Monday 31 October 2011

Why the latest eurozone bail-out is destined to fail within weeks

With the euphoria over the deals reached at Brussels dying down, the numbers are now being pored over by economists and experts to see if they add up. One of them is RT's Max Keiser who believes nothing's changed - the EU's still fighting debt with debt.


This video about the use of Corexit in the BP disaster in the Gulf of Mexico appeared on the internet as a warning to people cleaning up the  oil in the Bay of Plenty.

I have provided it with the comments of the uploader.
Anyone who is on the RENA clean up crew should watch this! Wear masks and gloves and DO NOT TOUCH THAT STUFF!! God bless you all and our hearts go out to anyone affected by this mess. 

Did we learn ANYTHING from the Gulf Oil spill last year? 
YES! People have died from cleanup and people have died from the spill. BP dumped hundreds of thousands of Corexit to SINK the oil and then introduced a laboratory manufactured BACTERIA to eat it! This is not science fiction - this is real. DO YOUR RESEARCH please!

How crazy that COREXIT is MORE toxic than oil and makes the cleanup IMPOSSIBLE!!!!!! Am I crazy?? (((SIGH)))) what the hell is going on in the world today? All I can say is do not play the lying game and do NOT TRUST people in power to DO THE RIGHT THING! How many more mistakes can be made with the RENA grounding?

Euphoria over Europe's rescue package faded quickly

Europe Might Have Blown Last Chance to End Its Crisis: View

31 October, 2011

The euphoria over Europe’s latest rescue package faded quickly. Now the question is whether European leaders will ever agree on measures needed to end the sovereign debt crisis, and whether they will get another chance.

After an initial bounce, markets demonstrated a lack of confidence in Europe’s resolve to protect solvent governments from the financial malaise afflicting its weakest member nations. At a bond auction Oct. 28, the euro area’s third- largest economy, Italy, had to pay investors a yield of 4.93 percent -- a euro-era high -- to take the risk of lending it 3 billion euros ($1.8 trillion) for three years.

At least European leaders got the pieces right this time. They have recognized that a credible plan must include big writedowns of sovereign debt, a recapitalization of the banking system and guarantees for newly issued government bonds -- and that all these elements are inextricably linked.

But the magnitude is all wrong. Even if put in place, the plan would reduce Greece’s debt by less than 50 percent, raise about 100 billion euros in new capital and boost the guarantee capacity of the European Financial Stability Facility to about 1 trillion euros. As Bloomberg View has pointed out, sovereign writedowns should be much steeper. And Europe needs a war chest of at least 3 trillion euros to ensure recapitalizations and cover the financing needs of euro-area governments.

Intentional Shortfall
The plan’s shortfalls may be intentional. German Chancellor Angela Merkel and European Central Bank officials blocked the only credible option, which was backed by French President Nicolas Sarkozy: an open promise from the ECB that it stands ready to buy trillions of euros in government bonds. Before anything of the sort happens, the Germans and the ECB want mechanisms in place that ensure the central bank won’t end up financing more irresponsible government spending. As outgoing ECB President Jean-Claude Trichet put it in a speech last week, European authorities need the power “to take direct decisions” on economic policy in countries that fail to keep their finances in order.

Germany and the ECB are betting that incremental rescues, together with occasional bond purchases by the central bank, can keep the situation from spinning out of control, while maintaining the pressure needed to get big nations such as Italy to give up some fiscal sovereignty.

This is a dangerous game. The reforms they seek require treaty changes that could take years to carry out. Meanwhile, the doubts over Europe’s future will weigh on the region’s economy, pushing more and larger governments to the point where their debts become unbearable and aggravating concerns about the health of the banking system. At some point, investors will refuse to lend to sovereigns and banks at any price, and the strains will exceed the ECB’s ability to contain them.

Saving the euro now to fix it later is far from ideal. But it’s the best of bad options, something Europe’s leaders would do well to recognize before they reach the point of no return.

Not a Myth: The Skyrocketing Cost of New Oil Supply

by Gregor MacDonald

22 October, 2011

The next time you hear someone asserting that oil extraction “was always difficult and expensive”—as a way to refute the very high cost now of the marginal barrel—you’ll know they’re spinning a folk tale.  

