Quotulatiousness

February 24, 2014

Argentina reported to be increasing military spending

Filed under: Americas, Military, Politics — Tags: , , , , , — Nicholas @ 08:09

The Argentine government has announced it will be increasing spending on their armed forces by a third in the coming year. While this report in the Daily Express takes it seriously, it fails to account for the overall sorry state of the Argentinian economy … it’s not clear if there’s any actual money to be allocated to the military:

Buenos Aires will acquire military hardware including fighter aircraft, ­anti-aircraft weapons and specialised radar, as well as beefing up its special forces.

The news comes months before drilling for oil ­begins in earnest off the Falkland Islands, provoking ­Argentina’s struggling President Cristina ­Fernandez de ­Kirchner.

Last month she created a new cabinet post of Secretary for the Malvinas, her country’s name for the Falklands.

Meanwhile, Defence Secretary Philip Hammond has refused to confirm that Britain would retake the Falklands if they were overrun by enemy forces.

The extra cash means Argentina will ­increase defence spending by 33.4 per cent this year, the biggest rise in its history. It will include £750million for 32 ­procurement and modernisation programmes.

They will include medium tanks and transport aircraft and the refurbishment of warships and submarines. The shopping list also ­includes Israeli air ­defence systems, naval assault craft, rocket systems, helicopters and a drone project.

As reported earlier this month, the economy is suffering from an inflation rate estimated to be in the 70% range, the government has expropriated private pensions and foreign-owned companies, and is unable to borrow significant amounts of money internationally due to their 2002 debt default. Announcing extra money for the military may well be the economic version of Baghdad Bob’s sabre-rattling press conferences … just for show.

On the other hand, military adventurism is a hallowed tradition for authoritarian regimes to tamp down domestic criticism and rally public opinion. Being seen to threaten the British in the Falkland Islands still polls well in Buenos Aires.

February 1, 2014

Argentina’s economic end-game

Filed under: Americas, Economics — Tags: , , , , , — Nicholas @ 09:19

In Forbes, Ian Vasquez looks at the plight of the Argentine economy:

Argentina’s luck is finally starting to run out. It devalued its currency by 15 percent last week, marking the beginning of a possible economic crisis of the kind Argentina has become known for. Argentina’s problem is that it has followed the logic of populism for more than a decade and President Cristina Kirchner is showing no interest in changing course.

In the 1990s Argentina combined far-reaching but sometimes flawed market-reforms with irresponsible fiscal policies, culminating in its 2002 default on $81 billion in debt — the largest sovereign default in history. The country delinked its currency from the dollar, experienced a severe economic crisis, and initiated its current period of populist politics.

Those policies included price controls on domestic energy, reneging on contracts with foreign companies, export taxes, more pubic sector employment and vastly increased spending. When you don’t pay massive debts, you get temporary breathing room, so growth resumed. High commodity prices and low global interest rates that lifted demand for Argentine exports also helped produce Argentine growth.

But the government’s appetite has consistently grown faster, and, with little ability to borrow abroad, it has turned to other sources of finance. In 2008, Kirchner nationalized private pension funds worth some $30 billion, and has since nationalized an airline and a major oil company. As it drew down reserves, the government turned to printing money to finance itself, falsifying the inflation rate it says is about 11 percent, but which independent analysts put at about 28 percent. Economist Steve Hanke estimates it is much higher at 74 percent

January 13, 2014

An independent Scotland and the UK’s existing debts

Filed under: Britain — Tags: , , — Nicholas @ 08:56

Robert Peston examines the question of whether a post-referendum Scotland would be debt-free or would have a share in the existing debt obligations of the United Kingdom:

This morning’s statement from the Treasury that the UK will stand behind all its sovereign debts, whether or not Scotland’s people vote for independence, is in a way a statement of the bleedin’ obvious.

That debt, all £1.4 trillion of it, is an obligation of the National Loans Fund.

And nothing can change that — whether Scotland were to decide to secede (or, to pick an unlikely corollary, in the event that the People’s Liberation Army of West Sussex, miffed about fracking, were to declare UDI).

