First, the Obama administration showed during the course of the GM and Chrysler bankruptcy proceedings, that when it comes to Most Preferred Voter classes, some unsecured creditors – namely labor unions, and the millions of votes they bring – are more equal than other unsecured creditors – namely bondholders, and the zero votes they bring. Five years later we are about to get a stark reminder that under the superpriority rule of a community organizer for whom “fairness” trumps contract law any day, it is now Detroit’s turn to make a mockery of the recovery waterfall. As it turns out, bankrupt Detroit is proposing to favor pension funds at roughly double the rate of bondholders to resolve an estimated $18 billion in long-term obligations, according to a draft of a debt-cutting plan reviewed by The Wall Street Journal.
The breakdown to unsecured stakeholders would be as follows: 40% recovery for pension funds, 20% for unsecured bondholders – all this to the same pari class of unsecured creditors. Because just like in Europe when cashing out on CDS in insolvent nations is prohibited as it would suggest that the entire Eurozone experiment is one epic farce, regardless of how much “political capital” Goldman Sachs has invested in it, so in the US municipal creditors are realizing that in the worst case scenario, they will be layered first and foremost by all those whose votes are critical in keeping this crony administration in power.
According to the WSJ the plan calls for recovery to be divided among the unsecureds amounting to $4.2 billion, more than the originally planned $2 billion to settle claims which included about $11 billion in unsecured debt, including $6 billion in health and other benefits for retirees; $3.5 billion for retiree pensions; and about $530 million in general-obligation bonds.
There is a possibility that final “math” in the Plan of Reorg is changed before the final draft.
It was unclear from the plan reviewed by the Journal whether the city is using all of the same estimates for the money owed to unsecured creditors in its draft plan. A person familiar with the draft plan said the recovery rate for the pension funds could end lower than the balance sheet shows.
Details of the plan sent to creditors on Wednesday have been kept under wraps as the city and its debtholders continue to talk in closed-door mediation. The city sent its working draft to creditors in the hopes that the plan with a richer payout might spur some of them to settle with the city individually or, in the least, offer their own suggestions toward modifying the overall proposal, according to another person familiar with the matter.
The formal plan is expected to be filed in federal court in Detroit within two weeks, officials said. Creditors will vote on the plan, but the final decision rests with the court.
Still, the probability is that Kevyn Orr has finally gotten cold feet on playing hard ball with the unions. “The proposed plan provides the road map for all parties to resolve all outstanding issues and facilitate the city’s efforts to achieve long-term financial health,” Detroit Emergency Manager Kevyn Orr said in a statement Wednesday. Mr. Orr’s spokesman declined Thursday to comment on the plan’s details. Several creditors, who were opposed to the city’s early plans to offer creditors, including bondholders and pension funds, less than 20 cents on the dollars owed to them, also declined to comment.”
One can only imagine the amount of “Steve Rattnering” that must have gone on behind the scenes, and how much more is still set to happen, for such a skewed plan to pass the bankruptcy judge over creditor objections. Which it will once the president makes a phone call.
Then again, with contract law abrogated as was made very clear with this administration’s first steps into the “Fairness Doctrine” back in 2009 and the bankruptcy of GM and Chrysler, nothing can, or should, surprise one any more.
The U.S. State Department is about to release its long-awaited report on the Keystone XL oil pipeline, which would connect the Alberta Oil Sands to the gulf of Mexico. If you think it’s time to break out the shovels, this is not the Keystone decision that you think it is.
The environmental impact report says the pipeline won’t greatly boost oil sands or have a significant climate impact, according to congressional aids briefed on the study who spoke to Bloomberg News. It calls for additional safety measures to prevent and deal with spills, but it’s generally being received as a thumbs up for the project. Whether you find yourself disappointed or delighted, the Keystone fight is far from over. Here are three of the biggest hurdles that remain:
Hurdle 1: More Government Reviews
Today’s report will start a 90-day clock for eight U.S. federal agencies to weigh in. That includes the Environmental Protection Agency and the Department of Interior, which have both expressed reservations about the pipeline in the past. It was the EPA’s objections to the State Department’s draft assessment in March that prompted this new report in the first place. If the EPA objects again, it will pressure the final referee, President Barack Obama, to make a tough call.
Hurdle 2: Contractor Controversy
Today’s assessment was conducted by Environmental Resources Management (ERM), a U.K. company that environmentalists later criticized for potential conflicts of interest. The scrutiny is about to get heated.
Two environmental groups, Friends of the Earth and the Checks and Balances Project, accused ERM in July of lying about its ties to TransCanada, the Calgary-based company that wants to build the pipeline. Specifically, they charged that ERM claimed not to have worked with TransCanada for at least three years, when in fact they had worked together more recently on a pipeline project in Alaska.
The allegations are being investigated by the State Department’s Inspector General. In December, 25 members of the U.S. House of Representatives sent a letter to Obama asking for the final impact study to be delayed pending the outcome of that probe. That didn’t happen, but the conflict, if true, could conceivably lead to a do-over, which is not without precedent.
Hurdle 3 (the big one): The President’s Pen
Ultimately, this decision is for Obama to make. The State Department’s assessment is just one of many things he’ll need to consider, including pressure from his political base, public opinion, opinions of other scientific advisors, relations with Canada and energy security.
The Keystone report is a Friday afternoon news dump of Super Bowl proportions. By Sunday, even many Americans who oppose Keystone will be more concerned with the Denver Broncos and the Seattle Seahawks than the Canadian tar sands. Maybe that’s just as well, because the real Keystone decision is yet to come.
Monopoly power in all its forms–in our system, crony capitalism and its partner, the neofeudal state–enables theft on a systemic scale.
