If current policies remain in place, the Congressional Budget Office (CBO) estimates the U.S. budget deficit for 2011 will be close to $1.5 trillion, or 9.8 percent of GDP. While CBO "benchmark" projections see a short-term, gradual decline in deficits as the economic recovery continues, long-term deficits loom large with ballooning entitlement outlays stemming from an aging population and rising health care costs.

Most economists fear that large budget deficits and growing debt poses a considerable threat to U.S. global economic competiveness. Maya MacGuineas of the New America Foundation suggests the government needs a dramatic shift from a consumption-oriented budget to one centered on investment, including R&D and human capital.

The Peterson Institute's C. Fred Bergsten says an "early correction" is necessary to prevent investment-killing interest rate hikes and an inflationary dollar. CFR's Sebastian Mallaby says ongoing deficits may reduce the willingness of major investors to buy and hold U.S. Treasuries, pushing up interest rates and threatening the dollar's reserve currency status. Daniel Mitchell of the Cato Institute asserts the best way to control red ink is to cap the rise of federal spending and allow revenue growth from the economic recovery to "catch up." The Economist's Greg Ip advocates a "medium-term plan" that includes a reform of the tax system and, possibly, raising the retirement age.

Maya MacGuineas, President, Committee for a Responsible Federal Budget

The United States is on an unsustainable fiscal path, and changes will be made, whether on our own terms or because we are forced to by markets. But dealing with our deficits and debt needs to be more than just an exercise in getting the numbers to add up (which will be hard enough).

A balanced, multi-year fiscal consolidation plan needs to be a central part of a strategy to enhance U.S. growth and competitiveness. If we fail to reduce our borrowing needs, at some point there will be upward pressure on interest rates, increasing the cost of capital as well as the interest payments owed by the government, dampening investment, and harming economic growth. This could come on gradually or in the form of a full-blown fiscal crisis.

But dealing with the debt is only the first step. At the same time we need to ensure that we dramatically shift our budget from a consumption-oriented budget to an investment-based budget. This will mean spending more on certain areas of public investment, from research and development to investment in human capital, and less--much less--on many of our major entitlement programs such as Social Security and Medicare, for those who do not need them.

Moreover, our tax code needs to be overhauled and updated for the modern economy. Revenues will have to go up to deal with the deficit, but it is thus more important than ever to be careful to do as little damage to the economy as possible. The tax base should be reconsidered, rates should be reduced when possible, and issues such as the mobility of capital must be taken into account. Consumption taxes could help promote savings; a carbon tax could help lead to improved energy policies; and reforming tax expenditures could greatly improve the efficiency, complexity, and fairness of our tax code.

Overwhelming? Somewhat. But if we use the need to deal with our fiscal situation as an excuse to make some long-overdue changes, our economy could benefit tremendously.

C. Fred Bergsten, Director, Peterson Institute for International Economics

Early and effective correction of the budget deficit is critical to the global competitiveness of the U.S. economy. This is because there are only two possible financial consequences of our continuing to run deficits of more than $1 trillion annually as now projected for the next decade or more. One is sky-high interest rates that would crowd out private investment. The other is huge borrowing from the rest of the world that would push the exchange rate of the dollar so high as to price U.S. products out of international markets. Either outcome would severely undermine U.S. global competitiveness.

The saving rate of the U.S. private sector, despite modest recovery from its rock-bottom lows prior to the recent crisis, is far too meager to finance enough investment to grow U.S. productivity and economic output at an acceptable rate. Government deficits anywhere near current levels tap such a large share of this pool of funds that they starve the capital needs of productive enterprise.

The traditional "escape value" from this dilemma, facilitated by the central international role of the dollar, is for the United States to borrow abroad. We can do so in only two ways, however: by offering interest rates so high that they will also stultify domestic investment or, more likely, by letting the dollar climb to levels that are substantially overvalued in terms of U.S. trade competitiveness. Every rise of a mere 4 percent in the trade-weighted average of the dollar in fact reduces the U.S. current account balance by $20 to $25 billion, after a lag of two years, cutting economic growth and destroying 100,000 to 150,000 jobs in an economy already suffering from high unemployment. Partly as a result of persistent budget deficits, the dollar has been overvalued by at least 10 percent--and frequently by much more--over the past forty years. As a result, U.S. competitiveness and the entire U.S. economy have been severely undermined. In addition, the United States has become by far the world's largest debtor country, and its external balance is on a wholly unsustainable trajectory.

The trade and budget deficits are not "twins" in any mechanistic sense. The latter inherently promotes the former, however, as we have observed over these last four decades. Elimination of the fiscal imbalance, and preferably the maintenance of a modest surplus over the course of the business cycle to produce an adequate level of overall national saving, is imperative to avoid further severe deterioration of the international economic position of the United States.

Sebastian Mallaby, Director of the Maurice R. Greenberg Center for Geoeconomic Studies and Paul A. Volcker Senior Fellow for International Economics, Council on Foreign Relations

The United States is running an unsustainable budget deficit. The International Monetary Fund calculates that it will come to 10.8 percent of GDP in 2011, worse than the 8 percent projected for the group of advanced G20 countries and far worse than the 2.5 percent projected for the emerging G20 countries. The future doesn't look much better. The IMF calculates that the gap between the current budget path and a sustainable budget path is larger for the United States between now and 2016 than for any other country bar Japan.

Deficits for a few years don't matter. The United States can borrow easily to cover its budget gap thanks to the dollar's status as the leading reserve currency. But sustained deficits do matter. They add to the stock of national debt, driving up the cost of interest payments and draining the government of resources. When cumulative deficits drive national debt to around 90 percent of GDP, a country's growth rate starts to suffer. On current projections, the United States will hit that level within a decade.

Sustained U.S. deficits may also create doubts about the U.S. commitment to repay creditors. The more the U.S. government owes, the more tempting it is to reduce the value of those obligations via inflation or a depreciating dollar. The fear that U.S. officials will succumb to these temptations, justified or not, may dampen investors' willingness to hold U.S. Treasuries, threatening the dollar's reserve currency status. At some unpredictable point, investor jitters could spark a rush for the exit, driving U.S. interest rates up and causing the dollar to fall sharply.

How pressing is this risk? CFR's Center for Geoeconomic Studies tracks the foreign-exchange reserves held by BRIC central banks (PDF); the data show that faith in the dollar may already be waning. China, for example, held 70 percent of its reserves in dollars in 2005, but the share has since fallen to 63 percent. Another CFR chartbook underscores the importance of foreign governments' confidence in the dollar (PDF). More than a third of U.S. government debt is in the hands of foreign official investors. If they were to sell even a small share of their stake, the United States would be in trouble.

Daniel Mitchell, Senior Fellow, Cato Institute

Competitiveness, like beauty, is in the eye of the beholder. But there's presumably widespread agreement that it is good for a nation to have a prosperous and dynamic economy that generates above-average income and growth.

Government impacts competitiveness in many ways, including monetary policy, trade policy, and regulatory policy. Moreover, the presence of sound institutions, such as property rights and the rule of law, is critical for an economy to have a good foundation.

Fiscal policy also is an important part of the mix. Excessive government spending can slow growth by diverting labor and capital from more productive uses. Punitive tax rates can hinder prosperity by discouraging work, saving, investment, and entrepreneurship. And large budget deficits can undermine competitiveness by "crowding out" private capital and building negative expectations of future tax increases.

In extreme cases, high budget deficits can destabilize entire economies, either because a government resorts to the printing press to finance deficits or because investors lose faith in a government's ability to service debt, thus leading to a sovereign debt crisis.

The United States hopefully is not close to becoming either Argentina or Greece, but the trend in recent years is not very encouraging. The burden of government spending has exploded, which, combined with temporarily low tax receipts because of a weak economy, has pushed annual red ink above $1 trillion per year.

The good news is that the deficit situation will get a bit better in coming years. Even modest growth rates will cause revenues to climb (that's the kind of tax increase nobody opposes). Indeed, revenues will soon be above their long-run average, as a share of economic output.

The bad news is that we'll still have too much red ink because the federal government's budget is about twice as big as it was when Bill Clinton left office. Even more worrisome, government borrowing actually will begin to increase again by the end of the decade because of demographic changes such as retiring baby boomers.

The best way to control this red ink while also boosting competitiveness is to cap the growth of government spending. If revenues increase by an average of 7 percent each year (as the president's budget projects, even without tax increases), then we can reduce deficits by making sure spending grows by less than 7 percent annually.

Given the enormous size of the budget deficit, this doesn't solve the problem overnight. If spending was allowed to grow 2 percent each year, the budget wouldn't be balanced until 2021. But it would be a big step on the road to fiscal recovery.

To turn a phrase upside down, this makes a necessity out of virtue. Spending restraint is good for growth since it leaves a greater share of resources in the productive sector of the economy. And since this also happens to be the best way of letting revenue catch up to spending, it also solves the deficit issue.

Greg Ip, U.S. Economics Editor, The Economist

Textbook economics tells us that government deficits eat up scarce savings, pushing up interest rates and the dollar. That discourages private investment and exports, a lethal combination for our productivity and competitiveness. The textbook does not apply to our current circumstance: Today's deficit is occurring against a backdrop of deeply depressed private demand, which is evident from the fact that interest rates are so low. This argues against too rapid a cut in the deficit, because the Federal Reserve can't compensate for fiscal austerity through lower interest rates.

At some point, though, the recovery will be more firmly established. If we still haven't put the deficit on a firm downward path by then, interest rates will rise, reflecting not just competition for savings but compensation to investors who fear we'll escape our debts via default or inflation. That interest rate penalty will add to the cost of capital of every business in the United States. A medium-term plan to reduce the deficit will help keep both interest rates and the dollar low, speeding the reorientation of the American economy from borrowing and consumption to saving and exports.

A medium-term plan to reduce the deficit will help keep both interest rates and the dollar low, speeding the reorientation of the American economy from borrowing and consumption to saving and exports.

There are no painless ways to reduce the deficit: Spending will have to drop and taxes will have to rise. But it can be done in ways that make the economy more productive. On spending, for example, gradually raising the retirement age to sixty-seven then indexing it to life expectancy will reduce future liabilities for both Social Security and (somewhat less) for Medicare, while at the same time expanding the supply of labor by encouraging Americans to work longer.

Taxes can be raised via reform that makes the entire system less of a burden to growth. Relative to other countries, America taxes income too much and consumption too little. This can be corrected either through a broad-based consumption tax or, more narrowly, by raising the gasoline tax. This would both not only raise revenue and cut carbon emissions, it would do more to make alternative energy viable than our current preference for subsidies and mandates. Rather than raise marginal tax rates, which discourages work and saving, better to eliminate distortionary exemptions such as for mortgage interest which tilts investment toward housing.

This post originally appeared at the Council on Foreign Relations.

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See Also:

• Americans Are Leaning On Government Support More Than Ever
• Why We Need To Focus On Fixing The National Debt Crisis
• The New GOP Debt Plan Puts More Lipstick On The Pig

 

150th Birth Anniversary of Rabindranath Tagore

Image source : Pradip Jain, Patna

To mark the 150th Birth Anniversary of Tagore India, Srilanka and Bangladesh will issue commemorative postage stamps on 7 May 2011.

Over the weekend India, Bangladesh and Sri Lanka will celebrate the 150^th birth anniversary of poet and Nobel laureate Rabindranath Tagore, who was born May 7, 1861

The writer and painter who gave both India and Bangladesh their national anthems—“Jana Gana Mana” and “Amar Shonar Bangla”—and who traveled widely, making friends from Europe to Argentina, is still seen as towering cultural icon today. He was the first person who was not from the West to win the prestigious Nobel Prize for Literature for his prolific body of work. According to Judith Plotz, a George Washington University professor who moderated an event in the Nobel laureate’s honor at the Asia Society in March, Tagore wrote 12 novels, 3,000 poems and and over 2,000 songs.

The government of Sri Lanka will release on May 7, a postal stamp and first day cover on Rabindranath Tagore, on the occasion of his 150th birth anniversary celebrations.

The stamp, priced at LKR 5, will be released by Sri Lankan Minister for Postal Services Jewan Kumaranathunga at a function presided over by Indian High Commissioner to Sri Lanka Ashok K. Kantha, said Vikram Misri, Indian Deputy High Commissioner in Colombo.

Tagore visited Sri Lanka thrice – in 1922, 1930 ad 1934 – and was instrumental in the renaissance of its culture. Tagore wrote the national anthem for two countries – India and Bangladesh – and influenced the anthem in Sri Lanka. The Sri Lankan national anthem was written by Ananda Samarakoon, most probably in 1939-40, while he was Tagore’s disciple at Visva-Bharathi University. Samarakoon’s first Shantiniketan stint ended after six months but he heralded a new brand of Sinhalese music influenced by Rabindra Sangeet.

"Creation is not repetition, or correspondence in every particular between the object and its artistic presentation. The world of reality is all around us. When I look at this phenomenon with my artist's eye, things are revealed in a different light which I try and recapture in my picture - call them realistic or not. There is a world of dreams and fantasies which exists only in a man's imagination. If I can but depict this in my pictures I can beat the Creator at His own game."
                                                                                                 - Rabindranath Tagore

BUENOS AIRES, Argentina - A visiting media delegation said Thursday that press freedom has deteriorated in Argentina, and accused the government of trying to reshape the media industry to control what citizens can read, see and hear.

News group sees Argentine media control as greater danger to free speech than ... The Canadian Press BUENOS AIRES, Argentina — A visiting media delegation said Thursday that press freedom has deteriorated in Argentina, and accused the government of trying to reshape the media industry to control what citizens can read, see and hear. ... and more »

It was already deep into Yom Hashoah, the day that Israel had designated some 60 years ago as the time to memorialize the Jewish catastrophe perpetrated by the Nazis, when news leaked out and then was corroborated by President Obama that Osama bin Laden had been killed in a secured mansion hide-out in Pakistan, actually not far from the country’s capital. Apparently, the mansion was not secured nearly enough: The intelligence and defense forces of the United States had located it eight months before, and it was over that period that the United States—yes, the U.S. alone—had mobilized and meticulously carried out the operation that brought this long sought after mass murderer to justice. We should also not misrepresent and deceive ourselves about the manner in which the ultimate penalty was achieved. This was a “targeted killing,” all at once reasonable, righteous, required. Given the burdens of ingenue innocence with which Obama was shackled from the campaign, it was a brave decision he made to train the administration’s sights (and quite literally his own) on bin Laden’s very life.

My guess is, moreover, that no one will be honing in at the Navy Seals for cuts in the defense budget. Or at the technology which allowed the president to watch just as bin Laden was being shot in the head. The fact is that our country is the defender of civilized societies not of “last resort” but of “only resort.” It is a burden; it is also a blessing and a privilege. We deserve much more ethical authority in the world than we are conceded, and this should right the balance. Still, it is easy to make Americans feel guilty about anything. So I hope that the revelation that bin Laden himself was unarmed when he was killed will not turn into some quibble about whether the shoot-out was a fair one. After all, no one conceived of this as a gentleman’s duel.

The sangfroid with which the Obama apparatus has handled this episode is in welcome contrast to the way the Clinton administration compromised the goal of getting bin Laden dead or alive by focusing on the artificial legalities of whether the man was a war criminal, whether we could bomb his headquarters while some royals from the United Arab Emirates were visiting (by the way, many Saudi princes visited the fugitive), whether we should shoot rockets into premises containing a mosque that might be shot up. But bin Laden was responsible, aside from other brutalities, for the bombing of the American embassies in Kenya and Tanzania which took 200 lives and also for the assault on the USS Cole, with 17 dead, in the port of Aden in Yemen. Still, as several chapters of the September 11 report dealing with the prehistory of that calamity make clear, there was something both neurotic and almost comic in the finickiness of the principals about how they might hurt their prey by mistake. What about the president himself? He was otherwise engaged. Madeleine Albright, oh my, oh my, she’d have trouble explaining it to her friends. Sandy Berger, trade lawyer that he was, had a commercial solution to every dilemma. Janet Reno, I think she was concerned with whether the government could secure a guilty verdict for Osama if he came to trial. Or was that George Tenet? The silliness of it all.

Bin Laden’s prime targets were other than the Jews or, for that matter, the State of Israel. He had larger objectives: America itself, the world’s democracies, science, even Christianity, schismatic Muslims, many as jihadist as he. But Jewry and the Jewish nation have a special place in the poisoned hearts of his Muslim followers and in the hearts of many who aren’t quite his followers. So the redemption of Zion is a fact that nags at those who live angrily with their own cultural self-humiliation, rebukes them, haunts them. How could it be, they may ask themselves, that nearly 80 percent of the 7.5 million Jews in occupied Europe (and others elsewhere) were murdered and yet the promise of Jerusalem—their own third holiest blah blah—in the broadest sense has been fulfilled?

Nazism was the first ideology in modernity to aim at killing an entire civilization, Jewish civilization. The Turks, after all, were content to murder the Armenians on their own turf. Not so the Germans. Make no mistake about it. Almost no one wished to recognize that somber fact. The shabby excuses for why the Roosevelt administration refused to bomb the rail lines to Auschwitz (it would make it seem too much like a war for the Jews which, Lord knows, it wasn’t) make this clear. The genocidal ambitions still live. But certainly not in Europe. For nearly a decade the Reich disguised its ultimate intentions for the Jews. Dr. Ahmadinejad has no such tricks in his hat. He is as plain as day, and is an applauded figure at Columbia University, the Council on Foreign Relations, and the General Assembly. Something else has changed. In fact, there are two features of the world that were not present when the terrible homicide of the Jews occurred. The first is that there is a Jewish state.

This Jewish state literally rescued and paid ransom for at least two million Jews who would otherwise have disappeared. From the Soviet Union, from Poland, from Rumania, from Ethiopia, from Argentina, from other little pockets here, there, everywhere. Of course, another million, maybe more from the Arab countries earlier on in Israel’s history. There is a place for Jews to go, a place that is their own, their home. But this place is also a temptation to the new genocidalists who happen also to be candid genocidalists. One percent of the Jewish population of Palestine was killed in the War of Independence. Those are added to the Jewish nakba of less than half a decade earlier, except that this time the Jews (just like the Arabs) had guns.

Now more than guns. And no, not just nuclear weapons of their own. But, more important, an ingrown scientific temperament and its extraordinary consequences which produced a technological universe of defense and assault. Be assured that this is shared with the United States, as the U.S. shares many of its innovations with Israel. I’ve heard—I do not know—that every helmet on every American soldier includes a component contrived by Israeli military engineering. I wouldn’t be a bit surprised to learn that, aside from the work done at Siemens and the Idaho National Laboratory, some team of Israelis made the happy match between Stuxnet and Iranian centrifuges. Mazal tov.

The new parameters of war—to take care not to attack innocents, which was hardly a consideration by either the Axis or Allied countries during the Second World War—are quite scrupulously adhered to by Western military establishments, especially including Israel. But, while “underdog” fighters often employ quite sophisticated technologies, they have no compunctions about killing at random. Often without specific targets, like Hamas against Israel.

Or, as has been apparent these last three months in sequential bloodlettings in the Arab world, the very states of Libya, Syria, Bahrain, Yemen. To say nothing of a motley assortment of butchers in Pakistan and Afghanistan, some official, mostly not.

Osama bin Laden brought this butchery to America, and he spooked the American people for nearly a decade. His ghostly and ghastly presence in the shadows of time and geography had transformed him into an ubermensch, at least to those millions (and more millions) who saw the mass murderer as a message and messenger of the Prophet. I myself had seen in several places over the Muslim world, in stalls and booths lining bazaars and even in book shops, the long wiry hatchet face that did not look you in the eye. (Verso Books, the publisher which puts out every nasty revolutionary idea for which assistant professors contrive arcane theories, had gathered Osama’s Messages to the World into print, and likely it will have a macabre new run in the wake of his death.) Still, in some places, many places, the violent seer remains the incarnation of hate-filled hope, not just by some wretched of the earth but also those pampered Arabs who contributed to his till.

In his dignified address to the nation and the world, the president cut him down to size. But he was no pollyanna. Osama is dead. His movement, not entirely one movement, in any event, still lives and may be reinvigorated by the resentments of his followers and hangers-on. Nonetheless, this episode will surely help Obama’s political standing, and Republicans will be hard-put to fault him on the facts. His predecessor, George Bush, made a gracious statement which was probably heartfelt, as well. We are all more liberated now, and this lift from fear was also experienced in Israel as Holocaust memorial ceremonies drew to a close and the news sunk in that bin Laden was no more.

Yet there were a few elements in Obama’s address that trouble me. It’s not exactly that he iterated and reiterated, as he has been doing since the start of his presidency, that “the United States is not and never will be at war with Islam ... our war is not with Islam.” No one wants a war with the Muslim religion or with the Muslim world. No one and certainly no American ... except maybe the crazy Florida pastor who, with his flock, puts the flame to the Koran. Obama reverts to his trope so often that it seems, at least to me, that he is trying to convince himself that there is no space between Islam and the USA.

Obama pointedly observed that “Bin Laden was not a Muslim leader. He was a mass murderer of Muslims.” True enough. But then one wonders why, in societies that take easily to the streets, there were no demonstrations against his faithful and those who organize them for suicide and killing. Am I wrong? Was there even one? Please tell me if I am wrong.

