Canada's Place in the Global Economy

[Kirkhill]

Further: we ought to have some sympathy for Jamie Dimon. He led JP Morgan Chase soundly and now he, his bank, his shareholders really, are being asked to forgo legitimate profits in order to capitalize themselves to a level which might be too conservative for such a well managed institution. But there are too few banks that are managed as well as JP Morgan and the revised capitalization levels set forth in Basel III are, really, a sop to socialist European governments who had, still have too lax banking regulations ~ it's a variation of make the rich pay and punish the bankers and brokers for the sins of social engineers, especially those in the USA who decided that the route to eternal prosperity was by having the poor jump into the middle class through the magic of cheap mortgages. There was a Jewish fellow, some time back, who opined that "ye have the poor always with you," something the US Congress and the Clinton administration seemed to have forgotten.

Do you suppose there might be some other metric that Dimon and JP Morgan track, other than or in addition to percent capitalization, to keep themselves out of trouble?  Presumably they have no more desire to go bust than the rest of us.

 

[Edward Campbell]

Do you suppose there might be some other metric that Dimon and JP Morgan track, other than or in addition to percent capitalization, to keep themselves out of trouble?  Presumably they have no more desire to go bust than the rest of us.

I don't know how to run a bank; I don't even pretend to know. I couldn't, I am pretty sure, even run a small bank ... but the world? Oh, I could run that all right, and I can and, routinely, do tell you how to run it and even how to run puny little Canada - I could run that, too. But a bank? No, I think not.

 

[a_majoor]

Running Canada is easy; just ask any NDP candidate.... >

A more pressing long term problem may well lie with demographics; who will be manning the highly productive factories and farm fields of the future, generating the wealth to pay the vast debts of today?

http://www.foreignpolicy.com/articles/2011/08/15/the_world_will_be_more_crowded_with_old_people?page=full

The World Will Be More Crowded -- With Old People
Actually, the children aren't our future.
BY PHILLIP LONGMAN | SEPT/OCT 2011

Demography is not destiny, as is sometimes claimed. The human race could be wiped out by a plague or an asteroid, or transformed by some new technology. But no matter what, today's patterns of fertility, migration, and mortality fundamentally determine how much society will or can change for many generations to come.

And what demography tells us is this: The human population will continue to grow, though in a very different way from in the past. The United Nations' most recent "mid-range" projection calls for an increase to 8 billion people by 2025 and to 10.1 billion by century's end.

Until quite recently, such population growth always came primarily from increases in the numbers of young people. Between 1950 and 1990, for example, increases in the number of people under 30 accounted for more than half of the growth of the world's population, while only 12 percent came from increases in the ranks of those over 60.

But in the future it will be the exact opposite. The U.N. now projects that over the next 40 years, more than half (58 percent) of the world's population growth will come from increases in the number of people over 60, while only 6 percent will come from people under 30. Indeed, the U.N. projects that by 2025, the population of children under 5, already in steep decline in most developed countries, will be falling globally -- and that's even after assuming a substantial rebound in birth rates in the developing world. A gray tsunami will be sweeping the planet.

Which countries will be aging most rapidly in 2025? They won't be in Europe, where birth rates fell comparatively gradually and now show some signs of ticking up. Instead, they'll be places like Iran and Mexico, which experienced youth bulges that were followed quickly by a collapse in birth rates. In just 35 years, both Iran and Mexico will have a larger percentage of their populations over 60 than France does today. Other places with birth rates now below replacement levels include not just old Europe but also developing countries such as Brazil, Chile, China, Lebanon, Tunisia, South Korea, and Vietnam.

Because of the phenomenon of hyper-aging in the developing world, another great variable is already changing as well: migration. In Mexico, for example, the population of children age 4 and under was 434,000 less in 2010 than it was in 1996. The result? The demographic momentum that fueled huge flows of Mexican migration to the United States has waned, and will wane much more in the future. Already, the net flow of illegal Mexican immigration northward has slowed to a trickle. With fewer children to support and not yet burdened by a huge surge of elders, the Mexican economy is doing much better than in the past, giving people less reason to leave. By 2025, young people on both sides of the border may struggle to understand why their parents' generation built this huge fence.

Despite these trends, most people conclude from their day-to-day lives that overpopulation is a serious problem. One reason is that more than half the world's population is crowded into urban areas. The high cost of raising children in mega-cities is a prime reason that global birth rates continue to fall, yet urbanization also makes the larger trend toward depopulation difficult for most to grasp. If the downward trend in birth rates doesn't moderate and stabilize as the U.N. assumes it will, the world as a whole could be losing population as soon as midcentury. And yet few people will likely see that turning point coming, so long as humans continue to pack into urban areas and increase their consumption of just about everything.

Another related megatrend is the rapid change in the size, structure, and nature of the family. In many countries, such as Germany, Japan, Russia, and South Korea, the one-child family is now becoming the norm. This trend creates a society in which not only do most people have no siblings, but also no aunts, uncles, cousins, nieces, or nephews. Many will lack children of their own as well. Today about one in five people in advanced Western countries, including the United States, remains childless. Huge portions of the world's population will thus have no biological relatives except their parents.

And even where children continue to be born, they are being raised under radically different circumstances, as country after country has seen divorce and out-of-wedlock births surge and the percentage of children living with both of their married parents drop sharply. So not only is the quantity of children in the world poised to shrink rapidly, but on current trends, a near majority of them will be raised in ways that are today strongly associated with negative life outcomes.

Are there signs of any of these trends reversing before 2025? Only a few. The percentage of the world's population raised in religious households is bound to rise, if only because adherents to fundamentalism, whether Christians, Jews, or Muslims, tend to have substantially more children than their secular counterparts. And there are certainly many ways -- from increased automation and delayed retirement to health-care reform to the provision of baby bonuses -- for societies to at least partially adjust to the tidal shift in global demographics.

But don't count on it. To make such sweeping changes would require a widespread understanding of the century's great paradox: The planet may be bursting, but most of this new population is made up of people who have already been born. So get ready for a planet that's a whole lot more crowded -- with old people.

 

[Edward Campbell]

More, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, about the rationale for Jamie Dimon's hardline position:

http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/dimons-rhetoric-a-killer-of-reasonable-bank-reform/article2180884/

Dimon’s rhetoric a killer of reasonable bank reform

BOYD ERMAN
From Tuesday's Globe and Mail

Posted on Monday, September 26, 2011

JPMorgan Chase & Co. head Jamie Dimon doesn’t have to be right when he attacks central bankers and their plans for bank reform. He just has to be inflammatory.

Mr. Dimon is yet again on the offensive against those who would rein in bank risk-taking, railing in a meeting with Bank of Canada Governor Mark Carney against the higher capital requirements for banks under the Basel III reform package.

The spat with Mr. Carney came just a few weeks after an interview in which Mr. Dimon called some Basel III requirements “anti-American” and a few months after he ambushed Federal Reserve chairman Ben Bernanke with questions about whether financial sector reforms would curb economic growth.

It’s almost beside the point whether Mr. Dimon’s arguments hold up (though there is evidence that some key ones do not). He is grandstanding for a different audience.