If a monopoly forces its customers to pay more for low-quality goods and services because they have no choice, how is that not theft?
If the Mafia raises the price of “protection” on small businesses (another case of monopoly and no other choice), how is that extortion not theft?
When a local government raises junk fees to fund its cronies’ excessive (i.e. non-market-rate) salaries and pensions, how is that monopoly power to extort more money from those with no other choice any different from Mafia extortion/theft?
If a pharmaceutical company extends a patent on a costly medication by changing the dosage slightly, how is that not theft via regulatory capture? If a government contractor charges the Pentagon $1,000 for a hammer (all those overhead charges, tsk-tsk–lobbying corrupt politicos costs a lot, you know), how is that not theft of taxpayers’ money?
When the Federal Reserve drops the yield on savings to near-zero to funnel all that stolen wealth to its cronies on Wall Street, how is that not theft?
Monopoly power in all its forms–in our system, crony capitalism and its partner, the neofeudal state–enables theft on a systemic scale. When crony capitalism and the state are essentially one system, the propaganda organs of the state and mainstream corporate media combine to persuade the stripmined populace that their theft is not theft, it’s “capitalism and democracy at work.” This is known as The Big Lie. What we have is systemic theft, predation and exploitation.
Calling things what they really are would upset the apple cart of systemic exploitation.Let’s Call Things What They Really Are in 2014 (January 15, 2014)
Correspondent Jeff W. explains that all this systemic theft is inherently deflationary:
All forms of stealing are deflationary. Stealing cuts into the average citizen’s disposable income, it reduces how much he can buy. Because there are now fewer dollars chasing more goods, deflation is the inevitable result. Stealing is actually worse than a zero-sum game. Society loses more than the thief takes. In addition to losses from theft, a victim often has to spend more on security measures. Theft also has a chilling effect on capital investment and commerce in general.Consider how many different kinds of theft the American citizen is exposed to: street crime, sickcare industry ripoffs, legal system ripoffs including huge fines for traffic violations, high taxes, interest earnings on his savings that amount to ZIRP, a corporatist state determined to suppress his wages by any means necessary, unending victimization at the hands of predators enabled and protected by the state. If he owns a small business, he has to deal with a corrupt regulatory state, higher taxes, and an enlarged menagerie of predators. Today there are thieves everywhere.
So one big deflation trend is theft. As theft increases, deflation increases. As society collapses and thieves start roaming freely all over the landscape, a deflationary collapse can be expected—absent a determined and persistent campaign of money printing.
Exhibit A for the case that stealing is deflationary is the Dark Ages.Stealing was rampant in the Dark Ages. How did people react to that? By “going medieval.” They wore clothing that made them look poor so as to avoid attracting the attention of thieves. Their dwellings looked poor for the same reason. If they had cash, they would bury it in the ground; no one could be trusted. Unless one was an insider who could get protection from the state, no one’s property was safe.
Capital investments were much too risky, and out of the question. What were the price characteristics of the Dark Ages? Wages were low. Real estate valuations low. Prices of manufactured items (such as they were) were low. Only food was expensive. People can cut back on clothing and shelter, but there is a limit to how much they can cut back on food. In the Dark Ages, people really hunkered down and just focused on basic survival.
Exhibit B is Detroit. Detroit for many years has been a high crime area, i.e. it had lots of thieves running around. What are the price characteristics of Detroit? Wages low. Real estate valuations low. There is very little manufacturing being done inside the city limits today because of high property taxes and crime. There is also very little capital investment for the same reasons.
There is a vicious circle at work here. 1) Thieves control the government; 2) Which results in increased stealing; 3) Deflation results from that; 4) Which gives the thieves a reason to print money and give it to themselves; 5) Which enriches the thieves some more; 6) Which gives them more resources they can use to consolidate their control of the government; 7) Back to step 1.
Many people seem confused about how there could be deflation in the paper (or digital) money era. If they would recognize how much stealing is going on, and if they understood the powerful deflationary effect of stealing, then perhaps they would not be so surprised to observe price decreases, particularly in wages and the prices of manufactured products.
Thank you, Jeff, for explaining the causal connection between systemic theft and deflation. To all those terrified of deflation (for example, central bankers and their cronies holding trillions of dollars in phantom assets and illusory collateral), the solution is obvious: get rid of systemic theft. But since those terrified of deflation are at the top of the monopoly-power thievery pyramid, that is asking the impossible: for the thieves to relinquish their power to steal.
The question isn’t about whether to use rail or pipelines. It’s about how to reduce our need for both. (Credit: Dieter Drescher via Flickr)
By David Suzuki with contributions from Ian Hanington, Senior Editor
Debating the best way to do something we shouldn’t be doing in the first place is a sure way to end up in the wrong place. That’s what’s happening with the “rail versus pipeline” discussion. Some say recent rail accidents mean we should build more pipelines to transport fossil fuels. Others argue that leaks, high construction costs, opposition and red tape surrounding pipelines are arguments in favour of using trains.
But the recent spate of rail accidents and pipeline leaks and spills doesn’t provide arguments for one or the other; instead, it indicates that rapidly increasing oil and gas development and shipping ever greater amounts, by any method, will mean more accidents, spills, environmental damage — even death. The answer is to step back from this reckless plunder and consider ways to reduce our fossil fuel use.
If we were to slow down oil sands development, encourage conservation and invest in clean energy technology, we could save money, ecosystems and lives — and we’d still have valuable fossil fuel resources long into the future, perhaps until we’ve figured out ways to use them that aren’t so wasteful. We wouldn’t need to build more pipelines just to sell oil and gas as quickly as possible, mostly to foreign markets. We wouldn’t have to send so many unsafe rail tankers through wilderness areas and places people live.