So why has the Treasury chosen to say that the UK will honour its debts, whatever Scotland does?

Well, it is because investors — whom we may think of as sophisticated and informed (ahem) — have been increasingly asking the Treasury and the Debt Management Office for clarification of the status of the UK’s financial obligations in the event of a fracturing of the United Kingdom.

[…]

Who would not vote for independence if an autonomous, separate Scotland would be set free from the burden of UK debts currently equivalent to 76% of GDP or national income (on the latest estimates by the Office for Budget Responsibility)?

Except that even Alex Salmond and the Scot Nats don’t believe that an independent Scotland could, in practice, walk away from its fair share of the UK’s debts — even if they would have the legal ability to do so.

January 5, 2014

Excerpt from Glenn Reynolds’ new book

Filed under: Bureaucracy, Economics, Education, USA — Tags: , , — Nicholas @ 10:19

The Wall Street Journal has an excerpt from The New School: How the Information Age Will Save American Education From Itself, the latest book by the Instapundit himself:

Though the GI Bill converted college from a privilege of the rich to a middle-class expectation, the higher education bubble really began in the 1970s, as colleges that had expanded to serve the baby boom saw the tide of students threatening to ebb. Congress came to the rescue with federally funded student aid, like Pell Grants and, in vastly greater dollar amounts, student loans.

Predictably enough, this financial assistance led colleges and universities to raise tuition and fees to absorb the resources now available to their students. As University of Michigan economics and finance professor Mark Perry has calculated, tuition for all universities, public and private, increased from 1978 to 2011 at an annual rate of 7.45%. By comparison, health-care costs increased by only 5.8%, and housing, notwithstanding the bubble, increased at 4.3%. Family incomes, on the other hand, barely kept up with the consumer-price index, which grew at an annual rate of 3.8%.

For many families, the gap between soaring tuition costs and stagnant incomes was filled by debt. Today’s average student debt of $29,400 may not sound overwhelming, but many students, especially at private and out-of-state colleges, end up owing much more, often more than $100,000. At the same time, four in 10 college graduates, according to a recent Gallup study, wind up in jobs that don’t require a college degree.

Students and parents have started to reject this unsustainable arrangement, and colleges and universities have felt the impact. According to a recent analysis by this newspaper, private schools are facing a long-term decline in enrollment. More than a quarter of private institutions have suffered a drop of 10% or more — in some cases, much more. Midway College in Kentucky is laying off around a dozen of its 54 faculty members; Wittenberg University in Ohio is eliminating nearly 30 of about 140 full-time faculty slots; and Pine Manor College in Massachusetts, with dorm space for 600 students but only 300 enrolled, has gone coed in hopes of bringing in more warm bodies.

Even elite institutions haven’t been spared, as schools such as Haverford, Morehouse, Oberlin and Wellesley have seen their credit ratings downgraded by Moody’s over doubts about the viability of their high tuition/high overhead business models. Law schools, including Albany Law School, Brooklyn Law School and Thomas Jefferson Law School, have also seen credit downgrades over similar doubts. And now Democrats on Capitol Hill are pushing legislation to give colleges “skin in the game” by clawing back federal aid money from schools with high student-loan default rates. Expect such proposals to get traction in 2014.

October 23, 2013

Perhaps the “starve the beast” plan is working

Filed under: Cancon, Economics, Government — Tags: , , , — Nicholas @ 07:05

In Maclean’s, Stephen Gordon provides an updated look at the Harper government’s ongoing “starve the beast” policy:

Canadian federal government revenues and expenditure, 1960-2013

Canadian federal government revenues and expenditure, 1960-2013

As I’ve written before, the Conservatives have applied the “starve the beast strategy“: First, cut taxes; second, cut spending in order to match lower revenues; third, obtain a balanced-budget for a smaller government. As the red line in the chart shows, the Harper government was temporarily thrown off this past by the financial crisis, which required emergency stimulus spending. They are, however, back on track.