If Mr. Dimon can raise a general alarm among the U.S. populace using incendiary talk of anti-Americanism, he can use U.S. politics to sabotage implementation and supervision of Basel III. The last round of Basel reforms aimed at improving bank stability foundered in the United States, torpedoed by fighting between regulators, intervention from Congress and pressure from bankers seeking exemptions.

The fundamental trouble with Basel has always been that while the rules are agreed upon internationally, implementation and supervision are at a national level. Without buy-in back home, Basel doesn’t work. And without the United States, home to the world’s largest financial centre and the world’s largest economy, Basel III would be gutted.

“It’s part of the war of attrition, the banging on the door by bankers and the economists who support them, on how clamping down on the banking system is clamping down on the economy at large,” said Azad Ali, a London-based counsel in the financial institutions advisory and financial regulatory group at Shearman & Sterling LLP.

Indeed, there’s a sense among bankers in Washington for the meetings of the World Bank and International Monetary Fund that Mr. Dimon spoke for all of them when he stood up to Mr. Carney, and that the rules coming down the pipe are stifling banking and its role as a feeder of economic growth. The set-to is “symbolic of the mood here,” said one banker on the scene.

Mr. Dimon benefits from the complexity of the subject. He can toss around the idea that the requirements are anti-American with little fear of being challenged, because the rules are so convoluted. On some simple measures, though, he fails. As many have noted, of the banks that are likely to get the harshest capital treatment, the U.S. banks – including JPMorgan – are in the minority.

Another of Mr. Dimon’s objections defies logic. Many U.S. banks have businesses collecting interest and chasing late payments on mortgages that they don’t own, all for a fee. Mr. Dimon wants the value of that business counted in the top tier of capital, which is supposed to be reserved for assets such as Treasury bills that can be converted to cash quickly, at close to their face value, even in a market crash.

There’s no such liquid market for an asset as specialized as a mortgage servicing right, especially in a financial crisis. Even so, Basel III allows countries a free pass for such assets, up to a point, so the U.S. could count MSRs to a degree if it wanted to.

Such details are the micro level. On a macro level, Mr. Dimon is a believer that tighter regulation will stifle economic growth by causing banks to cut back on lending or to raise loan prices.

It’s a popular stance among bankers, but one that has hardly been proved. The research unit of the Bank of England’s external monetary policy committee concluded in a 2011 study that forcing banks to hold more capital will have little impact on borrowing costs. The price of a loan in the U.K. has averaged about one percentage point above the central bank rate for the past 100 or so years, even though for much of the time banks had much higher capital levels.

The organizations behind Basel have estimated Basel III’s capital requirements will shave only fractions of a percentage point off economic growth each year over the implementation. The benefit of not having as many financial crises far outweighs that, the Bank of Canada has argued.

However, Mr. Dimon, who famously believes that financial crises roll around every few years no matter what, can ignore that. All he has to do is create enough reasonable doubt to impede implementation of Basel III in the United States, and he will have won his battle.

I think Dimon at al have a case: Basel III is designed to punish the banks for the sins of the general public; it is scapegoating of the worst sort. That being said, a very, very large share of the global financial 'industry' is poorly managed and even more poorly regulated. Crafting a regulatory 'floor' is almost bound to punish the well managed in order to protect consumers from the poorly run banks. I suppose there is a chance that Dimon will succeed - he is well plugged in to the Obama administration - in turning the USA against Basel III which will be good for JP Morgan Chase but bad for the global financial sector because too many US banks do need to be better capitalized.

 

[Kirkhill]

I don't know how to run a bank; I don't even pretend to know. I couldn't, I am pretty sure, even run a small bank ... but the world? Oh, I could run that all right, and I can and, routinely, do tell you how to run it and even how to run puny little Canada - I could run that, too. But a bank? No, I think not.

ERC - you disappoint me.....

I, on the other hand have no trouble at all telling people how to run an army.    ;D

 

[Kirkhill]

Mr. Dimon, who famously believes that financial crises roll around every few years no matter what,

Right up there with:

the poor, like war, will always be with us;

everybody talks about the weather but nobody does anything about it;

7 fat years and 7 lean years......

Sometimes it is important to figure out how to prevent crises,  other times it is important to figure out how to reduce the impact of the crisis and I haven't got a clue as to how to figure out when you do which.  But some of these bright people purport to .... for a fee.  And some of them are right most of the time......

 

[Edward Campbell]

I suspect that Jamie Dimon is, at the very least, half right: financial crises are like the poor, always with us. That doesn't mean that we cannot or should not take steps to mitigate them and to militate their effects, as Carney, et al are trying to do, but they will come, come what may.

It is important to recall, also, that Carney was on Dimon's side in crafting Basel III. Sarkozy and the Europeans are hell bent on punishing the banks to pacify their voters; Carney, and Harper/Flaherty protested that our banks, and a few others, didn't need either the punishment or the (initially) proposed high levels of capitalization. Dimon is unhappy with the compromise Carney crafted - one which is, effectively, neutral for Canadian banks - but he is shooting at one of his few friends (non-enemies, at least).

 

[Kirkhill]

And if I understand the reports coming out of Britain via the popular press Cameron is looking for allies to protect the "City" while the Continentals are hellbent on reversing the historical error of Louis XV that drove the Huguenots over the water to Threadneedle Street.

I guess they still haven't grasped the fact the money, like water, will inevitably squirt out of your hands if you squeeze too tightly.

Stephen is playing for Fort MacMurray.  David is playing for Threadneedle Street.

Where David's predecessors had a weak hand when confronting the Continentals David has a stronger hand but needs allies.  Canada and Australia, together with BRIC, make an interesting counterpoise to Brussels.

 

[Edward Campbell]

Still more, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, about the Europeans foundering about trying to avoid paying the piper:

http://www.theglobeandmail.com/news/world/europe/will-the-tobin-tax-make-or-break-europe/article2182936/

Will the Tobin tax make or break Europe?

DOUG SAUNDERS

Globe and Mail Update
Published Wednesday, Sep. 28, 2011

It’s official: among the weapons Europe will try to deploy in its last-ditch effort to save its currency will be a “Robin Hood tax,” a miniscule fee on stock-market trades and other financial transactions.

That, at least, is was what José Manuel Barroso, the president of the European Commission, proposed in his “state of the union” speech to the European parliament on Wednesday morning. He was endorsing a draft directive issued by the Commission last week and strongly endorsed by the continent’s two largest economies, France and Germany.

It would, he claimed, raise 55-billion euros a year by skimming as little as 0.01 per cent from every financial transaction on European exchanges. This money would be used to finance the European Financial Stability Facility.

But the micro-tax, widely known as a Tobin Tax after its inventor, the economist James Tobin, is just as likely to divide Europe into deeper divisions and intractable feuds.

With the possibility of a Greek insolvency and a wider collapse of euro zone debt looming, Mr. Barroso and his colleagues are pulling out all the stops. He called for unity around a six-point plan, to be voted on by all the euro zone’s 17 parliaments this week, to boost the bailout fund to 440-billion euros in order to prevent the Greek collapse from causing a run on the debt of the far larger economies of Spain and Italy.

The European Tobin tax would be a small part of this. It has been endorsed strongly by the finance ministers of France and Germany, and the smaller economies on the continent are likely to back it. And Christine Lagarde, the former French finance minister who now heads the International Monetary Fund, is an outspoken advocate of such a tax. And software billionaire Bill Gates gave the tax his endorsement on Friday with a report suggesting it could aid international development.

