The Great Debate UK

from The Great Debate:

Peak demand leaves refineries idle

-- John Kemp is a Reuters columnist. The views expressed are his own --

U.S. refiners have emerged as the biggest losers from the previous surge in oil and push for cleaner energy. The industry's brief golden age has swiftly given way to a prolonged dark period of adjustment and decline.

What went wrong? Like other sectors, refiners have been hit by the cyclical downturn, which has cut trade volumes and the related demand for transport fuels such as aviation fuel and marine diesel especially hard.

But cyclical factors are compounding a structural decline in consumption that began around 2007 and has continued through the recession, as high prices and legislative responses force greater conservation and a shift towards biofuels.

Even as the economy recovers, U.S. consumption of petroleum-derived gasoline and distillate fuels is unlikely to exceed the record set in 2007. The resulting "demand peak" has left up to 10 percent of total U.S. refining capacity (around 1.8 million barrels per day) surplus to requirements.

FALLING UTILISATION RATES

No new refineries have been built on greenfield sites since the 1970s because permitting regulations are so strict. But there has been substantial brownfield growth at existing sites as well as increases in potential throughput as a result of debottlenecking and improvements in operations and maintenance.

Live blog: 1pound40 conference

Welcome to our live coverage of the 1pound40 conference, a joint endeavour by Reuters and the Amplified network which brings together users of Twitter to discuss the idea that social media has evolved to the point that it can help solve real world problems.

Attendees will also be discussing whether the power of Twitter can be harnessed to improve the news and help re-engage a jaded electorate with the political process.

You can read more details about the conference and who is attending on our original blog post. We will be bringing you minute-by-minute highlights from the discussion (including video, audio and pictures) on the potential for social media. But you don’t have to be there to contribute — leave a comment on the blog below if you have something you want to say. To track the conversation about the event then follow the 1pound40 hashtag on Twitter.

You can also check out this Twitter list set up by delegates and contributors or follow an unmoderated stream of this on a second live blog on the right hand side of this page. Finally, you can also follow a visualisation of proceedings in this ‘conversation cloud’.

Ghosts of Germany’s communist past return for election

- Erik Kirschbaum is a Reuters correspondent in Berlin. -

Will the party that traces its roots to Communist East Germany’s SED party that built the Berlin Wall soon be in power in a west German state?

Or is the rise of the far-left “Linke” (Left party) in western Germany to the brink of its first role as a coalition partner in a state government with the centre-left Social Democrats (SPD) simply a political fact-of-life now so many years after the Wall fell and the two Germanys were reunited?

Will a “red” government in Saarland scare away investors and doom the state, as its conservative state premier Peter Mueller argues in a desperate fight to his job?

Or will the new leftist alliance in Saarland be able to better tackle state’s woes, as the SPD state premier candidate Heiko Maas insists?

Depending on your Weltanschauung, that’s what Sunday’s election in three German states boils down to — an emotional debate about whether the ex “Communists” in the form of the Left party should be allowed to be part of the next Saarland government or not.

It doesn’t matter that the Left has already been in eastern state governments and will probably also be part of the next state government in the eastern state of Thuringia, which also elects a new state assembly on Sunday.

from The Great Debate:

How the bailout feeds bloated banker pay

-- James Saft is a Reuters columnist. The opinions expressed are his own --

Rising pay in the finance sector in the wake of the global financial crisis is no surprise and is driven partly by the government's bailout itself and the underwriting of banks that are too big to fail.

News that some financial firms benefitting from government largesse actually increased the share of revenue they pay their employees sparked a lot of outrage but more heat than light.

The good news is this new bulge in pay may not be sustainable.

The bad news is it will probably only be stopped by further regulation, regulation which may never come.

To understand what is going on you need to understand the economic concept of "rents", essentially the extra money a given individual or industry is able to extract from its clients above what it would be able to if there was perfect competition.