I do not care that the president failed to place this intricate military operation within the context of Bush’s “war on terror.” Bush had his vanity. Obama has his. We go on.

But Obama is certainly among those few who almost tactilely experience the politics of the Muslim faith in Pakistan. Yes, there are also tribal differences. But Islam is a great motivator. After all, it’s what motivated the Pakistani nuclear scientist A.Q. Khan to provide Iran and Libya (plus North Korea) with atomic materials and intelligence. Alas, Pakistan is also less an ally against Muslim terrorism than its protector. Steven Lee Myers and Jane Perlez have written a story in today’s New York Times about the deceptions practiced by the country’s intelligence elites against American efforts to close down terrorism in the country. After bin Laden was killed, “the Pakistani government issued a defiant statement calling the raid that killed the Al Qaeda leader ‘an unauthorized unilateral action.’” That’s an ally for you. No one has ever really come clean about Pakistan.

The Washington Post has an astute column by Richard Cohen which states precisely the president’s predicament with one of his Muslim allies. (The other Muslim allies pose similar predicaments, poor man: Turkey, for instance.) 

He seized the spotlight, as he did the moment, offering us a crescendo of the word ‘I’—’I directed’ and ‘I was briefed’ and ‘I met repeatedly’ and ‘I determined.’ But what he did not mention was that he decided to go it alone. Our nominal allies in the fight for Afghanistan, the unreliable and unpredictable Pakistanis, were kept in the dark. Their sovereignty was violated, they lost face, and the United States, as a consequence, lost some cover. It cannot be said that Osama was killed by another Muslim. A martyr has been made.

For too long now the Obama administration has shown a touching but sometimes counterproductive sensitivity for the sensitivities of the Muslim world. It has proceeded as if it was more important to be liked than to be feared and as if some differences were not fundamental but always a product of misunderstanding.

I’m going to repeat Cohen’s meaningful last phrase: “as if some differences were not fundamental but always a product of misunderstanding.” And then Cohen continues.

This is not the case. The US can do little to mollify Islamists and others who seek the obliteration of Israel and the return of holy Jerusalem to the Muslim fold. It can do little with bigots who loathe America’s culture of tolerance.

We shall see if the killing of Osama signals the emergence of a new Obama.

It was as if Obama thought he could charm these guys, reason with them—that their antipathy toward him was based on some sort of misunderstanding and not, as it was and remains, their ideology.

Obama attempted something similar with Iran. He wanted accommodation, less belligerence. They know very well who we are, and we should know who they are. The same holds for Syria.

This is devastating. By the way, does Obama still want Israel to relinquish the Golan Heights to Assad which, of course, might strengthen him? Or to wait until the Muslim Brotherhood comes to power when Assad falls?

And now Obama faces “Palestine.” It is a new Palestine, to be run (if a phantom can truly be run) by a reunion of Fatah (or the Palestinian Authority) and Hamas, a certified terror organization which was sired by the Muslim Brothers of Egypt. Bin Laden’s is not a popular death. After all, he had brought cheer from Jenin to Gaza after September 11, as he had in every Arab state and the tiniest and wealthiest principality. No sooner had Mahmoud Abbas and Ismail Haniyah announced their organizational nuptials—an occasion on which Obama has not yet commented—than the Gazan “prime minister” denounced the assassination of a “holy warrior.” Why should he not have? They were both practitioners of random and mass death terrorism.

Bin Laden’s killing is arguably the most daring and difficult undertaking executed by the administration. Should it now accede to one of his acolytes sharing power and extending the dominion of stealth and death? If it does we will look back on this achievement as a sham.

Martin Peretz is editor-in-chief emeritus of The New Republic.

Follow @tnr on Twitter.

Neville Bennett

By Neville Bennett

Simon Johnson, who was the chief economist of the IMF, says that the finance industry has captured the US government: a state of affairs which usually describes emerging markets where an oligarchy takes big risks, confident that the government will bail them out.

I think this is an interesting topic as my previous article about oligarchy led to an animated discussion, and some very profound insights and contributions by readers.

What Johnson is saying is that the US is an oligarchy/plutocracy which I earlier defined as 'not merely the rule of the rich, but rule for and by the rich. The rich influence government in such a way as to protect and expand their influence, often at the expense of others'.

We know that the US banks have spent at least $340 million in the last year in lobbying against further regulation.

It has been money well spent as the banks remain pretty free to do as they please, while enjoying a 'too big to fail' status, meaning they can take huge risks and if these do not pay off, the taxpayer will assume the liability. They privatise profit and socialise debt.

I write about US banks, but there are similarities in the moral hazard aspect which involves British banks too, as well as kiwi finance and insurance companies.

Simon Johnson says that the recovery will fail unless we break the financial oligarchy that is blocking essential financial reform. We are running out of time to avert a recession.

This is pretty strong stuff. You do not often get a Professor at an elite university advocating that we 'break the financial oligarchy'.

I doubt he is a disciple of Lenin. I think he is a pragmatist rather than an ideologue. He is also pretty convincing and is well known for a solid book 13 Bankers.

Niall Ferguson sums up the nub of Johnson’s case: 13 Bankers describes the rise of concentrated financial power and the threat it poses to our economic well-being.

Over the past three decades, a handful of banks became spectacularly large and profitable and used their power and prestige to reshape the political landscape. By the late 1990s, the conventional wisdom in Washington was that what was good for Wall Street was good for America.

This ideology of finance produced the excessive risk-taking of the past decade, creating an enormous bubble and ultimately leading to a devastating financial crisis and recession.

More remarkable, the responses of both the Bush and Obama administrations to the crisis–bailing out the megabanks on generous terms, without securing any meaningful reform–demonstrate the lasting political power of Wall Street. The largest banks have become more powerful and more emphatically 'too big to fail', with no incentive to change their behavior in the future. This only sets the stage for another financial crisis, another government bailout, and another increase in our national debt.

The alternative is to confront the power of Wall Street head on, which means breaking up the big banks and imposing hard limits on bank size so they can’t reassemble themselves.

I first encountered Johnson’s thought in a very procative article in The Atlantic where Johnson said that while at IMF he got used to the depressingly similar syndrome where countries queued for loans because international banks had refused them. Each needed to make changes which encouraged exports and cut recessions.

But in every case powerful elites over-reached.

In these countries a tightly-knit oligarchy expected their political connections to absorb their problems. Oligarchs got favourable contracts, tax-breaks and access to foreign capital even though this situation had a whiff of corruption.

The US is now in a situation like South Korea in 1998, Russia and Argentina (time and again).

In these cases foreign investors suddenly assume the country will not be able to pay off is debt, so the affected country finds its credit disappears and it suffers a severe economic contraction. The similarity runs deeper: elite business interests make ever larger gambles with implicit government backing until the inevitable collapse. The elite uses its influence to prevent the reforms necessary to keep the economy out of its nosedive. People blame the regulators for being asleep at the wheel.

In the US financiers had a ball in inventing new profitable practices like securitisation, credit default swaps, and the like from 1973-1985. The financial sector earned 16% of profits, in the 1990’s; it doubled to 30% and in the last decade it was 40% of all profits.

This great wealth gave bankers enormous political weight: the US was the most advanced oligarchy in the world, able to get its way with bribes, lobbying and campaign contributions.

But its real power came from a belief system; the idea that large financial institutions and capital markets were crucial to the US’s position in the world. This was helped by the flow of top people from New York to Washington. Some thought service in Goldman Sachs was a kind of public service.

The banks also convinced the US elite and academia that markets were perfect and self-correcting.

We know Greenspan’s view, but Bernanke also said in 2006 that banks had made great strides in measuring and managing risk. As it happened the US government has spent $180 billion to cover losses deemed impossible by the huge insurer AIG alone.

Washington obligingly passed a river of deregulatory policy:
- free movement of capital across borders.
- repeal of regulation separating investment and commercial banking
- congressional ban on regulating credit default-swaps.
- increased leverage permitted
- an international agreement to allow banks to measure their own riskiness.

Banks were not alone in causing the crisis, but they and the hedge funds were big beneficiaries of the twin housing and stock market bubbles: profiting from a huge number of transactions founded on a small base of assets. [Readers might recall an article I did at the time saying assets were leveraged 40 times].

Despite these insane practices which eventually brought the sector to its knees, vast bonuses were paid out. The CEO of Merril Lynch confessed he had over-invested in sub-prime and walked off with $162 million. In 2008 Wall Street paid out $18 billion in bonuses, while the government had to provide $243 bn in urgent assistance.

Johnson details many dirty deals and concludes that there cannot be a recovery until the banks are healthy.

And, he thinks they must be broken up to become healthy.

The Atlantic article remains an important piece of analysis (I have the space merely to introduce it). Readers who wish to go further, and look at Johnson’s current concerns will find his website interesting.

He also writes in the Financial Times and there reiterated that the fight to reform the American banking system had been lost. The US is in his eyes a banana republic, dominated by the rich.

--------------------------------

* Neville Bennett was a long-time Senior Lecturer in History at the University of Canterbury, where he taught since 1971. His focus is economic history and markets. He is also a columnist for the NBR.
neville@bennetteconomics.com
www.bennetteconomics.com

With the government aiming at USD 500 billion exports in the next three years, India has called for widening of its trade agreement with MERCOSUR bloc comprising Brazil, Argentina, Uruguay and Para...

Some leaders can become so demonised that it's impossible to assess their achievements and failures in a balanced way

It happened again in Madrid a few weeks ago. I was at a meeting of development officials and researchers and Venezuela came up in conversation. Cue mayhem. Is it possible to mention Hugo Chávez without becoming embroiled in name-calling, exaggerations and, not infrequently, brazen lies?

While it is fairly normal that politics can become partisan very quickly (just look at the US at the moment), the point of being a development professional is meant to be that you step outside the partisan for a minute to examine, wait for it, the evidence. I don't claim that this is easy, because evidence can be skewed by its provider (often, in international development, the government of the country in question). But that is the objective.

So I am constantly surprised how many development professionals find it hard to do this when Venezuela gets mentioned, or Cuba, or Bolivia. It is as if evidence and balanced analysis are appropriate for some governments but not for others.

If you say, "inequality appears to have gone down considerably in Venezuela", you risk being accused of being a Chavista. But if you say, "inequality appears to have gone down in Ethiopia", no one would start accusing you of being a zealous supporter of Meles Zenawi.

The same problem exists on the other side too. When I was in Colombia, some in the human rights community were incapable of saying anything positive about the administration of President Alvaro Uribe, because they accused his government of making shady deals with paramilitaries.

I would call this the "pitchfork effect" (technically known as the "e-halo effect"), whereby a leader can become so demonised in certain countries or populations that it is no longer possible to assess their achievements and failures in a balanced way. The more a leader is demonised, the more his or her supporters will exaggerate how wonderful they are.

It is the converse of the more well-known "halo effect", whose most famous beneficiary in recent times was Nelson Mandela, a politician to his fingertips, embroiled in many of the things politicians get embroiled in, and responsible for as many bad decisions as good ones on economic policy in South Africa. But criticise him and you are criticising the freedom that he personifies. It is a handy effect to have.

There are some leaders who are so vile that applying a balanced assessment to them seems tasteless. The murderous juntas of Argentina and Chile in the 70s and 80s spring to mind. But even Augusto Pinochet, a man who oversaw barbaric murders and torture, appears to be granted by many a balanced assessment of the time he was in power. And that is probably right. It is not condoning his actions to assess how his period in power affected Chile's economic conditions.

So why not Chávez? One word often used to describe him is "dangerous", and this may be the key to understanding the rage he engenders. It is hard to consider him a military threat, the odd phoney war with neighbouring Colombia notwithstanding. No, it is the danger he poses to normality that people who oppose his policies find so worrying. His rhetorical attack on modern capitalism is so strong, that were he to demonstrate any improvements in Venezuela with his rather vague "21st-century socialism", the conventional wisdom favouring free markets and a limited state would be challenged. It is the same reason that the US is so obsessed with Cuba – the danger to capitalism is allowing another model to succeed.

I am saying all this because the first step we need to take when analysing the achievements and failures of the new left in Latin America is to do our best to be balanced, taking the evidence as we find it, and trying to incorporate new evidence into our analysis, even if it does not fit our assumptions.

The Guardian

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Solar continues to heat up globally, and the staff at Cleantechies has come out with their global top 10 for solar cleantech programs. The list is comprised of ongoing programs around the globe. The United States is the only country listed with more than 1 program (3 total). Other than that, the list is quite diverse, with most regions of the world able to participate in a solar program:

Source

The International Labor Organization (ILO) has released a report titled Sharing Innovative Experiences. The eighteenth edition of the book gives examples of social protection programs, similar to what Social Security is for the US, that have helped to improve a developing nation's economy. The focus is on eighteen countries that have implemented policies that created retirement plans, allowed children to go to school, and families to receive adequate health care. With these programs in place, thousands of people in developing countries were able to improve their living situation and lift themselves out of poverty.

As people who read this blog know, I am a fan of Amartya Sen's Capabilities Theory. In fact, I wrote an entire thesis on it. It has been proven time and time again that raising a country's Gross Domestic Product (GDP) does not mean the people living in that country will be able to live a better life. But the Capabilities Theory puts the emphasis back on the people and what they need to live. The ILO uses this theory in their research and promotes policies that will increase people's quality of life, rather than increase a companies profit. The emphasis on Social Protection Programs is a direct result of this theory, and as I will show here, not only helps people live a better life but grows the countries economy as well.

Those living in the developing world (and are lucky enough to have a job) often do not earn enough to pay for themselves and their family's medical needs. Not to mention the ability to save for retirement or pay for their children to go to school. The ILO looks at social protection programs as a way for governments to invest in their people (sound familiar?). But in the developing world, just 1 in 10 people have some sort of retirement pension, and even less (1 in 20) are enrolled in a health care plan. Social protection programs are needed so families can focus on their current situation, and in some countries have proven to reduce poverty in half. These policies make it easier for families to obtain food, an education, and health care, which not only make it easier for families to live their lives, but builds a stronger labor force for the future.

According to the ILO, over a billion people have been helped from Social Protection programs. It has been "one of the most impacting tools to change quality of life of the poor and vulnerable," according to Francisco Simplisio head of the Division for Program and Knowledge Management at the United Nations Development Program. In an interview I conducted upon publication of the new update, Simplicio explained, "that's the key portions of experience in collecting developing countries perspectives implementing it and making it possible for implementation. That's one of the innovations of this book. And then of course it makes the case it's possible, which is the second major step."

The first example in the book comes from Argentina where there is the Universal Child Allowance (AUH). In 2002, 60 percent of Argentina's children were living in households that were recognized as below the poverty line. This program covers children 0-18 years old where families are given allowances of $46.20 per month and must prove they are in school and registered for health care services. The program is divided by two subsystems called the contributory where all formal sector workers are registered in the system; and the non-contributory subsystem comprised of retirees.

Today, 85 percent of Argentina's children are covered by AUH. To make sure the money was not being wasted, parents must sign affidavits, and letters must be signed by teachers and doctors affirming the child has been attending school and receiving treatment. Books, which are considered legal documents, are also kept by the government. Since the allowance is distributed through bank accounts, if a large amount of money is taken out at once it would be suspicious and violators risk not receiving allowances in the future and the possible facing prosecution. Nine million children and over two million retirees receive these benefits. With families receiving these allowances, they no longer have to worry about arbitrary policies that can force them to lose their home or job, and now have more certainty going into the future.

But in order to pay for these programs a combination of private and public sector investment is needed. The Director of the ILO's Economic and Labor Market Analysis Moazam Mahmood told me, "the beginning of the report says demand issues are critical as well. So you need to generate the level of aggregate demand to generate employment." Greater employment leads to more revenue and enables governments to expand their programs and cover more people. But the state still needs to lay a foundation for companies to invest in their country. "But it also has to come to from the public sector" Mahmood said "and we note the depressing statistics in terms of the production of the role of the public sector and much needed infrastructure because the report also notes the shortage of infrastructure has the potential to reduce GDP growth 2 percent a quarter."

It is not expensive to implement these policies. Less than 2 percent of global GDP is needed to provide a basic set of social security benefits to the world's poor. With over a billion people living on $1.25 a day, there is, of course, starvation. But several countries have implemented social programs that that allow families to buy food. The ILO has calculated an investment of 4 percent of the worlds GDP can reduce the food poverty rate in low income countries by 40 percent.

By investing in their people countries have been able to invest in their future. With their basic necessities in place, individuals can focus on obtaining better skills to get a better job. They are also able to work harder because they are well educated, plus physically and emotionally fit. When this is the case, multinational corporations are more willing to invest in a country because it will be easier to make a profit. And they're right. The more education a population receives the more versatile they become for companies who are willing to pay them more.

I know, all this sounds simplistic, but there is vast amounts of evidence to show these policies work. Social Protection Programs are needed in all societies, and Sharing Innovative Experiences is meant to show developing countries a way to improve their economy while at the same time improving their citizens' quality of life. There are a lot of lessons we can learn from the recession; one is that the fabric of society is delicate and it is important to protect the people in it. These programs help do that, and need to be promoted throughout the developing world.

SURVEY: Argentina Economy Likely Expanded Sharply In February Wall Street Journal BUENOS AIRES (Dow Jones)--Argentina's economy likely continued to grow by leaps and bounds in February due to surging consumer demand, strong exports, and high government spending ahead of presidential elections ... Argentina says March inflation 0.8 pctReuters Argentina's 2011 Growth Forecast Raised to 8% by NomuraBloomberg RPT-Argentina's fines stifle independent inflation dataForexyard all 9 news articles »

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The creator of this site - actually a physician, not a lawyer - sent this link our way last night.  I haven't really explored it, but I thought I would pass it on.

You know damn well that I signed up.

 

• Information - Sue the Fed

 

• Sign up to be a co-plaintiff

 

And while we're at it, can we retroactively sue Congress for creating the Fed.  That too is breach of contract, theft, fraud, misrepresentation, accepting bribes for personal gain, conflict of interest, passing important legislation in secret...

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Why Sue the Fed?

Below are listed just some of the actions that we will seek to prove in courts of competent jurisdiction all across the country.

“Top 20” Potential Civil Causes of Action:

Breach of Fiduciary Duty Breach of Contract Conducting a Ponzi Scheme Theft Tortuous Interference Unlawful seizure of Account holders funds Accounting malpractice Fraud in the Inducement Banking Fraud Consumer Protection Fraud

Detrimental Reliance Gross Negligence Unjust Enrichment Failure to Perform Deceptive Business Practices Unconscionability Willful Infliction of Emotional Distress Against Public Policy Securities Fraud Other

 

But we cannot do this alone. We need your help to be successful. You can participate in two ways:

1. Join the Litigation: You can join the litigation as a Co-Plaintiff and add your voice to millions of others who have been damaged by the Fed’s policies that support and encourage out-of-control government spending that leads to unpayable debt and deficits that endanger our society. If you are: a) over 18 years old; b) and are an American citizen or are legally residing in the US, and c) have ever been involved in a loan transaction with a bank, you are probably eligible to join the lawsuit. It’s FREE and requires that you simply sign up.

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Our opinion is that the Fed is beyond redemption and must be abolished for the following reasons:

1. Unconstitutionality: Many legal experts insist that the Federal Reserve Act is unlawful on its face under Article I Section 8 of the US Constitution; and that Congress acted beyond its authority when it chartered the Fed in 1913.
2. Unfairness: The current system allows banks the ability to loan money they do not have, created in transactions where they put nothing at risk thus assigning all of the risks in the loan to be borne by the borrower. As many authors state – it is like “creating money from nothing.” This practice is unjust and unconscionable. It is simply un-American to get something for nothing.
3. Lack of Transparency: The Fed fails to disclose its banking practices and the ultimate results of its monetary policies to borrowers prior to making its interest-bearing loans. In the opinion of our counsel their failure to disclose these fundamental aspects of borrowing are unlawful - termed “fraud in the inducement” and if the court agrees, these transactions are actionable (provide a cause to sue).
4. Public Endangerment: Numerous experts have shown that any monetary policy which calls for the payment of interest to a private bank based upon the government’s debt (defined as “Usury”) creates an economy that is mathematically unsustainable and which is inherently designed to fail. This fundamental flaw undermines our society, weakens our economy, threatens our national security and damages each and every Person in the nation. The evidence of this truth is everywhere today – where economies all over the world (Argentina, Greece, Iceland, etc) are collapsing and being forced into bankruptcy by the large international banks and their central banks that operate on the same Usury system principles. (We believe that the United States may not be far behind unless something is done immediately to stop it.)
5. Unregulated Monopoly: The Fed has grown so powerful that it no longer allows any true oversight by Congress. For example, the Fed has never undergone a complete audit and now openly refuses to allow one. The Fed is no longer cooperating with Congress and is steadfastly refusing to answer important questions regarding our money and the material transactions it makes on a regular basis. We believe that no institution should be allowed to operate beyond oversight and above the law.
6. Against Public Policy: Because the Fed makes enormous profits by putting the government (i.e., every one of us) into a state of perpetual re-borrowing and interminable debt, the Fed’s policies are unconscionable; and act against our best interests and violate the public trust of the American people.
7. Breach of Fiduciary Duty: The Fed has failed to meet its stated goals in its charter which are to: “to provide the nation with a safer, more flexible, and more stable monetary and financial system.” In fact, since 1913 the Fed’s policies have actually caused the exact opposite to occur:
   1. The dollar has lost 95% of its value,
   2. Our economy has experienced numerous recessions and a major depression,
   3. Our economy is now on the verge of total financial collapse,
   4. The federal government has accumulated massive debts which it is entirely unable to repay without continued re-borrowing (we are essentially bankrupt), and
   5. Americans are losing their personal property at unprecedented rates (record bankruptcies and foreclosures) and seeing a relentless erosion of their individual freedoms and liberty every day.