But the elephant in the room is Britain, home to the highest volume of euro-denominated trading, whose current Conservative-Liberal government is firmly opposed to a transaction tax – as are the United States and Canada. When it was proposed at the Toronto G20 summit last year, it quickly sank. Last week Britain’s finance minister George Osborne suggested that Britain would veto the tax unless it was allowed an opt-out.

Without Anglo-American banking, the thinking goes, a Tobin tax would be pointless, because banks and traders would simply move their transactions to the tax-free side of the Channel and the Atlantic.

To forestall such a possibility, the European Central Bank is attempting to pass a policy requiring financial clearing houses that handle more than five per cent of the market in euro-denominated products to do their trading inside the 17-member euro zone (a great many are located in London). But this is unlikely to fly.

Would entire industries move abroad to avoid such a small tax? Well, many institutions nowadays depend on high-frequency trading, in which transactions are conducted more than 10,000 times per second: The fees would add up. Given that a huge chunk of international trading moved from New York to London in the 2000s as a result of Washington’s less burdensome Sarbanes-Oxley regulations, the risk of capital flight is real.

Or is it? As Financial Times columnist John Plender argues this morning, Britain already has a Tobin tax, the 1694 stamp duty, which has “signally failed to prevent London’s ascendancy in international finance.” And, he notes, it could cause banks to switch from speculative interbank high-speed transactions to more productive and useful longer-term investments in corporations and households.

Indeed, it is the British who have actually studied the workings of Tobin taxes the most. A major review of the implications released this year concluded that “a Tobin tax is feasible and, if appropriately designed, could make a significant contribution to revenue without causing major distortions. However,” the research report notes mordantly, “it would be unlikely to reduce market volatility and could even increase it.”

Now, I must admit that I am opposed to the Tobin Tax on principle: it presumes that trading is, somehow, inherently evil - the idle rich profiting, effortlessly, from the working poor and all that sort of nonsense. If we need to raise more money then it should come as directly as possible - the fewest middlemen - from the greatest possible number of people: a consumption tax a la our HST, but applied to absolutely everything, which would, de facto include stock trades.

John Plender, in the Financial Times makes a case for the Tobin Tax but he acknowledges that "business might migrate to more favourable tax jurisdictions outside the European Union" and "the tax would impair market efficiency and be passed on to financial institutions’ customers rather than being borne by banks."

But, mostly, this is Europe trying to avoid calling on its own people to pay their own bills - until they cross that Rubicon they are fiddling while Rome, Madrid, Lisbon and Athens all burn.

 

[a_majoor]

There are no more resources to throw at the problem. The issue is now what sort of controlled drawdown is possible, and if a reduced version of the Eurozone could survive after Greece and probably the rest of the PIIGS go down:

http://www.washingtontimes.com/news/2011/sep/28/eurozone-debt-debacle/

GHEI: Eurozone debt debacle
Government spending spree could bring down European Union

By Nita Ghei

The Washington Times

Wednesday, September 28, 2011

Germany’s finance minister wants no more advice from the United States. He called the Obama administration’s suggestion that the European Union needs to be ready to dole out trillions to bail out member nations a “stupid idea.” At least one country has learned the folly of attempting to spend one’s way out of debt. It hasn’t sunk in with others yet.

A team of inspectors from the EU, the International Monetary Fund and the European Central Bank return to Greece on Thursday to determine whether austerity reforms have satisfied conditions for the release of the next $11 billion in bailout spending. Just last week, Standard and Poor’s downgraded Italy, and the IMF issued a negative outlook for its economic growth. So far, downgrades have been handed out to Spain, Ireland, Greece, Portugal and Cyprus, though Greece is the only country so far to sink to the junk-level debt rating of CCC.

That precarious position reflects the urgency of the Greek problem for the EU. With a debt burden expected to reach 160 percent of gross domestic product (GDP) next year, coddled and heavily subsidized public workers have burst into violent protest at the mere suggestion of slowing down the gravy train. So $43 billion in cuts promised over three years in return for the first $23.7 billion bailout haven’t really happened. There are still 730,000 government employees for a population of 10.8 million, and public-sector enterprises haven’t been privatized. The latest attempt to raise revenues is a deeply unpopular property tax, which is currently expected to be levied for three years and raise about $2.7 billion.

Even if Greece endures deep austerity and inevitable recession, it will still have debt that will need repaying. Bailouts might ease the immediate cash crunch but they won’t address the long-term problem: Greece has more debt than it has capacity to repay. A new $157 billion bailout package will only increase the burden.

The German central bank has emphatically refused to consider the leveraged bailout option, but pressure is mounting. Even if the Greek debt riddle could be solved, that won’t save the eurozone. Italy is next in line with a 120 percent debt-to-GDP ratio. Italy was able to sell $19.6 billion worth of bonds last week but at a rate that exceeded any it had paid in the past. The rate for six-month bonds was 3.07 percent - compared to just 2.14 percent last month. That’s a big jump for a highly indebted country like Italy and will make it even harder for the government to repay its obligations.

Rome needs to get its house in order before it ends up like Athens. Given that the EU can barely find the resources to bail out a tiny nation, the failure of a major economy like Italy could bring down the eurozone. These are lessons to be heeded. If the United States doesn’t stop its own reckless government spending, we won’t be far behind.

Nita Ghei is a contributing Opinion writer for The Washington Times.

 

[Edward Campbell]

Here, in an article reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, is another example of a US Government agency proposing to (dishonestly) break their international agreements because they are uncompetitive:

http://www.theglobeandmail.com/news/national/us-mulls-major-levy-on-cargo-coming-from-bc-ports/article2188338/

U.S. mulls major levy on cargo coming from B.C. ports

JOHN IBBITSON
OTTAWA— From Monday's Globe and Mail

Published Monday, Oct. 03, 2011

A United States agency is considering a major new levy on cargo entering the Unites States from British Columbia ports, which could harm cross-border trade and impair Canadian efforts to capture more business from Asia.

Richard Lidinsky, the chairman of the U.S. Federal Maritime Commission, is looking at whether to “level the playing field” on the West Coast, where modern Canadian ports are taking container-cargo business away from their run-down American counterparts.

But the real intent “is not to level the playing field but to level the competition” Canadian Chamber of Commerce president Perrin Beatty warned in a letter sent Friday to International Trade Minister Ed Fast.

Word of the potential tariff is another blow to Beyond the Border, the major new border-cooperation agreement soon to be released by the American and Canadian governments, and comes on the heels of Buy American provisions contained in proposed new American stimulus legislation.

Mr. Lidinsky wants to investigate whether shippers are diverting cargo to Vancouver and Prince Rupert to avoid paying a Harbour Maintenance Tax that the Americans impose on containers offloaded at U.S. ports. The tax has been estimated to cost shippers an average $143 a container.

He also wonders whether containers entering Canada are subject to the same level of security screening, and whether Canadian railroads receive government subsidies not available to their American counterparts.

If the investigation leads “to improvements to U.S. ports and policies, the commerce and the economies of both our great nations will benefit,” Mr. Lidinsky said in a speech in Montreal last week.