A helpful chart from the just released EIA Annual Energy Review shows that the capital required to add an additional barrel of oil to reserves experienced a step change starting last decade. The chart uses the COE unit (crude oil equivalent) which is a way to measure the cost of adding 5.8 million btu regardless of whether the resource is oil, natural gas, or natural gas liquids.

Two points are relative here. Firstly, the spike is concurrent with the six year peak in global oil production, which began in 2005. This should be rather obvious, if not expected. Secondly, however, there is another “cost” associated with our attempt to obtain the next barrel of liquid fossil fuels in our new, resource-constrained era. These resources are difficult to access and extract precisely because a more aggressive disturbance of the earth must be undertaken to secure them. Ultra-deepwater, tar sands, shale-rock fracturing (fracking) are touted as technological miracles

But, as so often is the case, they produce wide-boundary environmental damage (negative externalities) whose “price” must be paid by society.

Headlines for Monday

This article does not make any mention of Japan's ongoing woes, related to Fukushima and the effects of electricity shortages

Thai floods cripple Japanese automakers
Embattled carmakers forced to also contend with appreciating yen

31 October, 2011

Tokyo: Japan's automakers are "suffering very severely" from the floods in Thailand while confronted at the same time with the yen's appreciation, said Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association.

The carmakers have shut their factories in Thailand since mid-October and the "situation will continue" in November, he said.

"Japanese automakers faced the March 11 earthquake and tsunami which resulted in supply chain disruptions and power shortages," Shiga, who is also chief operating officer of Nissan Motor Co, said.

"We stayed focused and recovered from the disaster quickly. Unfortunately, we're now facing several difficulties."

Thailand's worst floods in half a century have inundated about 10,000 factories and output losses are spreading beyond the country as supplies of components for cars and computers are disrupted.

Japanese automakers are losing production of about 6,000 cars a day because of the floods.

The strong yen, high corporate taxes and slow progress toward trade agreements have put Jap-an's position as an automotive manufacturing base at risk, Shiga said.

Japan Likely to Pass Tepco Aid Package

30 October, 2011

TOKYO—The Japanese government is expected to approve financial assistance to Tokyo Electric Power Co. this week, after the embattled utility sought about ¥1 trillion, or about $13 billion, in public funds Friday to deal with compensation claims from the disaster at the Fukushima Daiichi nuclear plant.

The government's objective is to keep the company afloat. Without public funds, Tepco would have to report a capital deficit for the July-September quarter, results of which are due by Nov. 14. Even the slightest hint of bankruptcy of a company with ¥13 trillion in liabilities could trigger major financial turmoil.

Public assistance is expected to sustain Tepco in a state of positive net worth of about ¥700 billion at the end of the current business year in March, even after booking an expected annual net loss of about ¥570 billion.

But if the bleeding continues at the current pace, much of the capital would be lost in the next business year. This makes it crucial for Tepco to secure either an electricity-rate increase or an early restart of idled nuclear reactors to deal with the cost increases resulting from the prolonged stoppage of nuclear power plants and greater reliance on expensive thermal power, a government official familiar with the matter said.

For article GO HERE

Travel nightmares plague East Coast after snowstorm

30 October, 2011

Airline passengers left stranded by a freak snowstorm that pounded the Northeast and Mid-Atlantic states were waiting to get to their destinations Sunday, many after spending a restless night on cots or airport floors.

"Whatever kind of system they had, it completely and utterly broke down," said passenger Fatimah Dahandari, who spent a night in Hartford, Connecticut's Bradley International Airport while trying to get to New York. "It looks like a refugee camp in here."

More than 4 million people in at least five states were without power Sunday as the storm moved offshore. Up to five deaths, some in traffic accidents, were blamed on the storm.

Occupy Wall Street
But the storm did little to deter Occupy Wall Street protesters, who camped out in tents coated with a layer of snow in New York's Zuccotti Park.

A day earlier, dozens of firefighters removed the group's propane tanks and six generators, New York Mayor Michael Bloomberg said, citing fire hazards. That left the demonstrators to battle the cold weather seeping through their tents, blankets and sleeping bags.

