Sunday, June 12, 2011

notes on the week ended june 11th

there werent many important economic reports out last week, so im going to highlight discussion around the blogosphere prompted by an article by Bob Kuttner, Debtors' Prison, which was picked up & expounded on by yves smith and further explained in a series of at least 4 posts by paul krugman…it's particularly enlightening as to how we got into the trap we're in, and more specifically, shows how all efforts by the the Fed, the administration, and the institutional power troika in europe are directed only to protecting the interest of the "rentier class", ie, those who's income comes solely from extracting "rents" from the rest of us in terms of interest payments, and not towards solving the underlying problems of the economies they're charged with running...as all the articles are relatively short & clearly written, it worth catching the whole set, not so much for solutions, but to understand the problem...
i also want to take on the pervasive idea that our government debt is somehow a bad thing; if the treasury would suddenly stop borrowing, the world would find itself with a dearth of safe assets; without government bonds to invest in, where else could the social security trust fund or state and local pension funds park their savings that would be safe? real estate? the stock market? similarly, those nations that run a trade surplus with us accept treasury notes and bonds as a safe store of value; that's the function of the dollar as a reserve currency...thus short term US government debt has become, at least in part, the worlds money supply; a million dollar Treasury bill is used as money by a sovereign wealth fund in the same sense that you use a ten dollar bill in your wallet...thus, a contraction of the supply of the reserve currency (our treasury debt) would have a negative impact on the world economy in the same manner that a contraction in the domestic money supply would impact our nation's economy...
a lot of cyber ink was spilled over a big speech by ben bernanke at an international monetary conference this week, but all the reiterations of it told us nothing new: unemployment is too high, and the Fed cant or wont do anything about it, growth is too slow, but the Fed cant or wont do anything about it, et al; the one point that he made that is worth repeating was his warning to congress to not make things worse by short term spending cuts, noting that “a sharp fiscal consolidation focused on the very near term could be self-defeating.” ...as much as the word "stimulus" evokes images of misplaced government spending, there is a reason that word was used, and we should be aware that cutting government spending has the opposite, contractionary, effect...with nearly 25 million americans unemployed or looking for full time work, and government borrowing costs at the lowest in history, this is the time we should be spending on investments such as infrastructure, rather than cutting back and laying off even more government employees...
i've been noticing a lot of articles which are including future obligations as part of government debt...this one at USAToday is an example; it implies that because the government will eventually have to pay for social security and medicare for the "baby boomers", our debt is actually $62 trillion...the trouble with the USAToday article is that it counts unknown & imaginary future obligations as "debt", which makes no sense ...for instance, it's possible i might get cancer 20 years hence and will need chemo; could you say that i'm in debt for the cost of that possible chemo today? of course not, that debt will not be incurred until such time as i go in for the treatment...if you can say the US is in debt $61.6 trillion today, then by the same logic you can say our current GDP is $300 trillion...
there was some hope by the oil consuming nations that export quotas would be raised at the quarterly OPEC meeting in vienna this week, but it broke up with no agreement & some apparent belligerence between the saudis, who wanted to raise quotas, and the iranians, who wanted to hold the line...the saudi minister called it "one of the worst meetings we have ever had,"...some analysts suggested that the official announced quotas have usually been ignored anyway, and the market reaction was relatively minor and brief...subsequently, the saudis said they would unilaterally increase production, but as we've discussed in the past, it's not certain they'll be able to add the 10 million barrels a day they said they would; it aint like just turning on a tap...in a related event this week, Exxon announced the discovery of a "massive field" in the gulf of Mexico, with a potential recoverable reserves of 700 million barrels "one of the largest discoveries in the Gulf of Mexico in the last decade"...that was jumped on by the "drain america firsters" in congress as proof that we have abundant domestic oil that we should be drilling for...by my back of the envelope calculations, that massive once in a decade find supplies less that 40 days worth of our daily consumption of 18.7 mbd..indeed, BP reported in its annual Review of World Energy released this week that the global oil industry discovered new reserves of only one fifth of what we consumed last year...

since the links on my blog cover most of the weeks economic, environmental and energy news well (be sure to catch the articles on fukushima) & there isnt anything else i want to comment on, ill just show you a couple maps i ran into this week that i found interesting... below is a  map of the 2335 record high temperatures set during the past week, and the adjacent map is of the unhealthy smoke concentrations from the wildfires in arizona & texas, which have since shifted east…
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 records screenshot
the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me...

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