He is not alone in his concerns. Washington senators Patty Murray and Maria Cantwell, both Democrats, are pushing for the review. The West Coast Collaborative – which represents U.S. West-Coast ports and rail lines – is calling for an end to the “loophole that unfairly creates a competitive advantage for Canadian and Mexican ports.”

The association wants containers entering the United States by land from Canadian ports to be charged the equivalent of the Harbour Maintenance Tax, with the revenues used to upgrade American ports.

Canada disagrees. “In this fragile economic recovery, we think the consideration of any new taxes or restrictions is a bad idea,” Adam Taylor, spokesman for International Trade Minister Ed Fast, said in a statement Sunday. Mr. Fast is in Indonesia.

The Canadian government is “monitoring developments closely,” Mr. Taylor said.

Robin Silvester, president of Port Metro Vancouver, said in an interview that “provided the debate remains rational and objective, there fundamentally is no issue” of unfair subsidies.

At root is the success of the Asia-Pacific Gateway and Corridor Initiative. Canadian governments at all levels have invested $3.5-billion in modernizing the ports at Prince Rupert and Vancouver, and in related road, rail and border infrastructure.

But although B.C.’s share of West-Coast container traffic bound for the U.S. has doubled over the past five years, said Mr. Silvester, that figure has gone from 1 per cent to 2 per cent.

“If you double a very small number you still have a very small number,” he observed.

As for the proposition that Canadian railways are unfairly subsidized, Canadian National “rejects as unfounded any suggestion that it is subsidizing rates for ocean carriers,” the company said in a statement.

Both the threat of a tariff and the Buy America plan are badly timed, as the Beyond the Border action plan seeks to more closely integrate continental security and cross-border trade.

The Federal Maritime Commission will discuss the matter in Washington, D.C. Wednesday.

This is not new, and it is not unique to Obama or even Democrat administrations. The doctrine of American exceptionalism gives them, the US Congress and Government, the right to lie, cheat and steal if it advances their short term interests.

I am not one to count the Americans out, but they are down and they are unwilling to pull themselves up by their own bootstraps. There are parallels to Rome circa 150  to 450 CE and to Britain in 1850-1950, but America remains rich and powerful - especially in human capital.

 

[Edward Campbell]

There is much excitement in the media, today over Nancy Pelozi’s distaste for fossil fuels and, more broadly, for the Obama administration’s distaste for foreign oil but it is all smoke and mirrors.

First, only Saskatchewan Premier Brad Wall is is making economic sense. Oil is a fungible commodity, no one cares who buys it. The simple fact (and it is a fact) is that every drop of oil produced, economically, anywhere will be sold at market prices – so long as a profit can be made. The demand for oil will not decline – even if the rate of growth of demand might grow less rapidly as (if) suitable alternative fuels become available. If America prefers Saudi or Venezuelan oil to Canadian oil you may be 100% sure that China will not.

It is better best necessary for us, Canadians, to protect, even enhance, our natural environment while we extract oil and it is right, proper and fair that those (e.g. me, a shareholder in several energy companies, included) pay to cleanup the messes ‘our’ companies make. (You are probably a shareholder/owner too – through a mutual fund or your Canada Pension Plan contributions.)  But that doesn’t alter the fact that we need to extract and produce oil, now, for our own use and for the export market.

We, Canada, as a matter of national policy, can decide to not allow our oil to go to the open market, if we are willing to forgo the jobs and tax revenue and so on. We should not do that – there is a global market for oil, of all sorts, and we are a major producer/exporter and there are few, if any, consumers/importers about whom we should worry.

More on Canadian energy and world markets in this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/kitimat-bc-ground-zero-in-the-race-to-fuel-asia/article2195213/

Kitimat, B.C.: Ground zero in the race to fuel Asia

DAVID EBNER AND  NATHAN VANDERKLIPPE
KITIMAT, B.C., CALGARY— From Saturday's Globe and Mail

Published Saturday, Oct. 08, 2011

Two kilometres beyond an old logging road, workers are building the foundation of the future of Canada’s ailing natural gas business.

Since the summer, crews have blasted the hard rock at Bish Cove on the Douglas Channel, the deepest and widest fjord on the rugged north coast of British Columbia. More than 40,000 cubic metres have already been excavated to reform the land, in preparation for a $5-billion-plus project that would for the first time ship Canadian natural gas to buyers in Asia.

Workers clear the land at the Kitimat LNG site on the Douglas Channel, which leads out to the Pacific Ocean. Natural gas will be delivered via a pipeline and then loaded onto ships headed for Asia.
John Lehmann/The Globe and Mail

The earth-churning work at Bish Cove is a demarcation point in the history of the Canadian energy business. For the country’s natural gas producers, a door to Asia is a desperately needed lifeline. The industry has been battered by the emergence of abundant shale gas in the United States. Prices and profits have collapsed, and shipments to the U.S., Canada’s only export customer, have been halved. Without an export route to Asia, there is a risk that the major discoveries of shale gas in British Columbia, as well as reserves in Alberta, will be left in the ground.

There is urgency: Serious competition looms on the other side of the world in Australia, where there are some $200-billion of plans to build numerous plants that would triple exports to the same customers Canada is courting. But Canada has an advantage. Shipping times from Kitimat to buyers in Japan, South Korea and northern China are shorter, providing savings on transportation costs, industry officials say.

At a time when battles over environmental concerns threaten to slow down or derail major Canadian oil sands export projects such as TransCanada’s Keystone XL pipeline and Enbridge’s Northern Gateway pipeline, the vision to ship liquefied natural gas to Asia is quietly speeding toward reality.

The gas export plan could mean higher domestic energy prices for residential and industrial customers in the future and would crank up Canada’s greenhouse gas emissions. Yet there has been barely a ripple of protest and nobody risking arrest on Parliament Hill or on the doorstep of the White House.

In fact, the idea enjoys broad support, from politicians of all stripes to the local first nation and other aboriginal groups along a pipeline route that would bring the gas to Kitimat on the B.C. coast, where it would set out for Asia.

The Kitimat LNG project is a three-way joint venture between U.S. energy companies Apache Corp. (APA-N84.84-1.39-1.61%)and EOG Resources Inc. (EOG-N74.90-3.64-4.63%), along with Canadian gas giant Encana Corp. (ECA-T19.71-0.94-4.55%)They are expecting to receive a crucial export permit from the National Energy Board within days. A decision to proceed is expected by early next year. Gas could be on ships by 2015.

A green light for the Kitimat LNG project could see the rapid establishment of a regional export hub, one that major global energy players are keen to join. By the end of this decade, three billion cubic feet a day of gas could flow through Kitimat – equal to all of B.C.’s current production and close to 20 per cent of Canada’s current output.

“This is huge. We embrace it. A lot of people are working,” says Ellis Ross, chief councillor of the Haisla Nation in Kitimaat Village across the channel from Bish Cove. “It’s going to be life-changing for us.”

The coming global LNG shortage

Exports of Canadian gas to the U.S. began in earnest in the late 1950s, after the completion of the Trans-Canada Mainline, but by 1970 growth plateaued and was flat through the mid-1980s. After deregulation under Brian Mulroney, the industry boomed and exports to the U.S. quintupled by the early 2000s, bringing vast wealth to Calgary. Indeed, despite oil’s higher profile, gas has long been Alberta’s economic bedrock. It has also bolstered Ottawa’s coffers.