For article GO HERE

Central banks top up gold reserves

Central banks have used gold's recent plunge to top up their holdings of the precious metal.

30 October, 2011

Bolivia, Kazakhstan, Tajikistan and Thailand spent a collective $1.52bn (£942m) buying 26.7 tons of gold. However, the Mexican central bank was a seller, reducing its holding by 0.1 ton, according to data compiled by Bloomberg.

Thailand's gold reserves rose 11pc to 152.41 tons and Bolivia's bullion reserves increased 17pc to 49.34 tons. Bolivia increased its holdings by 5pc to tons and Tajikistan's bullion stockpile increased 26pc to 4.74 tons.

Over the past 20 years, central banks have been reducing their holdings of the precious metal, but concerns about paper money and global debt has turned them into net buyers. Also, the gold price has increased every year for the past 11 years. The price is up 23pc in the year to date, closing at $1,743.75 an ounce on Friday.

"Central banks, especially in emerging markets, have been diversifying their gold reserves," said Michael Widmer, head of metals research at Bank of America Merrill Lynch . "We would expect this to continue as gold can have a positive impact on smoothing the risk-return profile of reserve portfolios."

The International Monetary Fund has been selling gold to boost its war chest for lending. Sales stopped in December last year.

Copper enjoys biggest weekly gain on record
Ailing Copper has finally had some medicine, in the form of Europe agreeing a rescue package and positive data on the US economy.

The metal, a barometer of global economic health, had its biggest weekly gain on record, rallying 15pc in London. Goldman Sachs analysts said copper prices could be "unimaginably" high in three years on the back of Chinese growth. Still, the patient is not fully recovered at 20pc off its February peak, which signals a bear market.

China warns it cannot 'cure' eurozone's debt crisis

China has stressed it will not be a "saviour" to Europe as President Hu Jintao embarks on an official visit to the continent that will take in this Thursday's crucial G20 summit in Cannes.

30 October, 2011

The warning came as European Commission President Jose Manuel Barroso and European Council President Herman Van Rompuy urged G20 leaders to use the meeting of major economies to address Europe's debt crisis, saying measures proposed last week were not enough by themselves.

French President Nicolas Sarkozy has said Beijing had a "major role to play" in proposals to expand the European Financial Stability Facility (EFSF) to €1 trillion (£877bn), possibly through a special purpose investment vehicle that would attract backing from sovereign wealth funds.

The head of the bail-out fund, Klaus Regling, was despatched to Beijing to discuss terms, but travelled on to Japan at the weekend without an agreement.

China, holder of the world's largest foreign exchange reserves at $3.2 trillion, said it wanted more clarity before investing.

The official Xinhua news agency, used to communicate Communist Party policy, said Europe must address its own financial woes. "China can neither take up the role as a saviour to the Europeans, nor provide a 'cure' for the European malaise," it stated. "Obviously, it is up to European countries themselves to tackle their financial problems."
Chinese officials also sought to play down hopes of a breakthrough at the G20. Vice Finance Minister Zhu Guangyao said that investment in the bail-out fund was not on the agenda at present.

European leaders remain under immense pressure to provide more detail about the terms of last week's refinancing proposals, which are set to cut Greek debts by 50pc, and see a €100bn recapitalisation of eurozone banks.

Charles Dallara, managing director of the Institute of International Finance and chief negotiator for the Greek bondholders, said at the weekend that he remained "very optimistic that more than 90pc will participate" in the deal.

Italian Prime Minister Silvio Berlusconi also pledged to tackle Italian debts by selling €5bn of state assets and raising the country's retirement age from 65 to 67. He acted to shore up his domestic position yesterday by stating that he would lead the reforms. "Only I and my government can achieve this reform programme for 18 months, which is why there is no way for me to stand aside," he said.

Latest from Fukushima

Corbett Report - Fukushima Update 10-28-2011

In today's Fukushima Update we take a look at some potentially worrying news from Fukushima, we note how the mainstream media is just now noting the study of how much Xenon and Cesium were really released (a study we noted three days ago), and we examine a new editorial about complacency with nuclear power called "The Day Before Fukushima."