Once again though, we need to be careful to see that the government’s revenues are back above expenditures (so the yearly deficit has been reduced over time), but the government’s outstanding debts are still quite substantial: $892 billion for 2012-13. As long as interest rates stay low, the debt should start to decline, but if-and-when interest rates rise, so will that big pile of accumulated debt.

October 21, 2013

The US debt iceberg

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 09:53

Jon Gabriel has put together a clear, understandable way to show the relationship between the US government’s revenue, deficit and debt numbers:

When Washington raised the debt ceiling this week, the Beltway media breathlessly reported that the fiscal crisis had ended. Lawyers danced in hallways, bureaucrats twerked on the Metro, congressional aides kissed strangers in the streets — the Tea Party has been defeated! It was like VJ day for wonks.

As our political class exchanged high fives and reporters praised a return to “sanity,” I wondered how these odd creatures defined insanity.

America’s fiscal crisis is not that our debt ceiling was too low, the fiscal crisis is that our debt is too high. When I mentioned this to left-leaning folks, they seemed indifferent. “Obama lowered the deficit.” “I think Bush spent more.“ “It’s Reagan’s fault!”

So I made this infographic:

US debt iceberg

Since most graphs look like this, I focused on just three big numbers: Deficit, revenue and debt.

The analogy is imperfect, but imagine the green is your salary, the yellow is the amount you’re spending over your salary, and the red is your Visa statement. Then imagine your spouse runs into the room and shouts, “great news honey, our fiscal crisis is over. We just got approved for a new MasterCard!” Your first call would be to a marriage counselor or a shrink.

H/T to Nick Gillespie:

What is it that Hemingway always used to say? That thing’s not loaded? Or something about how the “dignity of movement of an ice-berg is due to only one-eighth of it being above water.” Yeah, well, the horrors of federal finances is pretty undignified just looking at the amount of spending versus revenue we do and then it gets really sloppy when you look at the huge amount of debt below the waterline.

September 25, 2013

Redefining “austerity” (again)

Filed under: Economics, Government, USA — Tags: , , — Nicholas @ 07:51

At Coyote Blog, an illuminating comparison of “austerity” measurements, responding to a piece in Mother Jones by Kevin Drum:

He uses this graph to “prove” that our fiscal response to this recession is weak vis a vis past recessions. The graph is a bit counter-intuitive — note that it begins at the end of each recession. His point is that Keynesian spending needs to continue long after (five years ?!) after the recession is over to guarantee a good recovery, and that we have not done that.

Government spending after recessions

[…]

I took roughly the same data and started each line two years earlier, so that my first year is two years ahead of his graph and the zero year in my graph is the same as the zero point in Drum’s chart. His data is better in the sense that he has quarterly data and I only have annual. Mine is better in that it looks at changes in spending as a percentage of GDP, which I would guess would be the more relevant Keynesian metric (it also helps us correct for the chicken and egg problem of increased government spending being due to, rather than causing, economic expansion).

Here are the results (I tried to use roughly the same colors for the same data series, but who in the world with the choice of the entire color pallet uses two almost identical blues?)

Government spending before and after recessions

That second image tells a radically different story to the first one, doesn’t it? Hard to make that fit into the traditional definition of the word “austerity” though…

August 13, 2013

It’s accurate to describe the Greek plight as a depression

Filed under: Economics, Europe, Greece — Tags: , , — Nicholas @ 10:44

Allister Heath says the catastrophic state of the Greek economy fully merits the descriptor “depression”:

Sorry, but the fact that Greece collapsed at an annual rate of 4.6 per cent in the second quarter, rather than a little bit faster, isn’t good news. It’s terrible, awful, horrible news. Greek output is down by 23 per cent since 2008 and unemployment is at around 28 per cent; no wonder, given the shrinking economy, that gross tax revenues are continuing to undershoot targets.

Hyperbolic economists sometime claim that the UK has undergone a depression, which is nonsense — but Greece’s woes cannot be described in any other way. Its depression has been catastrophic, one of the worst ever recorded for any country in the modern, industrialised era (apart from during or immediately after a war). Its dramatic collapse reminds us that stupid economic policies can destroy a nation; depressions have not been banished from modern civilisation.