Amid high natural gas prices during the past decade and uncertain future supply, experts throughout the gas industry were convinced the U.S. needed terminals to import gas and several multibillion-dollar facilities were built. They now sit mostly idle. One struggling importer, Cheniere Energy Inc. on the Gulf Coast in Louisiana, received approval in May to export gas, which it hopes to do by 2015.

Underlying the gamble Apache, EOG and Encana are making on LNG are the major positions those companies hold in the Horn River shale gas play in remote northeastern B.C. The resource is among the most promising in North America but remains stymied by its distance from U.S. markets and broad weakness in gas markets, which has already forced Encana to pull back on drilling this year. The company this week said it will drill fewer wells in 2012, even though it’s been tapping huge pools of gas.

As it increasingly draws from prolific domestic natural gas reserves, the U.S. is meeting more and more of its own gas needs, and some speculate that the country will eventually not need any gas at all from Canada. But in Asia the need is great, and the strong demand means prices are much higher.

“Tens of millions dollars are being forfeited each day,” economist Peter Tertzakian of ARC Financial said in a recent report. “Canadians are leaving a lot of coin on the table. ... It is disconcerting that it has taken a steep loss in sales to begin acting on market diversification but at least the industry buzz is now all about tapping into a new era of growth.”

A slowdown in the nuclear industry after Japan’s disaster this year has added to the need for more gas in Asia. Buoyed by the region, global demand is predicted to double in the next decade, according to independent research firm Sanford C. Bernstein & Co. It expects the excess of LNG to decline and sees demand sopping up all available gas by 2020.

“While a year ago some market commentators talked of the global glut of LNG, we believe the focus for investors should be on the impending global LNG shortage,” analyst Neil Beveridge of Bernstein said in a recent report.

Royal Dutch Shell PLC (RDS.A-N63.900.620.98%), which is pushing gas over oil around the world, feels the pressure to move quickly, too. In 2008, at the top of the continental gas market, it overpaid in its $5-billion purchase of Duvernay Oil, which has large holdings in the Montney shale play in northeastern B.C. The company, chatter in Kitimat suggests, may soon unveil its own LNG plans.

Lorraine Mitchelmore, Shell Canada president, is coy. She concedes that without LNG, the gas Shell bought from Duvernay could be “stranded.” She points to growth in Asian demand, triple the rate of other importing regions, and cites the need to move quickly, noting the competing supply in Australia. Shell is among the players there, moving forward on a floating LNG terminal, which would be the world’s largest ship.

“For [Shell Canada], it’s about Asia. We’re sitting on the doorstep of a great market,” Ms. Mitchelmore said in an interview in Vancouver. “It’s an obvious market for Western Canada gas.”

Apart from its abundant supply, Canada has another advantage. LNG tankers burn some of their product to keep the liquefied gas supercooled at -160 C while in transit. Because of this, the quickest path across the globe is also the cheapest – and ships sailing from Kitimat can get to key Asian markets faster than competitors in Australia and Middle Eastern gas exporters like Qatar, the world’s No 1 in LNG.

“We’ve got it hands down. We’ve got a lot shorter transport time,” Tim Wall, the president of Apache Canada, said in an interview in Calgary. “We can deliver to markets cheaper.”

Apache’s decision to invest in LNG in Canada came after it took a minority stake in Wheatstone LNG, which was approved in September. It’s a giant Chevron Corp. project under construction in Australia. The scale of Wheatstone – $30-billion for everything from gas field development to the LNG plant – speaks to the scope of Canada’s competition. The first gas is to hit the oceans in 2016.

Apache has never built an LNG plant but its Wheatstone position has paid dividends in Kitimat. The company already has marketing teams based in Australia and they have begun the work of selling Canadian gas. Apache has inked deals with two major Japanese power producers and its consortium for Kitimat LNG is in talks with six customers.

The efforts make clear the economic underpinnings for exporting LNG. Sales contracts will span a full 20 years – several lifetimes in the natural gas business – and they bear no relationship to the North American supply and demand dynamics that have so thoroughly depressed prices on this continent. They are instead tied to the price of oil, which has been far stronger in recent years.

That’s not to say a LNG plant will rain profit. Apache initially pegged the Kitimat LNG price at $4.7-billion, with hundreds of millions already spent by the end of this year. But Mr. Wall acknowledges that detailed engineering under way will drive that price up – it’s not clear how much – and suggests margins may be slim.

“There is an economic case,” he says. “But it’s a huge investment – and the payout is going to be somewhat longer. You’re trying to open up markets. There’s a huge prize for Canada, to become a major supplier of energy across the world.”

Competition also looms. Tom Tatham, who runs BC LNG Export Co-operative LLC, has established a 50-50 deal with the Haisla and is proposing a mini-LNG plant. The idea, which would be a world first, is to build a LNG facility on a barge and float it to Kitimat before setting it down against the shore. First gas is targeted to move in 2014.

Widespread support

After the Second World War, the B.C. government wanted to stoke development in the province’s wild and vast northwest. It brought in what is now Rio Tinto Alcan to look at potential hydroelectricity to fuel what became the world’s largest smelter. Kitimat was carved from the wilderness to house workers and the remote town was the Fort McMurray of its time, with some of the highest wages in Canada. “A huge number of men came to work in the pot lines and make a fortune,” says Kieran Leblanc, who was one of the first children born in town, in a makeshift hospital.

For the people of B.C.’s North Coast, the idea of exporting natural gas is not new. In March of 1982, Dome Petroleum signed an agreement to sell liquefied gas to a Japanese company. The company set out to build a major export port just north of Prince Rupert, but the project died when Dome crumpled under a huge debt load. Those who worked on the Dome dream always held hope that, one day, such a project would get built.

“Is now the time? Well, it’s probably closer to the time than when we were doing it,” said J.R. Van Der Linden, who led the LNG project for Dome. He kept a picture of its design on his home wall for nearly two decades, only recently taken down to make room for pictures of grandchildren.

Electrical power will be a big question for Kitimat. Existing BC Hydro infrastructure is inadequate, especially if Shell follows Apache. A third serious name is also looking at Kitimat – Malaysia’s state-owned Petronas, a top LNG exporter. This year Petronas paid $1.1-billion for a 50-per-cent stake in Montney shale gas fields in northeastern B.C. that are controlled by Calgary-based Progress Energy Resources Corp.

Pipelines are yet another issue. To feed gas to Kitimat LNG, a $1-billion, 465-kilometre pipeline, Pacific Trails, is required to link to existing pipelines near Prince George in the province’s northeast, the home of the gas. Owned by the Apache-EOG-Encana venture, it would traverse a route roughly similar to the proposed Northern Gateway oil sands pipeline, which is vehemently opposed by almost every single first nation along its sketched path.

But for gas, first nations have taken a pragmatic position. Fifteen first nations, using $35-million provided by the province, will take an equity stake and are set to receive roughly $550-million over 25 years from the pipeline profits, an average of $1.5-million annually for each nation.