Continue reading...

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Now watch this...it gets going around the 3-minute mark...

To get more details on the above video, and to learn what you can do to stop the Fed, please see the following link...

• There Are No Words To Describe The Following

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Check out the Bilderberg 2010 Conference slideshow...

Bilderberg Conference 2010 - Ultimate Viewers Guide

 

Everything you ever wanted to know about the Bilderberg group and related conspiracy theories.  History, videos, links, snide remarks, photos, lists, it's all there.

This is a muscular, myth-busting study of Britain during the second world war

Britain's War Machine takes on some of our cherished national myths about the second world war. First, the image of a beleaguered but heroic island – encapsulated in "Very Well, Alone", David Low's celebrated cartoon after the fall of France in June 1940. David Edgerton calls this "one of the most misleading images in British history", noting that when Churchill spoke of fighting on "alone" he almost always referred to the British empire rather than the British Isles.

Edgerton reminds us that wartime Britain was the heart of a global empire formed by trade as much as by colonies. The outbreak of war did force global Britain to reorient its trading patterns: "near supplies" such as Danish bacon had to be replaced from outside Europe, with America becoming much more important, particularly after Japan's whirlwind victories of 1941-42, which denied Britain vital rubber, tin and oil from south-east Asia.

But Edgerton stresses the continued reliance on traditional suppliers, such as wheat and meat from Canada, Australia and Argentina, and oil from the Caribbean and the Middle East, much of it transported in British ships. Britain had the largest merchant marine in the world, and this proved vital to keep Churchill's island going until American shipping capacity developed later in the war. These imports, mostly on credit, enabled Britain to concentrate on war production rather than food supply and consumer needs.

Britain's global reach was vital on the battlefield as well. Two of the key divisions deployed against possible invasion in 1940 came from Canada; at Alamein in 1942 (now a famous "British" victory), nearly half of Montgomery's infantry were Indians, Australians, South Africans and New Zealanders. In 1945 British manpower constituted just over half the empire's fighting strength.

Britain was also a "warfare state", an "empire of machines". This fact, Edgerton argues, has been obscured by the likes of CP Snow and his view of the "two cultures" anti-technological bias of Britain's elite. Sometimes his chapters on technocrats and experts slide towards the encyclopaedic, with too much detail, but he makes several compelling points. For instance, the powerhouse of WMD development was not the universities, despite their contributions to the bomb and short-wave radar, but the big government research institutes such as the Royal Aircraft Establishment at Farnborough, and major industrial corporations such as ICI and Vickers. Again, the imperial dimension was vital: faced with a shortage of rifles in 1940, the government set up Lee-Enfield factories in Canada and Australia as well as America.

Britain's War Machine is a stimulating exercise in muscular revisionism. Yet I feel at times that Edgerton – an outstanding historian of science and technology – distorts the nature of war. Technology always matters – be it longbows at Agincourt or rifles at Gettsyburg – but ultimately battles are decided by men, not machines. Take France in 1940. German victory had less to do with overall technological superiority than the success of its surprise armoured thrust through the Ardennes and the collapse of the French command and control system.

Edgerton argues that the fall of France should be seen as having had only a "minor" impact on the British war effort compared with the south-east Asian disasters of 1941-42. Yet 1940 forced a wholesale redefinition of British strategy. Previously the government had focused on naval and air power, with France expected to bear the brunt of the land war. Edgerton insists that the British Expeditionary Force on the western front in May 1940 was highly mechanised, but to call it "a great modern army" surely misses the point. The BEF boasted only 10 divisions, half the Belgian contingent and a tenth of the French.

As 2 million French soldiers trudged off to German POW camps in June 1940, Britain had to invent a mass army almost from scratch and to teach those novice soldiers how to use their machines. Haunting memories of the Somme and Passchendaele (about which Edgerton might have said more) strengthened the determination of British leaders from Churchill down to fight a war of machines rather than men.

Yet Edgerton is surely right in his conclusion. Britain came out on the winning side thanks in significant measure to its industrial capacity and its global resources. And the British people, for all their privations, were spared the total war that ravaged eastern Europe. His book offers a fresh and provocative view of our much-loved and much-misunderstood "finest hour".

David Reynolds's books include In Command of History (Penguin).

Argentina regulator voids Siderar shareholder meet Reuters Africa BUENOS AIRES, April 16 (Reuters) - Argentina's stock exchange regulator on Saturday declared steelmaker Siderar's shareholder meeting void and overturned a $360 million dividend, as part of a contentious government bid to boost ... Argentina To Seek Faster Economic Growth - MinisterWall Street Journal Argentina Fin Min:Will Cont to Accelerate Growth,No Infl FearsIMarketnews.com G20, IMF reflect Argentina's positionBuenos Aires Herald all 11 news articles »

Today we once again think about the inflation/deflation debate, turn our eyes to Europe and the very interesting election happening there this Sunday, and speculate a little about what could derail the US economy.

But first, a quick note to Conversations subscribers. We have just posted a new conversation I did with Rich Karlgaard (Forbes publisher) and Andy Kessler. A found it fascinating to talk with two rational optimists who live in Silicon Valley and have watched the scene there for a very long time. I will soon be doing two more Conversations, the first with Neil Howe (The Fourth Turning, and one of the most astute experts on demographics) and the second with Albert Edwards and Dylan Grice of the Global Economics desk at Societe Generale and two of my all-time favorite thinkers.

For new readers, Conversations with John Mauldin is a subscription service where I sit down and talk with interesting people and let you listen in. You can learn more at http://www.johnmauldin.com/conversations/. If you want to subscribe or renew, use the code conv and get a 25% discount, plus access to all the previous conversations, plus a recent piece with George Friedman of Stratfor. Now, let’s jump into today’s letter.

The Cure for High Prices

The old line is that the cure for high prices is high prices. When prices rise, businesses tend to respond by producing more. If the price of something gets too high, then people buy less, which then leads to too much supply, which lowers prices. Rinse and repeat.

Last week I wrote about what I think is the potential for inflation in the US to rise to uncomfortable levels, in the 4-5% range. I got questions from readers asking if that meant I no longer thought deflation was an issue. The quick answer is no. Deflation, or at least low inflation, should be the normal trend. Prices should go down as we become more productive. But there is never a one-way street. Prices fluctuate. We got the Consumer Price Index numbers today, and we will use them as a “teaching” moment to think about the whole drift, the yin and yang, if you will, of inflation.

As a review, if the analysts at rent.com are right, rental prices for housing should rise 10% or so by the end of 2012. Homeowner’s Equivalent Rent is 23% of total inflation and 40% of “core” inflation (inflation without food and energy in the index). The Fed prefers to look at core inflation, as it is less volatile. They think that price movements in food and energy overstate inflation at some times and understate it at others. You can make a case either way, but for now let’s just accept that core inflation is what the Fed uses.

IF (a big if) rent prices rise by 10%, that will add 4% over the next 18 months to core inflation, which is a rather large move, but will also be something the Fed in theory should not ignore, all other things being equal. That could lead core inflation to be more than 3% and overall inflation back up over 5%. That will have the inflation hawks hyperventilating. It may force the Fed to raise rates sooner than they would like, or at least make them think a long time before diving into QE3.

Let’s look at the data that came out today. Core inflation was tame, but overall inflation is still running at over a 5% annualized rate (and above 6% over the last three months!). Let’s look at a graph from economy.com.

Core inflation remains tame, but the recent trend in overall inflation is still up. And given that we live in a world where we buy food and energy, it understandably annoys people to think that the people in charge are looking at core inflation when gas is $3.80 (or more!) a gallon. And as I outlined last week, there are reasons to think there is a transmission mechanism from QE2 to commodity price increases ( www.johnmauldin.com and click on Thoughts from the Frontline, April 8, 2011 issue). And while correlation is not causation, the following graph from Russ Winter, at my friends from www.Minyanville.com, does make your eyebrows go up.

 

The subcomponents in the inflation index that have exposure to commodities are all up and show rising trends. The NFIB survey suggests that businesses are planning to pass on the price increases they are getting, although that is not in evidence yet.

Let’s Rewind the Inflation Tape

Now let’s look at inflation a few years back. Inflation was above 5% and I was writing that deflation was in our future – and got a few remarks from some corners about not being able to read a chart. And inflation was rising, but we were getting ready to go into a recession, and recessions are by definition deflationary. Predicting lower inflation was not all that hard. Let’s look at a few charts from the St. Louis Fed. This first one is the CPI for the last five years. Notice that inflation was high going into the recession.

Where did the rise in overall inflation come from? Let’s look back at what energy was doing back then. Here is a chart on the price of oil (West Texas Intermediate on a monthly basis). Notice that the correlation between inflation and rising oil is very high.

And as oil fell so did overall inflation, and with the rise in oil once again we have seen overall inflation begin to rise.

Now, let’s do a thought experiment. What if oil stays where it is today for one year? Then the inflation component of energy would be flat. Oil prices would still be high (as we think of them today) but not contributing to inflation. The CPI measures the change in prices over a period of time, not the effect of prices. High energy costs would still be a drag on the consumer society, but not get reflected in the CPI.

This is why Fed types, among other reasons, tend to not focus on volatile energy prices (which will correct themselves over time) but on things like wages, which are “sticky.” By that we mean, when you get a rise in wages, they don’t tend to go back down (absent losing the job and the next person hired at lower wages). Wage inflation is something the Fed does pay attention to.

As I noted above, core inflation could begin to rise going into the end of the year, even as the economy could soften with the expiration of QE2, persistent high employment, and high energy prices. I think the economy will grow at less than 2% for the latter half of the year, at least looking at the data we have now. That means that by the end of 2012 we could see inflation coming back down as the rise year-over-year slows.

A Shocking Development

I gave a speech today and was asked what I thought about the US economy. I said that, absent some kind of shock, we should continue to grow, albeit slowly. Of course that begs the question, what shocks are out there? I see two main ones. The first is an oil price shock with a slow economy. Another crisis in the MENA area (or Nigeria) that disrupts oil supplies even further could quite easily send oil to $150, which would not be good for the world economy.

But, following that thought, that would mean another recession and probably a global one, which would reduce demand for oil, which would help lower the price of oil as the crisis (wherever it is) gets resolved. And once again we would start talking about deflation, which is really just year-over-year price movements. Remember, recessions are by definition deflationary, as they reduce demand and increase unemployment.

The correlation between oil shocks and recessions is high, especially if the economy is not robust. Thus my worry.

Another Important European Election

And the second shock I worry about is the sovereign debt crisis developing in Europe. I have written about how Irish voters rejected funding their banks and about the ongoing negotiations. But this week we got a vote from Iceland that gives us some insight into how things may go.

Last year the Icelandic voters turned out the old government and rejected backing their bank debt, which was mostly to Britain and the Netherlands. The new government then renegotiated the terms of the debt. They lowered the interest costs to 3.2% spread out over 30 years, and no payment until 2016. Not bad terms if you can get them. The debt was incurred when Britain and the Netherlands compensated their nationals who lost savings in online "Icesave" accounts owned by Landsbanki, one of three Icelandic banks that collapsed in late 2008.

The Eurasia Review noted:

“Attempts by creditors to persuade nations to bail out their banks at public expense thus is ultimately an exercise in public relations. Icelanders have seen how successful Argentina has been since it imposed a crew haircut on its creditors. They also have seen the economic and political disruption in Ireland and Greece resulting from trying to pay beyond their means.

“Creditors did not give accurate advice when they told Ireland that it could pay for its bank failures without plunging the economy into depression. Ireland’s experience stands as a warning to other countries about trusting overly optimistic forecasts by central bankers. In Iceland’s case, in November 2008 the IMF staff projected yearend-2009 gross external public and private debt at 160% of GDP – but observed that an exchange rate depreciation of 30% would push the ratio to 240% of GDP, which would be ‘clearly unsustainable.’ But the most recent IMF staff report (January 14, 2011) shows end-2009 gross external debt at 308% of GDP, and estimates end-2010 gross external debt at 333% – even before taking the Icesave and other debts into account!”

Basically, the voters of Iceland were being asked to take on a huge debt based on foreign currencies over which they have no control. Voting no meant that acceptance into the euro club would not be likely (though that is not a club you might wish to join today!) There are other threatened measures. But absent the British or Dutch sending in troops, there is not much you can do to force that debt collection. Iceland’s voters sent the referendum a resounding 60% no vote.

Now let’s fast forward to Sunday and the elections in Finland. Yes, Finland, that bastion of euro correctness.

It turns out that some of the nation’s voters don’t see why they should “donate” to a fund that will bail out Greece, Ireland, and Portugal (for openers – forget about Spain!). There is a party, called (in translation) the True Finns party. It is a very nationalistic party and generally does not get more than 4% of the vote. But recent polls show their level of support has more than tripled and is approaching that of the three biggest parties: Center, National Coalition, and Social Democrats, which each have about 20 percent. It is very possible that the True Finns could get a sizeable vote. If the polls are right.

Why? Because they are the only way Finnish voters can say no to using their money to bail out other countries. Some 60% of 2,400 respondents in an April 8 survey by Think If Laboratories said they opposed bailouts, while 31 percent approved. The margin of error was 3 percentage points. (Canadian Press)

The True Finns note that no one rushed to their aid when they had their own crisis in the ’90s. The country has since gone on the “straight and narrow.”

60%! Wow! The True Finns have made it clear they will not go into coalition with any government that votes for more bailout funds. Think that same sentiment is not rising in Germany? Most people are concerned about the debtor nations rejecting the terms of the deal. Finland may show us on Sunday that the no vote works both ways!

As I understand the treaty, even the debtor nations must “guarantee” the debt that is used to bail out other countries, even as they accept bailouts. It is all for one and one for all. But what if Finland says no? Does that mean the end of the debt bailouts? Will the rest go on without Finland? Will other voters in countries with little deficits also decide that enough is enough? Can Angela Merkel keep her coalition together in Germany? The possibility of a crisis is high and rising. Stay tuned.

Home Again, a “Sports” Injury, and My Conference

I am back home for 13 days and ready to be in my own bed without obeying an alarm clock. These last trips, while fun, have been tiring. It was especially pleasurable to see my old friends Ed (of Crestmont Research) and Kelli Easterling in Oregon. He has built a fabulous retreat in the middle of their tree farm, under old-growth trees, very close to Corvallis. I like the city, but a few days of woodland retreat would be nice. And Tony Arnerich was a great host at his conference, with some fabulous Oregon wines and dinners with fascinating people.

I (literally) limped home. My left heel has been getting worse and worse and the pain sometimes is pretty intense. I went to the podiatrist this morning. He came in and posted the x-rays and I said, “That doesn’t look right, does it?” Turns out my right heel is quite inflamed. He confirmed what Dr. Mike Roizen told me Wednesday night at Mehmet Oz’s fundraiser. Moving my foot, which seems to help the pain, actually makes it worse. Kind of like bursitis, but in my heel. He wondered what I did to bring on the injury. “What have you done to change things in the last three months?”

“Well, I did start working out with a new trainer, doing lower weights, higher reps.”

“She has you doing lots of lunges, doesn’t she?” “Yes.”

“You didn’t do many before, did you? You just exacerbated the heel, creating an inflammation. Let’s call it a sports injury,” he said with a smile.

So now, for the next 4-8 weeks, I will be wearing this large brace to immobilize my foot. It looks like I broke my ankle skiing. I can take it off for speeches, but the more I wear it the faster I will heal. Oh well.

I will go to La Jolla in about 13 days, and wear it there most of the time. I guess I will get used to it. The conference has again sold out, and this one looks to be even more fabulous than the last seven. And I am working on a new speech on a new topic. Lots of fun research, and nice to be home to do it.

Time to hit the send button. Dinner with friends beckons. Have a great week!

Your feeling kind of silly in a brace analyst,

John Mauldin
John@FrontlineThoughts.com

Copyright 2011 John Mauldin. All Rights Reserved

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Violence on the streets as backlash grows over Greece's austerity package and €110bn bailout

A growing chorus of voices is urging the Greek government to restructure its debt as fears grow that a €110bn bailout has failed to rescue the country from the financial abyss and is forcing ordinary people into an era of futile austerity.

"It's better to have a restructuring now … since the situation is going nowhere," said Vasso Papandreou, whose views might be easier to discount were she not head of the Greek parliament's economic affairs committee.

Other members of prime minister George Papandreou's party have said that Greece is locked in a "vicious cycle", unable to dig itself out of crisis with policies that can only deepen recession.

International fears of a Greek default rose last week after the German finance minister, Wolfgang Schäuble, refused to rule it out and markets, sensing upheaval, sent Greek borrowing costs soaring.

The normally mild-mannered prime minister has vehemently rebuffed the prospect of Greece failing to meet its debt obligations, saying restructure would not only be catastrophic for the country – blocking its access to markets for years – but also for the eurozone's delicate economy. "Our problems will be addressed in depth not if we restructure our debt but if we restructure the country," he said, announcing the "road map" that would lead Greece out of crisis.

Amid speculation over the country's ability to avoid default, a wave of civil disobedience is causing many to wonder if Greece is becoming ungovernable.

In the Athens suburb of Keratea, locals furious over the prospect of a landfill site last week dug up the road and the capital's top police officer asked for his men to be removed from the anarchic area.

"There is clearly a breakdown of the rule of law, and without the rule of law there can be no economic development," said political analyst Takis Michas. "It is organised lawlessness spearheaded by the hard left."

Tomorrow, in a clear sop to the thousands who have signed up to the "can't pay, won't pay" movement, the ruling socialists will announce reductions of up to 50% in road toll fees. As the nation struggles to rein in a debt of €340bn, the logic of appeasing protesters – an estimated 8,000 Greeks a day were refusing to pay tolls – has outweighed antagonising them further. "Our hope is that this will calm things down," the deputy transport minister Spyros Vougias said.

Last week, a man shot a bus inspector hired to crack down on fare dodgers after protesters stormed a police station, snatched hundreds of confiscated number plates and set light to thousands of fines. Days later thugs attacked Antonis Loverdos, the health minister, as he visited a hospital in Athens. In Patras, James Watson, the 83-year-old Nobel Prize-winning geneticist was also attacked as he prepared to give a speech at the city's university.

"In any other country people would have been arrested but here the lack of arrests has contributed to the feeling that anything goes," said Michas.

Haunted by a recession that has exceeded even the worst predictions of the EU and IMF almost a year after they moved to rescue the country with their bailout last May, austerity has hit Greece as never before. Last week it emerged that hospitals were facing severe shortages of beds and supplies while schools could no longer afford cleaners. Disposable incomes have dropped dramatically as wages and pensions have been slashed, taxes have been raised and unemployment has reached a record 15%.

Eighteen months after the economic crisis erupted, Papandreou said last week that more cuts were needed to meet deficit-cutting targets.

How do countries default?

A default is when a country misses a repayment on its debts. But the most likely outcome for Greece is a "restructuring", a negotiation between Athens and its creditors that would result in the owners of its bonds accepting that they won't get all their money back.

What would the consequences be?

Investors would shun Greek debt, making it hard for the country to borrow. But what Europe's policymakers are more worried about is the knock-on effects for Greece's lenders, many of which are German and French banks, which would have to declare large losses. Portugal and Ireland would also have a strong incentive to follow suit.

Who has defaulted in the past?

Refusing to pay your debts has an impeccable pedigree: Edward III sowed chaos in Florence in the mid 14th century by defaulting on a series of loans. Every country in Latin America, apart from Brazil, followed suit in the early 19th century. Most recently, Russia shocked world markets by defaulting in 1998, as did Argentina in 2001.

Mexico's Slim to invest $1.5 billion in Argentina: report Reuters BUENOS AIRES (Reuters) - Mexican magnate Carlos Slim plans to invest about $1.5 billion in Argentina's telecoms sector, a newspaper reported on Saturday, citing the government. Slim's America Movil is one of the world's biggest cell phone providers ... and more »

When:

Tue May 10 13:00:00 PDT 2011

Description:

Currently, there are more than 30 free trade agreements, trade preference programs and other similar arrangements in operation in East Asia, and that number is expected to continue to rise in the years ahead as World Trade Organization members struggle to reach a consensus on the Doha Round of multilateral negotiations.

Many of these trade arrangements provide substantial benefits to apparel, including duty-free access and rules of origin that in certain cases are more flexible than those included in U.S. free trade agreements. It is imperative for apparel companies with global sourcing strategies, as well as first-time or occasional exporters to major East Asian markets, to understand the provisions included in these FTAs and preference programs in order to successfully maximize their overall duty savings and increase their profit margins.