We may forgo some of the short-term jobs and economic opportunities the fossil fuel industry provides, but surely we can find better ways to keep people employed and the economy humming. Gambling, selling guns and drugs and encouraging people to smoke all create jobs and economic benefits, too — but we rightly try to limit those activities when the harms outweigh the benefits.
Both transportation methods come with significant risks. Shipping by rail leads to more accidents and spills, but pipeline leaks usually involve much larger volumes. One of the reasons we’re seeing more train accidents involving fossil fuels is the incredible boom in moving these products by rail. According to the American Association of Railroads, train shipment of crude oil in the U.S. grew from 9,500 carloads in 2008 to 234,000 in 2012 — almost 25 times as many in only four years! That’s expected to rise to 400,000 this year.
As with pipelines, risks are increased because many rail cars are older and not built to standards that would reduce the chances of leaks and explosions when accidents occur. Some in the rail industry argue it would cost too much to replace all the tank cars as quickly as is needed to move the ever-increasing volumes of oil. We must improve rail safety and pipeline infrastructure for the oil and gas that we’ll continue to ship for the foreseeable future, but we must also find ways to transport less.
The economic arguments for massive oil sands and liquefied natural gas development and expansion aren’t great to begin with — at least with the way our federal and provincial governments are going about it. Despite a boom in oil sands growth and production, “Alberta has run consecutive budget deficits since 2008 and since then has burned through $15 billion of its sustainability fund,” according to an article on the Tyee website. The Canadian Taxpayers Federation says Alberta’s debt is now $7 billion and growing by $11 million daily.
As for jobs, a 2012 report by the Canadian Centre for Policy Alternatives shows less than one per cent of Canadian workers are employed in extraction and production of oil, coal and natural gas. Pipelines and fossil fuel development are not great long-term job creators, and pale in comparison to employment generated by the renewable energy sector.
Beyond the danger to the environment and human health, the worst risk from rapid expansion of oil sands, coal mines and gas fields and the infrastructure needed to transport the fuels is the carbon emissions from burning their products — regardless of whether that happens here, in China or elsewhere. Many climate scientists and energy experts, including the International Energy Agency, agree that to have any chance of avoiding catastrophic climate change, we must leave at least two-thirds of our remaining fossil fuels in the ground.
The question isn’t about whether to use rail or pipelines. It’s about how to reduce our need for both.
Why would the central bank of Nigeria decide to sell dollars and buy Yuan?
At first glance it might not seem the most interesting or pressing question for you to consider. But I think it is one of those little loose threads that if pulled upon carefully begins to unravel the hints and traces of a much larger story. But please be warned this is speculative.
Two days ago the Nigerian Central Bank announced it was going to increase the share of its foreign currency reserves held in Yuan from 2% at present, to up to 7%. To do this it was going to sell US Dollars. Now a 5% swing in anything financial is big. In our debt drunk times it’s difficult somethimes to remember that 2.15 billion dollars (which is what 5% comes to) is actually a great deal of money, even if it is less than a drop in America’s multi trillion dollar debt ocean. On the other hand even a 5% increase in Yuan would still leave 80% of Nigeria’s $43 billion worth of reserves in dollars.
BUT while it is small in raw financial terms I think it is significant in geopolitical terms.
Nigeria is Africa’s second largest oil and gas exporter. It holds as many dollars as it does because oil is sold in dollars. Nigeria gets paid in dollars which it then needs to recycle. This is the famous petrodollar in action. It is also a major reason the dollar is still the world’s major reserve currency and that in turn is why America can have such a monumental pile of debt and still (for now) be the risk-off haven that institutional investors run to when other currencies and markets become too risky and unstable.
What interest me is that prior to this announcement from Nigeria’s central bank, China has, for some years now, been working hard and succesully to buy exploitation rights in Nigeria’s oil fields. In 2009 The Wall Street Journal reported,
Chinese companies have proposed investing $50 billion to buy 6 billion barrels of oil reserves in Nigeria, the African nation’s presidential adviser on energy said Tuesday.
A year later in 2010 the WSJ reported,
Nigeria and China have signed a tentative deal to build three oil refineries in the West African state at a cost of $23 billion, in a move to boost badly needed gasoline supply in Nigeria and to position China for more access to the country’s coveted high-quality oil reserves.
And just last year China extended a $1.1 billion loan in return for a reported agreement that oil exports to China would increase from around 20 000 barrels a day to 200 000 per day by 2015. This loan was on top of a range of development agreements betwen the two countries for various infrasctructure projects such a telecoms and railways.
Nigeria had, as of 2011, over 37 billion barrels of proven oil reserves. China is now one of its major trading partners. China wants Nigerian oil and my guess is that if it isn’t doing so already it is going to trade it entirely in Yuan. Such a move would mean Nigeria would need fewer dollars and more Yuan and the PetroYuan would begin to rise at the expense of the Petrodollar.
For some years now China has been making the Yuan a settlement currency. I have written about this a lot over the years. In 2012 I wrote a piece called “A new reserve currency to challenge the dollar – What’s really going on in the Straits of Hormuz.” China has created a series of bilateral settlement agreements with, among others, the EU, South Korea, Iran, India and Russia. All of these agreements by-pass the US dollar. If China now trades its oil in Yuan where will that leave the dollar? Of course Saudi would never agree to such a thing, would it?
Now Its a long way from Nigeria’s 200 000 barerels a day to overthrowing the dollar as the premiere oil currency. But let’s face it the US has gone to war on more than one occasion recently in part because the country involved had been going to sell its oil in Euros. And the US is Europe’s friend, isn’t it?