Radiation Cleanup Confounds Japan

31 October, 2011

KORIYAMA, Japan—Nearly eight months after the Fukushima Daiichi nuclear accident scattered radioactive material over surrounding communities, Japan still is struggling to figure out how to clean up the mess, exacerbating fears about health risks and fanning mistrust of the government.

Government guidelines provide scant detail about the $14-billion-plus effort. A new cleanup law doesn't take effect until January. Cities across Fukushima prefecture are scraping contaminated topsoil off school grounds and parks, but Tokyo hasn't yet decided where to store the tainted material. Frustrated residents of some towns have planted sunflowers in a fruitless effort to suck radioactive cesium out of the farmland.

For article GO HERE

Fukushima nuclear plant could take 30 years to clean up
Removal of fuel rods and decommissioning of reactors could take decades, warns Japan's atomic commission

Experts in Japan have warned it could take more than 30 years to clean up the Fukushima Daiichi power plant.

A panel set up by the country's nuclear energy commission said the severity of the accident meant it would take decades to remove melted fuel rods and decommission the plant, located 150 miles north of Tokyo.

The commission called on the facility's operator, Tokyo Electric Power (Tepco), to begin removing the fuel rods within 10 years. The damage to Fukushima is more difficult to repair than that sustained at Three Mile Island, where fuel removal began six years after an accident in 1979.

Work to decommission four of Fukushima's six reactors could start this year if Tepco brings the plant to a safe state known as cold shutdown.

The utility will begin by removing spent fuel from storage pools within three years of making the reactors safe, before beginning the more difficult task of removing melted fuel from the three reactors that suffered meltdown.

While radiation emissions have dropped significantly since the 11 March earthquake and tsunami, workers continue to operate in highly dangerous conditions.

Towns near Fukushima have responded cautiously to plans to build temporary storage sites for massive quantities of radioactive debris generated by the accident.

Almost eight months after the start of the crisis the government says the facilities will not be ready for at least another three years. In the meantime, towns will have to store the contaminated waste locally, despite health concerns.

To reach its target of halving radiation levels within two years the government will have to remove large quantities of soil. Scraping 4cm of topsoil from contaminated farmland in Fukushima prefecture would create more than 3m tonnes of waste, says the agriculture ministry, enough to fill 20 football stadiums.

Once completed, the storage facilities would hold soil and other contaminated waste for up to 30 years, local reports said.

"We have been aiming to start cleaning up as soon as possible," Toshiaki Kusano, an official in Fukushima city, told Reuters. "To do so we need to talk about where to store the waste, but we have not been able to answer the question residents are asking: how long it was going to stay there?"

Fukushima city, 35 miles from the nuclear plant, contained enough radioactive waste to fill 10 baseball stadiums, he said.

The government has so far earmarked 220bn yen (£1.75bn) for decontamination work, with an additional 460bn yen requested for next year. But according to one estimate the operation could end up costing 1.5tn yen.

Much of the early decontamination work has been performed by local authorities and volunteers, although neither has found a satisfactory means of storing the waste. The central government is not expected to take control of the cleanup operation until a decontamination law is passed in January.

The decommissioning report was released as another government panel set up to determine the cause of the accident said it would invite opinions from three overseas experts early next year.

The panel has already come under fire after it emerged that of the 340 people it has interviewed so far, not one was a politician involved in the handling of the crisis.

The Great American False Dilemma: Austerity Vs. Stimulus

“Like the issue of…’Is it better to have austerity or stimulus?’ Well, the basic problem there is that we’re not having a quality conversation on the subject.” –Ray Dalio, Bridgewater Associates, on the Charlie Rose program, October 20, 2011

Probably no American city better illustrates the trajectory of post-war US growth than Los Angeles. With its ganglion of highways (built when oil cost $14 dollars a barrel) and its never-ending boulevards that, having replaced vast acreages of citrus, now light up the night sky, the City of Angels spent 40 years blowing past its old pre-war borders and filled up an entire geological basin with infrastructure.

The scale of this expansion can be seen in this very helpful satellite photo, above, from NASA, which captures a sweeping view of Los Angeles County. For example, Hollywood, a common reference point for most Americans, is reduced to a small village from this perspective; a mere data point, if you will, as the greater metro region cascades without interruption 100 miles to the east.

