach people how to do it.

The reality is that while higher education and even continuing education courses are certainly great accomplishments, they don’t teach the financial basics of how to get ahead and succeed in a free market economy. After studying the wealthy for more than 30 years, most millionaires will tell you the way they look at money compared to how the rest of the world looks at it is not even in the same ballpark. It’s like the two groups are operating on totally different planets.

If you’re one of those people whose financial situation isn’t quite where you want it to be, start focusing your mental energy where it belongs: on the big money! Making money is easy once you know how to do it.

In the meantime, the only way to close the income inequality gap is through non-linear ideas and strategies driven through capitalism.

Plutonium Is Unsung Concession in Iran Nuclear Deal

My Comments: I think I’m beating a dead horse here but I’m going ahead anyway. This new article points out something I’ve missed in every single argument I’ve read that argued either in favor of or against the agreement on Iran.

As a financial professional, I often hear arguments in favor of or against the use of professional help to achieve the desired outcome. Almost invariably, an amateur approach results in missed opportunities or worse.

If what appears below is accurate, and I’m going to assume it is, then the comments by Dick Cheney, Donald Trump et al follow the same lack of understanding as do clients who believe they don’t need professionals to help them manage their money. Sometimes they can, at least for a while, or until something comes along that they had no clue was relevant.


At first glance, the metals that give atom bombs their destructive fury might seem interchangeable: Uranium and plutonium are both more valuable than gold. Both captivate would-be atomic powers. And both fueled bombs that leveled Japanese cities — uranium at Hiroshima and plutonium at Nagasaki.
But to see them as equal is to ignore a crucial difference: Of the 15,000 or so nuclear warheads on the planet, atomic experts say, more than 95 percent rely on plutonium to ignite their firestorms.

As a fuel for weapons, plutonium packs a far greater punch than uranium, and in bulk can be easier and cheaper to produce. Which is why some nuclear experts voice incomprehension at what they see as a lopsided focus on uranium in evaluations of the deal reached with Iran — under which Tehran would forsake the production of plutonium.

“It was an incredibly big breakthrough,” said Siegfried S. Hecker, a Stanford professor and former director of the Los Alamos weapons lab in New Mexico, the birthplace of the bomb. “But nobody seems to care.”

Nearly two years of negotiations went into the landmark deal, which would limit Iran’s production of uranium and plutonium in exchange for the end of international oil and financial sanctions. It was finalized in July and is set for a congressional vote this month. Last week, President Obama secured commitments for enough votes to put the agreement in place over fierce Republican opposition.

But in the dauntingly complex analyses that preceded that political alignment, questions and criticism revolved almost exclusively around uranium — how much of it Iran would be allowed to enrich and stockpile, and how compliance would be verified.

Atomic experts call the uranium focus potentially misleading, because it is the lesser path to the bomb.

In secret, three decades ago, Iran began exploring the plutonium path and was perhaps only months from inaugurating a plant for its production when, last year, as negotiations gained momentum, it abruptly agreed to a fundamental redesign that would end the facility’s potential for making substantial amounts of bomb fuel.

The nuclear reactor complex near Arak, Iran, is ringed with antiaircraft guns and missiles. Last year, the complex was nearly ready to begin converting uranium fuel into weapons-grade plutonium. But as part of the nuclear deal between Iran and the West, Tehran agreed to redesign the reactor and not to build other plutonium reactors for at least 15 years.

Tehran’s vow was a major turnaround, say nuclear experts, who express frustration that political jousting and technical naïveté have largely obscured what they call one of the accord’s main triumphs.

“It’s a real success,” said Frank N. von Hippel, a physicist who advised the Clinton administration and now teaches at Princeton. “I was surprised that they were willing to give it up.”

Richard L. Garwin, a principal designer of the world’s first hydrogen bomb and a longtime adviser to Washington on nuclear weapons and arms control, called the redesign “a great achievement.” He and other scientists signed a letter to President Obama last month praising the Iran deal as innovative and stringent.

