Opinion

The Great Debate

Protectionism risks rise in 2009-2010

John Kemp Great Debate– John Kemp is a Reuters columnist. The opinions expressed are his own –

Commentators are focused on the risk countries will respond to the worldwide slump in demand by resorting to protectionist measures (either competitive devaluations, tariff rises or other trade barriers) in a mutually self-defeating attempt to reserve what remains of shrinking demand for domestic industries — leading to trade wars, a reversal in the trend towards global integration and a fall in living standards.

Parallels with the 1930s abound. But the tariff wars of the 1930s belong to a vanished world of fixed exchange rates, militarism and failed multilateralism. The tariff history of the 1930s is not a good parallel for today’s world.

The real risk is a more insidious undeclared trade conflict based on rises in applied rates, non-tariff barriers, bad faith, and an upsurge in trade defenses as countries try to “allocate” scarce demand and placate industries and workers under particular pressure.

RAISING APPLIED TARIFF RATES

Each WTO member has a schedule of commitments in which it has agreed to “bind” the duty levied on particular items at no more than a specified rate.

Obama’s radical environmental strategy

John Kemp Great Debate– John Kemp is a Reuters columnist. The opinions expressed are his own –

Most successful elected leaders must disappoint their most ardent supporters at some point, as the bright hopes of an election campaign give way to the complex realities and constraints of governing, and need to occupy and retain the political center-ground to win re-election.

The trick of really successful leaders is to let supporters down gently to avoid turning disappointment into frustration and anger, retaining allegiance and support even when the maximum agenda goes unfulfilled and compromises must be made. Political supporters have to be given enough policy gains to be kept loyal, even as some cherished objectives fall by the wayside.

NYMEX oil benchmark again in question

John Kemp Great Debate– John Kemp is a Reuters columnist.  The views expressed are his own –

The record differential between the front-month and more liquid second-month contracts at expiry last week once again raised pointed questions about whether the NYMEX light sweet contract is serving as a good benchmark for the global oil market, or sending misleading signals about the state of supply and demand.

The expiring January 2009 contract ended down $2.35 on Friday at $33.87, while the more liquid February contract actually rose 69 cents to settle at $42.36 – an unprecedented contango from one month to the next of $8.49.

Fed unleashes greatest bubble of all

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –

Like the sorcerer’s apprentice, Federal Reserve Chairman Ben Bernanke and his predecessor Alan Greenspan have unleashed a series of ever-larger asset bubbles they cannot control.

Now the Fed’s decision to cut interest rates to between zero and 0.25 percent, coupled with a promise to keep them there for an extended period, and the threat to conduct even more unconventional operations in the longer-dated Treasury market risks the biggest bubble of all, this time in U.S. government debt.

Great U.S debt engine slips into reverse

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –

After six decades of uninterrupted credit creation and an unprecedented era of consumption and prosperity, the credit process has come to an abrupt halt. If credit has been the locomotive of the modern economy, the third quarter of 2008 marked the point when the engine stalled and the economy began to roll back down the hill.

For decades, financial activities have grown much faster than the real economy. Between 1952 and 2007, U.S. nominal GDP grew by a factor of 39 times, while total credit market debt outstanding surged 101 times.

Monty Brewster’s fiscal stimulus

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –

In the 1902 novel “Brewster’s Millions“, the eponymous hero is challenged to spend every cent of his $1 million inherited fortune to win an even larger inheritance of $7 million. Brewster has a year to do it, and under the terms of the will he must obtain good value for the money.

Brewster’s struggle to spend $1 million, sensibly, in a year should serve as a warning for the problems the incoming Obama administration will face saving up to 2 million jobs within two years through the use of a massive fiscal stimulus package.

In China, OPEC’s nightmare comes true

John Kemp Great Debate– John Kemp is a Reuters columnist. The opinions expressed are his own –

China’s decision to link domestic fuel prices indirectly to the international crude oil market, subject to a price cap, while hiking the consumption tax on gasoline and diesel and phasing out a variety of road tolls and other fees shows Saudi Arabia’s worst fears about high prices and demand destruction are starting to come true.

It seems likely to confirm the kingdom’s determination to see prices stabilize around $75 per barrel, well below recent price peaks, and far below the level sought by some other OPEC members, as well as international oil companies and advocates of alternative energy.

Dollar demise much exaggerated

John Kemp Great Debate– John Kemp is a Reuters columnist. The opinions expressed are his own –

Perhaps the most surprising development over the last three months has been the surging value of the currency at the heart of the crisis. It is almost as if investors have responded to a fire alarm by running towards the source of the fire.

From a recent low on July 15, the U.S. dollar’s trade-weighted value has risen 19 percent. The dollar has been broadly stable against China’s yuan (+1 percent) while posting massive gains against the Swiss franc (+20 percent), the euro (+26 percent), the British pound (+35 percent) and the Australian dollar (+52 percent). Only against Japan’s yen has the currency slipped marginally (-6 percent).

Export window closes for U.S. oil refiners

John Kemp Great Debate– John Kemp is a Reuters columnist. The opinions expressed are his own –

U.S. oil refiners have relied heavily on exporting surplus gasoline and especially distillates to help offset plunging domestic demand over the last eighteen months.

Record product exports have averted a much deeper crisis within the industry, an even bigger collapse in gross margins and a huge inventory build.

Bleak outlook for U.S. oil refiners

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –

Even by the standards of a deep-cyclical industry, the “golden age” of oil refining has proved remarkably brief, lasting no more than three years, before giving way to a new dark age.

Particularly in the United States, refiners have returned to the state of chronic unprofitability that plagued the industry before 2005.

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