It may be, of course, that the collapse is beginning to abate and that the economy may finally stabilise next year. I’ll believe it when I see it; unless Greece’s money supply starts growing again, and demand begins to increase, a recovery is impossible. But Greece is just a tiny part of the Eurozone, so achieving such an outcome is even harder than in a country like the UK, especially given that the Greek financial crisis hasn’t really gone away. There is no way that Athens will meet its bailout targets and its debt burden is utterly unsustainable.

July 27, 2013

Jiangsu might as well be the Chinese name for Detroit

Filed under: China, Economics — Tags: , , , , — Nicholas @ 11:02

The South China Morning Post on the economic troubles of the provincial, municipal and local authorities in Jiangsu:

The nightmare scenario for China’s leaders as they try to wean the country off a diet of easy credit and breakneck expansion is a local government buckling under the weight of its own debt. Few provinces fit that bill quite like Jiangsu, home to China’s most indebted local government.

Hefty borrowings through banks, investment trusts and the bond market by Jiangsu’s provincial, city and county governments have saddled the province north of Shanghai with debt far higher than its peers, public records show.

Many of the province’s mainstay industries, including shipbuilding and the manufacturer of solar panels, are drowning in overcapacity. Profits are dwindling, and the government’s tax growth is braking hard.

[…]

Little public information is available on the total debt of Chinese local governments. Indeed, earlier this month China’s Vice-Finance Minister Zhu Guangyao said Beijing did not know the precise level of their debts either.

But from what ratings agencies and think-tanks can piece together, Jiangsu may be the standout debt risk among China’s 31 provinces.

Looking at bank loan books, they can see that China’s eastern provinces including Jiangsu have the highest concentration of government debt. Jiangsu then looms large because of its reliance on costlier and alternative forms of financing, which they said suggested that cheaper bank loans and land sales are not giving the authorities the funding they need.

The risk that Jiangsu might pose to the Chinese economy in a crisis is clear. On its own, the province would be a top 20 global economy with GDP greater than G20 member Turkey. Its 79 million population tops that of most European countries.

Municipal bonds and the economic law of gravity

Filed under: Economics, Government — Tags: , , , , — Nicholas @ 10:48

In the US, municipal bonds — bonds issued by city or other municipal governments — have been widely viewed as “safe” investments. Detroit may cause that view to change drastically. Reggie Middleton has been sounding the alarm for a few years:

Following up on my timely post “Here Come Those Municipal Defaults That Everyone Said Couldn’t Happen, Pt 2“, I comment on Meredith Whitney’s OpEd in the Financial Times. If you remember, she — like I — warned of municipal defaults years ago and was ridiculed for such. Ms. Whitney is quoted as saying:

    “As jarring as the reality may be to accept, Detroit’s decision last week to declare bankruptcy should not be regarded as a one-off in the U.S. municipal market.” she said.

    “There are five more towns like Detroit in Michigan alone. There are many more municipalities across the country in similar positions.”

    “The bill for promises past is now so large for some cities and towns that it is crowding out money for the most basic of services — in the case of Detroit, it could not even afford to run its traffic lights,” she said.

    “Will [lawmakers] side with taxpayers, unions or the municipal bondholders? If they back residents, money will be directed to underfunded public services at the expense of pensions and bondholders. If they side with the unions, social services will continue to be cut and the risk to bondholders will increase considerably. If they side with bondholders, social services and pensions are at risk.”

    In the case of Detroit, elected officials, for the first time in a very long time, are siding with residents, Whitney said. This is a new precedent that boils down to the straightforward reality of the survival and sustainability of a town or city, she said.

    “After decades of near-third-world conditions in the richest country in the world, the city finally stood up and said enough was enough,”

Well, this is the problem. Defaulting on revenue bonds where the underlying asset (ex. a housing project, utility, or infrastructure project) is not generating the sufficient cash flows is part and parcel of the risk of investing in said class of bonds. This is widely accepted and understood, which is likely why those bonds have a slightly higher yield.