Bomb veterans say the central importance of Tehran’s plutonium concession becomes strikingly clear in the light of history.

After the Manhattan Project began, in 1942, plutonium became a superstar and uranium a sideshow. Purifying uranium into bomb fuel turned out to be extraordinarily difficult, whereas plutonium was an atomic byproduct, easing its manufacture. Moreover, it took far less plutonium to produce a blast of equal size. “It’s got twice the punch,” said Ray E. Kidder, a retired arms designer at the Livermore weapons lab in California. “All things being equal, it makes for a more powerful weapon.”

The plutonium was made in reactors. Tiny particles known as neutrons would zip through fuel rods, splitting atoms of uranium in two. That released energy and more neutrons in multiplying chain reactions.

In a kind of modern alchemy, some of the uranium atoms would also absorb neutrons and turn into plutonium. The Manhattan engineers refined that process so plutonium became the main product. The work was far more dangerous than purifying uranium, in part because the fresh plutonium had to be scavenged from highly radioactive fuel rods. But the results were spectacular.

On July 16, 1945, the world’s first atom bomb lit up the New Mexico desert. Its plutonium core was 3.6 inches wide. In his diary, President Harry S. Truman called the blast “startling — to put it mildly.” The shock wave, he said, knocked down men nearly six miles away.

The nature of a detonating atom bomb is that it rapidly tears itself apart, stopping the chain reactions long before all the atoms are split in energetic bursts.

In New Mexico that day, the bomb’s core started with 6.2 kilograms of plutonium. About a fifth of those atoms split in two, producing waves of smaller atoms as well as a gargantuan flash of pure energy. The plutonium behind that flash is estimated at one gram – the weight of a dollar bill.

The secret, and that of all nuclear arms, lies in the colossal divide between matter and energy that Einstein laid out decades earlier in his famous E = mc², where energy equals mass times the speed of light squared, a staggeringly large number.

On Aug. 9, 1945, when the United States dropped a plutonium bomb on Nagasaki, a gram of matter again flashed into energy. Some 75,000 people died. More plutonium bombs were in preparation as Japan surrendered.

The Soviet Union, Britain and France used plutonium to power their first atom bombs. The metal liberates more energy than uranium in part because its atoms emit more neutrons when split, speeding chain reactions and increasing the weapon’s explosive yield. The high multiplication factor also means that plutonium warheads can be smaller and lighter, so missiles can fire them over longer distances.

Experts say India, North Korea, Israel and Pakistan have used reactors to make plutonium for nuclear arms.

Advanced states use plutonium mainly for hydrogen weapons, which dominate their arsenals. A small mass of the silvery metal, typically no bigger than a baseball, acts as a superhot match to light the thermonuclear fuel. The resulting warhead is up to a thousand times more powerful than an atomic bomb.

Tehran’s bid for plutonium was revealed publicly in late 2002, at the start of Iran’s standoff with the West. Attention focused on a sprawling, half-built reactor complex, named Arak after a nearby city. The isolated site was ringed by miles of barbed wire.

Tehran claimed that Arak would make radioisotopes for such humanitarian purposes as treating cancer. But as work on the complex progressed, nearby valleys and mountaintops came to bristle with scores of antiaircraft weapons.

“It’s pretty well defended for something that’s supposedly peaceful,” said Forbes McKenzie, managing director of McKenzie Intelligence, a private firm in London that examined satellite images of the remote site.

Experts say Arak’s antiaircraft guns are primed for Israeli jets, which have twice hit emerging plutonium threats. In 1981, Israel bombed an unfinished reactor in Iraq and, in 2007, smashed another in Syria.

The most palpable roots of Iran’s plutonium reversal go back to 2012, when arms control experts began discussing Arak’s redesign. Early last year, as part of the interim diplomatic accord, Iran agreed to stop making improvements at its three nuclear fuel plants, including the unfinished reactor.