A monopoly will charge a very high price for goods or services because, well, they can. Needless to say economic rents are not a good thing, unless of course you are in receipt of them.

from The Great Debate:

Pensions and the coming savings boom

-- James Saft is a Reuters columnist. The opinions expressed are his own --

The explosion in company pension fund shortfalls in Britain nicely illustrates issues which will dominate economics and investment in coming years: the re-pricing of risk, a disillusionment with equity markets, and the boom in savings these shortfalls will help to drive.

Under current accounting rules, the pension funds of companies in Britain's FTSE 100 index are together 96 billion pounds ($170 billion) underfunded, more than double the deficit of a year ago and an all-time record, according to a report from pension fund consultants Lane, Clark & Peacock.

This is partly for the very positive reason that people are living longer but principally because of the dire performance of financial markets, especially equities, over the past year.

To make matters worse, the surge in corporate bond spreads, which are used to calculate the current value of pension plans' future liabilities to retirees, has actually minimised how underfunded British pension plans look when accounting measures are applied. Minimised how underfunded they look, but not how underfunded they are.

One of the net results of all this is that companies are getting out of the pension providing business as fast as they can, pushing employees into plans where the saver takes all of the investment risk and the company is purely a contributor and a facilitator.

Individuals are less able to take the long view and hold riskier assets like equities during downturns, meaning they are more likely to hold more in cash and bonds than are company pension plans.

from The Great Debate:

BoE extends QE, fears 1930s re-run

-- John Kemp is a Reuters columnist. The views expressed are his own --

The Bank of England's decision to continue with its asset purchase programme, or quantitative easing (QE), at the rate of 50 billion pounds per quarter in Oct-Dec, unchanged from Jul-Sep, shows bank officials are more worried about ending support for the recovery too soon than about risking inflation by leaving it too late.

The problem with QE is that you have to keep buying the same amount of assets each month to maintain the same monetary stance. With interest rates, the Bank can cut them and they stay cut. If asset prices drop with QE, it represents a tightening of monetary policy.

The Bank initially bought 75 billion pounds in the first 3 months (Apr-Jun) and then tapered this to 50 billion in the second three months (Jul-Sep) as the crisis engulfing the banking system and the rest of the economy eased. A cautious approach might have tapered the QE programme again to 25 billion in the final three months of the year before ending it entirely at the start of 2010. But the Bank opted to stick at 50 billion.

Critics point out that the programme has not achieved its announced objective of increasing bank credit and the amount of money in circulation. The rate of growth in M4, the broadest money supply measure, has risen only marginally. But that ignores the counterfactual of what would have happened to M4 in the absence of the programme -- it might have fallen sharply.

Growth in the monetary aggregates is, in any event, mostly endogenous. It depends on demand for credit. In the current environment, where many households and businesses have little or no collateral, credit is impaired, and most are focused on paying down debt rather than adding to it, limited growth in M4 is not surprising. Trying to make it grow faster is like force feeding a duck to make foie gras -- possible but unnatural.

from The Great Debate:

Obama, Elvis and America’s birthers

-- Bernd Debusmann is a Reuters columnist. The views expressed are his own. -- Nobody ever landed on the moon, the televised images are a hoax. John F. Kennedy was murdered in a complex plot involving the Mafia and the CIA. Elvis Presley lives. Barack Obama was born outside the United States and therefore is ineligible to be president.

All these claims stem from conspiracy theories and myths born in the U.S. and they throw a question mark over the long-held view of experts that such ideas flourish most in societies where news is controlled, access to information difficult and barriers to independent inquiry difficult to overcome.

This kind of restrictive environment  applies to many Third World countries - conspiracy theories are particularly abundant in the Middle East and Africa -- but not to the technologically and economically advanced United States. Yet there is a parallel universe inhabited by millions and millions of Americans immune to facts, logic and common sense.

Some of the myths are harmless, such as the notion that rock-and-roll king Elvis Presley did not die in 1977 and instead went into hiding. (The reasons vary depending on who tells the tale).