This 1-hour webinar will review the key apparel provisions included in the more significant and widely-used trade arrangements in China, Japan, South Korea and Taiwan, including:

• Japan's Generalized System of Preferences;
• China's preferences for least developed countries;
• South Korea's preferences for least developed countries;
• The China-ASEAN Free Trade Agreement;
• The Japan-ASEAN Comprehensive Economic Partnership Agreement;
• Taiwan's preferences for Central American apparel; and
• The South Korea-ASEAN FTA.

This webinar will be presented by Alvaro Ferreira of Sandler, Travis & Rosenberg, P.A. Mr. Ferreira is an economist and international trade advisor who counsels foreign governments, trade associations and multinational corporations in Latin America, the United States and Asia on a wide variety of economic, commercial, regulatory and international trade matters.

Mr. Ferreira has advised clients on preferential and non-preferential tariff treatment for apparel in a range of markets, including the EU, United States, Argentina, Australia, Brazil, Canada, Central America, Chile, China, Colombia, Dominican Republic, India, Indonesia, Japan, Malaysia, Mexico, New Zealand, Philippines, South Africa, South Korea, Switzerland, Taiwan, Thailand and Vietnam.
Mr. Ferreira holds a Master's degree in International Affairs from The George Washington University and a Bachelor of Arts in Economics and Government from Lafayette College. A national of Spain, he is bilingual in Spanish and English, and fluent in French.

Cost (in US Dollars):

Free

Tags:

Webinar, trade, preference programs, FTA, free trade agreement, textile, apparel, customs, importing, CBP

Permalink | Leave a comment  »

When:

Wed May 25 13:00:00 PDT 2011

Description:

There are approximately 15 free trade agreements, trade preference programs and other similar arrangements in operation in Australia and New Zealand, and that number is expected to continue to rise in the years ahead as World Trade Organization members struggle to reach a consensus on the Doha Round of multilateral negotiations.

Many of these trade arrangements provide substantial benefits to apparel, including duty-free access and rules of origin that in certain cases are more flexible than those included in U.S. free trade agreements. It is imperative for apparel companies with global sourcing strategies, as well as first-time or occasional exporters to Australia and/or New Zealand, to understand the provisions included in these FTAs and preference programs in order to successfully maximize their overall duty savings and increase their profit margins.

This 1-hour webinar will review the key apparel provisions included in the more significant and widely-used trade arrangements in Australia and New Zealand, including:

• Australia's Generalized System of Preferences;
• New Zealand's Generalized System of Preferences;
• Australia-New Zealand-ASEAN FTA;
• U.S.-Australia FTA;
• Australia-Thailand FTA;
• New Zealand-China FTA; and
• New Zealand-Malaysia FTA.

This webinar will be presented by Alvaro Ferreira of Sandler, Travis & Rosenberg, P.A. Mr. Ferreira is an economist and international trade advisor who counsels foreign governments, trade associations and multinational corporations in Latin America, the United States and Asia on a wide variety of economic, commercial, regulatory and international trade matters.

Mr. Ferreira has advised clients on preferential and non-preferential tariff treatment for apparel in a range of markets, including the EU, United States, Argentina, Australia, Brazil, Canada, Central America, Chile, China, Colombia, Dominican Republic, India, Indonesia, Japan, Malaysia, Mexico, New Zealand, Philippines, South Africa, South Korea, Switzerland, Taiwan, Thailand and Vietnam.
Mr. Ferreira holds a Master's degree in International Affairs from The George Washington University and a Bachelor of Arts in Economics and Government from Lafayette College. A national of Spain, he is bilingual in Spanish and English, and fluent in French.

Cost (in US Dollars):

$125.00

Tags:

Webinar, trade, preference programs, FTA, free trade agreement, textile, apparel, customs, CBP, importing

Permalink | Leave a comment  »

Freedom of expression is at risk across Latin America, with journalists being killed, kidnapped, threatened and prosecuted. And, in several countries, there is impunity for crimes against journalists.

That's the conclusion of delegates who attended the recent
mid-year meeting of the Inter American Press Association (IAPA).

The organisation's report concluded: "The gloomy record of journalists being murdered continued to expand during the last six months in Latin America, where the state of freedom of expression deteriorated enormously in nearly all of the Americas, particularly in Argentina and Ecuador."

IAPA also highlighted violence against the media in Mexico, threats of government control in Venezuela and Ecuador, attacks and restrictive press laws in various countries.

It called on the governments of Bolivia, Brazil, Colombia, Mexico and Peru to ensure that justice is done in cases of the murder and/or disappearance of journalists.

And it urged Mexico's government to honour commitments to pursue legal reforms to make crimes against press freedom federal offences.

All the IAPA resolutions, conclusions and country-by-country reports can be viewed on its website sipiapa.org (English version).

IAPA, based in Miami, is composed of more than 1,300 print publications in the Americas.

Sources: Knight Centre/IAPA

Marc B. Haefele | Commentary

Last month, one of Latin America's top journalism prizes went to a man whose only known investigative coup was a recent finding that capitalism may have destroyed life on Mars. Yes, none other than Hugo Chavez, president of the Bolivarian Republic of Venezuela, waltzed off with the Rodolfo Walsh Prize, given by Argentina's National University de la Plata and named after one of the 20th century's genuine martyrs to the profession. It was hard not to suppose that the honor was promoted by Argentine President Cristina Fernandez de Kirchner, who has lately chosen to play Tonto to Chavez's neo-socialist Lone Ranger.

The remains of Walsh, a heroic leftist writer and activist reportedly gunned down by the Argentine dictatorship 35 years ago, have never been found. But one assumes that wherever they are entombed, they were spinning at the idea that the man many consider today's most serious enemy of a free press in all of Latin America won a prize commemorating that very institution.

The New York Times reported in 2009: "In Venezuela, Mr. Chavez and his supporters have been stepping up efforts to restrict news media coverage." After Chavez denounced private radio's "tyranny," Venezuela revoked the licenses of 34 of the country's radio stations. And laws passed Dec. 20 extend control to the Internet, which now, like the broadcast media, may not transmit messages that "foment anxiety in the public or disturb public order ... promote disobedience of the current legal order" or "refuse to recognize the legitimately constituted authority." In August, dozens of armed Chavez militants raided the offices of the TV network Globovision, which had been critical of Chavez. Its owner, Guillermo Zuloaga, later fled the country.

But there are reasons why Fernandez might align herself with Chavez on the issue of a free press. For one thing, she's waging her own war against much of her local media, including two of South America's largest newspapers: Clarin and La Nacion. Both have been dogging her administration with well-documented stories of corruption, some involving the enormous increase of wealth she and her late husband, Nestor Kirchner, a former Argentine president, acquired after his election in 2003, others on the dubious transactions of the mighty national unions that support her Peronist coalition. Another reason is that it's widely surmised that Chavez's financial support (minus the $800,000 an alert officer nabbed arriving at a Buenos Aires airport) aided her presidential victory in 2007.

But it's in their joint hostility to the very idea of an opposition media that the two seem most closely conjoined. Chavez created Telesur, a media entity whose broadcasts and Web presence are supposed to reflect the opinions and concerns of Latin America's underprivileged. But if you wonder who calls the shots, just look at the fawning coverage of Chavez's daily moves on its website. The Associated Press quoted La Plata journalism professor Claudio Gomez as saying that Chavez won the prize for "his work for popular communication, for example by creating the Telesur channel. This doesn't mean that we agree with other measures his government has taken against critical mass media."

Ahem.

If you were Fernandez, facing an October election at the vanguard of the unruly assortment of populist and labor movements that make up her Justicialist Party (along with reportedly rising corruption and a 24% annual inflation rate), you might envy Chavez's mighty Telesur megaphone, and his ability to shut down opposition voices.

Fortunately, this envy doesn't seem to be widely shared among other Latin American leaders. For the most part, only Chavez, Fernandez, Nicaragua's Daniel Ortega and occasionally Bolivia's Evo Morales regard the "bourgeois imperialist" news media the same way.

Other leaders are coming to terms with the functional worth of an untrammeled press in a democracy, particularly those who suffered the most during the right-wing, U.S.-sanctioned dictatorships of the 1970s and 1980s: Former Chilean President Michelle Bachelet, for instance, who was tortured by the Pinochet junta. Or Uruguayan President Jose Mujica, imprisoned for more than 14 years. Both are leftists who face national newspapers of record that are conservative and critical. Onetime militarists' torture victim Brazilian President Dilma Rousseff, whose supporters accused the media of acting like an opposition party during her recent election, has since declared herself a supporter of the free press. "I don't deny that sometimes (the media) spread things that left me sad," she said. "But we are lovers of freedom." So Brazil's press stays free.

So, for the most part, does Argentina's. But the CGT, the mighty union that embodies Peronism, has been blocking deliveries of the newspapers Fernandez calls a "monopoly," despite the fact that they are owned by separate entities and have strongly differing politics. More alarmingly, much of the traditional Argentine left, who respect her and her late husband for facing down the International Monetary Fund and for their courage in bringing to trial the dictators who killed 30,000 of their countrymen, seem to buy into the idea that a constitutional republic of 40 million people with a huge court system and vast military and police forces is at the mercy of those bourgeois monopolists' front pages.

"A government has the right to defend itself against a hostile press," an Argentine intellectual friend of mine wrote me recently. I said he sounded like Richard Nixon's vice president, Spiro Agnew. I could have less charitably told him he was also speaking like the 1976-1983 dictatorship that tried to destroy Argentine democracy forever.

Marc Haefele has reported on Argentina for the Boston Review, the Jewish Journal and the Argentine magazine Nomada.

China Bulls and Bears are attacking each other for their misunderstanding of the Chinese economy. 

What people are thinking over the past year or so?  Here’s just a collection of a few videos of people talking about the Chinese economy.

Nassim Nicholas Taleb (9:48) had no idea about China, but pointed out that Argentina was thought to be “the next great country”.  In fact, I can remind you that there used to be two Harrods in the world in the early 20th century. One was in Knightsbridge of London UK, and the other one was in Argentina, which was really a manifestation of how rich this country once was.  Of course, we know the rest of the story.  He added that the rise great powers could only be judged in retrospect.  That was right: no one thought the British Empire would become the largest in history.

Hugh Hendry (10:26) pointed out the similarities between the Great Depression of 1930s, the lost decades of Japan, and the current days China.  All three became creditors nation, all three had persistent current account surplus, and all three had fixed-exchange rates in one form or another, i.e. gold standard in the US, the peg of JPY with USD in the case of Japan (which was then scrapped in the Plaza Accord, but the Japanese continued its attempt to keep its currency low), and the peg of Chinese Yuan with USD.  Fixed exchange rate regime is pro-cyclical, which says a lot of things happening in the China economy now.  One may now ridicule Hugh (and other bulls) for being wrong on his short China story for years, his argument is actually quite sensible. 

Jim Chanos, like Andy Xie and others, are most worried about the property bubble.

Though Chano’s comparison between China and the Soviet certainly sounded a bit absurd, while Mohamed El-Erian has asked some sensible questions here.

Andy Xie sounded a bit odd here that he blamed the government for not making his forecast come true.  No worry, I think it will eventually come true.

 

And if Jim Chanos sounded ridiculous, do did Shaun Rein, who said:

… people who are buying the homes, can they afford it? Absolutely they can… one rich person can buy 10 homes

If this is not bubble, what is?

 

Read more about China Economy

10 Reasons to short China

China Economy Predictions for 2011

This article originally appeared here: China Economy: What People Have Said
Also sprach Analyst - World & China Economy, Global Finance, Real Estate

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One of the most stunning developments in the fight over the US debt is the emergence of the "pro-default" stance among serious analysts.

Dean Baker recently wrote that default worked just fine for Argentina, and it could work in the US, too.

The latest is bank analyst, and frequent TV personality Chris Whalen, of institutional risk analytics, who urges Congress to vote NO on raising the debt ceiling because in doing so, the US would be forced to default and restructure its debt.

But far from being persuading, the piece at Reuters is juvenile. Obama is a "stooge" of the "banksters." Ireland's new PM Enda Kenny is in a fight with "vile" contemporaries at the ECB.

What about the merits of his argument? First, he claims that the main reason Jamie Dimon and other bankers are against a US debt default is because such a move would end the illusion of Too Big To Fail by showing that no institution is above debt restructuring. This is a total oversimplification. A far more likely concern among Dimon is that if US debt were to take a haircut, the solvency of the entire banking system would be called into question, and possibly go out the window. In every other country where there have been concerns about the solvency of the government, concerns about bank runs have arisen. There's no reason that'd be an exception here.

The most ridiculous part though is his conclusion, which reeks of faux naivety: "Even if Secretary Geithner has to run the US government on cash, like the good people of Iceland and Ireland today, it will be a good thing for America’s political debate to default — at least for a few weeks. Then people will know that the once unthinkable is very possible."

For one thing, we're not sure what "run the US government on cash" actually means, but the notion of this being just an issue "for a few weeks"... Seriously? Does Whalen actually think that the government could default, and shrink the government to a level where it were run completely on tax revenue, and then rectify things after a few weeks?

There are times when a default or restructuring makes sense. For Ireland and Greece, which face years of austerity and nosebleed interest rates, it may make sense to unshackle themselves from the common EU currencies, and let their lenders suffer. The US isn't in that position at all.

The US isn't currently under threat by some outside force that's going to force US worsen our way of life for years to come. As both Paul Ryan and Obama have actually shown recently, if you think the US has a big budget problem, there are ways of solving it that actually seem pretty plausible.

Right now the market shows zero concern about the debt ceiling/default issue, but there are some stunning developments out there, including the news that Boehner is talking to Wall Street about how far he can push the issue without roiling markets. The existence of articles like Whalen's will also give cover to the more radical members of Congress that are fine with going to the matt, and letting the chips fall where they may. Whalen's piece was picked up by POLITICO, so it obviously got attention in political circles.

It will be an interesting few weeks, to say the least.

Click here to see more problems with some recent deficit hysteria >

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See Also:

• The Biggest Lie About The US Debt
• $14,294,000,000,000.00
• The Market Is Ignoring A Gigantic Imminent Risk, Because It's Just Too Scary To Contemplate

• New record of $1,476.37 established this week
• Despite soaring prices, demand for bars rose 66%

Gold prices could top $1,600 per troy ounce before the end of 2011 as the fragility of the global economic recovery, fears about inflation and turmoil in the middle east and north Africa drive prices higher.

The price of gold has rallied strongly this year, hitting a new record of $1,476.37 an ounce this week, driven on by concerns over inflation, a weak dollar and the shaky economic recovery.

In its Gold Survey 2011, metals consultancy GFMS said there was growing evidence that buyers may drive prices still higher this year. "There is a higher starting point for each successive investor-led rally in the price. Thus, assuming investment demand will at some point take off again this year, there remains good scope for new highs in the price to be recorded," the consultancy said.

GFMS's prediction comes after a record increase in production of gold last year. The amount of gold going onto the market reached 2,689 tonnes in 2010 as more was mined in Australia, China, Argentina, the US and Burkina Faso.

But the increase was met by soaring demand. Investment in physical bars rose 66% and jewellery demand rose 11% despite rising prices.

"The prospects for gold prices this year remain bright," GFMS executive chairman Philip Klapwijk said. "Investors continue to be concerned about the outlook for inflation, with governments in general showing little appetite to tighten monetary policy significantly."

Gold is the most widely traded precious metal. The price has rallied 27% in the past year and has risen on an annual basis for nine consecutive years.

The price weakened earlier this year but has since rallied. Investment demand for gold fell in 2010 but was still "comfortably" the second highest on record, GFMS reported.

Philip Newman of GFMS said prices were being underpinned by strong demand in India and China as well as by western investors buying into stock-exchange traded funds (ETFs), which offer exposure to the gold market without the necessity of buying the product itself.

In April over 2,142 tonnes of gold were represented by investments in ETFs, up from 1,222 tonnes at the end of 2008. Newman said investors were looking to gold as inflationary fears mounted and the fragility of the economic recovery put governments off from implementing sharp rises in interest rates in the short term.

Global demand for bars of gold was 880 tonnes last year, with India and China accounting for more than half of that. India is also the world's biggest market for gold jewellery.

"We expect investment in gold this year to be supported by the probable spreading of the government debt crisis from Europe to the United States and Japan, especially in light of the huge budget deficits the latter two countries will record in 2011 and the lack of concrete measures they are taking to rein these in," says the report.

But Newman said there was still a long way to go before gold hits the highs seen in 1980 when the price hit $880 an ounce – the equivalent of $2,248 today – driven by a recession, a spike in oil prices and the Soviet invasion of Afghanistan.

[JURIST] Uruguay's Senate [official website, in Spanish] voted 16-15 Tuesday to overturn a 1986 law [press release, in Spanish] granting amnesty to members of the military junta that ruled the country between 1973 and 1985. The decision [AP report] to repeal Uruguay's Expiry Law [text, in Spanish] means that courts will be able to prosecute military leaders whom many claim committed crimes against humanity during the junta's rule. The Inter-American Court of Human Rights (IACHR) [official website, in Spanish] effectively overturned the law [JURIST report] last month when it ruled [judgment, PDF, in Spanish] that Uruguay's government must bring to justice those responsible for the disappearance of a woman abducted by Uruguay government forces in 1976. In November, the Uruguayan Supreme Court [official website, in Spanish] found the law to be unconstitutional [JURIST report]. Uruguay's House of Representatives [official website, in Spanish] must still approve the law. Prior to November's judgment, Uruguay's Supreme Court had largely upheld the amnesty except in extreme circumstances, and in 2009 a popular vote failed to overturn the law [JURIST reports]. Many of the alleged kidnappings and deaths occurred in connection with Operation Condor [BBC backgrounder], a cooperative effort between the governments of Uruguay, Chile, Paraguay, Argentina, Brazil and Chile to eliminate left-wing political opponents. In June, ex-military officials in Argentina were put on trial [JURIST report] for the deaths of 65 activists in connection with Operation Condor. The Uruguayan government has also attempted to bring those responsible for the disappearance of leftist activist to justice. In 2006, eight former police and military officers were indicted by a Uruguayan court [JURIST report] on counts of kidnapping and conspiracy committed during the 1973-1985 dictatorship. The crimes were related to the 1976 disappearances of five members of an Uruguayan leftist group who fled to Argentina and were detained there by police, and who investigators suspect were victims of Operation Condor. Read more about Uruguay's Reparations Law on JURIST's Dateline service.

Independent inquiry concludes that the production of biofuels to meet UK and European directives violates human rights and damages the environment

The legal requirement to put biofuels in petrol and diesel sold in the UK and Europe is unethical because their production violates human rights and damages the environment, a major new inquiry has concluded.

"Biofuels are one of the only renewable alternatives we have for transport fuels, but current policies and targets that encourage their uptake have backfired badly," said Prof Joyce Tait, at Edinburgh University, who chaired the 18-month inquiry by the independent Nuffield Council on Bioethics (NCB). "The rapid expansion of biofuels production in the developing world has led to problems such as deforestation and the displacement of indigenous people."

The need to meet rising biofuel targets has also led to exploitation of workers, the loss of wildlife and higher food prices, the inquiry found. Under the European Union's renewable energy directive, 10% of transport fuel must come from renewable sources such as biofuel by 2020. Alena Buyx, assistant director at the NCB, said: "If you look at food prices and they go up and incomes do not, then more people will probably die from hunger, and biofuels are one contributing factor to those price rises." Biofuels also contribute to poor harvests, commodity speculation and high oil prices which raise the cost of fertilisers and transport, she added.

"But doing nothing is also immoral," said Prof Ottoline Leyserof Cambridge University, and another member of the NBC working party. There is a clear need to replace liquid fossil fuels to limit climate change and if a new biofuel technology meets ethical conditions, there is a duty to develop it, she said.

The main transport biofuels that are currently used – bioethanol, made from maize and sugar cane, and biodiesel, made from palm and rape seed oil – both come from food crops and can have substantial ethical problems, the inquiry concluded.

But future generations of biofuel, made from agricultural waste such as straw, fast-growing perennials such as willow or miscanthus grass, or even algae grown in tanks, could avoid many of the problems by not competing directly with food. "These are very exciting technologies," said Leyser. "The potential is huge."

In the UK, 5% of transport fuel must come from renewable sources by 2013. Today, 3% of the UK's petrol and diesel comes from biofuel, mostly produced in Argentina, Brazil and other European countries. But in January, it was revealed that two-thirds of the biofuel being used in the UK today failed to meet environmental standards. Government cuts to the budget of the Carbon Trust also saw a flagship algal biofuels project cancelled.

The Department of Transport is currently consulting on changes to the UK's biofuels regulations. Transport minister Norman Baker said: "It has already been agreed that no biofuel will count towards European renewable energy targets unless it meets certain sustainability requirements. But we are pushing the European commission to go further. Be in no doubt, we consider the sustainability of biofuels to be paramount."

An international certification scheme, like the Fairtrade scheme for food, must be introduced, the NCB inquiry concluded. It would guarantee that the production of biofuels met the five ethical conditions identified by the NCB: observing human rights, environmentally sustainable, reduced carbon emissions, fairly traded and equitably distributed cost and benefits.

Targets for biofuels had driven a rapid expansion, in parts of the world with lower ethical standards, the researchers said. They cited the destruction of rainforest in Malaysia to produce palm oil, forcing people off their land and endangering orangutans, and a 2008 report by Amnesty International which found conditions near slavery for workers in some sugarcane plantations.

