from Environment Forum:
Trade lessons for climate negotiators
- John Kemp is a Reuters columnist. The views expressed are his own --
As hopes for reaching a binding agreement to cut greenhouse gas emissions at the Copenhagen summit die, climate negotiators could learn useful lessons on how to structure the negotiations from the multiple rounds of trade talks within the GATT/WTO framework.
Climate negotiations are about limiting carbon dioxide emissions, but the negotiators are also hammering out a complex economic instrument that will define the distribution of production, energy use and income in the next few decades. It is the agreement's profound economic effects that are making it so hard to reach a final deal.
While the stalled negotiations on the Doha Round might make it seem likely an unlikely role model, the GATT/WTO process has successfully created a legal framework for liberalising world trade through eight successive rounds of increasingly complex negotiations, as well as a dispute settlement system accepted by all major countries.
In the process, negotiators have already had to resolve many of the difficult issues bedevilling attempts to reach an emissions deal:
* How to obtain treaty commitments from a huge range of countries at different stages of economic development.
Goldman, Morgan Stanley shrink commodity books
– John Kemp is a Reuters columnist. The views expressed are his own —
Both Goldman Sachs and Morgan Stanley reduced the size of their commodity trading books during the third quarter, according to their latest filings on Form Y-9C (“Consolidated Financial Statements for Bank Holding Companies“): While the gross fair value of physical commodity inventories held on their balance sheets rose — sharply in Goldman’s case — the gross fair value of the commodity contracts was down.
Most of the shrinkage came from smaller positions in exchange-traded futures contracts, as well as a reduction in over-the-counter (OTC) options. OTC swap positions also fell.
But the gross notional value of forwards was little changed.
Defeats doom climate bill in ’09
– John Kemp is a Reuters columnist. The views expressed are his own –
Resounding defeats for Democratic Party gubernatorial candidates in Virginia and New Jersey on November 3 have killed any lingering hope Congress will enact climate change legislation this year, and may doom the prospect of passing a cap-and-trade bill this side of the 2010 mid-term elections.
Prospects for eventually passing legislation may now depend on winning Republican support with nuclear loan guarantees and more offshore drilling.
While the president remains personally popular, with high approval ratings, and does not need to face the voters again for another three years, 16 Democratic senators and 256 Democratic members of the House of Representatives will be on the ballot in November 2010.
The Virginia and New Jersey off-cycle elections are often idiosyncratic. But crushing defeats for Democrats at the top of the ticket in both states are already sparking a bout of soul-searching over the lessons that need to be learned if the party is to retain firm control of both houses of Congress next year.
What worries many Democrats is that turnout among the young voters who helped propel them to victory last year fell away sharply, self-identified independents broke heavily for the Republican candidates; and voters overwhelmingly cited the economy and jobs rather than healthcare or climate change as their major concern in exit polls.
Democrats face the classic dilemma for any party after a defeat — press ahead trying to enact a difficult agenda or pull back, re-focus on simpler and less controversial measures.
Look over there, my boy and cheer
For coming from the yonder shore,
Bringing promises and more,
Old Cap’n Trade is here.
Far beyond the politics we know,
He sails the seas of emission trade,
Avoiding the perils of party debate,
Just watch him go.
The perils of the world are grand.
Cresting the waves of voter polls
And the erratic winds of public opinion,
The Cap’n will stand.
So away he sails to foreign lands,
While young girls and presidents
Are tucked safe in bed,
And old men sit on their hands.
Who can say just where or when,
Old Cap’n Trade will sail his boat,
Or when that peerless mariner
Will see our shores again?
Buffett uses BNSF to bet on coal
(John Kemp is a Reuters columnist. The views expressed are his own)
Warren Buffett’s acquisition of the remaining 77.4 percent of Burlington Northern Santa Fe (BNSF) railroad his Berkshire Hathaway does not already own looks like a strategic bet that America’s future energy needs will be met, in large part, through a massive expansion in coal-fired power generation coupled with carbon capture and storage (CCS).
Coal is the most important item moved on BNSF’s railroads. It accounted for almost half the tonnage moved by BNSF in the first nine months of the 2009 (214 billion revenue ton miles out of a total of 444 billion) and a quarter of the company’s revenues ($2.7 billion out of a total of $10.4 billion).
BNSF’s track and rights of way are perfectly positioned to benefit from a massive expansion of the country’s coal-fired output in the next 20 years, coupled with CCS technology to curb the carbon-dioxide emissions.
BNSF controls the crucial rails linking the massive domestic reserves of the Powder River Basin, the Northern Great Plains, the Western Interior Basin and the Illinois Basin east to the main industrial centres of the Midwest and west to the major electricity demand centres in southern California.
* http://pubs.usgs.gov/of/1996/of96-092/Comp/main.gif * http://www.eia.doe.gov/cneaf/coal/reserves/chapter1.html#fig1 * http://www.bnsf.com/tools/reference/division_maps/?menu=5&submenu=0 * http://graphics.thomsonreuters.com/109/US_ENRGY1009.gif
When Warren was talking about the collapse of the market we all should have been buying, however I’m going to have to say that history will say that this purchase should have been an interim sell indicator.