“Progress,” Secretary of State John Kerry told reporters, “is frozen in place.” The reactor was said to have been months from commissioning.

By mid-2014, Iranian officials surprised Western experts by agreeing to scrap two decades of planning and redo the Arak reactor. They pledged a fundamental redesign so the finished plant would focus exclusively on medical isotopes rather than also producing what Western experts estimated as up to two bombs worth of weapons-grade plutonium each year. With an eye to diplomatic ambiguity, Tehran never admitted that it had sought plutonium for weapons.

A year ago, at the New York City residence of Iran’s ambassador to the United Nations, Iranian reactor designers laid out for American experts a summary of the detailed plan. “It was a remarkably good redesign,” recalled R. Scott Kemp, a nuclear expert at M.I.T. who formerly worked at the State Department.

In selling the Iran deal, the White House has stressed the plutonium step. Tehran does the opposite, telling home audiences that it will still purify uranium. In April this year, when diplomats announced the preliminary accord, Mr. Obama put Arak atop his list of selling points. “First, Iran will not be able to pursue a bomb using plutonium,” he told reporters in the Rose Garden. “The core of its reactor at Arak will be dismantled and replaced.”

¬Siegfried S. Hecker, a former director of the Los Alamos weapons lab, called Iran’s concession “an incredibly big breakthrough.” The final accord, announced in Vienna on July 14, detailed the curbs on uranium before those on plutonium – perhaps as a gesture to Tehran. Mr. Obama, in his Aug. 5 speech at American University, flipped the order. Iran, he said in his first technical point, “cannot acquire the plutonium needed for a bomb.”

Critics fault the deal as leaving Iran free to speed ahead after the accord’s main provisions expire. Its ban on plutonium reactors is to remain in place for at least 15 years. The Obama administration says the deal is better than the alternatives, including war.

Why did Iran’s reversal on Arak fall off the public radar so quickly? Nuclear experts list a number of possible factors.

They note that the military threat from an unfinished plutonium complex can be viewed as abstract compared with Iran’s success at purifying uranium in its two underground plants. Worst-case estimates say Iran could enrich enough uranium for a bomb in as little as two or three months.

The plutonium deal, experts add, displayed no loose ends. It basically ended Iran’s longtime bid, leaving few openings for opponents and doubters of the accord.

“There’s nothing left to discuss,” Dr. von Hippel said.

In contrast, the overall deal let Iran keep thousands of centrifuges spinning to purify uranium. Diplomats see that as a defensible concession to Tehran. But in Washington, it has fueled opposition to the agreement, with some critics questioning whether inspectors will be able to adequately verify the uranium curbs.

Why did Iran give up plutonium? Dr. Hecker, the former director of Los Alamos, said Tehran had probably decided to abandon its push for an arsenal. But he argued that the nation’s hard bargaining to save much of its uranium complex suggested that it still wanted to hedge its bets.

“I think, at this point, Iran really doesn’t want to develop nuclear weapons,” he said in an interview. “But they’ve kept the option.”

Dr. von Hippel of Princeton agreed. He said it appeared that Iran had been aggressively pursuing two pathways to bomb fuel and decided that one was enough.

“They don’t want an arsenal,” he said. “They want the U.S. to know that they could still go for a bomb.”

If the deal goes through, experts say, the redesign and rebuilding of the Arak reactor could take up to a decade.

And if the accord falls apart? Experts say the Arak reactor could soon become a plutonium factory. Iranian troops, they add, appear to have long exercised the nearby guns and missiles, preparing for war.

A Global Recession Underway?

rolling-diceMy Comments: The ability to accurately predict the future is something I cannot do; if I could, you wouldn’t be reading this blog post. On the other hand, I’m OK with saying an economic downturn is very likely already under way. The writer below suggests it will bottom out sometime in 2017.

