The Long Crisis - Thoughts on Our Brave New World

Trillions of Euros of Freshly Minted Money Needed to Save the Eurozone

travelwell — Mon, 14 May 2012 00:50:23 +0000

Once again Greece is having difficulty in forming a government. The people have had it with austerity measures and seem to be ready for anarchy. However, Greece’s problems pale compared to Spain, whose economy is not too big to fail but is too big to bail out. The euro zone has severe debt problems that will need trillions of euros of freshly minted money to save it.

European Central Bank May Not be Able to Contain Euro Zone Debt Problem

Even if the European Central Bank runs the printing presses at full speed it may not turn the euro zone economy around. A tipping point may have been reached and there will be no recovery. Will the United States be able to avoid becoming ensnared in the mess? Probably not.

The recent disclosure that J.P. Morgan has incurred in excess of $2 billion in losses in a London trading unit indicates that US banks are still heavily at risk in the derivatives market. Who knows what problems will be exposed if the European debt crises starts bringing down major European banks? Once again banks may be unwilling or unable to lend to each other. Counterparty risk is coming to the forefront much as it did in 2007 and 2008.

A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools.
- Douglas Adams, The Hitchhiker’s Guide to the Galaxy.
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By John Mauldin, May 12, 2012

For some time in this letter I have been making the case that for the euro zone to survive, the European Central Bank would have to print more money than any of us can now imagine. That the sentiment among European leaders was that they were prepared for such a move was clear – except for Germany, which is haunted by fears of a return to the days of the Weimar Republic and hyperinflation.
When Germany agreed to a fixed monetary union and a European Central Bank, it was with the clear understanding that it would be run along the lines of the German central bank, the Bundesbank. The members of the Bundesbank and the German members of the ECB were most outspoken about the need for a conservative monetary policy that would keep a clamp on inflation.

However, as I have previously noted, the Bundesbank was a toothless tiger. Germany has two votes out of 23 on the ECB, and the loud drumbeat from most of Europe, which is experiencing the difficulty of austerity accompanied by too much debt, is for a far more accommodating ECB.

The simple fact is that Mario Draghi, the Italian president of the ECB, created €1 trillion euros to help fund European banks, which promptly turned around and bought their respective countrys’ sovereign debt. Germany’s Angela Merkel forced the Bundesbank to “play nice” and go along with what was seen as the only way to solve a growing banking crisis in Europe. Everyone breathed a sigh of relief, thinking that this at least bought a year during which things could be sorted out. But it turns out that a trillion euros just doesn’t go as far as it used to. The “relief” lasted about a month. The last few weeks have presented yet another budding crisis, as least as large as the last one. Where to get the next trillion?

This week the German Bundesbank waved the white flag. The die is cast. For good or ill, Europe has embarked on a program that will require multiple trillions of euros of freshly minted money in order to maintain the euro zone. But the alternative, European leaders agree, is even worse. Today we will look at the recent German shift in policy, why it was so predictable, and what it means. This is a Ponzi scheme that makes Madoff look like a small-time street hustler. There is a lot to cover.

Friedrich A. Hayek in the Fight of the Century

travelwell — Wed, 09 May 2012 21:42:24 +0000

In this video the great Economist Friedrich A. Hayek takes on John Maynard Keynes and Keynesian-style macroeconomic policy that is so much in favor today by our so-called world leaders. Until You Tube and the Internet who would have guessed that serious economic thought can be communicated by using rap music and clever screenplay?

Hayek would have been overjoyed. He wrote that freedom and liberty is doomed unless we “can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task that challenges the ingenuity and imagination of our liveliest minds.” No doubt he would see the policies being followed today by many western governments as leading to disaster.

This video has been watched in college classrooms across the United States and is an example of how new media can be used to teach complicated subjects in an entertaining manner. European politicians, technocrats, and bureaucrats and their counterparts in the United States should be required to further their education by watching this video.