The US hawks have always been afflicted with dominophobia – fear of falling dominoes. Somewhere in a room in the Pentagon or Langley, there is a huddle of spooks, military types, oil men and State department advisors all wondering how to prevent this new creeping menace. Because you cannot afford to be complacent you know. It starts in one country and if you don’t do something other’s will follow and before you know it the rich Western Africa oil bonanza is flowing into Yuan, to be followed by all those North African and Middle Eastern Arab Spring countries where the clean-cut boys are already having to ‘advise’ on the need to take a firm line with potentially anti-American Muslim Brotherhood types by locking them up, shooting them and generally branding them as terrorists.
What would happen, someone will mention almost in a whisper, if Qatar were to triumph over Saudi and then cut a multi-lateral deal to sell its gas in Euros to Europe and in Yuan to China?
But to return from the overheated imaginations of the Virginia Hawks to some sort of reality, Nigeria is increasing its Yuan reserve at the expense of the dollar and is developing far closer ties to China than to the US. Which is why I think you will soon find the US dramatically increasing its involvement, both financial and military, in Angola.
Angola is going to be America’s answer to China’s Nigeria. And I think the signs are already there.
While in Nigeria Chinese companies are expanding, in Angola the big players are the Western Oil majors: Chevron/Texaco(US), Exxonmobil (US), BP (UK), ENI (Italy), Total (FR), Maersk (DK) and Statoil (NOR). There are others but these are the big players. Of these Total is probably the largest presence producing about a third of all Angola’s oil output. And Total has recently increased its presence. Of the others Chevron is one of the largest and is expanding aggressively.
Angola itself is busy selling off new concessions. 10 new blocks containing an estimated 7 billion barrels of oil, which is over half of all Angola’s proven reserves are to be auctioned this year. Angola has recently edged ahead of Nigeria to be Africa’s largest oil exporter. If I’m correct I expect the Western nations/companies, led by the US and new best war-buddy, France to make sure the Chinese do not get a large share of the spoils. One to watch.
As part of this new Western push, I expect to see China also restricted in any new oil fields around Sao Tome and Principe. The big players to date are Chervon, Exxonmobil and Nigeria. The latter suggesting a way in for the Chinese that I think the Westerners will want to push shut. To which end what I found interesting about recent events in Soa Tome and Principe is the visit there of Isabel dos Santos, the daughter of Angola’s President for life. I have written about her and her banking empire in The Eurofiscal Corruption Contest – The Portuguese entry. Isobel is most often refered to as Africa’s or Angola’s most famous business woman or Africa’s richest woman (She’s a billionaire). Rarely does anyone from the press raise the question of how she became so vastly wealthy.
She made a visit to the islands and both she and Angola’s state companies have begun to invest heavily. Angolan companies now have a very commanding position in the island’s economy and Angola, even though its own people live in poverty, found the money to loan Sao Tome and Principe $180 million which is half of the island’s GDP. Top that Beijing! The Islands are Portuguese speaking, the largest bank is Portuguese, and the islands also house a broadcast station for Voice of America.
I think taken together the signs are that the West, led by America, has in mind to try to contain or perhaps even confront Chinese expansion particularly as it concerns access to oil and gas in West and North Africa, and to rare earth minerals – but that’s another story. I don’t think there can be any doubt that America and Europe are looking at Chinese expansion and its hunger for resources and see a threat. The question is what will they do? America is accustomed to being the hegemonic power and its hawks have proved over and over that they are are quite prepared for military confrontation. The question for them would be how? Invading countries who have – in reality – very little military or economic might is one thing, but directly confronting another superpower is another. I think all sides would see direct and open military confrontation to be out of the question. Not just for military reasons but for global economic ones as well. They need to find ways of fighting that do not sink the world economy – neither its flows of goods and trade , nor its flows of captail and debt. Which is why I wonder about the possibility of seeing an era of new proxy wars being faught out in tit-for-tat destabilization escalating up to protracted gorilla/civil wars.
In West Africa the front line seems to run between Angola and Nigeria. So who would like to play a game of destabilize your neighbour? There is already unrest about Chinese goods flooding Nigeria. How tempting might it be to think about fanning flames of unrest in already unstable Nigeria espeicially in the delta?
In return what would you have to do to re-ignite the lines of mistrust and division which blighted Angola through decades of civil war? Dos Santos and the MPLA may have been the Soviet proxy but he’s a capitalist now. So, how about a nice cold-war style proxy war? I cannot bring myself to believe that no one at the Pentagon has dusted off the old plans for such conflict and set some analysts to working up some new ones with China scribbled in, in place of Russia.
Something is, I suspect, already afoot. One last pull on that little thread, one last detail that makes me wonder. Just last April (2013) the Israeli billionaire, Dan Gertler sold back to the government of the Democratic Republic of Congo, one of the oil companies/exploration blocks he had bought from it, but for 300% more than he paid. Anti-corruption campaigners have been up in arms.
Two facts interest me . One, that the purchase was actually financed by Sanangol, the Angolan state oil company (the company from which $32 billion had gone missing. Missing billions: billionaire dos Santos… No connection obviously). The DRC is to pay Sanangol back from oil revenue. Until that time, of course, Sanangol calls the tune. Two, that this oil block lies between the DRC and Angola in what was contested territory but has since been decreed a zone of cooperation.
Now this sale by Gertler could just be a bog standard pillage-Africa deal. And I might well be seeing things that just aren’t there, but why now? This sort of big money, that is connected to the top of the DRC government (how do you think Gertler was able to buy the concession at the price he did? And who do you think might be the, so far, hidden second beneficiary of Gertler’s oil company? The government minister who sold the concession to him in the first place, maybe?) moves when its contacts suggest this is a better time to lock in profit than times to come.
All in all, if I were a religious man, I would be saying a prayer for the children of Nigeria and Angola.