"We should slow down [the targets] if it is not possible to meet ethical standards," said Buyx. "But we think it is possible to do that [meet such standards] if enough pressure is applied." The inquiry found positive examples too, such as small-scale biofuels initiatives that provide energy, income and livelihoods in fuel-poor areas, such as in rural Mali.

Existing certification schemes, such as that run by the Roundtable on Sustainable Biofuels were a good start, the researchers said, but remained entirely voluntary. There was also problem of responsible biofuel producers having to conform to many different standards. At present, said Buyx: "the EU says each member country should make their own voluntary scheme - that is madness."

Tait added: "An international certification scheme will not add to red tape, it will simplify it with one overarching standard."

Buenos Aires is beautiful. We have been blessed with good weather.

The city is booming, too. Strong agricultural prices have done what they always do in Argentina – they’ve set off a boom.

“Property prices are up about 30% over the last 3 years,” says our BA-based colleague, Rob Marstrand. “But this is such a funny place. I love living here, because you see everything. If not in the present, certainly in the past…or the future. Booms, busts, corruption, inflation – everything.

“Only about 6% of properties are sold with mortgages. So this is a real boom – where people are paying cash. But, where does this cash come from? Much of it comes from the bull market in farm products. Argentina is one of the world’s top producers of cereals, for example. But there is probably a lot of money coming from the government too. The inflation rate is about 25%.

“Now, you’d think that a country with a 25% inflation rate would have a currency that is falling through the floorboards. But no. The authorities have been supporting the peso; it actually went up 4% against the dollar. Put the dollar’s drop and Argentine inflation together, and you get a loss of dollar purchasing power of 30%.

“People want to protect themselves. And here, they do it by buying real estate.

“Americans might want to think about it too.”

Prices are down 30% nationwide in the US. In Florida, Nevada, and most of California, they’re half off. Even if they might go down a bit more, there are some very good deals available now. A friend of ours is able to buy apartment buildings for little more than 5 times rent income. If upkeep and taxes take half of that, that still gives him a 10% return. But it could be much better. Suppose he takes out a 30-year, fixed rate mortgage. Now, suppose inflation goes up. Every percentage point that consumer prices rise is another percentage point of yield for a fully-mortgaged investor.

Rob also is in charge of our Family Office investments.

“I don’t see any way that they can unwind all this debt and spending without causing even more problems,” he says. Investors might get some protection from real estate or stocks. But the best protection is gold.

“But we’re still in a correction,” Rob continued. “It wouldn’t be surprising to see gold fall when this round of quantitative easing ends. Take away the money-printing and gold could sell off along with everything else. But people are now catching on. When the economy worsens, they expect the feds to add more stimulus…or lower rates…or more QE. So, they know that over the long run, the effect will probably be to undermine the dollar. I wouldn’t be at all surprised to see gold down 15% in the next sell-off.

“But when the feds step in with more spending, gold will be the clear winner. We already own a lot of gold. I feel like I want to buy more of it…”

Regards,

Bill Bonner,
for The Daily Reckoning

Is the US Housing Market Making a Comeback? originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2 .

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If you keep your money or savings in US dollars inside of the United States, you are a risk taker of epic proportions. Have you not been paying attention to what is going on?

To begin with, the US Government now employs cash-sniffing dogs at most international airports. If you are carrying more than $10,000 in cash and don’t declare it to the Government when coming in or out of the US, your cash will be seized. Thanks to these cash-sniffing canines, US customs officials seized $3.2 million at Boston’s Logan Airport last year.

Some government apologists might say, “If you aren’t doing anything wrong, why would you mind being x-rayed, sniffed, patted down, detained and questioned?”

Besides the obvious absurdity of that question, the main reason this is of concern is because in every case in history when a government has inflated its currency into worthlessness they always institute capital controls. Just ask anyone from Argentina or Italy. And it won’t take much to change the rules from having to “declare” $10,000 to “not being allowed” to take $10,000 out of the country.

Not to mention that if you do declare you are taking $10,000 out of the country, who knows what kind of database you will end up on. You are obviously highly suspicious if you have more than a few hundred bucks! Only Wall Street bankers and others associated with the government are supposed to have more than a couple dollars! The most ludicrous example of the War on Money came across the newswire today, “Feds Seek $7 million in Privately Made Liberty Dollars.”

The news story is only about 10 paragraphs long yet it has dozens of logical absurdities. Even in the Headline is one.

According to the headline, part of the reason they want to seize these dollars is because they are “privately made”? Yes, we wouldn’t want to compete with the private Federal Reserve banking cartel!

And I know the Constitution is passé in the US, nowadays, but how in the world can this man be in trouble for making silver coins? The constitution states:

No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts.

He is in trouble because he is making currency out of gold or silver yet, the Federal Reserve, another private organization, is not doing anything wrong by making paper currency NOT backed by gold and silver coin?

Apparently, the thing they “got him on” was the following:

Federal prosecutors successfully argued that von NotHaus was, in fact, trying to pass off the silver coins as US currency. Coming in denominations of 5, 10, 20, and 50, the Liberty Dollars also featured a dollar sign, the word “dollar” and the motto “Trust in God,” similar to the “In God We Trust” that appears on US coins.

Ignoring the fact that the dollar sign was originally used for Spanish and Mexican pesos and was stolen by the US to use for its dollars and the fact that the word dollar actually comes from the word thaler which was a silver coin minted in Bohemia, according to the Feds, he was trying to pass off coins, made of silver, worth more than $35/ounce, as quarters, which are now made from 92% copper and 8% nickel, and worth $0.06 in metal value.

Boy, that’s quite the racket! Passing off highly valuable silver to people who were expecting to receive near-worthless copper and nickel tokens! It’s a good thing they stopped him before it was too late!

Anne Tompkins, the US Attorney who was put on this important case, stated:

“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism.”

Anne, if attempting to undermine the currency of the US is a form of terrorism, why has Ben Bernanke not been tracked down and sent off to the Guantanamo concentration camp?

This “news” story finished by quoting an unbiased source: a group named the Southern Poverty Law Center, a group that tracks political extremism which has apparently been tracking Bernard von NotHaus, the proprietor of the silver coin making terror enterprise. According to the story, long before the government began its investigation into von NotHaus, the group was raising concerns about the popularity of Liberty Dollars among fringe groups on the far right.

“He’s playing on a core idea of the radical right, that evil bankers in the Federal Reserve are ripping you off by controlling the money supply,” said Mark Potok, spokesman for the group. “He very much exists in the world of the anti-government patriot movement, whatever he may say. That’s who his customers are.”

The US has started another war. The war on money. Anyone with any amount of cash more that will buy them a couple NFL tickets and beers for the game is suspect. And if you are one of those deluded people who thinks the Federal Reserve is evil and is ripping you off and you buy gold or silver to protect yourself, you are a domestic terrorist.

It’s going to be a fun few years ahead in the US.

Regards,

Jeff Berwick
for The Daily Reckoning

The War on Money originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2 .

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Here's my Top 10 links from around the Internet at 10 to 1 pm in association with NZ Mint.

I'll pop the extras into the comment stream. See all previous Top 10s here.

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

Plenty of good cartoons today. And my favourite these days. A Clarke and Dawe video at the bottom.

1. 'You're not fooling anyone' - Closely watched China watcher Andy Xie writes at Caixin that an inefficient public sector and negative real interest rates are pushing China toward stagflation and instability.

He even suggests China may be forced into a devaluation, not the revaluation that most expect.

He sees financial crisis. It is today's must-read for anyone who cares about China, which should be everyone.

China is now the major driver in the economic future of Australasia, and, many would say, the rest of the world.

Xie is saying there is a major financial crisis looming there. HT Colin.

China's monetary policymakers are too far behind the curve. Inflation is entering crisis territory, as consumer prices for many products and services rise at double-digit rates. Signs of panic have appeared along with hoarding which, when it spreads, could trigger social a crisis.

Yet something else is happening. By shifting capital to inefficient users against the backdrop of negative real interest rates, China's economy is being pushed toward stagflation. Meanwhile, the public is afraid that the government wants to inflate away the value of their money.

What's prevented a full-blown crisis so far is a belief that the yuan will appreciate. If not for this assumption, capital flight from China would be rampant.

To change course, policy tightening must shift away from credit rationing and toward market mechanisms. Moreover, the interest rate must be lifted out of the negative column: It should be raised at least three percentage points to allay public fears. These changes are needed as soon as possible.

the current growth model is pushing the economy toward stagflation and currency devaluation risks loom large. China could see a devaluation-triggered financial crisis similar to what the United States has already experienced. The difference, however, is that China's system is not robust enough to maintain stability during such a crisis. It's easy to see why fundamental economic reforms are urgently needed.

2. Quantitative Easing explained - Here's Ticker Guy (Karl Denninger) talking about quantitative easing and the US budget deficit. He also talks about inflation. 43% of US government spending is borrowed... No worries then... HT Gertraud via email.

3. PIMCO goes short US Treasuries - Zerohedge reports PIMCO's Total Return Fund has bailed out of US Treasuries and has parked its money in cash.

The world's biggest bond fund doesn't trust the US Government not to default on its debt. Get the picture?

When will the rest of the bond vigilantes pick up their pitchforks? HT Gertraud via email.

In March, Pimco's flagship Total Return Fund (TRF) has now taken an active short position in US government debt: -3% on a Market Value basis (or $7.1 billion), and a whopping -18% on a Duration Weighted Exposure basis. And confirming just what PIMCO thinks of US-related paper is the fact that the world's largest "bond" fund now has cash, at a stunning $73 billion, or 31% of all assets, as its largest asset class on both a relative and absolute basis.

We repeat: cash is more than PIMCO's holdings of Treasurys and Mortgage securities ($66 billion) combined.

4. Even Krugman is disillusioned - I lost faith in Obama a few months after his election, but now even his high profile supporters such as economist Paul Krugman wonder why Obama is so useless and vapid. Krugman wonders here at New York Times why Obama isn't fighting the Republicans harder.

Easy. Obama is a liar, a fool and a spineless wimp.

What’s going on here? Despite the ferocious opposition he has faced since the day he took office, Mr. Obama is clearly still clinging to his vision of himself as a figure who can transcend America’s partisan differences. And his political strategists seem to believe that he can win re-election by positioning himself as being conciliatory and reasonable, by always being willing to compromise.

But if you ask me, I’d say that the nation wants — and more important, the nation needs — a president who believes in something, and is willing to take a stand. And that’s not what we’re seeing.

 

5. China's Lewis Turning Point - Ed Harrison at Credit Writedowns writes about how China may be at the 'Lewis Turning Point' where a shortage of rural labour pushes up wages and inflation fast.

What Lewis found is that industrial wages rise very quickly when the supply of excess rural labour is exhausted. This is called the Lewis Turning Point and is where China is right now.

This will have major implications for the Chinese domestic economy and the world economy. The first implication is inflation. Without the endless stream of excess rural labour, wages are going to go way up in China and this means inflation will be a problem.  Over the last twenty years, the introduction into the global economy of the former Eastern Bloc and China has meant a huge surge in available labour. Despite a flood of money from the Japanese and U.S. central banks, this influx of labour has effectively capped consumer price inflation in developed economies. The result has been the so-called Great Moderation.

If China has reached its Lewis Turning Point, all of that is out the window and Central banks will face a Scylla and Charybdis flation challenge for years. China's labour shortage will work in concert with resource constraints and likely excess money supply as an inflationary force. These forces are countered by major deflationary forces from the debt overhang resulting from the implosion of the global asset bubble.

6. Minting money - This New York Times piece about an elaborate scam involving old scrapped one and two euro coins, Chinese metal reconstructors and German air hostess mules for the reconstituted coins is a cracker.

It's a whole new twist on the business of conterfeiting. All it takes is cheap Chinese labour.

Old coins that were supposed to be melted down in China were instead reconstituted and then flown back to Germany to exchange for notes. Achtung Counterfeiter!

According to prosecutors, in recent years a fraud ring involving flight attendants has toted 30 tons of supposedly scrapped euro coins back into Europe from China. Recyclers in China were supposed to have melted down the old coins, which had been removed from circulation and sold as scrap metal.

Instead, officials say, the band and its accomplices painstakingly restored the coins, then fooled the Bundesbank into redeeming them for paper currency or money transfers into bank accounts.

The fraud ring, which officials said had been operating since 2007, took advantage of the way the two-piece coins are made. The 2-euro coin has a nickel and brass alloy center, or “pill,” surrounded by a nickel and copper ring. The 1-euro coin has a copper and nickel pill surrounded by a nickel and brass ring. When the coins were removed from circulation, a subcontractor separated the rings from the pills before the metal was sold to Chinese recycling companies.

Somehow, the thieves discovered that they could put the pills and rings back together, bring them to Germany and redeem them at the Bundesbank.

7. Just a little bit out of control - Bloomberg reports George Soros saying Chinese inflation is somewhat out of control. This is not reassuring.

The Chinese government’s decision to keep its currency weak is leading to higher risks of wage-price inflation, billionaire investor George Soros said.

While the policy helped insulate the nation from the financial crisis in 2008, the world’s second biggest economy has missed its chance to allow the currency to appreciate to control inflation, Soros, chairman of Soros Fund Management LLC, said yesterday at a conference in Bretton Woods, New Hampshire.

“It would be very advantageous to allow the currency to appreciate as a way of controlling inflation,” Soros said. “The authorities missed that opportunity. You now have inflation somewhat out of control, and causing some serious danger of wage-price inflation.”

8. Another way to blame the bankers - US Economist Max Corden writes at VoxEu that poor decisions by financial intermediaries allowing poor investment decisions by surplus nations in US consumption and housing is at least partly responsible for the global capital imblances that caused the Global Financial Crisis.

People critical of global imbalances often blame the surplus countries and their currency manipulation. This column introduces a Policy Insight that argues that the basic problem has been the inefficiency of the world’s financial sector, which led to unfruitful investment in the US rather than productive investment in emerging economies.

A key issue is that funds from countries that are net savers called the savings-glut countries (where savings exceed domestic investment) have been lent to borrowers (notably the US) who have used these funds unwisely, namely for current consumption and for investment that is not “fruitful.” The main form of “unfruitful” investment has been in excess housing construction. The funds coming from the savings-glut countries should have financed fruitful investment in the US and elsewhere. Instead they have also been lent to the US government, financing a war and tax cuts. All this is well known.

The result is that the borrowing countries, notably the US, have failed to build up resources out of which interest, dividends, and necessary repayments can be made. Yet such debt service or returns from purchases of equity are an essential feature of intertemporal trade.

9. Why Iceland voted no again - Michael Hudson writes at Credit Writedowns about why Iceland's people have voted again to default on their debts. He agrees with their decision. Fair enough. This is a question that every heavily indebted sovereign nation must face in the end. When should they default on their unpayable debts?

Iceland was the first to be wiped out in the Global Financial Crisis. How many others will go down this path? Ireland? Greece? Portugal? New Zealand?

Hudson also points out indebted nations should ignore the rosy forecasts of central bankers and the IMF.

Prime Minister Johanna Sigurdardottir warns that the vote may trigger “political and economic chaos.” But trying to pay also threatens this. The past year has seen the disastrous experience of Greece, Ireland and now Portugal in taking reckless private sector bank debts onto the public balance sheet. It is hard to expect any sovereign nation to impose a decade or more of deep depression on its economy inasmuch as international law permits every nation to act in its own vital interests.

Attempts by creditors to persuade nations to bail out their banks at public expense thus is ultimately an exercise in public relations. Icelanders have seen how successful Argentina has been since it imposed a crew haircut on its creditors. They also have seen the economic and political disruption in Ireland and Greece resulting from trying to pay beyond their means.

Creditors did not give accurate advice when they told Ireland that it could pay for its bank failures without plunging the economy into depression. Ireland’s experience stands as a warning to other countries about trusting overly optimistic forecasts by central bankers. In Iceland’s case, in November 2008 the IMF staff projected yearend-2009 gross external public and private debt at 160% of GDP – but observed that an exchange rate depreciation of 30% would push the ratio to 240% of GDP, which would be “clearly unsustainable.” But the most recent IMF staff report (January 14, 2011) shows end-2009 gross external debt at 308% of GDP, and estimates end-2010 gross external debt at 333% – even before taking the Icesave and other debts into account!

10. Totally Richard Koo video - This is the Nomura economist who warned about a Japanese-style Balance Sheet recession happening in the indebted developed world.

He says Japan's economy could have lost 10% of GDP a year without the government jumping in to build bridges to nowhere. He points out Japan's asset prices fell 87% (!) on average from the peak, causing the mother of balance sheet recessions.

He says massive Japanese government borrowing fueled by debt saved the Japanese economy from much worse than its couple of lost decades. He says the last thing governments should do is cut spending when the private sector is deleveraging.

Is that the case in NZ? The difference between us and Japan is we have been borrowing offshore and for larger amounts than Japan.

Could we borrow so easily and so cheaply when we don't have large local savings to call on.

The video is well worth watching. His views are engaging and counter intuitive.

11. Bonus Clarke and Dawe video - Kevin Rudd makes a re-apperance.

Joel Bowman, managing editor of The Daily Reckoning, is in Argentina, and it looks like he is discovering that the corruption that comes with creating more money, so that the government can stupidly spend it, is now everywhere, and, indeed, the ugly end result is everywhere, too. In his essay “The Unfortunate Sate of the Argentine Beef Industry” an Argentine friend of Mr. Bowman’s explains, “as usual, the little guy, the one who the government supposedly set out to help, ends up paying more.” Ain’t that the truth! Hahaha!

I laughed, as I cleverly noted by appending, “Hahaha!” to the end of the sentence, because inflation in prices is the Same Damned Thing (SDT) that always, always, always happens when the government tries to, in one way or another, “help the little guy.”

And yet everybody has a government that just keeps on screwing “the little guy,” by creating more and more inflation in the money supply, that creates inflation in prices, that screws “the little guy” during the process of “helping the little guy.”

Luckily, I can ascertain how much “the little guy” is getting screwed because The Economist magazine is within easy reach, and by deftly going to the back page, I scan down the table to see that Argentina has a monstrous 10% inflation in consumer prices, but with three mysterious little asterisks.

“Asterisks? What’s with the asterisks?” I wonder. When I go to the bottom of the page to hopefully find out what these asterisks mean, I find that they mean, “unofficial estimates are higher.” Whoa! Does this mean that Argentina’s government is a corrupt, lying piece of worthless trash like all the other countries in the world, only more so than any other? Hmmm!

Then, curious, I scan up and down the table, and note that none of the other countries in the Whole Freaking World (WFW) have their inflation figures marked with asterisks, even though I am sure they are shot through with lying corrupt crap. So “Hmmm!” again!

In fact, the only other country in that selfsame Whole Freaking World (WFW) that has any symbol attached to their inflation figures, at all, is Britain, so as to note that their 4.0% inflation is the “Centred 3-month average,” which is, I cynically note since I don’t know what it means nor do I care, probably just another kind of corrupt, lying fraud where a lot of people should wind up in prison, too.

So, with that kind of exhaustive, unbiased research on my part, I guess the three asterisks denotes Argentina as being this week’s winner of the Mogambo Biggest Liar Award (MBLA) about inflation. Congratulations!

And my pity to the “little guys” of Argentina who must pay these higher and higher prices, reminding me about the song title, “Don’t cry for me, Argentina,” although I don’t know what that’s about, either.

Then, to expand my fabulous foray into real research, I cast my eye up the page to the United States, and read across to note that inflation in consumer prices is a laughable 2.1%! Hahaha!

Hell, The Economist magazine shows that the dollar index of “all items” is up 42.4%, and the latest government report shows that inflation in food and energy is at double-digit rates, for crying out loud!

And, I am loathe to report, it’s going to get worse because the Federal Reserve is still creating money out the ying-yang, which has increased the monetary base by $73 billion in the last week, which is a rise of 3.1% in One Freaking Week (OFW), and the monetary base is up $160 billion in the last three weeks, which is an expansion of the money supply of over 7% in Three Freaking Weeks (TFW)! We’re Freaking Doomed (WFD)!

That is why I laugh when Spencer Jakab, writing in The Financial Times, writes that, despite acknowledging Milton Friedman’s famous aphorism that “inflation is always and everywhere a monetary phenomenon,” and even after stipulating that “the monetary base has indeed mushroomed,” he nonetheless qualifies it with “in the quantity theory of money, it is not a simple increase in the base that causes inflation. It is an excess supply of money, which is the not the case – not yet anyway.”

I screech, “What? No, it doesn’t! The money goes into government deficit spending! That’s how the government gets money into the damned economy! And I further argue that ‘a simple increase in the monetary base’ is not significantly different from ‘an excess supply of money,’ too, even though you say one will cause inflation and one will not, even though the prices of food and energy are up by double-digits everywhere!”

“So where does the money go?” you ask with that cute little look on your face that melts my heart.

He says, “At the moment, the money shows up as excess reserves on bank balance sheets, for which they receive interest.”

I say, “The money goes into higher prices.”

He does not say to buy gold and silver to protect yourself against the gigantic inflation in prices that is guaranteed by the Federal Reserve creating So Freaking Much Money (SFFM).

I say to buy gold and silver to protect yourself against the gigantic inflation in prices that is guaranteed by the Federal Reserve creating So Freaking Much Money (SFFM).