Here are a few rap lines put into the mouth of Hayek:
The economy’s not a car, there’s no engine to stall,
No expert can fix it, there’s no “it” at all.
The economy’s us, we don’t need a mechanic,
Put away the wrenches, the economy’s organic.

and:

We need stable rules and real market prices
So prosperity emerges and cuts short the crisis.
Give us a chance so we can discover
The most valuable ways to serve one another.

Who says economics has to be taught in a dry as dust completely boring way?

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French Socialist Francois Hollande New President of France

travelwell — Mon, 07 May 2012 00:49:05 +0000

François Hollande :Attribution: Matthieu Riegler, Wikimedia Commons

Francois Hollande defeated Nicolas Sarkozy today to become the first French socialist president in 17 years. Although more than 350 polls published since the beginning of this campaign said he would win – still French socialists cannot quite believe it. President François Hollande: “It still takes some getting used to,” said Senator Helene Conway-Mouret. “A year ago you would never have dreamed it.”

This will make for an interesting realignment of German and French politics. German Prime Minister Angela Merkel and Nicolas Sarkozy had worked hard together to promote a program of austerity for the euro zone.Francois Hollande favors policies that promote more growth rather than severe austerity.

French socialist Francois Hollande won a clear victory in the country’s runoff presidential election.

Mr Hollande – who polled just under 52% of votes in Sunday’s run-off – spoke of his pride at becoming president. Admitting defeat, centre-right incumbent Nicolas Sarkozy wished “good luck” to Mr Hollande.

Analysts say the vote has wide implications for the whole eurozone. Mr Hollande has vowed to rework a deal on government debt in member countries.

Shortly after polls closed at 20:00 (18:00 GMT), French media published projections based on partial results giving Mr Hollande a lead of almost four points. Turnout was about 80%.

ubilant Hollande supporters gathered on Place de la Bastille in Paris – a traditional rallying point of the Left – to celebrate.

People drank champagne and chanted: “Sarko, it’s over!”

Mr Hollande – the first Socialist to win the French presidency since Francois Mitterrand in the 1980s – gave his victory speech in his stronghold of Tulle in central France.

He said was “proud to have been capable of giving people hope again”.

He said he would push ahead with his pledge to refocus EU fiscal efforts from austerity to “growth”.

“Europe is watching us, austerity can no longer be the only option,” he said.

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Japan Risks Further Decline – Rejects Nuclear Energy

travelwell — Sat, 05 May 2012 17:03:58 +0000

The world’s third largest economy has rejected nuclear energy as a power source. The fallout from the Fukishima tsunami disaster has proven to be far-reaching and likely permanent. A highly industrialized nation is taking steps that will likely lead to further deterioration of its industrial base and economic decline. Some analysts even forecast that with so many Japanese traumatized by the Fukushima disaster Japan may return to the ways of its feudal past and forgo the dogma of continuous growth of the economy.

Hundreds of Japanese demonstrators have been marching to celebrate the last of the country’s 54 nuclear reactors being switched off.

Japanese Nuclear Reactor Shutdowns will Lead to Electricity Shortages

The crowd gathered at a Tokyo park on Saturday said that they were not concerned about government warnings that the reactor shutdowns will lead to electricity shortages.

One of three reactors at the Tomari nuclear plant, on the northern island of Hokkaido, has gone offline for routine maintenance checks, meaning that for the first time in decades there is not a single active nuclear reactor in the country.

After the earthquake and tsunami on March 11 last year set off meltdowns at reactors at the Fukushima Daiichi plant, no reactors that have been stopped for maintenance have gone back online.

One year after triple disaster the government requires that new tests on withstanding earthquakes and tsunamis be carried out on all reactors.

It also requires that local residents’ approval be sought before reactors are restarted.

The Hokkaido Electric Power company, which runs the Tomari plant, said that control rods would be inserted to halt the chain reaction in the reactor on Saturday, and that a “cold shutdown” would occur on Monday.

It is the first time since the 1970s that the resource-poor country has been without any form nuclear power. Until the meltdowns at Fukushima, Japan was generating a third of its electricity at nuclear power plants.