A note on all this speculation and non-financial stuff. I don’t usually write this much speculation but recently I have become more convinced that we are in a watershed in which everything around us, all the rules we are used to, all the lines on the map, are up for grabs and are changing around us. For me, finance is not separate from politics so we have to understand how they rub against one another. I hope you will bear with me.
Australian Report Trumpeted By Coal Bosses Does Not Say What They Want You To Think It Says | DeSmogBlog
WHAT follows are some thoughts about coal from a report just published in Australia.
A longer-term concern relates to the environmental impacts of large-scale coal use, especially its climate consequences….
Coal is a carbon-intensive fuel and the environmental consequences of its use can be significant, especially if it is used inefficiently and without effective emissions and waste control technologies. Such environmental consequences include emissions of pollutants such as sulphur and nitrogen oxides, particulates, mercury, and carbon dioxide, the main greenhouse gas. Indeed coal-sourced pollution remains the largest source of greenhouse gas emissions from fossil fuel combustion. Hence most forecasts show a very wide range of future coal demand, based on differing degrees of environmental policy implementation.
Now who might have written that? An environmental campaigner? An anti-coal activist in a less bombastic mood? Maybe they’re the words of an advocate for action on climate change?
Actually, these are the views of Ian Cronshaw, a long-standing advisor to the International Energy Agency who was commissioned by the Energy Policy Institute of Australia to write a report about coal and its future economic outlook.
The Energy Policy Institute of Australia’s board includes a number of figures who have spent their careers in and around the fossil fuel industry.
The paper, The Current and Future Importance of Coal in the World Energy Economy, consists of just three pages, as well as a header page and a biography page at the back.
Most of the contents are drawn from the various reports put out by the International Energy Agency.
So how was this pamphlet greeted by Australia’s coal industry? The only media report of note came from The Australian newspaper, which ran the headline: “Coal will ‘dominate global power sector for decades‘” on its front page.
Here are the first two lines of that story, to give you a flavor.
COAL will dominate the power sector globally for decades to come, according to a paper that miners say undermines campaigns by green activists to “demonise” coal.
The paper – written by an International Energy Agency consultant and to be sent to Industry Minister Ian Macfarlane – says coal will remain the dominant power-sector fuel for at least the next quarter of a century despite efforts to diversify power sources and concerns about slower economic growth.
The report in The Australian does not mention Cronshaw’s observations about coal and climate change.
In fact, the words climate change or global warming don’t appear anywhere in the story, even though it takes up almost a third of the three pages of Cronshaw’s analysis. The Australian also chose to quote two coal industry representatives, who took the report’s publication as an opportunity to criticise environmental campaigners.
Graham Bradley, who amongst other things is the chairman of the advisory board for coal company Anglo American Australian, was reported as saying:
Much of the green polemic is not grounded in the fundamental reality that the world needs the lowest-cost energy and at the end of the day the economics will prevail and investment will follow.
Brendan Pearson, chief executive of the industry lobbyists the Minerals Council of Australia which recently subsumed the lobbying work of the Australian Coal Association, said:
Activist campaigns seeking to demonise Australian coal fail to acknowledge that it will be the principal global energy source for decades – transforming economies and helping eliminate poverty.
Both commentators also touted how the report predicted a rosy future for the coal industry in long term. The report does do this, but with a number of large caveats. It is far from the slam dunk which the media report and the quotes might have you believe. For example, there’s this from the Cronshaw report:
The current economic outlook remains very clouded, with many regions either stagnant or seeing slower economic growth. This will naturally impact heavily on global power use and coal consumption. However, most forecasters remain confident that, over the longer term, energy demand growth in non-OECD countries, the key determinant of coal demand growth, will be strong.
The report does map out the strong growth in the use of coal in non-OECD countries, including India and China, and predicts this is where much of the future demand will come from.
In two sentences, the report also points out the benefits of electricity — which, remember, can and is generated from renewable sources as well as polluting coal. The report says:
Such access to electricity is crucial to economic growth; it means food can be stored in refrigerators, children can do their homework, small businesses can function. And overwhelmingly, this electricity has come from coal.
Cronshaw also makes it clear that under the policies currently in place, coal has a strong future. But this is precisely why climate change campaigners are pushing back hard on the mining and the use of coal, because they see these policies as being far too weak.
One analysis of current climate pledges by governments around the world, released during the recent Warsaw UN climate talks, suggested that pledges on the table will currently deliver about 4C of global warming by the end of the century — a gaping chasm between stated ambitions and reality.
It is worth observing that the IEA’s Current Policies Scenario, essentially a business as usual scenario, has global levels of coal demand more than 20% above the central scenario, in which a range of climate policies are cautiously implemented. The power sector is clearly the key coal market, but this sector must also be the focus of any successful climate change mitigation efforts.
That last line is worth reading twice. The coal sector “must also be the focus of any successful climate change mitigation efforts.”
Cronshaw also says the industry could make early gains in cuts in emissions by improving efficiency, but says that, “In reality, the penetration of the most efficient coal-fired power generation technologies is constrained by technical considerations, additional costs and the absence of a global price on carbon.”
The Australian government is in the process of trying to repeal the country’s carbon price, which would have linked to the European emissions trading scheme.
But again, Cronshaw is clear that coal’s future does depend on environmental policy down the line.
Environmental policy will play a decisive role in future coal consumption. In some countries, coal use may be encouraged for economic, social or energy security reasons. If action were taken to provide electricity access by 2030 to the 1.3 billion people in the world without it today (almost all in non-OECD countries), coal could be expected to account for more than half of the fuel required to provide additional on-grid connections. In other countries, policies may encourage switching away from coal to more environmentally benign or lower carbon sources. While a global agreement on carbon pricing has been elusive, a growing number of countries are taking steps to put a price on carbon emissions, including in China where there are several pilot schemes underway, although current pricing levels seen for example in Europe, are too low to materially affect energy choices.