Warren, despite his historic success, has become emotional about the market. He is becoming less of a student of the market and more of a teacher and anyone who thinks they can ‘teach the market’ is about to learn a lesson. No matter how you are, the market is bigger.
Warren’s ‘All in’ on the recovery is a bad bet.
The macro trade has been to fade Warren.
I think his recent purchase by Berkshire is a good indicator that the market is overbought and investors should raise cash.
In short, Sell.
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.
Cheer up John, it could be worse…
“After the last Great Depression, Keynesian economists emerged victorious in proposing that a nation must spend its way out of crisis. This time around, they will be proven wrong. The world is a very different place now. Loose credit, easy spending and massive debt is what has led the world to the current economic crisis, spending is not the way out. The world has been functioning on a debt based global economy. This debt based monetary system, controlled and operated by the global central banking system, of which the apex is the Bank for International Settlements, is unsustainable. This is the real bubble, the debt bubble. When it bursts, and it will burst, the world will enter into the Greatest Depression in world history.”
from http://www.globalresearch.ca/index.php?c ontext=va&aid=14680
from Commentaries:
CFTC prepares to recant speculators’ influence
-- John Kemp is a Reuters columnist. The views expressed are his own --
Like Archbishop Thomas Cranmer before he was burned at the stake for heresy, the U.S. Commodity Futures Trading Commission (CFTC) seems about to make a dramatic recantation.
Later today, the Commission will hold the first of three public hearings to discuss whether to impose tougher position limits in energy markets and restrict the availability of hedging exemptions. But it is already preparing to release a report that will accuse speculators of playing a significant role in last year's oil price spike, according to a report in the Wall Street Journal.
While it might seem a minor shift in emphasis, it is a radical reversal of the Commission's previously stated view that there was "no evidence" that investment flows had a material impact on prices. Commission staff have doggedly maintained that physical supply and demand factors could explain all the observed volatility in oil and other commodity prices over the past two years.
The position was stated most forcefully by CFTC Chief Economist Jeffrey Harris in testimony to the House of Representatives' Agriculture Committee in May 2008 (http://www.cftc.gov/stellent/groups/public/@newsroom/documents/speechandtestimony/harris-fenton051508.pdf).
It was repeated in September 2008 in the CFTC's "Staff Report on Swap Dealers and Index Traders" and again this year in a joint report with the United Kingdom's Financial Services Authority (FSA) on commodity regulation for the International Organisation of Securities Organisations (IOSCO).
The Commission's view has come under pressure from sceptical legislators as the scale of speculative positions in commodity markets and the number of exemptions the Commission and exchanges have granted have been revealed. Congressional anger threatened to derail Gensler's confirmation. The price of allowing him to take office seems to have been a promise to take a tougher approach.
Could you please post your article “Peak Oil is right answer to wrong question” on this blog so that I may pull it to pieces. However, I suggest that you have a look at the energy costs in extracting non-conventional oil or CTL. The production costs (mostly natural gas) are absolutely linked to the oil price, so as oil prices rise, so do production costs, which in turn cause the price to rise some more. A sustainable level of production in the Canadan Tar Sands, even if nuclear is used, would be no more than a paltry 5 million barrels a day (in 20 years) this is because of the water (& other environmental) constraints. The IEA predict peak beyond 2020, but this is only because of a growth in production in “Fields yet to find”. These fields are however unlikely to be developed as the bulk of them are in OPEC and OPEC won’t want to develop them even if they are found.
from The Great Debate UK:
G8 signals end to dollar supremacy
- John Kemp is a Reuters columnist. The views expressed are his own. -
Reports that China has asked for a discussion about reserve currencies at next week's expanded Group of Eight summit in Italy has added to confusion about whether the country wants to dethrone the dollar from its status as the world's sole reserve currency. But the very fact the issue has been pushed onto the agenda suggests that a fundamental shift is underway.
Given the U.S. government's enormous borrowing requirements over the next decade to cover the bank bailout, fiscal stimulus and deficits in Social Security and Medicare, the dollar's reserve status depends on emerging markets' continued willingness to accumulate U.S. liabilities rather than switching to other stores of value, such as the euro or the IMF's Special Drawing Right (SDR).
As the largest buyer of U.S. Treasury securities, China can break the dollar's reserve currency status any time it wants. But it would risk large losses on the stock of U.S. debt that it has bought already. The resulting unstable stability is the foreign exchange version of the Cold War stalemate based on "mutually assured destruction".
Senior Chinese officials have given off mixed signals about their intentions.
When pressed, officials have indicated China will continue to stand by the dollar in the short term and denied the country has begun to diversify its official holdings. But that has not stopped People's Bank of China (PBOC) Governor Zhou Xiaochuan floating the idea of shifting to a super-sovereign currency based around the SDR.