And while, by his photo, I cannot imagine him saying, “Whee! This investing stuff is easy!” that is exactly what I am saying.

In fact, I’ll say it now! “Whee! This investing stuff is easy!”

The Mogambo Guru
for The Daily Reckoning

Government Spending Screws the Little Guy originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2 .

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Source: Guardian (UK) (4-11-11)

SS architect of final solution hated life in hiding and wrote letter to West German chancellor Konrad Adenauer in 1956, book reveals.

For more than a decade after the second world war, his whereabouts were officially unknown. Adolf Eichmann, chief architect of the Holocaust, had escaped from a US POW camp, slipped into Italy and on to a ship bound for Argentina.

The West German government, busy rebuilding the country and rehabilitating its reputation, knew from at least 1952 where he was living, yet never made any real attempt to bring him to justice. But a new book claims Eichmann had wanted to return to his homeland and claim his place in history several years before he was captured by Israeli intelligence in 1960 and put on trial in Jerusalem.

In 1956, Eichmann wrote an open letter to the West German chancellor, Konrad Adenauer.

The letter was supposed to be published by an Argentinian company with Nazi sympathies, although it never saw the light of day. It was unearthed from German state archives by historian Dr Bettina Stangneth in Hamburg, whose book, Eichmann Before Jerusalem, is published in Germany this week.

In the letter to Adenauer, Eichmann, aged 50, suggests he should be allowed home to tell the young people of Germany what really happened under Hitler....

New from around the globe impacting your world.

Gbagbo Captured in Côte d'Ivoire. Laurent Gbagbo, who refused to abide by the results of last year's elections, has been captured  and is now in the custody of opposition forces. His capture came after French forces intervene in the fighting sending 30 armoured vehicles into Abidjan.  But both the French government and military insist that Gbagbo was taken by troops loyal to Alasanne Ouattara, who won last year's presidential election.

A spokesman for Ouattara told The Guardian: "It's true. Gbagbo has been taken to the Golf hotel by republican forces. Our forces went to the residence this morning and took him out." While the details of the capture remain unclear, it is possible that the French and UN soldiers attacked the building, surrounded it and then waited for Outtara's forces to go in, as France may not have the mandate or legal basis to make the arrest.

Uruguay Set to Enact Marriage Equality. The small South American nation of Uruguay is poised to enact full marriage equality for gays and lesbians by the end of 2011. Uruguay, which in 2007 became the first Latin American country to allow civil unions, is now pressing forward with a more gender neutral definition of marriage. The bill proposes a change to the country's civil code amending laws that refer to “husband and wife” to the more gender neutral “spouses” or “conjugal partner.” The bill is expect to be passed by the end of the year given that legislators report little resistance within the ranks of the center-left leaning majority in the Uruguay Congress. Currently only Argentina and Mexico City offer full marriage equality for gays and lesbians. Uruguay also offers same-sex couple adoption rights and has lifted its ban on gay troops serving in the military. Brazil has also introduced a gay marriage bill but passage there is more uncertain.

Early Results in Nigerian Elections. Nigeria's twice-delayed legislative and state elections were marred by violence that left scores dead and hundreds wounded across the Islamic north. About 74 million Nigerians were registered to vote in this year's general election where 36 Governors, 109 Senators, 360 House of Representative were up for grabs. Early results indicate that the ruling Peoples Democratic Party (PDP) has suffered a severe electoral setback with numerous opposition parties set to make key gains. A full report from All Africa.

African Union Peace Mission in Benghazi. A delegation of five African presidents has arrived in the Libyan rebel stronghold of Benghazi in a bid to end hostilities and negotiate a way out of the deepening crisis. Jacob Zuma, the South African president, said Tripoli had "accepted" the African Union's plan for a ceasefire which would halt NATO bombing. Al Jazeera has a full report.

French Burka Ban Goes into Effect. The French ban on burkas and niqabs went into effect on Monday. The law imposes a fine of 150 euros ($190). The person breaking the law can be asked to carry out public service duty as part of the punishment or as an alternative to the fine. Forcing a woman to wear a niqab or a burqa is punishable by a year in prison and a 30,000 euro fine. Forcing a minor to do the same thing is punishable by two years in prison and a 60,000 euro fine. The government has called this coercion "a new form of enslavement that the republic cannot accept on its soil." Two women defied the ban in Paris and they were promptly detained.

SS architect of final solution hated life in hiding and wrote letter to West German chancellor Konrad Adenauer, a new book reveals

For more than a decade after the second world war, his whereabouts were officially unknown. Adolf Eichmann, chief architect of the Holocaust, had escaped from an American POW camp, slipped into Italy and on to a ship bound for Argentina.

The West German government, busy rebuilding the country and rehabilitating its reputation, knew from at least 1952 where he was living, yet never made any real attempt to bring him to justice. But a new book claims Eichmann had wanted to return to his motherland and claim his place in history several years before he was captured by Israeli intelligence in 1960 and put on trial in Jerusalem.

In 1956, Eichmann wrote an open letter to the West German chancellor, Konrad Adenauer.

"It is time to relinquish my anonymity and introduce myself," wrote Eichmann, who was then living under the name Ricardo Klement in a suburb of Buenos Aires. "Name: Adolf Otto Eichmann. Occupation: SS Obersturmbannführer a. D [lieutenant colonel]."

The letter was supposed to be published by an Argentinian company with Nazi sympathies, although it never saw the light of day. It was unearthed from German state archives by historian Dr Bettina Stangneth in Hamburg, whose book, Eichmann Before Jerusalem, is published in Germany this week.

In the letter to Adenauer, Eichmann, then aged 50, suggests he should be allowed home to tell the young people of Germany what really happened under Hitler.

"How long fate will allow me to live, I don't know, but I know that someone has to be the one to tell future generations about these events," he said, neglecting to mention that "these events" involved the mass murder of millions of people. "I had a big role in leading and directing these programmes," he added.

Eichmann ran the "Jewish section" at the Reich security head office, the SS organisation responsible for fighting "enemies of the Reich". In practice, this meant it was his job to work out how best to deport Jewish people to concentration camps. He took great joy in figuring out the most profitable and effective way of carrying out mass murder: it was he and his unit who dreamt up the idea of the authorities and the police robbing the victims before deportation.

Stangneth said Eichmann was unhappy with his lowly life in Argentina, where he was a rabbit farmer. He craved the power and recognition he enjoyed in the Third Reich. "That's why he wrote the letter to Adenauer – because he wanted to be famous," said Strangneth. "He wanted to claim his part in history alongside Adolf Hitler.

"He wanted to be put on trial in Germany and give his version of events. Of course, if that had happened, he would have been given a very different trial from the one he got in Jerusalem. There was no death penalty in Germany by then, so he would certainly not have been executed."

Nearly 50 years since Eichmann was hung in Israel, awkward questions are now being asked in Germany about the country's role in bringing him to justice or otherwise.

A series of articles in Der Spiegel magazine recently have suggested West German secret agents knew full well where Eichmann was following his escape, but were never ordered to recapture him.

Following Eichmann's kidnapping by the Mossad in May 1960, Adenauer's government held a crisis meeting, where they agreed they should do everything to make clear that "Eichmann was a stooge of Himmler's SS" and that he was not an authorised agent of Germany. A foreign ministry official is noted as saying it was crucial that "leading figures in West Germany" were not harmed by the trial.

The latest edition of the magazine claims Adenauer personally sent an agent from the German secret service, the BND, to monitor the Eichmann trial in Jerusalem.

Adenauer told a spy called Rolf Vogel to observe the trial in the guise of a reporter and influence it where possible. "You must go to the Eichmann trial for me," wrote Adenauer, according to secret papers unearthed by Der Spiegel, which describes Vogel's deployment as was "one of the most delicate diplomatic/secret service operations in the history of West Germany".

Der Spiegel claims Adenauer was terrified that the Nazi past of one of his most trusted aides, Hans Globke, his chief of staff at the chancellery, would be exposed by the trial.

Adenauer reportedly went as far as discreetly trying to pay Eichmann's legal fees because he was terrified that if he didn't, the Eastern bloc would, and his Soviet enemies would attempt to influence the trial for their own ends. But when the media got wind of the plot, back in 1961, the plan was shelved, and the 100,000 deutschmarks already sent by Germany ended up with the Israelis, said Der Spiegel.

In the event, Eichmann did not expose any high-ranking West German parliamentarians or civil servants.

A week after Eichmann was executed on 13 May 1962, Adenauer met Israel's deputy defence minister, Shimon Peres, and asked him to thank the prime minister, Ben Gurion, for the way the trial was conducted. "It was excellent," said Adenauer, "and I will never forget it."

In August 1962, the Adenauer government donated 240m marks to Israel's military programme.

The biggest risk facing the market right now is the prospect of a US debt default, which could arise as a result of Congress not lifting the debt ceiling.

The US is due to hit the debt ceiling in just a few weeks, and then the Treasury would have various "maneuvers" to keep the US from defaulting. Supposedly that would buy the government a few more weeks.

It's not all that likely, but it's not zero. What's amazing is how blase the market seems to be about this prospect, especially in light of the fact that so many people actually WANT something like this to happen. Here's a stunning post from Dean Baker (via Bruce Krasting) arguing that a default in the US wouldn't be that big of a deal, because it wasn't that big of a deal in Argentina. This is a pretty unreal comparison, given the vastly different places in the world held by the US today and Argentina 10 years ago.

The easiest way to think of the significance of a US default is to think of the way the banking system in Europe quivers just as the mention that maybe perhaps debt holders in Greece or Ireland might have to take a haircut in a controlled manner. Now multiply that significantly.

So why hasn't the market reacted yet with concern? Probably because it's just to big to contemplate, and it seems totally impossible that it would be let to happen.

Our guess is that if something cataclysmic were on the horizon, we'd have a day like the day when TARP was first rejected, that would scare politicians straight. But who knows. This is definitely the biggest (known) risk for the next couple of weeks.

For the latest investing news, visit Money Game. Follow us on Twitter and Facebook.

Join the conversation about this story »

See Also:

• Wells Fargo Chief Economist: The US Is No Longer The Dominant Economy
• Why It's Simply Insane To Equate Government Fiscal Health With Prosperity
• Interesting Implied Macro Impacts Of Representative Ryan's Roadmap

Workers in northern Argentina lifted a strike that halted an oil refinery and hit imports of Bolivian natural gas after the government stepped in to resolve the dispute, a union leader said on Sunday.

These posts have been going through the EIA list of the top oil producers in the world, over the past few weeks, I thought I might just review them collectively, but briefly, before starting to look at individual countries and oilfields. Even the posts that I have written recently have become out of date with new information (Russia increased production again in February by 20 kbd over January reaching 10.23 mbd) and then fell back to 10.2 mbd in March but at this stage, rather than focusing on such details, I am trying to generate a sense of the overall picture. It should also be recognized that I am just grabbing a snapshot of data, rather than the more detailed studies that look at the longer term, which folk such as Rembrandt, Rune and Euan provide. The simplest way to do this is to place my current estimates of production for the top 30 oil producers that I have reviewed in this series against the EIA estimate of their production in 2009.

Top 30 oil producing countries (those increasing production over 2009 are shown in red).

It is significant to note that while Saudi Arabia was producing 8.05 mbd of crude in 2009, this has risen to 8.869 mbd on average for February as the Kingdom increased production to match the shortfalls in oil exports from Libya, inter alia. (With roughly 1.8 mbd in “other liquids” this takes total KSA production to 10.67 mbd and moves it back to the top of the League. However those numbers were from the March MOMR, which reports on February, In that report Libya was still being recorded as producing around 1.3 mbd). It is now reported that overall OPEC was not able to match the Libyan decline in March, falling about 350 kbd short, while KSA production has now reached 9 mbd, (10.8 including other liquids).

Contrary to President Obama’s recent remarks the EIA are anticipating a decline in US crude oil and liquids production over the next two years, part of which has been blamed on the change in GOM regulations. As a result it would be optimistic to anticipate much more than a US production of 8.3 mbd (and the EIA project it will be down to 8.2 mbd next year). It is unlikely that US production will increase beyond that point.

US crude and liquid fuels production – (EIA)

With China, Iran, and Canada holding relatively steady in the short term, this gives an updated total of 39.83 mbd for the top six, which is about 1.4 mbd higher than when I wrote the initial post back in February, but 500 kbd below the EIA estimate for their 2009 production. (While Russia and the KSA increased, the USA and Iran declined). Of these it is likely that only the KSA can continue to increase production much more.

In the second tier, Mexican production continues to fall, and was down to 2.556 mbd in February, with reports that it will now be an oil importer well before 2020. Exports have already fallen to 1.23 mbd, which does not bode well for customers. The United Arab Emirates (UAE) have, like the KSA, increased production to help out, though so far this has only been up to 2.394 mbd from 2.3 mbd for most of last year. (They also produce roughly another 500 kbd of other liquid fuels). By 2020 they should be able to produce up to 3.5 mbd. And in similar vein Kuwait, now producing at 2.368 mbd, up from 2,3 mbd. Kuwaiti plans are to reach 3.5 mbd by 2015, and be at 4 mbd by 2020.

The current political turmoil has even persuaded Venezuela to increase production, with OPEC reporting levels of 2.39 mbd for February, a gain of around 100 kbd. Though how long that is sustained depends on the success of the many investors that have been persuaded to invest in the Venezuelan oil sands.

In the third group Norway is declining, being now at just over 2 mbd, and even though it has just announced a major new discovery that will not come on line for at least 5 – 10 years, and in the meanwhile production will continue to fall. Norway needs more discoveries similar to this, however, to be able to sustain production levels extending into the future, since without them production will collapse.

Brazil was touted, by President Obama in his remarks about the Energy Blueprint last week, though the increasing volumes of oil that they will produce remain foreign to the United States, and though they will likely increase production up to around 4 mbd by 2020, rising domestic consumption may well take much of that increase.

Which brings us into the states that has some political turmoil. Iraq has been able to bring production back to around 2.64 mbd (according to OPEC) with the hope of reaching 3 mbd by the end of this year. At the moment about 1.2 mbd of this is exported. One of the great questions of the decade is just how close to a projected 10 mbd by 2020 that Iraq will be able to get. Sadly the continuing conflicts there, though reduced in scale, make it difficult for me to see much beyond 5 mbd by 2020.

Nigeria, which has had its own internal conflicts for some time, is going to the polls as I write this, and the expected winner is planning to overhaul the oil industry. However, if stability continues, then it might be possible to resurrect some of the older fields and perhaps increase overall production by some 350 kbd.

Algeria, which has had some turmoil, but may emerge from the ongoing protests without much change, is producing around 2 mbd of liquids. That has not changed as OPEC has moved to match the decline in volumes from Libya and other countries facing protests, and may reflect the current maximum that the country can produce. In the stability stakes I suspect that Algeria may survive without much change, although the plot I put up from Energy Export Databrowser does suggest that production may have peaked.

Algerian oil statistics (Energy Export Databrowser)

Angola is currently producing 1.7 mbd but may add some 650 kbd this year, for a total of 2.35 mbd. And that brings us to Libya, where the increased fighting, particularly over the oil refinery town of Ras Lanuf, makes it increasingly unlikely that the 1.7 mbd which came from Libya will be available again soon.

The United Kingdom is in significant decline, but recent moves to further tax the oil industry have made it possible that the decline may steepen. This because the new taxes proposed will likely reduce the profitability of the field developments proposed, discouraging their development. Recently production has run at 1.35 mbd of liquids, which is scheduled to drop to 1.3 mbd this year, and 0.94 mbdoe of natural gas, anticipated to fall to 0.85 mbdoe this year. The criticality of investment is shown in the projected production over the next 5 years, with the different colors showing the likelihood of success. Note that the grey of current production is declining at about 10%.

UK Projected Oil production (2011 UK Oil and Gas Activity Survey)
UK Projected Natural Gas production (2011 UK Oil and Gas Activity Survey )

Moving to the next tier down, Kazakhstan is now at 1.6 mbd and slowly increasing production toward a target of 3 mbd by 2020. Qatar is running at 1.4 mbd, but with almost 0.6 mbd of that in NGL. Indonesia is producing right around 1 mbd and may maintain that in the short term. It is being challenged in rank by Azerbaijan which has just incremented up to 1 mbd, a volume that is expected to continue to rise until it reaches about 1.25 mbd in 2014.

The tier that lies below 1 mbd starts with India, which is currently holding a production of around 878 kbd, and having to import increasing amounts of oil to meet demand. Given that the country also subsidizes the price, this is becoming an increasingly expensive consideration for the government. India is followed by Argentina, which is post peak and declined to 0.76 mbd most recently. Egypt is similarly declining, now to 660 kbd, but as one of the early nations to change under the most recent protests, and with the situation still somewhat fluid, it is difficult to predict how much the country will have both for itself, and for external customers, a year from now.

Oman will likely weather the current storms, and is also increasing oil production, to the point that it is moving up to pass India, with an Omani production of 863 kbd, some of which is tied to NGL production.

In the final four that produce more than 500 kbd Malaysia is barely maintaining production at 700 kbd, while Australia has fallen from 588 kbd to 540 kbd. Both are now being passed in production by Colombia, one of the “hotter” places for development at the moment, with production rising to possibly 920 kbd this year. Ecuador, which closes out the top 30, has recently increased production from 485 to 504 kbd.

That completes the top 30, and accounts for some 76.7 mbd of production. Those same countries back in 2009 were reported by the EIA as producing some 79.23 mbd of oil. Remember that world demand is anticipated to increase by somewhere between 1.4 and 1.6 mbd this year, and that of this list of 30 only 13 increased production, and the rest declined and the concern for the future becomes thus more clearly defined. (The difference between the two totals is partially explained by the loss in Libyan oil - we will see within the month how well OPEC covers that).

But it is not the overall production from the world that can be estimated that accurately, but by looking at individual countries and, in some cases, individual oilfields that we can get some better sense of what is to come. So the next step will be looking at these nations in more detail, in the weeks ahead.

These posts have been going through the EIA list of the top oil producers in the world, over the past few weeks, I thought I might just review them collectively, but briefly, before starting to look at individual countries and oilfields. Even the posts that I have written recently have become out of date with new information (Russia increased production again in February by 20 kbd over January reaching 10.23 mbd) and then fell back to 10.2 mbd in March but at this stage, rather than focusing on such details, I am trying to generate a sense of the overall picture. It should also be recognized that I am just grabbing a snapshot of data, rather than the more detailed studies that look at the longer term, which folk such as Rembrandt, Rune and Euan provide. The simplest way to do this is to place my current estimates of production for the top 30 oil producers that I have reviewed in this series against the EIA estimate of their production in 2009.

It is significant to note that while Saudi Arabia was producing 8.05 mbd of crude in 2009, this has risen to 8.869 mbd on average for February as the Kingdom increased production to match the shortfalls in oil exports from Libya, inter alia. (With roughly 1.8 mbd in “other liquids” this takes total KSA production to 10.67 mbd and moves it back to the top of the League. However those numbers were from the March MOMR, which reports on February, In that report Libya was still being recorded as producing around 1.3 mbd). It is now reported that overall OPEC was not able to match the Libyan decline in March, falling about 350 kbd short, while KSA production has now reached 9 mbd, (10.8 including other liquids).

Contrary to President Obama’s recent remarks the EIA are anticipating a decline in US crude oil and liquids production over the next two years, part of which has been blamed on the change in GOM regulations. As a result it would be optimistic to anticipate much more than a US production of 8.3 mbd (and the EIA project it will be down to 8.2 mbd next year). It is unlikely that US production will increase beyond that point.

With China, Iran, and Canada holding relatively steady in the short term, this gives an updated total of 39.83 mbd for the top six, which is about 1.4 mbd higher than when I wrote the initial post back in February, but 500 kbd below the EIA estimate for their 2009 production. (While Russia and the KSA increased, the USA and Iran declined). Of these it is likely that only the KSA can continue to increase production much more.

In the second tier, Mexican production continues to fall, and was down to 2.556 mbd in February, with reports that it will now be an oil importer well before 2020. Exports have already fallen to 1.23 mbd, which does not bode well for customers. The United Arab Emirates (UAE) have, like the KSA, increased production to help out, though so far this has only been up to 2.394 mbd from 2.3 mbd for most of last year. (They also produce roughly another 500 kbd of other liquid fuels). By 2020 they should be able to produce up to 3.5 mbd. And in similar vein Kuwait, now producing at 2.368 mbd, up from 2,3 mbd. Kuwaiti plans are to reach 3.5 mbd by 2015, and be at 4 mbd by 2020.

The current political turmoil has even persuaded Venezuela to increase production, with OPEC reporting levels of 2.39 mbd for February, a gain of around 100 kbd. Though how long that is sustained depends on the success of the many investors that have been persuaded to invest in the Venezuelan oil sands.

In the third group Norway is declining, being now at just over 2 mbd, and even though it has just announced a major new discovery that will not come on line for at least 5 – 10 years, and in the meanwhile production will continue to fall. Norway needs more discoveries similar to this, however, to be able to sustain production levels extending into the future, since without them production will collapse.

Brazil was touted, by President Obama in his remarks about the Energy Blueprint last week, though the increasing volumes of oil that they will produce remain foreign to the United States, and though they will likely increase production up to around 4 mbd by 2020, rising domestic consumption may well take much of that increase.