For some obscene reason, defaulting on the general obligation bonds which purportedly carry the “full faith and credit’ of the municipality as a back stop is deemed as wholly different affair. The reason? Who the hell knows? This is a point I tried to drive home in the original “Here Come Those Municipal Defaults That Everyone Said Couldn’t Happen” article in 2011. Backing by the full faith and credit of a public entity does not make an investment risk free. To the contrary, if said entity is fundamentally insolvent, the investment is actually “riskful” as opposed to risk free.

Treating these bonds as unsecured in the bankruptcy is essentially the way to go. If you don’t want to do that, well you can still consider them backed by the full faith and credit of the insolvent municipality, which is essentially unsecured — and move on anyway — particularly as many potential collateral assets of value would have likely been encumbered by agreements with a little more prejudicial foresight.

July 23, 2013

The real aftermath of Iceland’s banking collapse

Filed under: Economics, Government — Tags: , , , , — Nicholas @ 09:01

Simon Black contradicts the media narrative that Iceland has “recovered” from the melt-down of their banking sector:

It was a spectacular collapse. And the first of many. Ireland, Greece, Cyprus, etc. were soon to follow.

Yet unlike the bankrupt countries of southern Europe, Iceland dealt with its economic emergency in a completely different way.

Politicians here are proud that they never resorted to austere budget cuts that are so prevalent in Europe.

They imposed capital controls. They let the banks fail. And, as is so commonly trumpeted in the press, they ‘jailed their bankers and bailed out their people.’

Today, Iceland is held up as the model of recovery. Famous economists like Paul Krugman praise the government for rapidly rebuilding the economy without having to resort to austerity.

This morning’s headline from The Telegraph newspaper sums it up: “Iceland has taken its medicine and is off the critical list”.

It turns out, most of these claims are dead wrong.

[…]

Meanwhile, the government ended up taking on massive amounts of debt in order to bail out the biggest bank of all – Iceland’s CENTRAL BANK.

This was a bit different than the way things played out in the US and Europe.

In the US, the Fed conjures money out of thin air and funnels it to the government.

In Iceland, since the Kronor is not a global reserve currency, the government had to go into debt in order to funnel money to the Central Bank, all so that the currency wouldn’t collapse.

As a result, Iceland’s state debt tripled, almost overnight, in 2008. And from 2007 until now, it has increased nearly 5-fold.

Today, the government is spending a back-breaking 17.3% of its tax revenue just to pay interest on the debt.

And this is real interest, too. Iceland’s central bank owns very little of the government debt. The rest is owed to foreign creditors… putting the country in an extremely difficult financial position.

At the end of the day, the Icelandic people are responsible for this. They were never bailed out. They were stuck with the bill.

Meanwhile, although unemployment in Iceland is low, wages are even lower. And the weak currency has brought on double-digit inflation.

So while people do have jobs, they can hardly afford anything.

This is most prevalent in the housing market, most of which is underwater. Interest rates have jumped so much that many Icelanders are now on negative amortization schedules, i.e. their mortgage balances are actually INCREASING with each payment.

July 19, 2013

Bitter reality scheduled to return on September 22nd

Filed under: Economics, Europe, Germany, Government — Tags: , , , , , — Nicholas @ 08:46

Here’s an unpleasant idea to disturb your narrative of economic recovery:

You may have noticed the small blurb recently that the ECB had eased the rules for asset backed securitizations. You may have read this snippet and thinking nothing of it you moved on. This would have been a mistake because just here you would have noticed the cracks of a crumbling empire.

The French banks, the Spanish banks, the Portuguese banks are all engaged in an ongoing charade so they do not need to ask the EU for help. They all are taking their Real Estate loans, the properties that they have confiscated, the commercial loans that are no longer paying and they have put them into massive securitizations that are pledged at the ECB as they are given cash for the collateral. The collateral, as you may suppose, has all of the value of cents on the Dollar but they are given money at par while the ECB carries them on their books at par. It is a fraudulent scheme jam packed with money created out of nothing but it is judged to be a better plan that to have to admit to accurate financials and have the banks of Europe default all across the Continent.