When Graham Bradley from Anglo American Australia says “at the end of the day the economics will prevail and investment will follow” he seems to be ignoring the view expressed in the report which he lauds, which says that in fact, “Environmental policy will play a decisive role in future coal consumption.”
The paper also has a few words to say about so-called “clean coal” technologies – known as Carbon Capture and Storage. The paper points out that while some progress has been made “CCS has yet to be demonstrated on a large scale in an integrated fashion in the power and industrial sectors, and so costs remain uncertain.”
Cronshaw adds that:
The success of governments globally in encouraging greater energy diversity, improved efficiency, and the development and deployment of clean coal technologies will have a profound bearing on the role of coal in the longer term.
This is an interesting observation, given that both the former and current Australian governments have continued to slash hundreds of millions of dollars from CCS programs.
Despite what you might read in The Australian or through the mouths of vested interests, the future of coal is far from certain.
Just ask the president of the World Bank, Jim Yong Kim, who earlier this weekencouraged governments and institutional investors to take their money out of fossil fuels. Or maybe try one group of philanthropists with $1.8 billion in their coffers, who also this week pledged to divest from fossil fuels.
Or how about the US Export-Import Bank – a government institution that approved more than $35 billion in investments in 2012 – which has said it won’t invest in coal projects abroad unless they are fitted with CCS (which as yet, doesn’t really exist commercially).
Clearly coal will continue to be burned for energy, but as even this report the industry cites explains, emissions need to come down, environmental policies will dictate how quickly and that carbon pricing will drive early efficiency gains.
You can of course see this report two ways, depending upon which side you butter your bread. One way is that the report shows how the current suite of policies to cut greenhouse gas emissions are either too few or are not up to the job — probably both.
Another option is to use the three-page pamphlet as a way to instill confidence in potential investors in coal and to convince politicians that it’s an industry worth supporting.
That second group of people just have to hope that policymakers either fail to actually read the report, or don’t take the risks of climate change anywhere near seriously enough.
Greece Is Back: Germany, France, Creditors Hold Secret Meeting Due To Greek Bailout “Mounting Concerns” | Zero Hedge
There was a time – roughly between May 2010 and the spring fall of 2011 – when all the world had to worry about was Greece. Then the realization finally dawned that since a Grexit from the Eurozone would kill the EUR and the European integration dream with so much “political capital” invested, crush Deutsche Bank, and bring back the much dreaded (by German exporters) Deutsche Mark, it became clear that there is no fear that Greece, which is now a decrepit shell of a country with a collapsed economy and society in shambles, has now become a slave state to European bureaucrats, business and banks (in Nigel Farage’s words), will never be formally kicked out of Europe and only an internal coup would allow it to finally break free from the clutches of unelected European tyrants. And then the world moved on to more important things: like Japan, China Emerging Markets and how they are all enjoying the Fed’s taper. Sadly, we have to report, that Greece is once again baaaaack.
According to the WSJ, “top officials peeled away from colleagues after a euro-zone finance ministers meeting in Brussels Monday evening for a secret meeting to discuss mounting concerns over Greece’s bailout.
High-level officials from the International Monetary Fund, the European Commission, the European Central Bank, senior euro-zone officials and the German and French finance ministers were present, according to people with direct knowledge of the situation. They spoke on condition of anonymity because they aren’t authorized to talk to the press.
They were trying to figure out how to tackle two issues threatening to unsettle the fragile economic recovery in Greece and the broader euro zone.
They discussed how to press the Greek government to forge ahead with unpopular structural reforms; and second, how to scramble together extra cash to cover a shortfall in the country’s financing for the second half of the year, estimated at €5 billion-€6 billion ($6.81 billion-$8.17 billion).
Of course, this being Europe, nothing was decided: “The meeting was inconclusive, the people familiar with the situation said. Talks with the Greek authorities continue remotely—though representatives of the three institutions, known as the troika, have put on hold their plans to travel to Athens. Concerns are growing because Greece faces a large maturity of government bonds in May of €11 billion. The IMF hasn’t disbursed any aid to Greece since July and is €3.8 billion behind in scheduled aid payments. The IMF insists on having a clear view of the country’s finances 12 months ahead, and this condition hasn’t been met.”
And so the posturing resumes, with the Troika pretending it won’t hand over the funds unless Greece “reforms”, and Greece promising the “reform” as soon as it gets the funds. Nothing new here. What is new, is that finally the facade of Greek sovereignty and independence was stripped away as decisions regarding Greece took place… without
Greece: “Greek Finance Minister Yiannis Stournaras, who was briefing the
press in the same building at the time, wasn’t invited.”
Which is right – after all when a nation is enslaved and has no sovereignty, it doesn’t deserve to have a voice in its future.
What happens when the Internet goes out for China’s 500 million Internet users and netizens? Well of course everyone freaks out. Even though Chinese authorities said they were victims of hacking, the truth came out. What’s most likely is that Chinese censors screwed up, and instead of China’s internet censorship system, the Great Firewall of China, blocking certain websites, redirected two thirds of the Internet to one of those blocked websites. The website was Dynamic Internet Technology (DIT), a website created by practitioners of the persecuted spiritual group Falun Gong, that provides software to help Chinese Internet users break through the Firewall. Smooth move censors. You wouldn’t last a second in the Matrix.
The violence on the streets of Ukraine is far more than an expression of popular anger against a government. Instead, it is merely the latest example of the rise of the most insidious form of fascism that Europe has seen since the fall of the Third Reich.