“It’s not the default position of first nations to oppose,” said David Luggi, chief of the Carrier Sekani Tribal Council. “We want to participate in the economy but there are limits. Oil will spill. It’ll end up on the water, whether on the coast, or our rivers, our lakes. I’m not saying gas is completely safe but it won’t pollute like oil would.”

There are hints support could be fragile. Around the northeast BC gas fields, some concerns among first nations have percolated. The fear is controversial fracturing technology – the explosive technique that unleashes shale gas below ground. It has sparked wide public concern and has led to temporary development halts, from France to Quebec and New York state. Any shift in B.C.’s openness to shale gas could have severe consequences for LNG plans.

“We’re certainly not going to promote something that’s harming any of our neighbours,” says Art Sterritt, director of Coastal First Nations, an alliance of groups on the B.C. coast.

For now, however, the support for gas drilling and exports is expansive. Nathan Cullen, NDP MP for the Kitimat region and a leadership candidate to succeed Jack Layton, backs LNG, as does John Horgan, an MLA on Vancouver Island and provincial NDP energy critic.

“The geology’s night and day. We’re drilling three kilometres in to the ground before we’re doing the fracking,” Mr. Horgan said. He’s concerned about water use but his greater worry is global competition. “We need to get going,” Mr. Horgan said. “We’re not the only people who are awash in gas.”

Kitimat was whipped by the global recession. Rio Tinto Alcan halted a $2.5-billion modernization of its smelter and West Fraser Timber, the country’s largest forestry company, shuttered an aging pulp and paper in early 2010. Thom Meier, general manager at 101 Industries Ltd., remembers when a hydroelectric expansion was suddenly halted in the 1990s. A four-line fax bore the news. “ ‘Cease all operations,’ ” Mr. Meier said. “We know the tap can turn off quickly.”

But these days, a burgeoning confidence pervades the town. 101 Industries recently built an aluminum dock that floats on the water at Bish Cove, where workers disembark to ready the gas export site.

With the Kitimat LNG project on the doorstep, and Alcan’s modernization now moving ahead, Kitimat’s three-decade decline could radically reverse. If Shell joins the action, the region could see its population of about 7,000 double as workers arrive to build the facilities.

Joanne Monaghan, the mayor, jokes that her mantle has become “mayor of boom” – a welcome change from “mayor of doom.”

“When I came 40 years ago, I said, ‘This is a giant that will some day wake.’ It’s waking.”

While the USA is and should remain our preferred market for oil and gas it must never be allowed to be our only market - diverse, global markets ensure we can, always, get the best price for our resources. It is in our interest, broadly, to help the USA ensure a stable and 'friendly' energy supply, at world prices. the only way we can demand world prices is to have a world-wide customer base. This gas port and the new Northern Gateway pipeline are good public policy.

 

[Edward Campbell]

More on Canadian energy and world markets in this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/kitimat-bc-ground-zero-in-the-race-to-fuel-asia/article2195213/

While the USA is and should remain our preferred market for oil and gas it must never be allowed to be our only market - diverse, global markets ensure we can, always, get the best price for our resources. It is in our interest, broadly, to help the USA ensure a stable and 'friendly' energy supply, at world prices. the only way we can demand world prices is to have a world-wide customer base. This gas port and the new Northern Gateway pipeline are good public policy.

And more, still, in this article, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/sinopec-bids-22-billion-for-alberta-energy-company/article2196041/

Sinopec bids $2.2-billion for Alberta energy company

NATHAN VANDERKLIPPE
CALGARY— Globe and Mail Update

Published Sunday, Oct. 09, 2011

Chinese energy giant Sinopec International Petroleum Exploration is testing the waters on a bold new energy strategy in Canada, as it moves to buy out an Alberta oil and gas company for $2.2-billion in cash.

Sinopec’s bid for Daylight Energy Ltd., whose large portfolio of Alberta and British Columbia land contains potentially significant quantities of natural gas, comes amid a new push by Asian firms to lock up Canadian energy that could soon be loaded onto tankers and shipped across the Pacific.

But the Daylight deal marks a departure from previous Chinese acquisitions, which have been carried out with a deliberately soft touch, fashioned to avoid a nationalistic backlash by buying only small portions of other companies, or scooping up troubled firms.

Now, however, Sinopec is cementing a new trend that has seen Asian entities seek greater control in their North American investments. In buying Daylight, Sinopec is assuming a newly confident stance in Canada, where it has operated since 2005.

“This is breaking new ground,” said Wenran Jiang, an expert on Asian energy investments in Canada who holds a research chair at the University of Alberta's China Institute.

Sinopec must still win over Daylight shareholders, who will receive $10.08 a share, more than double Daylight’s $4.59 Friday closing price. The company also needs to secure the approval of Canadian federal authorities. Under the Investment Canada Act, all direct foreign acquisitions over a set amount – the threshold was $299-million in 2010 – trigger a review by the Minister of Industry, who has 45 days to determine whether or not to allow the investment.

If it succeeds, Sinopec will have opened an important door to expanding Chinese activity in a country whose resources and stability are increasingly coveted by foreign powers.

“The message here for the Canadian oil industry is that China has a good appetite, China is willing to invest in a wide range of our energy sectors,” Mr. Jiang said.

The Daylight deal is not the first outright takeover of a Canadian company. Earlier this year, CNOOC Ltd. agreed to take over OPTI Canada Inc., and Sichuan Bohong Industry Co. moved to buy car parts maker Wescast Industries Inc. But in both of those cases, the Canadian entities were struggling financially. In the case of OPTI, the company’s principal asset was a minority stake in a large oil sands project. In another buyout, the $2-billion purchase of Tanganyika Oil Co Ltd, Sinopec acquired a company whose assets lay outside of Canada.

The Daylight deal is far different, and comes amid a broader trend that has seen Chinese firms turn away from the oil sands, with their enormous costs and environmental risks, and toward so-called “conventional” oil and gas purchases.

The advent of potent, though costly, new drilling techniques has also saddled Canadian companies with more natural gas opportunities than they can finance. Daylight, which has struggled against debt worries and whose executives declined comment, has enough land to drill 100 wells a year for more than two decades. Sinopec brings an enormous wallet to pay for the kind of rapid drilling pace that could double or triple the size of Daylight’s 38,000 barrel-a-day current output, roughly two-thirds of which is gas.

And gas has proven even more attractive as it becomes increasingly clear it will be the first energy product that Canada regularly exports to Asia. One liquefied natural gas export project backed by two U.S. firms and Canadian gas giant Encana Corp. has already begun clearing land for construction near Kitimat, B.C.

“Kitimat LNG is a huge eye-opener for anyone that’s got a vision of five years or more in Canada,” said Rob Lauzon, senior portfolio manager with Middlefield Capital Corp., one of Daylight’s largest owners. He supports the Sinopec purchase.

“They’re not buying Daylight for what’s happening in the next six months. They’re buying Daylight for their five and 10-year plan.”

One key point is in the last sentence: "They’re buying Daylight for their five and 10-year plan.” The Chinese business community does not worry as much as their Western counterparts about  quarter-by-quarter results. They can make plans and investments to accomplish their planning goals - a failure to grow each and every quarter will not lower the company's value.

 

[Nemo888]

Perhaps in a decade or so when the Chinese are raping our wilderness for fossil fuels and paying us pennies we will have to nationalize. It's entertaining when a competitor learns your tricks and starts using them against you.