[. . .]

There will be nothing but lying until September 22, 2013 which is the date of the German elections. This is the drop dead date that I have been asked about for so long. Then, as soon as the celebration is over that Ms. Merkel is to remain in power, the world will turn on its axis. The status quo will disappear and there will be a “shock and horror” campaign as the Southern nations of Europe demand more help and Germany squirms and then refuses to provide it because it does not have the assets to do so.

Spain, France, Portugal, Greece, Cyprus, and even Italy are all going to line up at the trough only to discover that the promise of water was just that, a promise, and does not exist. A Biblical drought will be upon the Continent and from the political battles will emerge new alliances and new screams calling the traitors by name. The twin towers upon which the markets rest, money from nothing and fairy tale financials, will decompose in the light of this new sun and our old friend, Fear, will return to haunt us.

Sleep well.

Blaming the bankers and absolving the politicians

Filed under: Economics, Government — Tags: , , — Nicholas @ 08:23

Daniel Ben-Ami points out that current campaigns to vilify bankers (“banksters”) over their role in the economic crisis that began in 2007-2008 conveniently ignores the politicians’ dirty hands:

There is at least one area where mainstream politicians can legitimately claim considerable success: they have offloaded much of the blame for the economic crisis from themselves and on to banks and other financial institutions.

Much of the public has accepted the premise that greedy bankers were largely responsible for the economic turmoil that emerged in 2007-8. There is little discussion of the government’s role in creating the conditions for the financial crash, let alone any examination of the economy’s underlying weaknesses.

Criticism of the government’s economic policy is usually confined to it being heartless or ill thought out. Often the two are combined, in the accusation that the government is obeying the diktat of its banker friends by imposing cuts. Campaigners also often allege that a shady global financial network is the real power in the world. In this conspiratorial worldview, a labyrinth of offshore tax havens helps the rootless rich evade the power of national authorities.

[. . .]

But in truth, politicians on both sides of the Atlantic bear a large share of the blame for the crisis. To understand their culpability, it is necessary to go back at least to the early 1980s rather than just to 2007. For decades it was clear that investment and innovation were insufficient. Yet rather than tackle these underlying problems, the authorities pursued policies that ended up creating a credit bubble.

Public spending was kept high and interest rates artificially low. Often, governments also used additional measures to ease the supply of credit, such as reforming the financial markets. The hope was that such moves would keep the market ticking over in the short term and the economy would somehow correct itself in the longer term.

This was the backdrop to the financial crisis that emerged in 2007-8. Bankers certainly played a role, but governments created the conditions for the credit bubble to emerge. Underlying this development was the failure of politicians to tackle or even recognise structural economic weaknesses.

[. . .]

Underlying anti-banking campaigns is the common assumption that financial institutions are part of a giant global conspiracy to undermine nation states.

This view was most vividly put forward by Matt Taibbi, a campaigning American journalist, in a 2009 article in Rolling Stone magazine and in a subsequent book. He famously condemned Goldman Sachs, a top Wall Street investment bank, as ‘a giant vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money’. In the UK, the New Economics Foundation, a think tank, adopted the image with a short video entitled Taming the Vampire Squid: Take Back Our Banks.

There are several reasons to object to such imagery and the conspiratorial worldview that underlies it. For one thing it is strongly reminiscent of Nazi imagery of Jews as central to an international financial conspiracy. For example, in Mein Kampf, Adolf Hitler talked of Jews as being ‘like leeches… they were slowly sucking the blood from the pores of the national body’.