Recent months have seen regular protests by the Ukrainian political opposition and its supporters – protests ostensibly in response to Ukrainian President Yanukovich’s refusal to sign a trade agreement with the European Union that was seen by many political observers as the first step towards European integration. The protests remained largely peaceful until January 17th when protesters armed with clubs, helmets, and improvised bombs unleashed brutal violence on the police, storming government buildings, beating anyone suspected of pro-government sympathies, and generally wreaking havoc on the streets of Kiev. But who are these violent extremists and what is their ideology?
The political formation is known as “Pravy Sektor” (Right Sector), which is essentially an umbrella organization for a number of ultra-nationalist (read fascist) right wing groups including supporters of the “Svoboda” (Freedom) Party, “Patriots of Ukraine”, “Ukrainian National Assembly – Ukrainian National Self Defense” (UNA-UNSO), and “Trizub”. All of these organizations share a common ideology that is vehemently anti-Russian, anti-immigrant, and anti-Jewish among other things. In addition they share a common reverence for the so called “Organization of Ukrainian Nationalists” led by Stepan Bandera, the infamous Nazi collaborators who actively fought against the Soviet Union and engaged in some of the worst atrocities committed by any side in World War II.
While Ukrainian political forces, opposition and government, continue to negotiate, a very different battle is being waged in the streets. Using intimidation and brute force more typical of Hitler’s “Brownshirts” or Mussolini’s “Blackshirts” than a contemporary political movement, these groups have managed to turn a conflict over economic policy and the political allegiances of the country into an existential struggle for the very survival of the nation that these so called “nationalists” claim to love so dearly. The images of Kiev burning, Lviv streets filled with thugs, and other chilling examples of the chaos in the country, illustrate beyond a shadow of a doubt that the political negotiation with the Maidan (Kiev’s central square and center of the protests) opposition is now no longer the central issue. Rather, it is the question of Ukrainian fascism and whether it is to be supported or rejected.
For its part, the United States has strongly come down on the side of the opposition, regardless of its political character. In early December, members of the US ruling establishment such as John McCain and Victoria Nuland were seen at Maidan lending their support to the protesters. However, as the character of the opposition has become apparent in recent days, the US and Western ruling class and its media machine have done little to condemn the fascist upsurge. Instead, their representatives have met with representatives of Right Sector and deemed them to be “no threat.” In other words, the US and its allies have given their tacit approval for the continuation and proliferation of the violence in the name of their ultimate goal: regime change.
In an attempt to pry Ukraine out of the Russian sphere of influence, the US-EU-NATO alliance has, not for the first time, allied itself with fascists. Of course, for decades, millions in Latin America were disappeared or murdered by fascist paramilitary forces armed and supported by the United States. The mujahideen of Afghanistan, which later transmogrified into Al Qaeda, also extreme ideological reactionaries, were created and financed by the United States for the purposes of destabilizing Russia. And of course, there is the painful reality of Libya and, most recently Syria, where the United States and its allies finance and support extremist jihadis against a government that has refused to align with the US and Israel. There is a disturbing pattern here that has never been lost on keen political observers: the United States always makes common cause with right wing extremists and fascists for geopolitical gain.
The situation in Ukraine is deeply troubling because it represents a political conflagration that could very easily tear the country apart less than 25 years after it gained independence from the Soviet Union. However, there is another equally disturbing aspect to the rise of fascism in that country – it is not alone.
The Fascist Menace Across the Continent
Ukraine and the rise of right wing extremism there cannot be seen, let alone understood, in isolation. Rather, it must be examined as part of a growing trend throughout Europe (and indeed the world) – a trend which threatens the very foundations of democracy.
In Greece, savage austerity imposed by the troika (IMF, ECB, and European Commission) has crippled the country’s economy, leading to a depression as bad, if not worse, than the Great Depression in the United States. It is against this backdrop of economic collapse that the Golden Dawn party has grown to become the third most popular political party in the country. Espousing an ideology of hate, the Golden Dawn – in effect a Nazi party that promotes anti-Jewish, anti-immigrant, anti-women chauvinism – is a political force that the government in Athens has understood to be a serious threat to the very fabric of society. It is this threat which led the government to arrest the party’s leadership after a Golden Dawn Nazi fatally stabbed an anti-fascist rapper. Athens has launched an investigation into the party, though the results of this investigation and trial remain somewhat unclear.
What makes Golden Dawn such an insidious threat is the fact that, despite their central ideology of Nazism, their anti-EU, anti-austerity rhetoric appeals to many in the economically devastated Greece. As with many fascist movements in the 20th Century, Golden Dawn scapegoats immigrants, Muslim and African primarily, for many of the problems facing Greeks. In dire economic circumstances, such irrational hate becomes appealing; an answer to the question of how to solve society’s problems. Indeed, despite Golden Dawn’s leaders being jailed, other party members are still in parliament, still running for major offices including mayor of Athens. Though an electoral victory is unlikely, another strong showing at the polls will make the eradication of fascism in Greece that much harder.
Were this phenomenon confined to Greece and Ukraine, it would not constitute a continental trend. Sadly however, we see the rise of similar, albeit slightly less overtly fascist, political parties all over Europe. In Spain, the ruling pro-austerity People’s Party has moved to establish draconian laws restricting protest and free speech, and empowering and sanctioning repressive police tactics. In France, the National Front Party of Marine Le Pen, which vehemently scapegoats Muslim and African immigrants, won nearly twenty percent of the vote in the first round of presidential elections. Similarly, the Party for Freedom in the Netherlands – which promotes anti-Muslim, anti-immigrant policies – has grown to be the third largest in parliament. Throughout Scandinavia, ultra nationalist parties which once toiled in complete irrelevance and obscurity are now significant players in elections. These trends are worrying to say the least.