 

[Edward Campbell]

Perhaps in a decade or so when the Chinese are raping our wilderness for fossil fuels and paying us pennies we will have to nationalize. It's entertaining when a competitor learns your tricks and starts using them against you.

If the Chinese will, at some future date, be "raping our wilderness for fossil fuels and paying us pennies" it will be because we are lousy custodians of our resources and our business laws now.

 

[Kirkhill]

If the Chinese will, at some future date, be "raping our wilderness for fossil fuels and paying us pennies" it will be because we are lousy custodians of our resources and our business laws now.

The best defense against that particular Chinese threat is threefold:

1. Secure our native land claim situation so as to deny any "foreigner" a fulcrum on which they can apply leverage to disrupt Her Majesty's / Ottawa's / Provincial sovereign claims;

2. Maintain a useful custodial presence of Police and Military forces to be able to assert suzerainty, maintain order and repel foreign influence;

3. And most importantly, supply the resources to the rest of the world on our terms but at a reasonable market price so that they don't feel the need to have to come here and take it because we are denying them a life-sustaining resource.

Energy is a life-sustaining resource every bit as much as water and perhaps more important than food.  With energy you can create food.

 

[a_majoor]

Bondholders getting a haircut of up to 60% isn't a good sign, butmay be the wave of the future as heavily indebted polities try to escape the crushing burden (PIIGS, Ontario and Quebec, the "Blue States" are all likely to consider this route):

CHANGE: Greek Debt Haircut Seen Exceeding 60%. “Greece’s bondholders may have to settle for a cut of more than 60 percent in what Athens owes them, the head of the eurozone’s finance ministers has said, the first open admission that such a drastic move is being considered.”

This line seems to have been redacted from the version on line now...

http://finance.yahoo.com/news/Greek-debt-haircut-seen-apf-3570563102.html?x=0&sec=topStories&pos=main&asset=&ccode=

Greece likely to get bailout loans after review
Debt inspectors complete review, say payout of next bailout tranche likely in early November

Elena Becatoros, Associated Press, On Tuesday October 11, 2011, 10:15 am
ATHENS, Greece (AP) -- Greece is likely to receive the next batch of its bailout loans in early November, international debt inspectors said Tuesday, if the eurozone and IMF approve the conclusions of the financial review they have completed.

The inspectors, however, said Greece's deficit targets for 2011 were "no longer within reach," and that while new austerity measures for 2012 were adequate, more was needed for the years 2013-14.

The report by the officials from the International Monetary Fund, European Commission and European Central Bank, collectively known as the troika, potentially averts a bankruptcy looming over Greece.

But their call for new measures reinforces the view that Europe's strategy in getting Athens out of its debt hole is not working as hoped and that an alternative approach is needed.

"Greece has missed the bus, yet again," said Vangelis Agapitos, an independent economist in Athens. The "troika is fulfilling its obligations and Greece, for one more time, is missing its targets on privatizations, on cutting the deficit, on doing the steps necessary to bring the economy into a competitive and efficient mode."

Greece has been dependent since May last year on a euro110 billion ($150 billion) bailout package from other eurozone countries and the IMF. Without the next euro8 billion loan installment, the country has said it would run out of funds to pay salaries and pensions in mid-November.

To qualify for the funds, the government has pledged reforms aiming to slash its deficit and overhaul the economy. But it has frequently missed its targets, forcing it to pile on ever more austerity measures such as increased taxes and cuts to public sector salaries and pensions.

That has led to frequent strikes and protests -- on Tuesday, protesters took over several state buildings, including the Interior Ministry and the country's General Accounting Office. A strike by municipal workers has left piles of garbage on Athens' streets, while motorists formed long lines at gas stations after workers at a main refinery went on strike.

Outside parliament, as lawmakers began debating legislation for the latest austerity reforms, hundreds of local government workers blocked traffic at the main entrance, blowing whistles and chanting anti-government slogans.

"We believe that voting this bill bolster the country ... We have 10 days in front of us for the bill to be passed," Venizelos said during a financial committee meeting in the legislature.

The troika suspended its review in early September due to delays, returning to Athens about two weeks ago to complete their inspection. Their findings must now be approved by the other eurozone countries and the board of the IMF before Greece can receive the next loan installment. The troika said that would be "most likely in early November."

The acrimony accompanying the mission, and the fact that more corrections of Greece's austerity program are needed even after Athens passed new measures this summer -- underline that the eurozone may be realizing that its handling of the country's problems need to be reassessed.

The payout of the next loan installment is also tied to a second rescue package for Greece agreed on July 21, which will likely see steep losses for banks holding the country's bonds to make the its massive debts sustainable.

Eurozone leaders hope to agree on a comprehensive crisis strategy at their summit on Oct. 23, which will see a new funding package for Greece, a plan to make Europe's banks fit to sustain losses on bonds and a boost in the currency union's bailout fund, so it can stop the crisis from spreading to larger economies. The president of the EU's executive arm says he will unveil proposals on how to make European banks fit enough to sustain the worsening debt crisis on Wednesday.

The troika said Greek authorities "continue to make important progress, notably with regard to fiscal consolidation," but more was needed.

"To ensure a further reduction in the deficit in a socially acceptable manner and to set the stage for a recovery to take hold, it is essential that the authorities put more emphasis on structural reforms in the public sector and the economy more broadly," it said in a joint statement.

Mired in a deeper-than-expected recession, Greece's economy is now only expected to recover from 2013 onwards, the debt inspectors noted.

"There is no evidence yet of improvement in investor sentiment and the related increase in investments, in part because the reform momentum has not gained the critical mass necessary to begin transforming the investment climate," it said, though it noted exports were rebounding.

The inspectors said the government had achieved a "major reduction" in the deficit despite the recession. However, it said, "the achievement of the fiscal target for 2011 is no longer within reach, partly because of a further drop in GDP, but also because of slippages in the implementation of some of the agreed measures."

Additional measures the government recently announced -- which include extra taxes and suspending about 30,000 civil servants on partial pay -- "should be sufficient to bring the fiscal program back on track and ensure that the deficit target of euro14.9 billion will be met."

The troika said delays in a privatization plan combined with worse market conditions would lead to significantly lower-than-expected revenue this year, but that the government was still committed to raising euro35 billion through privatizations by the end of 2014.

Gabriele Steinhauser in Brussels and Derek Gatopoulos and Theodora Tongas in Athens contributed to this report.

 

[Edward Campbell]

The bond market, bless its cold, little heart, is doing what it is meant to do - giving Greece (and a few others that will follow suit) a route to getting its house in order. No need to feel sorry for the bond holders who will take the "haircuts" - they knew the risk going in; the bond market is 100% honest: higher risk = higher yields; lower risk = lower yields; you want the high yields you accept the risk and the occasional haircut that goes with it.