Zhou's call for diversification was repeated last week in the central bank's annual stability report, which noted that "an international monetary system dominated by a single sovereign currency has intensified the concentration of risk and spread of the crisis". It went on to urge the IMF to exercise closer supervision of the economic and financial policies of major reserve-issuing countries.
I think the article is insightful and it’s proposition a valid one. Ultimately I would expect a move toward a universal reserve currency (SDR?) which would be much less prone to the political naivety and gerrymandering of, particularly, the past two decades. The idea of continuing as an ever increasing debtor nation is unsustainable and whatever happens to the status of the dollar will need to take that into account.
Reflections on Iran
– John Kemp is a Reuters columnist. The opinions expressed are his own —
Perhaps the most frustrating aspect of much western comment on the unfolding crisis in Iran has been its over-simplification and lack of historical awareness. Perspectives are shaped by a single issue (western concerns about whether Iran is pursuing a nuclear weapons program) and the desire to draw a simple Manichean distinction between good guys (liberal-democrats) and bad ones (clerical-authoritarians).
The reality is far more complicated.
Part of the problem is a truncated sense of history. For most western commentators, the history of Iran’s troubled relations with the west starts in 1979 with the triumphant return of the glowering Ayatollah Ruhollah Khomeini at the head of the revolution which swept away Shah Reza Pahlavi’s western-backed regime and replaced it with a new Islamic Republic.
Western anxiety was compounded by the 444-day American hostage crisis that helped destroy the presidency of Jimmy Carter, and humiliated a United States still reeling from defeat in Vietnam and the Watergate crisis. Iran and the United States soon became embroiled in a series of proxy conflicts fought in Iraq, Lebanon, and via terrorist attacks on U.S. targets.
But for many Iranians the country’s troubled relations with the west can be dated further back — to at least the CIA-backed coup against Prime Minister Mohammed Mossadegh in 1953.
It marked a crucial turning point in Iranian history, something a bit like the Prague Spring, in which a popular, reforming and democratizing but also nationalist prime minister, who believed Iran should control the exploitation of its own petroleum resources, was removed by western intelligence agencies anxious to protect their countries’ interest in the oilfields.
Don’t get caught in the labyrinth of Iran’s twentieth century history, interesting though it is. The current movement is a simple impulse by majority of the nation to want institutions of civil society rule over them, to want their votes to be counted and their voice to matter and to emerge out of the darkness, corruption and soullessness that has characterised this regime. The regime will do its outmost to blame the uprising on US/EU and characterise as it as a failed velvet revolution….IR of Iran is deluding itself.
Writing history – the Panic of 2008
– John Kemp is a Reuters columnist. The views expressed are his own –
Economic history is the only field of human endeavor where the past changes as much if not more than the present and the future. Policymakers and practitioners struggle to define and write a “narrative” of the past as a means to control how policy responds to current and future problems.
The debate now over financial reform is a case in point. Even though the banking system has only just emerged from the most severe shock since the 1930s, the battle over how to define the events of the last 18 months, and what they should mean for investors and regulators in future, is already well underway.
Contrasting speeches last week by Federal Reserve Governor Kevin Warsh and Bank of England Governor Mervyn King illustrate the two extremes around which the debate is polarizing:
The financial sector will exploit these differences to derail any fundamental overhaul of regulation.
Hey Dan, I feel ya! I’m glad I won’t be around should such a mess come to pass.
Inventory-driven U.S. recovery may be delayed
– John Kemp is a Reuters columnist. The views expressed are his own –
Steady improvement in manufacturing surveys, payroll data and freight movements all indicate the U.S. economy is approaching the low point in the business cycle and should hit the bottom within the next one to four months. But that does not necessarily imply a strong and sustained expansion is about to get underway.
It is possible to be optimistic that the worst of the downturn is now over (or nearly so), while remaining cautious about prospects for strong and sustained recovery once the cyclical turning point is passed.
The slow and fitful recovery from the last recession is one reason to be careful. The National Bureau of Economic Research (NBER), the traditional arbiter of the U.S. business cycle, dates the last trough to November 2001 (eight months after the expansion peaked in March 2001 and just two months after the attack on the World Trade Centre). But signs of a strong and sustained recovery did not emerge for more than two years.
Fitful expansion in 2002 and 2003 is one reason the Fed kept interest rates so low for so long. While many commentators now see this is a significant error that contributed to subsequent bubbles in the bond and real estate markets, at the time the slow recovery caused officials, led by then-Governor Ben Bernanke, to worry more about the risk of deflation taking hold.
The Fed was still cutting interest rates to 1.00 percent as late as June 2003, an insurance policy against falling prices. It did not feel emboldened to begin raising them from this ultra-low level until June 2004.
Uncertainty caused by impending war between the United States and Iraq was certainly one factor overshadowing the recovery, but not the only one. Widespread pessimism and a cautious approach to new investment and hiring all helped ensure recovery was very slow. It failed to become clearly self-sustaining for almost three years.
The wild card is consumer sentiment and behavior. The old recovery models will probably not hold up. The specter of rising energy costs and inflation are going to fundamentally alter U.S. consumer behavior.