So, do we all stay in bed under the covers or step out and try to make something positive happen? My gut tells me staying in bed is a colossal waste of time and so we might as well figure how to take advantage of whatever life offers us. I have plans in place so wish me luck. Please.

Heather Stewart September 9, 2015

A “hard landing” for China is likely to plunge the world economy into recession in the next two years, Willem Buiter, chief global economist at Citigroup and a former Bank of England policymaker, has said.

As the Federal Reserve in Washington prepares to decide whether to defy warnings of economic fragility and push up interest rates next week, a research note by Citi’s experts warns of a 55% probability of global recession.

They expect the downturn to be driven by waning demand from the fragile Chinese economy, which Citi believes is heading for a crash.

“We consider China to be at high and rapidly rising risk of a cyclical hard landing,” Buiter said in the note. “Should China enter recession – and with Russia and Brazil already in recession – we believe that many other emerging markets, already weakened, will follow, driven in part by the effects of China’s downturn on the demand for their exports, and, for the commodity exporters, on commodity prices.”

A global recession is usually defined by economists as an extended period of below-capacity growth. Citi puts global potential growth at 3%, but expects growth to “reach or fall below 2%” before bottoming out in 2017.

“We believe that a moderate global recession scenario has become the most likely global macroeconomic scenario for the next two years or so,” Buiter says.

Few other economists are predicting a global recession, and the mood among investors has calmed since August’s chaotic trading, when growing evidence of China’s slowdown sent shockwaves through the world’s financial markets.

But Buiter says: “Economists seldom call recessions, downturns, recoveries or periods of booms unless they are staring them in the face. We believe this may be one of those times.”

He is skeptical of Beijing’s ability to mitigate the looming crisis, after a series of panic interventions in recent weeks to stem stock price declines and boost growth, describing China as “a messy market economy of the state capitalist/crony capitalist variety, where policy ambitions are not matched with effective policy instruments”.

Citi cites the sharp decline in GDP growth among emerging economies; the downturn of global trade; and low commodity prices and inflation, as signs that China’s weakness is already rippling through markets, saying: “The evidence for a global slowdown is everywhere.”

Buiter fears that the authorities in developed countries are ill-equipped to respond, given that interest rates are already close to zero, and high debt levels mean governments are likely to be unwilling to offer fiscal support by loosening the public purse strings.

A growing number of analysts have added their voices to calls for the Fed to hold fire, as insurance against a global slowdown. The World Bank and the International Monetary Fund have both called for a delay to interest rate “lift off”.

Kaushik Basu, the World Bank’s chief economist, was quoted as saying: “The world economy is looking so troubled that if the US goes in for a very quick move in the middle of this, I feel it is going to affect countries quite badly”.

Buiter was one of the first members of the Bank of England’s monetary policy committee, from 1997, and later served as a professor at the London School of Economics, before joining Citi. MPC members will publish the minutes of their latest meeting on Thursday, revealing whether they have become more concerned about the state of the global economy.

5 Reasons the Fed Shouldn’t Raise Rates

080519_USEconomy1My Comments: You’ve already read my comments about the significance of interest rates. They are going to start going up; when is the big unknown.

By Akin Oyedele, September 9, 2015

Larry Summers is convinced the Federal Reserve will make a huge mistake if it raises interest rates next week.

Two weeks ago, Summers wrote in the Financial Times that a rate hike risked “tipping some part of the financial system into crisis.”

And in a blog post on Wednesday, the economist, who withdrew as a candidate for chair of the Federal Reserve Board, a job now held by Janet Yellen, followed up on this thinking, giving five reasons his argument against a rate hike was even stronger than it used to be.