Last month, Kansai Electric Power, which supplies mid-western Japan, including the commercial hubs of Osaka, Kyoto and Kobe, said a hot summer could see supply fall nearly 20 per cent short of demand after the shutdowns.

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End of the World : Ultimate Crisis

travelwell — Thu, 03 May 2012 12:58:12 +0000

The believe that the end of the world is coming soon is widespread. That would be the ultimate crisis, wouldn’t it? The recent string of bad weather and natural events including tornadoes, violent thunderstorms, drought, hurricanes, tsunamis, and earthquakes only reinforce these beliefs.

Throw in a string of endless wars, Arab Springs turning into Arab Winters, financial disasters such as now occurring in Greece, Spain, Ireland, and other euro zone members and it is easy to see how current events fuel end of the world scenarios.

10% of People Worldwide Believe End of World Could Happen in 2012

Nearly 15 percent of people worldwide believe the world will end during their lifetime and 10 percent think the Mayan calendar could signify it will happen in 2012, according to a new poll.

The end of the Mayan calendar, which spans about 5,125 years, on December 21, 2012 has sparked interpretations and suggestions that it marks the end of the world.

“Whether they think it will come to an end through the hands of God, or a natural disaster or a political event, whatever the reason, one in seven thinks the end of the world is coming,” said Keren Gottfried, research manager at Ipsos Global Public Affairs which conducted the poll for Reuters.

“Perhaps it is because of the media attention coming from one interpretation of the Mayan prophecy that states the world ‘ends’ in our calendar year 2012,” Gottfried said, adding that some Mayan scholars have disputed the interpretation.

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Are We Crazy? New Strategic Pact Promises Financial Support for Afghanistan Until 2024

travelwell — Mon, 23 Apr 2012 14:33:12 +0000

Apparently proud, arrogant men in Washington will not give up. There seems to be a complete disconnect between what’s happening on the ground in Afghanistan and what’s happening in the heads of those in the Pentagon and White House. An American defeat in Afghanistan? Never, they say. We will continue to pour money into that money pit forever rather than admit defeat.

Afghanistan War Now Costing Estimated Two Billion Dollars a Week

So what if Americans are struggling at home? What does it matter that since the supply truck routes through Pakistan have been closed the war is costing over $2 billion per week. Better to spend the money in Afghanistan than help Americans at home. Right? After all our own CIA estimates there may still be as many as 50 Al Qaeda members in all of Afghanistan. Those surviving 50 must really be bad ass guys to justify a new strategic pact running through 2024.

The U.S. and Afghanistan reached a deal Sunday on a long-delayed strategic partnership agreement that ensures Americans will provide military and financial support to the Afghan people for at least a decade beyond 2014, the deadline for most foreign forces to withdraw.

The pact is key to the U.S. exit strategy in Afghanistan because it establishes guidelines for any American forces who remain after the withdrawal deadline and for financial help to the impoverished country and its security forces. For the Afghan government,it is also a way to show its people that their U.S. allies are not just walking away.

“Our goal is an enduring partnership with Afghanistan that strengthens Afghan sovereignty, stability and prosperity and that contributes to our shared goal of defeating al-Qaida and its extremist affiliates,” said U.S. Embassy spokesman Gavin Sundwall. “We believe this agreement supports that goal.”

After 10 years of U.S.-led war, insurgents linked to the Taliban and al-Qaida remain a threat and as recently as a week ago launched a large-scale attack on the capital Kabul and three other cities.

There’s a big difference between Taliban and Al Qaeda forces. The Taliban are for the most part homegrown boys, Afghans, with Pakistani Taliban thrown in. Those guys live in the neighborhood. They are never going to give up or go home. They are home. The Afghan Taliban have a saying, “you have the watch, we have the time”. These guys are going to wait out the US until even Pentagon brass will puke their guts out at the mention of the word Afghanistan.