Even more awesome to contemplate is that much of this landscape is duplicated to the south, as well, through Orange and San Diego counties. Indeed, nearly 7% of US population lives in the five large counties of southern California, with counties like San Bernardino having exploded from 200,000 people after WW2 to over 2 million today. Unfortunately, what was long accepted as a triumph of growth the past 60 years has now become a rather burdensome and exceedingly expensive system to maintain.

I bring up the case of Los Angeles because there is currently a rather tribal, oppositional, and, of course, very heated debate taking place in the US right now that roughly frames the solution to our problems as a choice between Austerity and Stimulus. For this debate to have meaning, we need to consider how economic policies will actually solve the problems currently endured in a mega-region like Los Angeles. Unemployment, food stamp use, and energy costs have leapt ever higher here since the 2008 crisis. Moreover, the seeds of these trends were already showing up before the infamous Autumn of 2008. How would either a new phase of belt-tightening or reflationary policy actually affect southern California?

When we witness the clash between the Austerity and Stimulus camps, on the surface there is the appearance that a true debate is taking place between diametrically opposed economists. For example, Austerity folks correctly note that our economy has been badly weighted towards consumption for some decades. They want to clear out the excesses, let the malinvestments fail, and elect an overall path of acute economic pain in order to reset the system. Stimulus advocates find such plans completely unnecessary, if not downright masochistic. Armed with a more humanistic approach, Keynesians want the government to run large deficits to help the private sector deleverage, which of course could take years.

A late 2010 article in the FT by Gavyn Davies illustrates this point. From the viewpoint of sectoral balances, government deficits show up as “savings” on the balance sheet of the private sector. Of course, this is a deduced accounting identity and may not actually tell us much at all about whether the private sector is becoming healthier. I will probe further into this data later on in the essay. But first, the Gavyn Davies chart from the Financial Times: The most important graph of the year:

From the standpoint of a global macro economist, this is my nomination for the most important graph of the year. (See the end of this post if you wish to suggest alternatives.) It explains why the world’s largest economy, the US, has defied the pessimists by mounting a decent recovery in 2010. It also explains the behavior of the government deficit and shows why it has so far been easy to finance this deficit.

This is the essential argument made by Keynesians and adherents to MMT (Modern Monetary Theory). The US is a monopoly issuer of its own currency, and while inflation is a risk, default (per se) is not. While interest rates are low during deleveraging in the developed markets (DM), why not ease social and economic pain through further borrowing? After all, as the chart implies, the private sector will simply use this spending to repair its own balance sheet. Once a tipping point is reached, then the private sector can start taking on new credit, increasing tax revenues to government, and thus knocking down the debt incurred during the recession (or depression). What’s not to like?

Meanwhile, a great example of the austerity argument comes from Ron Paul, who recently released his plan to dismantle several federal government agencies, end the wars, and consequently chop a full trillion out of the annual budget deficit. Those in favor of such fiscal shock and awe are also persuaded by the view that government spending “crowds out” the private sector, and that government misallocation of capital nearly always exceeds the private sector’s similar mistakes.

Frankly, I am sympathetic to the sincere urges on both sides of this debate. Why not conduct reflationary policy indefinitely, at least as a humanitarian exercise? That is the plea I detected in a recent Martin Wolf column, Time to Think the Unthinkable and Start Printing Again. And also, why not end the wars, kill off a number of regulatory agencies, and promote the growth of small business? Is it not clear that the Project of Empire has greatly deprived the US domestic economy of badly need infrastructure, transport, and educational investments?

Internal to this debate, however, are a number of shared assumptions about the free market’s ability to allocate resources—and the economy’s ability to create supply of those resources—given the proper encouragement from both policy and price signals. Namely, both sides are in near-complete agreement their prescription will not only deliver the US economy back to growth, but also to trend growth–an eventual rejoining, if you will, to the pre-2008 trend.

This is partly why this essay kicks off with a recent quote from Ray Dalio, founder of Bridgewater Associates, who correctly identifies that the situation we face is perhaps much more complex than can be solved by an entrenched, oppositional argument. Dalio is known for describing the economy as a machine that operates according to certain realities. I agree. Moreover, Dalio has also suggested repeatedly that once you understand how the machine operates, you no longer have to be so surprised all the time. Indeed, the last three years have been a true marvel, given how many people refuse to accept we are not in a post-war recession, but rather a debt-deflation depression. Do economists know how the economy actually operates?