Summers’ main points are:

  • The stock market chaos two weeks ago tightened financial conditions and created the equivalent of 25 basis points of a hike (this is the amount by which most think the Fed will raise rates if it does this month).
  • Employment growth has slowed down, and commodity prices have fallen. The Atlanta Fed’s gross-domestic-product tracking model, which nailed first- and second-quarter growth, is forecasting only 1.5% growth in Q3.
  • The Fed has argued that low inflation is transitory. But inflation will most likely stay low, and the Fed’s preferred measure — personal consumption expenditures — is expected to be below the 2% target, according to market-based expectations.
  • It would be pointless, as some have suggested, for the Fed to raise its benchmark rate by 25 basis points and then say there will not be more hikes for some time. “If as some suggest a 25-BP increase won’t affect the economy much at all, what is the case for an increase?”
  • If the Fed does nothing, the “risks” are a rise in inflation and less volatility in markets. But there could be a “catastrophic error” if it tightens policy now. And according to Summers, the consensus views on the economy are understating its real risks.

At next week’s meeting, the Federal Open Market Committee will decide whether to raise its benchmark rate for the first time in nine years. But markets think it’s a remote possibility and are pricing in a 30% chance that the Fed will hike.

Summers joins the World Bank, the International Monetary Fund, and others in calling on the Fed to not raise rates just yet.

5 Events of Significance

flag USMy Comments: Students are back in school, the morning air is fresher, a stray dog showed up yesterday, I have no doctors appointments this week, and we’re having a garage sale on the 19th. Not significant enough you say?

Well, here are five more that confirm my faith in my fellow countrymen. Yes, there are those who’d rather recapture the glories of the past and I’ve pretty much given up on them. I’d rather spend time and energy and control some of the present and pretend to influence the future. The following five events are nothing to sneeze at and are reasons to be more optimistic about the future.

September 7, 2015

What will you remember about the summer of 2015?

Will it be the GOP tying its fate to the most divisive, thin-skinned and clownish Republican frontrunner/birther in American history? Will it be an amorphous Benghazi investigation that has been impaneled longer than the investigation into Iran-Contra — an actual Constitutional crisis that saw a sitting vice president/candidate for president refuse to release relevant diary entries that may have implicated him in the crime — yielding nothing but questions about administrative vagaries of classified email? Will we remember how the right and a complicit media machine that invented Whitewater, summoned a ridiculous impeachment, and misled us into war deployed every argument at its disposal to destroy the strongest non-incumbent and first female frontrunner for president in American history?

Or will these daffy distractions go the way of the media’s illusory concern for Ebola, the missing plane, and President Obama’s tan suit?
Who knows? But what we can say for sure is that truly historic things have unfolded this summer, and been only glanced at by a media transfixed on conflict and personality. Here are five events that history will definitely have to reckon with, even if the media would rather not.

1. The Iran deal.
On Sunday, Colin Powell joined Richard Lugar and Brent Scowcroft to support the deal the U.S., its European allies, China, and Russia reached with Iran to bring the nation under compliance with the Nuclear Non-Proliferation Treaty. These three former high-ranking Republicans represent the last remaining rinds of right-wing realism, and they join with 38 Democratic senators who have vowed to support the president’s veto on any attempt to undermine the agreement. Legitimate fears and concerns about Iran’s conduct have been overwhelmed by a calculus that assumes the rogue state is both canny enough to evade the laws of physics and suicidal enough to secretly build a bomb, knowing that would invite the world to destroy its economy and possibly the entire existence of the regime. This deal could be the first successful attempt in history to use diplomacy to dissuade a nation that has defied the world to swear off the pursuit of a nuclear weapon. It does not eliminate Iran’s ability to fund terrorism any more than our long relationship with Saudi Arabia prevented that nation and its citizens from funding terrorism, including the seeds of al Qaeda and ISIS. But it does stand in sharp contrast to the way America approached Iraq’s alleged nuclear program. This caution and realignment of strategies makes sense given the incredible humanitarian disaster that was fueled by the failures of the neoconservative approach to Iraq. If America were to suddenly shift back to the chauvinism of the recent past, either by choice or force, history would distinctly note how profoundly disappointing the collapse of this noble effort was.