Move along, nothing to see here ... :nevermind:

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail is a clear, concise, simple and, in my opinion accurate assessment of what's wrong:

http://www.theglobeandmail.com/news/opinions/opinion/lets-not-make-a-sloggy-recovery-even-sloggier/article2197629/

Let’s not make a ‘sloggy’ recovery even sloggier

KEVIN LYNCH
From Wednesday's Globe and Mail

Published Wednesday, Oct. 12, 2011

The recent meetings of the International Monetary Fund were held against the backdrop of continued tumult among economies and markets around the world. They again validated two basic truths. First, political leaders should not raise expectations about a cohesive plan in a volatile environment, and then demonstrate neither cohesiveness nor a plan. Expectations are best calibrated to be overachieved, not dashed. Second, the dynamic of putting a thousand nervous bankers together after a depressing week in financial markets, bombarded by downbeat views of what may happen next, does not yield group optimism.

Reflecting the worrisome economic tone, the IMF has marked down its outlook for global growth in 2011 and 2012, and marked up its risk weighting for this weaker outlook. Notably – absent an uncontained Greek default – the “most likely” forecast for the industrial countries is a period of long, slow and volatile growth … a “sloggy” recovery. But the weaker outlook is a developed-country phenomenon, as the dynamic emerging economies are expected to remain dynamic. A two-speed world is becoming entrenched as part of the new global normal.

Meanwhile, with a debt-to-GDP ratio of 150 per cent, and an emerging combination of weak growth and austerity slippage, the Greek fiscal numbers just don’t add up. While bankers talked privately about the need for discounts of as much as 70 per cent, European leaders still cling grimly to their ability to avoid a Greek default. The problem, as one commentator at the Washington meetings put it so succinctly, is that “Greece is illiquid, insolvent and uncompetitive, and there is no credible plan for Greece.”

The proposition that the United States may be heading for a Japanese-style “lost decade” generated a lot of non-conclusive but animated discussions. Proponents of this view point to the “balance sheet” nature of the U.S. recession, and the need to work out of a large stock of housing that Americans cannot afford, and to deleverage an overleveraged financial-services sector and household sector. But opponents of this view stress that the U.S. is not Japan, particularly in the incredible flexibility and innovation of its private sector. Where views converged is the worry that lack of leadership, the absence of a credible fiscal plan and the risk of policies that frustrate private-sector flexibility could so dampen confidence that the natural resiliency of private-sector investment and entrepreneurship would be constrained and the long, slow and sloggy recovery become longer, slower and sloggier.

To put this in context, we are moving from a financial crisis to an economic crisis to today’s fiscal crisis. The great risk is that this could become a crisis of competency and confidence in leadership. European leadership is in denial on the seriousness of their fiscal problem and the timeline for addressing it; American leadership is in denial that their fiscal problem needs to be addressed before the next election or that compromise is needed in how to address it.

In the face of a crisis, political leaders are expected to lead, and a common refrain around Washington was a palpable absence of leadership. The public and markets are desperately seeking a credible plan. Simply put, European leaders need to build a ring fence around their banking system to prevent contagion in the event of a Greek default; the U.S. must revisit the realistic and pragmatic fiscal proposals in the National Commission on Fiscal Responsibility and Reform; and the G20 has to demonstrate that despite differing national circumstances, it can act for the common global good.

Kevin Lynch is vice-chair of BMO Financial Group.

A simple statement of our problems:

1. "We are moving from a financial crisis to an economic crisis to today’s fiscal crisis";

2.  "The great risk is that this could become a crisis of competency and confidence in leadership";

3. "European leadership is in denial on the seriousness of their fiscal problem and the timeline for addressing it";

4. "American leadership is in denial that their fiscal problem needs to be addressed before the next election";

5. American leadership denies "that compromise is needed in how to address it."


An equally simple solution:

1. Competent political leadership in Europe; and

2. Competent political leadership in America.

 

                            Incompetent European leadership                                                                                      Incompetent American leadership


                                         

                                                              And more heat than light from these people, and other GOP contenders, too


             

                                 

                            No hope here, either                                                                                                  Some, small hope?                                   

 

[Edward Campbell]

OK, maybe this is Canada's effect on the US/World's economy, but here, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail and without further comment from me (a refreshing change for some of you) is Prime Minister Stephen Harper's open letter to the G20:

http://www.theglobeandmail.com/news/opinions/opinion/its-time-for-europe-and-the-g20-to-act-decisively/article2199074/

It’s time for Europe and the G20 to act decisively

STEPHEN HARPER
From Thursday's Globe and Mail

Published Thursday, Oct. 13, 2011

In the fall of 2008, the world was confronted with the worst global economic crisis since the Great Depression of the 1930s – and the world came together to overcome it. Strong and co-ordinated actions restarted an international financial system that had seized up and put the global economy on a fragile road to recovery.

Events in the summer of 2011 have made it clear that global economic challenges are by no means behind us. What started as a sovereign debt crisis in smaller countries in Europe has now spread, causing extreme stress in the European financial sector and threatening global growth. Unfortunately, this time, the policy response to our shared challenges has not been as strong and co-ordinated as it needs to be. This slow response has resulted in missed opportunities, with each missed opportunity increasing the cost and difficulty of resolving the crisis.

We cannot afford any more missed opportunities.

To be clear, this crisis could have been contained. Instead, it grew. The good news is that this crisis can still be contained and reversed. The bad news is that, unless decisive action is urgently taken, our nations will once again be forced to respond to a full-blown global recession, albeit this time without the full arsenal of policy weapons at our disposal.

Both Europe and the G20 have important roles to play in restoring market confidence and protecting the fragile global recovery.

In Canada’s view, Europe must:

• Take immediate and decisive action to resolve sovereign debt and banking system issues. This action must be sufficient to overwhelm the problem and restore markets’ confidence.

• Carry out commitments to increase the flexibility of the European Financial Stability Facility and to maximize its impact as quickly as possible.

• Implement plans for debt and deficit reduction that are clear and credible.

At the same time, the G20 has a role to play through:

• Development of the Global Framework for Strong, Sustainable and Balanced Growth.

• Clear and concrete medium-term debt and deficit reduction plans – the commitments G20 nations made in Toronto last year – to put public finances on a credible and sustainable track.

• Meaningful action to increase exchange-rate flexibility.

• An unequivocal commitment to the full and timely implementation of the financial-sector reform agenda agreed to in previous summits.

• A continued commitment to resist trade protectionist measures, and to open trade and investment by advancing the multilateral trade agenda.

The choices that must be made in Europe and elsewhere are not easy. Yet, if not made, we will do a great disservice to all nations. A slow response to the recent crisis has allowed it to spread, but political will, decisiveness and a clear plan can resolve it, if we act now.

In Canada, our government has taken these challenges seriously. We have backed our words with strong action. We have a prudent, medium-term plan to return our budget to balance and protect our strong public finances. We will meet G20 deficit and debt targets well ahead of schedule. Yet, we also are implementing a pro-jobs and growth agenda that is focused on promoting investment, hiring and the retention of workers affected by the global economic downturn. In short, we have sought to strike the right balance between supporting jobs and growth, and reducing our deficit in a responsible manner.

While the efforts made so far by the G20 are significant, more action by some is needed. Only with a clear plan will the citizens of countries in crisis accept the painful compromises they are being asked to make for their nations’ future well-being.

Our challenges are great, but our will to overcome them is greater. Three years ago, we sent a clear signal to the world that the G20 was ready and willing to take the strong actions necessary to maintain future growth and stability for all. We must demonstrate that we are capable of doing so again.

Stephen Harper is Prime Minister of Canada.