As tough as I can be on the economics profession, I actually think most economists understand very well how the economy operates. But here is the problem: Their understanding has been rendered increasingly obsolete by the emerging problem of resource scarcity and the resistance of our built environment to an easy or quick energy transition. In other words, economists typically no longer have a solution for Los Angeles, or for Southern California. Or, for that matter, the United States.

It’s quite clear that advocates on both sides of the current debate truly believe that the US can return to a growth path. Equally, they share an assumption that the supply of energy will adhere to a shift in the supply curve, which means simply that more supply or substitutes will be brought to market if the price level is sustained at high enough levels.

As the chart above shows, however, neither the steady advance of energy prices into 2008 nor the ensuing three years brought on new, usable energy sources that could reduce energy expenditures for Americans. But there is no mystery as to why Americans, having to spend more for energy and thus less on consumption and investment, have faced persistently high oil prices. We have a built environment that’s designed for liquid fossil fuels. And the expected shift in the supply curve for oil has not occurred.

Earlier this month in the Harvard Business Review, in our response to Dan Yergin’s faith in future oil supply and healthy, industrial economies, There Will Be Oil, But At What Price?, Chris Nelder and I wrote:

Yergin wants to have it both ways: He wants us to believe that the market will bear the high prices required to keep supply increasing against the backdrop of mature fields — which are declining by 5% per year — while at the same time asserting that prices will remain low enough to engender continued economic growth. This, we submit, is impossible.

A rather serious problem in the ability of Developed Economies to coherently allocate resources started showing up well before the 2008 crisis. This status quo, made in part by policy mistakes, credit creation, and the energy limit, still remains today. Crucially, neither stimulus nor austerity will dislodge this status quo. Unless, of course, by austerity we mean to intentionally collapse the system, or if by stimulus we mean to engender a runaway inflation that will eventually yield the same result.

Even if you agree that the US economy has gotten itself into a badly misaligned place, ripping one trillion dollars out of its center is hardly going to “free up” resources or immediately engage the private sector in replacement activity. Equally, throwing more trillions at the economy in its current condition may serve to heighten, not dampen, inequality. As we have seen already, while stimulus may have put a break on systemic collapse, it has likely perfected the status quo. I agree very much with Paul Brodsky’s remarks earlier this month in his essay On Media Coverage of the Protestors:

For those of you who self-identify as progressives, you should re-think your defense of the current system. Money printing is a terribly regressive tax on the working and middle classes. Those with higher incomes and access to credit remain able to maintain their demand for inelastic goods and services, as well as maintain their ability to service debts, while lower wage earners, those with less access to credit, and those losing jobs as the real economy shrinks, are suffering. For those of you who self-identify as “free-market conservatives”, you should also re-think your support of the current system. “Free markets” are compelled to de-leverage presently, not to re-leverage. A more laissez faire regulatory environment and lower taxes do not address the fundamental problem, which is an abundance of credit that re-distributes wealth from the factors of production to the leveragers.


In Part II: How The Coming Decline Will Play Out, I provide fresh data on California’s economy and skewer the deductive accounting illusion that government deficits are allowing Americans to reduce their debts. I also show that free market failures are already occurring in the US economy. Austerity programs, from our current juncture, would do nothing but remove portions of the system at a time when the economy is not able to organically produce new economic flows. This would only serve to cripple the economy further, forcing it to contend with our crisis from an even lower starting point.

What the system needs instead is a more targeted transition process, not a radical simplification (Joseph Tainter’s term for collapse). Nevertheless, you can expect the sterile debate to continue, with the newest iteration of stimulus advocates now promoting NGDP (nominal GDP) Targeting. There is no question that capital markets, in the short term, absolutely love stimulus, because it allows existing economic flows to extend themselves temporarily. However, underneath this, all of the poor allocation of existing resources continues apace, and this is the central explanation for why the economy cannot create jobs: 

The connection between needs and actual production is badly broken

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