There have been thousands of supposed Elvis sightings and a 2005 book says there's DNA evidence that he is still alive. While the Elvis-in-hiding theory appears to fading (though it is far from dead), the hoaxed moon landing continues to run long enough to prompt a Newsweek magazine article that debunked the story on the 40th anniversary of the Apollo mission to the moon in July. Perhaps not surprisingly, early skepticism about the moon landing came from the Flat Earth Society, based in California.

The Flat Earthers have their own website, unlike the latest addition to America's wide variety of conspiracy cults, the "birthers."

They insist that President Barrack Obama was born in Kenya and that the certificate attesting to his birth in Hawaii is a forgery. Unlike the Flat Earthers, the birthers managed to find Congressional sponsors, all Republicans, to introduce a bill meant to block non-eligible Americans from becoming president in future.

Regulatory changes needed to end Heathrow hell

- Rupert Darwall is a guest columnist. The views expressed are his own. A London-based strategist, he is author of Reluctant Managers, a study of Whitehall performance (KPMG, 2006) –

If April is the cruellest month, then July can be awful for people using Heathrow. Business travel is still humming and the holiday season is getting into full swing.

Even with Terminal 5, Heathrow can’t take the strain. Its two runways are used at 98.5 percent capacity and there are simply not enough gates and stands. A ten-minute delay is programmed into Heathrow’s schedule. Because there’s no spare capacity, when things go wrong, the slightest change — even in the weather — can lead to aircraft being held in stacks and flights being cancelled

You’d have thought that the UK government’s review of the way Heathrow is regulated, consultation on which ended last month, would want to root out what causes Heathrow to be so congested, but you’d be wrong.

Although the Competition Commission believes that the way the Civil Aviation Authority (CAA) regulates Heathrow stifles competition and contributes to the airport’s poor performance, the government seems reluctant to do anything about it.

Perhaps it feels that enough is already being done by forcing BAA <FER.MC>, which owns London’s three main airports, to sell two of them. But that on its own won’t make life any easier for the millions of passengers who are forced to endure Heathrow misery each year.

from The Great Debate:

Bernanke’s deficit warning helps Obama

-- James Pethokoukis is a Reuters columnist. The views expressed are his own --

Sorry, Larry Summers. It's looking more and more likely that you're going to be stuck in the West Wing for the duration.

See, if your boss fails to reappoint Ben Bernanke as Federal Reserve chairman come January, it would be a public betrayal worthy of the television reality show "Survivor." For President Obama has no greater ally: Bernanke is truly the gift that keeps on giving.

The latest evidence came on Wednesday during Bernanke's testimony before the House Budget Committee. The Fed chairman offered a stern warning about America's huge budget deficits.

"Maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance," Bernanke said.

Tough, but hardly atypical Fedspeak.

Then Bernanke went a step further. He gave significant credence to the view that the recent rise in long-term Treasury yields and mortgage rates was caused by deficit jitters:

A reality check from Standard & Poor’s

– Neil Collins is a Reuters columnist. The views expressed are his own –

Standard & Poor’s could have chosen a better day to kick the British economy, by placing the UK onto “negative outlook”, the usual precursor to a downgrade of S&P’s rating of an issuer’s debt.

The move came minutes before the Debt Management Office closed its massive auction of 5 billion pounds of 2014 stock, and minutes after the release of figures showing the Public Sector Net Borrowing Requirement leaping to 8.5 billion pounds in April, a sum which not long ago would have been considered high for a whole year.

Economist Howard Archer at Global Insight immediately called the figure “dire, starting the new fiscal year off as it is highly likely to continue.”

S&P, meanwhile, now fears that the net general government debt burden “could approach 100 percent of GDP and remain near that level in the medium term.”

It’s hard to describe the UK public finances as anything other than a disaster area. The forecasts made in last month’s Budget looked optimistic within days, and even these require the DMO to borrow 220 billion pounds this financial year, or almost a billion pounds every working day.

Yet while the DMO soaks up cash, the Bank of England is desperately creating it. Its “quantitative easing” programme has been in full swing this week, buying in 1.326 billion pounds of a stock which looks very like the one that the DMO was issuing just one day later.