2. Syrian refugee crisis.
No disaster has gone more ignored by the American media than the ongoing refugee crisis in the countries surrounding Syria. And that probably would have continued forever if a small percentage of those fleeing the war-torn nation had not begun to seep into Europe, and the world had not been shocked by the image of a dead toddler on a beach. Predictably, the right has advanced fantasies that more western interventionism could have fixed a problem ignited by western interventionism. There’s no doubt that the nations that have done the most to fuel the catastrophe—which include the United States, Iran, Russia and Saudi Arabia—have done little to nothing to take responsibility for the brunt of this humanitarian crisis. From Europe, we’ve seen both images that conjure the vile specter of how Jews were treated in the 1930s and incredible acts of enlightened graciousness. Both will play a role in the European perception of the costs of a belief that the west can reshape the Middle East by force. But for America, the agony is still distant. And, for many, so are the lessons.

3. Climate change.
We joke that President Obama has done more to fight climate change than all other U.S. presidents combined because it’s impossible to multiply by zero. His stimulus was a ginormous green-energy bonanza that manifested an American renewables industry from almost nothing, leading us to a revolution that has now seen clean energy become cheaper in some instances than its dirty competitors. The president’s deal with China, the world’s largest carbon polluter, to limit emissions neutered the strongest argument against persistent climate action. This summer, the president presented his finalized plan for demanding power producers reduce their carbon output by 32 percent from what it was a decade ago, by 2032. This new rule is tougher on the states that have been the most recalcitrant in pursuing limitations on emissions, and arrives as we have increasing evidence that fighting climate change is actually helping the economy. This rule still needs to survive legal challenges, which seems likely given the current makeup of the Supreme Court, which rejected a Bush administration attack on regulating CO2 under the Clean Air Act in 2007. So like much of Obama’s legacy, this will truly be decided by the outcome of the 2016 election.

4. Record job growth.
We’ve finally recovered all the full-time jobs lost in the Great Recession and it only took a record 66 months of private-sector job growth. That Obama has gone from the president who prevented a greater depression to the steward of a genuine boom is too much to handle for many Republicans. They argue that his unemployment rate is only lower than anything ever achieved by Reagan because so many people have left the job market out of fear of contracting a bad case of Obama’s Muslim atheism. To make this argument, they have to ignore trends that have been going on for decades or reveal that they’re really upset that Baby Boomers are actually getting to retire. This isn’t to say the economy is perfect, at all. Wage growth is far too slow and too much of the recovery is going to the richest Americans, and this is a problem that Marco Rubio, for instance, wants to solve by cutting Mitt Romney’s taxes to zero. The economy is definitely not as good as we should demand. It’s just better than it’s been all century, and it’s showing great resilience despite persistent claims it would be destroyed by inflation, food stamps and — of course — Obamacare.

5. Obamacare wins.
Perhaps the most underreported story of the summer of 2015 is that Obamacare won again.

This wasn’t proven by the uninsured rate dropping below 10 percent for the first time in decades. Though that’s impressive. And it wasn’t proven by Obamacare spending its first two straight months receiving higher favorable than unfavorable ratings in the Kaiser Foundation’s tracking poll. That’s good, but nope.

This was proven by Scott Walker — the Koch brothers’ mascot — actually producing an Obamacare alternative that resembles… OBAMACARE. “At the talking-point level, Governor Walker’s plan sounds an awful lot like Obamacare,” said Larry Levitt, a senior vice president of Kaiser Family Foundation.

The big difference? It protects way fewer people, and the people it does protect aren’t those who need it the most. This isn’t surprising, but it’s proof that after a half-decade of vowing the destruction of Obamacare, even the most right-wing Republicans recognize that the American public will refuse to give up much of what the law offers. You can see why Republicans aren’t eager to have that story get out.