Which brings us into the states that has some political turmoil. Iraq has been able to bring production back to around 2.64 mbd (according to OPEC) with the hope of reaching 3 mbd by the end of this year. At the moment about 1.2 mbd of this is exported. One of the great questions of the decade is just how close to a projected 10 mbd by 2020 that Iraq will be able to get. Sadly the continuing conflicts there, though reduced in scale, make it difficult for me to see much beyond 5 mbd by 2020.

Nigeria, which has had its own internal conflicts for some time, is going to the polls as I write this, and the expected winner is planning to overhaul the oil industry. However, if stability continues, then it might be possible to resurrect some of the older fields and perhaps increase overall production by some 350 kbd.

Algeria, which has had some turmoil, but may emerge from the ongoing protests without much change, is producing around 2 mbd of liquids. That has not changed as OPEC has moved to match the decline in volumes from Libya and other countries facing protests, and may reflect the current maximum that the country can produce. In the stability stakes I suspect that Algeria may survive without much change, although the plot I put up from Energy Export Databrowser does suggest that production may have peaked.

Angola is currently producing 1.7 mbd but may add some 650 kbd this year, for a total of 2.35 mbd. And that brings us to Libya, where the increased fighting, particularly over the oil refinery town of Ras Lanuf, makes it increasingly unlikely that the 1.7 mbd which came from Libya will be available again soon.

The United Kingdom is in significant decline, but recent moves to further tax the oil industry have made it possible that the decline may steepen. This because the new taxes proposed will likely reduce the profitability of the field developments proposed, discouraging their development. Recently production has run at 1.35 mbd of liquids, which is scheduled to drop to 1.3 mbd this year, and 0.94 mbdoe of natural gas, anticipated to fall to 0.85 mbdoe this year. The criticality of investment is shown in the projected production over the next 5 years, with the different colors showing the likelihood of success. Note that the grey of current production is declining at about 10%.

Moving to the next tier down, Kazakhstan is now at 1.6 mbd and slowly increasing production toward a target of 3 mbd by 2020. Qatar is running at 1.4 mbd, but with almost 0.6 mbd of that in NGL. Indonesia is producing right around 1 mbd and may maintain that in the short term. It is being challenged in rank by Azerbaijan which has just incremented up to 1 mbd, a volume that is expected to continue to rise until it reaches about 1.25 mbd in 2014.

The tier that lies below 1 mbd starts with India, which is currently holding a production of around 878 kbd, and having to import increasing amounts of oil to meet demand. Given that the country also subsidizes the price, this is becoming an increasingly expensive consideration for the government. India is followed by Argentina, which is post peak and declined to 0.76 mbd most recently. Egypt is similarly declining, now to 660 kbd, but as one of the early nations to change under the most recent protests, and with the situation still somewhat fluid, it is difficult to predict how much the country will have both for itself, and for external customers, a year from now.

Oman will likely weather the current storms, and is also increasing oil production, to the point that it is moving up to pass India, with an Omani production of 863 kbd, some of which is tied to NGL production.

In the final four that produce more than 500 kbd Malaysia is barely maintaining production at 700 kbd, while Australia has fallen from 588 kbd to 540 kbd. Both are now being passed in production by Colombia, one of the “hotter” places for development at the moment, with production rising to possibly 920 kbd this year. Ecuador, which closes out the top 30, has recently increased production from 485 to 504 kbd.

That completes the top 30, and accounts for some 76.7 mbd of production. Those same countries back in 2009 were reported by the EIA as producing some 79.23 mbd of oil. Remember that world demand is anticipated to increase by somewhere between 1.4 and 1.6 mbd this year, and that of this list of 30 only 13 increased production, and the rest declined and the concern for the future becomes thus more clearly defined. (The difference between the two totals is partially explained by the loss in Libyan oil - we will see within the month how well OPEC covers that).

But it is not the overall production from the world that can be estimated that accurately, but by looking at individual countries and, in some cases, individual oilfields that we can get some better sense of what is to come. So the next step will be looking at these nations in more detail, in the weeks ahead.

For the latest investing news, visit Money Game. Follow us on Twitter and Facebook.

Join the conversation about this story »

See Also:

• The Demographic Black Swan In Saudi Oil Exports
• Oil Slides Back As Libyan Rebels Prepare First Crude Shipment
• Is It A Big Myth That Oil Spikes Cause Recessions?

Azerbaijan:

←Older revision		Revision as of 21:45, 9 April 2011
(16 intermediate revisions not shown.)
Line 38:		Line 38:
	International Security Assistance Force (NATO) [http://www.isaf.nato.int/]		International Security Assistance Force (NATO) [http://www.isaf.nato.int/]
		+
		+	B7 Baltic Islands Network [http://www.b7.org/]
	= Afghanistan =		= Afghanistan =
Line 64:		Line 66:
	Ministry of Foreign Affairs [http://www.mfa.gov.al]		Ministry of Foreign Affairs [http://www.mfa.gov.al]
		+
		+	Institute of Social Security [http://www.issh.gov.al/]
		+
		+	Ministry of Environment, Forestry and Water Administration [http://www.moe.gov.al/en/]
		+
		+	AlbInvest [http://www.albinvest.gov.al/]
		+
		+	National Food Authority [http://www.mbumk.gov.al/]
		+
		+	Regional Directorate of Health - South [http://drshberat.gov.al/]
		+
		+	Municipality of Fier [http://www.qarkufier.gov.al/]
	= Algeria =		= Algeria =
Line 72:		Line 86:
	Ministry of National Planning [http://www.mate.gov.dz/]		Ministry of National Planning [http://www.mate.gov.dz/]
		+
		+	Directorate of Trade  [http://www.dcommercebba.gov.dz/]
	= Angola =		= Angola =
	Instituto Nacional de Luta Contra a Sida [http://sida.gov.ao]		Instituto Nacional de Luta Contra a Sida [http://sida.gov.ao]
		+
		+	= Antigua and Barbuda =
		+
		+	National Office of Disaster Services [http://www.nods.gov.ag/]
	= Argentina =		= Argentina =
Line 112:		Line 132:
	Ministry of Health - Government of Entre Rios [http://www.entrerios.gov.ar/salud/]		Ministry of Health - Government of Entre Rios [http://www.entrerios.gov.ar/salud/]
		+
		+	= Aruba =
		+
		+	Department of Economic Affairs [http://www.arubaeconomicaffairs.aw/]
	= Australia =		= Australia =
Line 130:		Line 154:
	QRAA Queensland Government [http://www.qraa.qld.gov.au]		QRAA Queensland Government [http://www.qraa.qld.gov.au]
		+
		+	Business.gov.au SmartForms [http://smartforms.business.gov.au/]
		+
		+	Regional Marine Planning [http://rmp.dec.wa.gov.au/]
		+
		+	Public Health Information Development Unit[http://www.publichealth.gov.au/]
		+
		+	Wimmera Catchment Authority [http://www.wcma.vic.gov.au/]
		+
		+	Cobaw Community Health Service [http://www.cobaw.vic.gov.au/]
		+
		+	Kiama Library [http://www.library.kiama.nsw.gov.au/]
		+
		+	City of Geraldton-Greenough Library [http://www.library.cgg.wa.gov.au/]
		+
		+	Narromine Shire Council [http://www.narromine.nsw.gov.au/]
		+
		+	Devonport City Council [http://www.devonport.tas.gov.au/]
		+
		+	= Austria =
		+
		+	Board of Education of Lower Austria [http://www.lsr-noe.gv.at/]
		+
		+	Advocacy For People With Disabilities [http://www.behindertenanwaltschaft.ktn.gv.at/]
		+
		+	Austrian Association of Cities and Towns [http://www.staedtebund.gv.at/]
		+
		+	Federal Office for Viticulture [http://www.bawb.bmlfuw.gv.at/]
		+
		+
		+	==Municipality ==
		+
		+	Horn [http://www.horn.gv.at/]
		+
		+	Kötschach-Mauthen [http://www.koetschach-mauthen.gv.at/]
		+
		+	Oberwart [http://www.oberwart.gv.at/]
		+
		+	Radenthein [http://www.radenthein.gv.at/]
		+
		+	Sankt Valentin [http://www.st-valentin.gv.at/]
		+
		+	Schwarzach [http://www.schwarzach-pongau.gv.at/]
		+
		+	= Azerbaijan =
		+
		+	Ministry of Foreign Affairs [http://mfa.gov.az/]
		+
		+	Ministry of Economic Development [http://www.economy.gov.az/]
		+
		+	Civil Service Commission [http://dqmk.az/]
		+
		+	Council of State Support to Non-Governmental Organizations [http://www.cssn.gov.az/]
	= Bangladesh =		= Bangladesh =
Line 454:		Line 531:
	Business Trade Investment Board [http://www.btib.gov.ck]		Business Trade Investment Board [http://www.btib.gov.ck]
		+
		+	Office of the Prime Minister [http://www.pmoffice.gov.ck]
	Ministry of Finance and Economic Management [http://www.mfem.gov.ck]		Ministry of Finance and Economic Management [http://www.mfem.gov.ck]
-	Office of the Prime Minister [http://www.pmoffice.gov.ck]	+	Ministry of Foreign Affairs and Immigration [http://www.mfai.gov.ck/]
		+
		+	Ministry of Education [http://www.education.gov.ck/]
		+
		+	Ministry of Cultural Development [http://www.mocd.gov.ck/]
	= Guatemala =		= Guatemala =
Line 546:		Line 629:
	Department of Immigration [http://www.immigration.gov.fj/]		Department of Immigration [http://www.immigration.gov.fj/]
		+
		+	Ministry of Foreign Affairs & International Cooperation  [http://www.foreignaffairs.gov.fj/]
		+
		+	Fiji Police Force [http://police.gov.fj/]
	= France =		= France =
Line 602:		Line 689:
	Kutaisi City [http://kutaisi.gov.ge/]		Kutaisi City [http://kutaisi.gov.ge/]
		+
		+	Gori Municipality [http://www.gori.gov.ge/]
	Inspection of Environmental Protection [http://iep.gov.ge/]		Inspection of Environmental Protection [http://iep.gov.ge/]
Line 1,748:		Line 1,837:
	Bristol Community Health [http://www.briscomhealth.nhs.uk/]		Bristol Community Health [http://www.briscomhealth.nhs.uk/]
		+
		+	= United Arab Emirates =
		+
		+	General Authority of Youth and Sport Welfare [http://www.uaeyouth.gov.ae/]
		+
		+	Department of Civil Defence [http://www.dcd.gov.ae/]
		+
		+	Ajman Free Zone [http://www.afza.gov.ae/]
		+
		+	Dubai Export Development Corporation [http://www.dedc.gov.ae/]
	= United States of America =		= United States of America =

Aruba

←Older revision		Revision as of 21:33, 9 April 2011
(12 intermediate revisions not shown.)
Line 64:		Line 64:
	Ministry of Foreign Affairs [http://www.mfa.gov.al]		Ministry of Foreign Affairs [http://www.mfa.gov.al]
		+
		+	Institute of Social Security [http://www.issh.gov.al/]
		+
		+	Ministry of Environment, Forestry and Water Administration [http://www.moe.gov.al/en/]
		+
		+	AlbInvest [http://www.albinvest.gov.al/]
		+
		+	National Food Authority [http://www.mbumk.gov.al/]
		+
		+	Regional Directorate of Health - South [http://drshberat.gov.al/]
		+
		+	Municipality of Fier [http://www.qarkufier.gov.al/]
	= Algeria =		= Algeria =
Line 72:		Line 84:
	Ministry of National Planning [http://www.mate.gov.dz/]		Ministry of National Planning [http://www.mate.gov.dz/]
		+
		+	Directorate of Trade  [http://www.dcommercebba.gov.dz/]
	= Angola =		= Angola =
	Instituto Nacional de Luta Contra a Sida [http://sida.gov.ao]		Instituto Nacional de Luta Contra a Sida [http://sida.gov.ao]
		+
		+	= Antigua and Barbuda =
		+
		+	National Office of Disaster Services [http://www.nods.gov.ag/]
	= Argentina =		= Argentina =
Line 112:		Line 130:
	Ministry of Health - Government of Entre Rios [http://www.entrerios.gov.ar/salud/]		Ministry of Health - Government of Entre Rios [http://www.entrerios.gov.ar/salud/]
		+
		+	= Aruba =
	= Australia =		= Australia =
Line 130:		Line 150:
	QRAA Queensland Government [http://www.qraa.qld.gov.au]		QRAA Queensland Government [http://www.qraa.qld.gov.au]
		+
		+	Business.gov.au SmartForms [http://smartforms.business.gov.au/]
		+
		+	Regional Marine Planning [http://rmp.dec.wa.gov.au/]
		+
		+	Public Health Information Development Unit[http://www.publichealth.gov.au/]
		+
		+	Wimmera Catchment Authority [http://www.wcma.vic.gov.au/]
		+
		+	Cobaw Community Health Service [http://www.cobaw.vic.gov.au/]
		+
		+	Kiama Library [http://www.library.kiama.nsw.gov.au/]
		+
		+	City of Geraldton-Greenough Library [http://www.library.cgg.wa.gov.au/]
		+
		+	Narromine Shire Council [http://www.narromine.nsw.gov.au/]
		+
		+	Devonport City Council [http://www.devonport.tas.gov.au/]
		+
		+	= Austria =
		+
		+	Board of Education of Lower Austria [http://www.lsr-noe.gv.at/]
		+
		+	Advocacy For People With Disabilities [http://www.behindertenanwaltschaft.ktn.gv.at/]
		+
		+	Austrian Association of Cities and Towns [http://www.staedtebund.gv.at/]
		+
		+	Federal Office for Viticulture [http://www.bawb.bmlfuw.gv.at/]
		+
		+
		+	==Municipality ==
		+
		+	Horn [http://www.horn.gv.at/]
		+
		+	Kötschach-Mauthen [http://www.koetschach-mauthen.gv.at/]
		+
		+	Oberwart [http://www.oberwart.gv.at/]
		+
		+	Radenthein [http://www.radenthein.gv.at/]
		+
		+	Sankt Valentin [http://www.st-valentin.gv.at/]
		+
		+	Schwarzach [http://www.schwarzach-pongau.gv.at/]
	= Bangladesh =		= Bangladesh =
Line 454:		Line 517:
	Business Trade Investment Board [http://www.btib.gov.ck]		Business Trade Investment Board [http://www.btib.gov.ck]
		+
		+	Office of the Prime Minister [http://www.pmoffice.gov.ck]
	Ministry of Finance and Economic Management [http://www.mfem.gov.ck]		Ministry of Finance and Economic Management [http://www.mfem.gov.ck]
-	Office of the Prime Minister [http://www.pmoffice.gov.ck]	+	Ministry of Foreign Affairs and Immigration [http://www.mfai.gov.ck/]
		+
		+	Ministry of Education [http://www.education.gov.ck/]
		+
		+	Ministry of Cultural Development [http://www.mocd.gov.ck/]
	= Guatemala =		= Guatemala =
Line 546:		Line 615:
	Department of Immigration [http://www.immigration.gov.fj/]		Department of Immigration [http://www.immigration.gov.fj/]
		+
		+	Ministry of Foreign Affairs & International Cooperation  [http://www.foreignaffairs.gov.fj/]
		+
		+	Fiji Police Force [http://police.gov.fj/]
	= France =		= France =
Line 602:		Line 675:
	Kutaisi City [http://kutaisi.gov.ge/]		Kutaisi City [http://kutaisi.gov.ge/]
		+
		+	Gori Municipality [http://www.gori.gov.ge/]
	Inspection of Environmental Protection [http://iep.gov.ge/]		Inspection of Environmental Protection [http://iep.gov.ge/]
Line 1,748:		Line 1,823:
	Bristol Community Health [http://www.briscomhealth.nhs.uk/]		Bristol Community Health [http://www.briscomhealth.nhs.uk/]
		+
		+	= United Arab Emirates =
		+
		+	General Authority of Youth and Sport Welfare [http://www.uaeyouth.gov.ae/]
		+
		+	Department of Civil Defence [http://www.dcd.gov.ae/]
		+
		+	Ajman Free Zone [http://www.afza.gov.ae/]
		+
		+	Dubai Export Development Corporation [http://www.dedc.gov.ae/]
	= United States of America =		= United States of America =

Added Angola

←Older revision		Revision as of 19:47, 9 April 2011
(One intermediate revision not shown.)
Line 60:		Line 60:
	Civil Service Management Department [http://www.csmd.gov.af]		Civil Service Management Department [http://www.csmd.gov.af]
		+
		+	= Albania =
		+
		+	Ministry of Foreign Affairs [http://www.mfa.gov.al]
	= Algeria =		= Algeria =
Line 68:		Line 72:
	Ministry of National Planning [http://www.mate.gov.dz/]		Ministry of National Planning [http://www.mate.gov.dz/]
		+
		+	= Angola =
		+
		+	Instituto Nacional de Luta Contra a Sida [http://sida.gov.ao]
	= Argentina =		= Argentina =

Algeria:

←Older revision		Revision as of 17:53, 8 April 2011
(13 intermediate revisions not shown.)
Line 40:		Line 40:
	Portal of the Prime Minister [http://www.cg.gov.dz/]		Portal of the Prime Minister [http://www.cg.gov.dz/]
		+
		+	National Archives [http://www.archives-dgan.gov.dz/]
		+
		+	Ministry of National Planning [http://www.mate.gov.dz/]
	= Argentina =		= Argentina =
Line 306:		Line 310:
	Sistema Nacional de Información [http://www.sni.gov.ec]		Sistema Nacional de Información [http://www.sni.gov.ec]
		+
		+	= Egypt =
		+
		+	Alexandria Port Authority [http://www.apa.gov.eg/]
		+
		+	Aswan [http://www.aswan-sun.gov.eg/]
		+
		+	= Eritrea =
		+
		+	Ministry of Energy and Mines [http://www.moem.gov.er/]
	= Ethiopia =		= Ethiopia =
Line 344:		Line 358:
	Fiji Government Online Portal [http://www.fiji.gov.fj/]		Fiji Government Online Portal [http://www.fiji.gov.fj/]
		+
		+	Department of Immigration [http://www.immigration.gov.fj/]
	= France =		= France =
Line 352:		Line 368:
	Direction de la sécurité de l'aviation civile sud ouest [http://www.dac-so.aviation-civile.gouv.fr/]		Direction de la sécurité de l'aviation civile sud ouest [http://www.dac-so.aviation-civile.gouv.fr/]
		+
		+	= Gabon =
		+
		+	Ministry of Economy, Commerce, Industry and Tourism [http://www.dge.gouv.ga/]
		+
		+	Department of Procurement [http://www.marchespublics.gouv.ga/]
	= Gambia =		= Gambia =
		+
		+	Official Government Web Portal [http://www.gambia.gov.gm/]
		+
		+	Ministry of Works, Construction and Infrastructure [http://www.mowci.gov.gm/]
		+
		+	Ministry of Petroleum [http://www.mop.gov.gm/]
		+
		+	Ministry of Basic and Secondary Education [http://www.mobse.gov.gm/]
		+
		+	Ministry of Economic Planning and Industrial Development [http://www.mepid.gov.gm/]
		+
		+	Ministry of Higher Education, Research, Science and Technology [http://www.moherst.gov.gm/]
		+
		+	Ministry of the Interior [http://www.moi.gov.gm/]
		+
		+	Ministry of Finance [http://www.mof.gov.gm/]
		+
		+	Ministry of Health and Social Welfare [http://www.moh.gov.gm/]
		+
		+	Ministry of Tourism and Culture [http://www.motc.gov.gm/]
		+
		+	Ministry of Youth and Sports [http://www.moys.gov.gm/]
		+
		+	Personnel Management Office [http://www.pmo.gov.gm/]
		+
		+	Public Service Commission [http://www.psc.gov.gm/]
		+
		+	Gambia Immigration Department [http://www.gid.gov.gm/]
		+
		+	Judiciary of The Gambia [http://www.gov.gm/judiciary]
		+
		+	National Planning Commission [http://www.npc.gov.gm/]
		+
		+	= Georgia =
		+
		+	Kutaisi City [http://kutaisi.gov.ge/]
		+
		+	Inspection of Environmental Protection [http://iep.gov.ge/]
		+
		+	Support Georgian Book and Literature [http://www.book.gov.ge/]
	= Germany=		= Germany=
Line 381:		Line 443:
	Government of Gibraltar [http://www.gibraltar.gov.gi/]		Government of Gibraltar [http://www.gibraltar.gov.gi/]
		+
		+	Gibraltar Health Authority [http://www.health.gov.gi/]
	= Greece =		= Greece =
Line 397:		Line 461:
	Municipality of Nikaia, Attica [http://www.polisnikaia.gr]		Municipality of Nikaia, Attica [http://www.polisnikaia.gr]
		+
		+	= Grenada =
		+
		+	CWA 2010 [http://cwa.gov.gd/]
	= Guayana =		= Guayana =

Telecom Italia's (NYSE: TI) CEO Franco Bernabe isn't interested in selling the incumbent providers network anytime soon.

In fact, he believes that the network still has plenty of life left in it.

"Such an infrastructure will still continue for many years to guarantee telephone services and broadband access to the majority of the population," Franco Bernabe told a Senate committee hearing.