It should be noted too that, beyond Europe, there are a number of quasi-fascist political formations which are, in one way or another, supported by the United States. The right wing coups that overthrew the governments of Paraguay and Honduras were tacitly and/or overtly supported by Washington in their seemingly endless quest to suppress the Left in Latin America. Of course, one should also remember that the protest movement in Russia was spearheaded by Alexei Navalny and his nationalist followers who espouse a virulently anti-Muslim, racist ideology that views immigrants from the Russian Caucasus and former Soviet republics as beneath “European Russians”. These and other examples begin to paint a very ugly portrait of a US foreign policy that attempts to use economic hardship and political upheaval to extend US hegemony around the world.
In Ukraine, the “Right Sector” has taken the fight from the negotiating table to the streets in an attempt to fulfill the dream of Stepan Bandera – a Ukraine free of Russia, Jews, and all other “undesirables” as they see it. Buoyed by the continued support from the US and Europe, these fanatics represent a more serious threat to democracy than Yanukovich and the pro-Russian government ever could. If Europe and the United States don’t recognize this threat in its infancy, by the time they finally do, it might just be too late.
We review a few of our recent opinions for context before getting to the main point of this post:
Is the U.S. stock market overvalued?
Absolutely. In “Bubble or Not, U.S. Stocks Are Priced to Deliver Dismal Long-Term Returns,” we argued that stocks are priced to barely outpace inflation, at best, and more likely to deliver negative real returns over the next 10 years.
Is the market due for an extended correction or consolidation?
Probably. Some of the annual outlooks published recently brought back memories of January 2007. The trendy theme at that time was the idea that stocks would float along on a sea of unlimited global liquidity. Bulls seemed to feed off each other and make ever more extreme predictions, not recognizing that “global liquidity” was another way of describing history’s largest-ever credit bubble. Fast forward to late 2013/early 2014, and bulls were again upgrading their outlooks just as financial excesses were becoming impossible to ignore. It stands to reason that recent volatility may have gotten their attention, especially while the Fed’s QE boost is gradually removed with two tapers done and seven to go (assuming no change in amounts).
It’s also worth noting that returns in the month of January tends to persist. As we discussed here, negative January performance suggests better than 50% odds of further consolidation.
Is the current emerging market crisis a game changer for U.S. stocks?
Unless this is the year that China’s credit markets collapse, our answer is “not so much.” There are a handful of developments that could trigger a full bear in the U.S., but these don’t include events in developing countries outside China. That would be highly unusual, as we’ll show below by looking at six emerging market crises that occurred during bull markets.
Here are the crises, identified by the dates of the events that launched each one into broad public view:
- August 13, 1982. Mexico’s finance minister announces he can no longer meet the country’s loan obligations. Most Latin American countries follow Mexico’s lead and restructure their commitments to U.S. banks in 1982/83.
- February 20, 1987. Brazil announces an interest payment suspension, leading to another series of Latin American loan restructurings in 1987/88.
- December 20, 1994. Mexico devalues the Peso by adjusting its targeted band, and then abandons the band altogether two days later. Market turmoil forces Mexico into a U.S.-led debt bailout in early 1995.
- July 2, 1997. Only two days after ruling out a currency devaluation, Thailand gives up its defense of the baht, triggering sharp devaluations throughout East Asia and a painful regional recession (the “Asian Financial Crisis”).
- August 17, 1998. In reaction to a worsening recession and deteriorating public finances, Russia defaults on its sovereign debt and devalues the ruble.
- January 14, 2011. Tunisia’s president succumbs to public protests and flees to Saudi Arabia as demonstrations and bloodshed sweep the Middle East (the “Arab Spring”). Governments in Egypt and Yemen fall in February.
For each of these events, we looked at S&P 500 (SPY) performance in the prior two months and subsequent six months:
Here are the key results:
- Stocks traded partly higher and partly sideways through Brazil’s 1987 bond default, the 1997 Asian Financial Crisis and the Arab Spring of 2011. None of these episodes included a correction of more than 10%.
- Stocks rallied strongly after each of the crises triggered by Mexico (in 1982 and 1994). Curiously, the long 1980-82 bear market reached its trough exactly one day before Mexico’s August 1982 plea for help.
- The S&P 500 peaked one month before the August 1998 Russian bond default and then fell 19% to a trough two weeks after the default. Following another six weeks of consolidation that was surely extended by September 1998’s LTCM crisis, stocks rebounded strongly.
The chart suggests that emerging market stability is far from the most important factor for U.S. stocks. The present crisis is likely to create more market volatility, but stocks were due for a period of consolidation with or without Turkey’s corruption scandal, Argentina’s reserve drain, Thailand’s violent protests and so on. As shown above, these types of events don’t make the difference between bull and bear markets on Wall Street.
What could make us wrong?
The flip side to our conclusion is that the present crisis is more diverse than earlier crises and includes relatively large countries in all parts of the world. Consider that the so-called “fragile five” developing countries – Brazil, India, Indonesia, Turkey and South Africa – account for over 14% of global GDP. By comparison, the five countries most affected by the 1997 Asian Financial Crisis – Thailand, Philippines, Indonesia, South Korea and Malaysia – totaled only 7% of global GDP. The five largest countries in the 1980s Latin American crises also amounted to 7% of global GDP. The other three crises barely registered at all from a GDP perspective: Russia and Mexico were each 2% of global GDP before their respective 1990s crises, while the Arab countries whose governments fell in 2011 were an even smaller portion of the global economy.
In other words, our chart could be misleading if the present crisis develops into a larger emerging market collapse than we’ve seen in the past. It’s worth watching for that reason, but we’re not yet convinced. If the U.S. bull is ended by global developments, these are more likely to originate in the larger economies of China, Japan or Western Europe.