July 14, 2013

Signs of an economic Sharknado

Filed under: Economics, Government, Media — Tags: , , , , — Nicholas @ 11:51

Feeling positive about the economy? Michael Snyder has ten reasons to change your mind:

Have you ever seen a disaster movie that is so bad that it is actually good? Well, that is exactly what Syfy’s new television movie entitled Sharknado is. In the movie, wild weather patterns actually cause man-eating sharks to come flying out of the sky. It sounds absolutely ridiculous, and it is. You can view the trailer for the movie right here. Unfortunately, we are witnessing something just as ridiculous in the real world right now. In the United States, the mainstream media is breathlessly proclaiming that the U.S. economy is in great shape because job growth is “accelerating” (even though we actually lost 240,000 full-time jobs last month) and because the U.S. stock market set new all-time highs this week. The mainstream media seems to be absolutely oblivious to all of the financial storm clouds that are gathering on the horizon. The conditions for a “perfect storm” are rapidly developing, and by the time this is all over we may be wishing that flying sharks were all that we had to deal with. The following are 10 reasons why the global economy is about to experience its own version of Sharknado…

#1 The financial situation in Portugal continues to deteriorate thanks to an emerging political crisis. […]

#2 The economic depression in Greece continues to deepen, and it is being reported that Greece will not even come close to hitting the austerity targets that it was supposed to hit this year […]

#3 The economic crisis in the third largest country in the eurozone, Italy, has taken another turn for the worse. […]

#4 There are rumors that some of the biggest banks in the world are in very serious trouble. […]

#5 Just before the financial crisis of 2008, the price of oil spiked dramatically. […]

#6 Mortgage rates are absolutely skyrocketing right now […]

#7 This upcoming corporate earnings season is shaping up to be an extremely disappointing one. […]

#8 U.S. stocks are massively overextended right now. […]

#9 Rapidly rising interest rates are causing the bond market to begin to come apart at the seams. […]

#10 Rapidly rising interest rates could cause an implosion of the derivatives market at any moment. […]

Most Americans don’t realize that Wall Street has been transformed into the largest casino in the history of the world. Most Americans don’t realize that the major banks are literally walking a financial tightrope each and every day.

All it is going to take is one false step and we will be looking at a financial crisis even worse than what happened back in 2008.

So enjoy this little bubble of false prosperity while you can.

It is not going to last for too much longer.

July 6, 2013

Ireland’s oil and gas bonanza for the oil companies

Filed under: Europe, Government, Law — Tags: , , , , , — Nicholas @ 09:49

Ireland is thought to have substantial offshore reserves of oil and natural gas that are likely to be profitable with current technology, but due to a legislative change dating back to the 1980s, the Irish government may not get much benefit:

In a now legendary all-night sitting on September 29th, 2008 the Irish government agreed to guarantee all bank debts. O’Toole calls this the “most disastrous decision that was ever made by an Irish government”. At least two generations of taxpayers will pay off these debts. O’Toole makes an excellent job of charting the Irish path to disaster in his book Ship of Fools, in which he calls the accounts of Anglo Irish Bank the “most inventive work of Irish fiction since Ulysses”.

The oil off the Irish coast could be the way out of this misery. The oil could be the hope. If the former energy minister Ray Burke hadn’t rewritten the relevant laws as though the oil industry itself held the pen. And if Bertie Ahern hadn’t made an already bad deal for the Irish people even worse.

Burke was energy minister in 1987, when it was decided to change the provisions for oil and grass drilling licence allocation. Until then the state owned 50 per cent of all oil and gas found in Irish waters. In addition, companies had to pay royalties of between 8 and 16 per cent as well as 50 per cent tax. (1, see notes below)

The new rule gave companies 100 per cent of their find and abolished licence fees. In 1992 Bertie Ahern, then finance minister and later prime minister from 1998 to 2008, cut the tax for oil companies to 25 per cent — a provision that remains to this day. (2)

[. . .]

The reason this political inheritance is causing such animated discussion now is because of huge oil and gas reserves believed to surround the island. The company Providence estimates the volume of oil it discovered in the Barryroe field, south of Cork, at over 1.7 billion barrels, of which at least 270 million can be pumped. Further test drillings in Irish waters have been similarly promising.

At the moment a barrel of oil costs, depending on grade, between $90 and $100, meaning there could be oil worth many billions of euro in the Irish sea bed. (3) Even the oil companies concede that Ireland is surrounded by massive riches. But the Irish will probably gain none of this thanks to men like Ray Burke and Bertie Ahern.

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