Bernabe added even as the service provider makes large-scale investments in fiber-based last mile networks, they will invest over $1 billion a year to upgrade and expand the network.

For more:
- Wall Street Journal via Dow Jones has this article (sub. req.)

Related articles:
Telecom Italia realigns management team
Telecom Italia raises ownership stake in Telecom Argentina to 21 percent
Argentina's government debuts national broadband plan
Telecom Italia gets refinanced, weighs sales
Regulator encourages Telecom Italia to help with open access fiber network

The future of rugby union in the north could be under threat as the Premiership's leading clubs seek changes to the salary cap

How long will it be before it is a case of Northern sole in the Aviva Premiership? Never mind the fizz of the Heineken Cup this weekend, Newcastle and Leeds face each other at Kingston Park on Saturday with the loser going into the final few rounds of the season at the bottom of the table and relegation beckoning. Hardly small beer.

With Sale perched uncomfortably above the bottom two and Worcester or Cornish Pirates likely to win the Championship, it is little wonder that the former Newcastle wing John Bentley, who is Leeds's community marketing manager, says he fears for the future of rugby union in the north of England and the three Premiership clubs based there are struggling for media coverage at a time when transport costs are a factor.

"The team I was part of at Newcastle was like a who's who of the game and we were able to buy a squad to compete at the top level," Bentley says. "With the exception of Worcester, I am not sure about the appetite from other clubs to build the infrastructure or spend the money to do that now. The game has moved on and we in danger of undoing a lot of the good work that has gone on to build the brand of the Premiership and the raising of the standards within the game in key areas.

"I realise I am speaking with a vested interest but until you are involved at a club that could go out of the Premiership you don't appreciate how much damage it can do. It is desperately sad to see two clubs who not only represent their city but their region in the Aviva Premiership battling it out for survival. I do fear for the game in the north if we are not represented in the top level because I think the game needs a geographical spread across the whole country."

Leeds looked doomed when they lost at home to Newcastle at the end of February, but they have won two of their four games since then, picking up nine points, while the Falcons have taken four points from three matches. It is hard to see Leeds recovering if they lose on Saturday with a trip to Northampton among their final three matches and they will need to win away in the Premiership for the first time in a year.

They have harvested a mere four points on the road in the league this season having started by being within a couple of minutes of defeating Gloucester at Kingsholm and they came within a try of winning at Bath and Sale. Their away form last season, when they won at London Irish, Sale, Newcastle and Wasps was a major factor in their staying up – it is now a reason why they are in very real danger of a return to the Championship.

Leeds, like Newcastle, struggle to attract capacity crowds and on the day they provide a spectacle for ghouls, the two teams who have spent virtually all the season at the top of the Premiership, Northampton and Leicester, carry the English flag in the Heineken Cup. The Tigers are in Dublin on Saturday and the Saints entertain Ulster in Milton Keynes the following afternoon.

Leicester and Northampton are among the four Premiership clubs who want the salary cap either abolished or raised significantly. Leeds and Newcastle are two of the sides resolutely opposed to any change and this weekend shows how marked the ambitions of the quartet are.

Leicester and Northampton want to dine at Europe's top table; Newcastle and Leeds's menu is simpler: survival. The Saints appreciate how life can be at the bottom. Relegated in 2007, their plight then was down to poor management and recruitment rather than a shortage of money. They spent unwisely.

They gorged themselves on foreign fare then but their diet is now more English, even if that brings different problems with players on international duty for a big chunk of the season. Newcastle not that long ago had a core of home grown players, Jonny Wilkinson, Toby Flood, Mathew Tait, Jamie Noon and Tom May, supplemented by major overseas recruits such as Matthew Burke and Carl Hayman, but their budget now does not stretch much beyond Poundland.

Flood is at Leicester, joined next season by Tait and May is on his way to Northampton. The point of the salary cap was not just to ensure that some clubs did not slide into unmanageable debt in order to try to keep up but to provide a balance in the Premiership that minimised the difference between the haves and the have-nots.

Excluding Bath, who won the title in 1996 at the end of what was a vacuum year, only four clubs have won the title in the professional era: Leicester, Wasps, Newcastle and Sale. Success proved a one-off for the Falcons and the Sharks but if the Premiership was aspirational then, empowered as a collective, the stresses now are threatening to make it each club for itself.

Owners stress they are running a business, but if normal business practice applied and rivals were eliminated, where would that leave those who survived? En route to a European super league? Unlikely given the value the French place on the Top 14. The emphasis should be on keeping the Premiership strong, but as the better off clubs grow frustrated by the purchasing power of the leading clubs in France, they become less bound by collective will.

The Premiership has looked at various ways of amending the salary cap. One proposal would have allowed clubs to be bound by the restriction on wages only in the Premiership, allowing them greater resources for Europe but that would amount to a maximum of nine matches a season.

It got nowhere, but there is no obvious compromise when it comes to the cap. A strength of the Premiership has been that the clubs are in it together, helping them take on the Rugby Football Union in the past, but if this weekend's two English Heineken Cup quarter-finalists come to see the likes of Newcastle and Leeds as dragging them down, the dynamic will change.

World of opportunity

Rugby at Test level has not changed much over the years. New Zealand and South Africa are at the top of the world rankings and they have comfortably the two best records in the history of the international game. Australia are third with the Six Nations sides jostling underneath.

What is different from 50 years ago is that the World Cup has provided Argentina and the Pacific islands with a platform and the home championship has been swelled by the introduction of Italy. Otherwise Test rugby looks pretty much the same.

And yet. The World Cup is making a difference. The first tournament, held in New Zealand in 1987, yielded a surplus of £1m. That had swollen 20 years later to one of more than £122m. It will be higher again after this year's tournament in New Zealand, even though the host union will struggle to make a profit.

The World Cup surplus is used by the International Rugby Board to invest in the world game. A report for the governing body by the Centre for the International Business of Sport at Coventry University published this week showed that participation in the sport had increased by 19% since the last World Cup.

Rugby union's inclusion in the Olympics should add to the swell, with countries now having access to funding that was previously denied them. If you compile a world top 10 in terms of playing population, it looks different to the normal rankings, including Sri Lanka and the United States as well as Japan and missing Wales, Scotland and Italy.

When the late Vernon Pugh was the chairman of the IRB, his prime ambition was to get rugby into the Olympics. He saw the US and China as potential powerhouses if their unions had access to the public funds that would result from membership, opening up significant television audiences.

That dream is now a step closer to reality. The game in China is growing but it remains small, with fewer than 5,000 participants. Sevens will be used to grow the game from 2013, included in the Chinese National Games programme as well as the development system, while the 2019 World Cup in Japan will act as a stimulus in Asia.

The US has seen a 350% increase in participation since 2004. The World Cup will be shown live on national television nationwide for the first time this year with a deal also in place for 2015 and Sevens has had a major impact economically on host cities.

The USA play Russia in this year's World Cup. The match will have no bearing on the outcome of the tournament but it will help enrich the group stage. Moscow will host the Rugby World Cup Sevens in 2013 and the government has agreed to build new stadiums for the tournament. The game is also growing in Georgia.

New Zealand need not fret yet but rugby's landscape should look very different in 50 years from how it did half a century ago. Its world has been far too small.

A tale of two disciplinaries

A prop who took a few slurps from a bottle he thought contained water but which included a banned supplement received a four-month ban last month while a week later a front-row who head-butted an opponent twice last weekend was given a two-week suspension.

Karena Wihongi became the latest player to test positive for a substance abbreviated to MHA. Suspensions have varied and his was at the higher end in recent judgments, even though the disciplinary panel that heard his case accepted he had ingested the substance unwittingly.

The hearing was told that Sale had been made aware of a supplement that had contained MHA months before and that it was meant to have been sent back to the suppliers. It may not have been, but even though the club was more culpable and negligent than the player, Wihongi received the punishment.

The Leicester prop Marcos Ayerza this week received a two-week ban for dropping his head on that of the Harlequins prop, Joe Marler. Turn the Wihongi judgment on its head and imagine if the Tigers had been directly punished for the actions of one of their players.

Sale should have been in the dock along with Wihongi. The panel argued that the prop should have taken more care when he picked up a bottle of liquid after reaching the dressing room at half-time, but it was not something he had bought himself over the counter. He was relying on Sale's duty of care, stupidly so, and he paid for his trust.

Sarries seek special relationship

Saracens are in Florida this week, recharging before the final weeks of the season, and before going they said how much they were looking forward to working with the staff of the Miami Dolphins.

Saracens were scheduled to train at the Dolphins' indoor facility on Tuesday and Friday, but the American Football franchise said that any contact would end there and that there had been no talk about an exchange of ideas between the respective managements.

Harvey Greene, a spokesman for the Dolphins, said Saracens would not have access to the side's training camp and that the only interaction between the two managements was likely to be in the form of introductions.

Yet, given that American Football currently has a lockout of players by team owners in a dispute over pay – the two sides were in court this week – the Dolphins coaches might be glad of the company.

Zimbabwe:

←Older revision		Revision as of 00:27, 8 April 2011
(17 intermediate revisions not shown.)
Line 36:		Line 36:
	Civil Service Management Department [http://www.csmd.gov.af]		Civil Service Management Department [http://www.csmd.gov.af]
		+
		+	= Algeria =
		+
		+	Portal of the Prime Minister [http://www.cg.gov.dz/]
	= Argentina =		= Argentina =
Line 324:		Line 328:
	Stadt Wertingen [http://www.wertingen.de/]		Stadt Wertingen [http://www.wertingen.de/]
		+
		+	= Ghana =
		+
		+	Ghana Government Official Portal [http://www.ghana.gov.gh/]
	= Gibraltar =		= Gibraltar =
		+
	Government of Gibraltar [http://www.gibraltar.gov.gi/]		Government of Gibraltar [http://www.gibraltar.gov.gi/]
Line 423:		Line 432:
	Ayatollah Ali Khamenei [http://arabic.khamenei.ir/]		Ayatollah Ali Khamenei [http://arabic.khamenei.ir/]
		+
		+	National Portal for Electronic Service of Iran (English) [http://en.iran.ir/]
		+
		+	National Portal for Electronic Service of Iran  [http://www.iran.ir/]
	= Israel =		= Israel =
Line 471:		Line 484:
	Ministry of Education [http://www.education.gov.ls]		Ministry of Education [http://www.education.gov.ls]
		+
		+	Ministry of Natural Resources [http://www.mines.gov.ls/]
	= Madagascar =		= Madagascar =
		+
		+	Le Conseli Supérieur de la Transition [http://www.senat.gov.mg/]
	Ministère des Finances et du Budget [http://www.mfb.gov.mg/]		Ministère des Finances et du Budget [http://www.mfb.gov.mg/]
		+
		+	Ministère de L'Energie et des Mines [http://www.mines.gov.mg/]
		+
		+	Ministère de L'Environnement et des Forêts [http://www.meeft.gov.mg/]
		+
		+	Ministère de la Sécurité Intérieure [http://www.policenationale.gov.mg/]
		+
		+	Ministère des Forces Armees [http://www.defense.gov.mg/]
		+
		+	Ministère de l'Agriculture [http://www.agriculture.gov.mg/]
		+
		+	Ministère de la Population et des Affaires Sociales [http://www.population.gov.mg/]
		+
		+	High Constitutional Court [http://www.hcc.gov.mg/]
	= Mali =		= Mali =
Line 485:		Line 516:
	Direction Nationale des Domaines et du Cadastre [http://www.dndc.gov.ml/]		Direction Nationale des Domaines et du Cadastre [http://www.dndc.gov.ml/]
		+
		+	Ministry of Health [http://www.sante.gov.ml/]
		+
		+	entre Nationale de Traitement des Informations Financières [http://www.centif.gov.ml/]
	= Mexico =		= Mexico =
Line 507:		Line 542:
	Patent Office [http://www.octrooicentrum.nl/]		Patent Office [http://www.octrooicentrum.nl/]
		+
		+	= Paraguay =
		+
		+	Central Bank of Paraguay [http://www.bcp.gov.py/]
		+
		+	Ministry of Mines and Energy [www.ssme.gov.py]
		+
		+	General Children's Hospital [http://www.hgp.gov.py/]
		+
		+	National Cicil Aeronautics [http://www.dinac.gov.py/]
	= Perú =		= Perú =
Line 610:		Line 655:
	National Parks Singapore [http://www.nparks.gov.sg/cms/]		National Parks Singapore [http://www.nparks.gov.sg/cms/]
		+
		+	National Community Leadership Institute [http://www.nacli.pa.gov.sg/]
	= Spain =		= Spain =
Line 830:		Line 877:
	City of Johannesburg [http://joburg.org.za]		City of Johannesburg [http://joburg.org.za]
		+
		+	= St. Vincent and the Grenadines =
		+
		+	Government of St Vincent and the Grenadines [ http://www.gov.vc]
		+
		+	Ministry of Foreign Affairs [http://www.foreign.gov.vc/]
		+
		+	Ministry of Housing [http://www.housing.gov.vc/]
		+
		+	Ministry of Health, Wellness and the Environment [http://www.health.gov.vc/]
		+
		+	Ministry of Finance and Economic Planning [http://www.finance.gov.vc/]
		+
		+
		+
		+	= Sudan =
		+
		+	The Republic of Sudan Secretariat General [http://www.sudan.gov.sd/]
		+
		+	= Taiwan =
		+
		+	Construction and Planning Agency [http://www.cpami.gov.tw/english/]
		+
		+	International Taiwan Service Portal (CT) [http://www.i-taiwan.nat.gov.tw/ct]
		+
		+	International Taiwan Service Portal (EN) [http://www.i-taiwan.nat.gov.tw/en]
		+
		+	Taijiang National Park [http://www.tjnp.gov.tw/]
		+
		+
		+	= Tchad =
		+
		+	Government of Tchad [http://www.primature-tchad.org/]
	= Thailand =		= Thailand =
Line 862:		Line 942:
	Main country website [http://www.ministeres.tn/]		Main country website [http://www.ministeres.tn/]
		+
	President of Tunisia [http://www.carthage.tn/en/index.php]]		President of Tunisia [http://www.carthage.tn/en/index.php]]
Line 1,132:		Line 1,213:
	== Virginia ==		== Virginia ==
		+
		+	= Uzbekistan =
		+
		+	Center for Coordination and Control over the Securities Market [http://www.csm.gov.uz/]
		+
		+	Official website of the Tashkent Regional Hokimiyat [http://tashvil.gov.uz/]
	= Vanuatu =		= Vanuatu =
Line 1,162:		Line 1,249:
	Ministerio del Poder Popular para la Mujer y la Igualdad de Género [http://www.minmujer.gob.ve/]		Ministerio del Poder Popular para la Mujer y la Igualdad de Género [http://www.minmujer.gob.ve/]
		+
		+	= Yemen =
		+
		+	Ministry of Oil and minerals [http://www.mom.gov.ye]
		+
		+	= Zimbabwe =
		+
		+	Zimbabwe Government Online [http://www.gta.gov.zw/]
		+
		+	Ministry of Agriculture, Mechanisation and Irrigation Development [http://www.moa.gov.zw/]
		+
		+	Ministry of Foreign Affairs [http://www.zimfa.gov.zw/]
		+
		+	Ministry of Health and Child Welfare [http://www.mohcw.gov.zw/]
		+
		+	Ministry of Industry and Commerce [http://www.miit.gov.zw/]
		+
		+	Ministry of Justice and Legal Affairs [http://www.justice.gov.zw/]
		+
		+	Ministry of Water Resources Development and Management [http://www.water.gov.zw/]

←Older revision		Revision as of 00:17, 8 April 2011
(14 intermediate revisions not shown.)
Line 36:		Line 36:
	Civil Service Management Department [http://www.csmd.gov.af]		Civil Service Management Department [http://www.csmd.gov.af]
		+
		+	= Algeria =
		+
		+	Portal of the Prime Minister [http://www.cg.gov.dz/]
	= Argentina =		= Argentina =
Line 324:		Line 328:
	Stadt Wertingen [http://www.wertingen.de/]		Stadt Wertingen [http://www.wertingen.de/]
		+
		+	= Ghana =
		+
		+	Ghana Government Official Portal [http://www.ghana.gov.gh/]
	= Gibraltar =		= Gibraltar =
		+
	Government of Gibraltar [http://www.gibraltar.gov.gi/]		Government of Gibraltar [http://www.gibraltar.gov.gi/]
Line 423:		Line 432:
	Ayatollah Ali Khamenei [http://arabic.khamenei.ir/]		Ayatollah Ali Khamenei [http://arabic.khamenei.ir/]
		+
		+	National Portal for Electronic Service of Iran (English) [http://en.iran.ir/]
		+
		+	National Portal for Electronic Service of Iran  [http://www.iran.ir/]
	= Israel =		= Israel =
Line 471:		Line 484:
	Ministry of Education [http://www.education.gov.ls]		Ministry of Education [http://www.education.gov.ls]
		+
		+	Ministry of Natural Resources [http://www.mines.gov.ls/]
	= Madagascar =		= Madagascar =
		+
		+	Le Conseli Supérieur de la Transition [http://www.senat.gov.mg/]
	Ministère des Finances et du Budget [http://www.mfb.gov.mg/]		Ministère des Finances et du Budget [http://www.mfb.gov.mg/]
		+
		+	Ministère de L'Energie et des Mines [http://www.mines.gov.mg/]
		+
		+	Ministère de L'Environnement et des Forêts [http://www.meeft.gov.mg/]
		+
		+	Ministère de la Sécurité Intérieure [http://www.policenationale.gov.mg/]
		+
		+	Ministère des Forces Armees [http://www.defense.gov.mg/]
		+
		+	Ministère de l'Agriculture [http://www.agriculture.gov.mg/]
		+
		+	Ministère de la Population et des Affaires Sociales [http://www.population.gov.mg/]
		+
		+	High Constitutional Court [http://www.hcc.gov.mg/]
	= Mali =		= Mali =
Line 485:		Line 516:
	Direction Nationale des Domaines et du Cadastre [http://www.dndc.gov.ml/]		Direction Nationale des Domaines et du Cadastre [http://www.dndc.gov.ml/]
		+
		+	Ministry of Health [http://www.sante.gov.ml/]
		+
		+	entre Nationale de Traitement des Informations Financières [http://www.centif.gov.ml/]
	= Mexico =		= Mexico =
Line 507:		Line 542:
	Patent Office [http://www.octrooicentrum.nl/]		Patent Office [http://www.octrooicentrum.nl/]
		+
		+	= Paraguay =
		+
		+	Central Bank of Paraguay [http://www.bcp.gov.py/]
		+
		+	Ministry of Mines and Energy [www.ssme.gov.py]
		+
		+	General Children's Hospital [http://www.hgp.gov.py/]
		+
		+	National Cicil Aeronautics [http://www.dinac.gov.py/]
	= Perú =		= Perú =
Line 610:		Line 655:
	National Parks Singapore [http://www.nparks.gov.sg/cms/]		National Parks Singapore [http://www.nparks.gov.sg/cms/]
		+
		+	National Community Leadership Institute [http://www.nacli.pa.gov.sg/]
	= Spain =		= Spain =
Line 830:		Line 877:
	City of Johannesburg [http://joburg.org.za]		City of Johannesburg [http://joburg.org.za]
		+
		+	= Sudan =
		+
		+	The Republic of Sudan Secretariat General [http://www.sudan.gov.sd/]
		+
		+	= Tchad =
		+
		+	Government of Tchad [http://www.primature-tchad.org/]
	= Thailand =		= Thailand =
Line 862:		Line 917:
	Main country website [http://www.ministeres.tn/]		Main country website [http://www.ministeres.tn/]
		+
	President of Tunisia [http://www.carthage.tn/en/index.php]]		President of Tunisia [http://www.carthage.tn/en/index.php]]
Line 1,132:		Line 1,188:
	== Virginia ==		== Virginia ==
		+
		+	= Uzbekistan =
		+
		+	Center for Coordination and Control over the Securities Market [http://www.csm.gov.uz/]
		+
		+	Official website of the Tashkent Regional Hokimiyat [http://tashvil.gov.uz/]
	= Vanuatu =		= Vanuatu =
Line 1,162:		Line 1,224:
	Ministerio del Poder Popular para la Mujer y la Igualdad de Género [http://www.minmujer.gob.ve/]		Ministerio del Poder Popular para la Mujer y la Igualdad de Género [http://www.minmujer.gob.ve/]
		+
		+	= Yemen =
		+
		+	Ministry of Oil and minerals [http://www.mom.gov.ye]
		+
		+	= Zimbabwe =
		+
		+	Zimbabwe Government Online [http://www.gta.gov.zw/]
		+
		+	Ministry of Agriculture, Mechanisation and Irrigation Development [http://www.moa.gov.zw/]
		+
		+	Ministry of Foreign Affairs [http://www.zimfa.gov.zw/]
		+
		+	Ministry of Health and Child Welfare [http://www.mohcw.gov.zw/]
		+
		+	Ministry of Industry and Commerce [http://www.miit.gov.zw/]
		+
		+	Ministry of Justice and Legal Affairs [http://www.justice.gov.zw/]
		+
		+
		+
		+	Ministry of Water Resources Development and Management [http://www.water.gov.zw/]