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Christine Lagarde IMF MD Warns Dark Clouds on the Horizon

travelwell — Sun, 22 Apr 2012 16:29:37 +0000

IMF MD Christine Lagarde

Christine Lagarde warns that dark clouds are on the horizon for the world economy. The managing director of the International Monetary Fund warns that the debt crises in Europe is far from over and that the European economy will likely soon again be in crises mode with the potential to drag the world economy down.

International Monetary Fund Meetings Not Encouraging

This weekend’s meetings of the International Monetary Fund and the World Bank are overshadowed by “dark clouds on the horizon” that threaten the “light recovery blowing in a spring wind,” according to Christine Lagarde, the managing director of the IMF.

The main source of the dark clouds is Europe, where recovery remains weak.
More than three years into the crisis, policy options in Europe are limited; fiscal stimulus is out of reach for many countries, and recent efforts by the European Central Bank provided only a temporary respite. In this environment, strong and sustained recovery depends upon rebalancing within Europe, whereby countries’ trade imbalances are reduced.

But rebalancing is a two-sided affair. We have all heard the ongoing calls for some European countries to rebalance deficits through painful austerity measures.

Investors to ECB: 1 Tillion Euros Not Enough

These calls need to be balanced with demands that countries with surpluses also move to rebalance. In particular, Germany must take advantage of its scope for fiscal expansion to bolster European recovery and to forestall its own slippage towards an economic slowdown.

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BP OIL Spill Causing Gulf Seafood Deformities?

travelwell — Fri, 20 Apr 2012 15:16:17 +0000

Scientists are becoming increasingly alarmed by Gulf seafood deformities. Scientists and fishermen are saying they’ve never seen anything like it; horribly mutated shrimp, fish with oozing sores, underdeveloped blue crabs lacking claws, eyeless crabs and shrimp, all seem to point to consequences of the BP oil spill. Scientists can’t think of any other event that can be linked to such abnormalities.

2010 BP Oil Disaster May be Far From Over

Gulf of Mexico fishermen, scientists and seafood processors are finding disturbing numbers of mutated shrimp, crab and fish that they believe are deformed by chemicals released during BP’s 2010 oil disaster.

Along with collapsing fisheries, signs of malignant impact on the regional ecosystem are ominous: horribly mutated shrimp, fish with oozing sores, underdeveloped blue crabs lacking claws, eyeless crabs and shrimp – and interviewees’ fingers point towards BP’s oil pollution disaster as being the cause.

Eyeless Shrimp Cause Alarm

Tracy Kuhns and her husband Mike Roberts, commercial fishers from Barataria, Louisiana, are finding eyeless shrimp.

“At the height of the last white shrimp season, in September, one of our friends caught 400 pounds of these,” Kuhns told Al Jazeera while showing a sample of the eyeless shrimp.

According to Kuhns, at least 50 per cent of the shrimp caught in that period in Barataria Bay, a popular shrimping area that was heavily impacted by BP’s oil and dispersants, were eyeless. Kuhns added: “Disturbingly, not only do the shrimp lack eyes, they even lack eye sockets.”

arla Rooks, a lifelong fisherperson from Port Sulfur, Louisiana, told Al Jazeera she is finding crabs “with holes in their shells, shells with all the points burned off so all the spikes on their shells and claws are gone, misshapen shells, and crabs that are dying from within … they are still alive, but you open them up and they smell like they’ve been dead for a week”.

Rooks is also finding eyeless shrimp, shrimp with abnormal growths, female shrimp with their babies still attached to them, and shrimp with oiled gills.

“We also seeing eyeless fish, and fish lacking even eye-sockets, and fish with lesions, fish without covers over their gills, and others with large pink masses hanging off their eyes and gills.”

Rooks, who grew up fishing with her parents, said she had never seen such things in these waters, and her seafood catch last year was “ten per cent what it normally is”.

“I’ve never seen this,” he said, a statement Al Jazeera heard from every scientist, fisherman, and seafood processor we spoke with about the seafood deformities.

Given that the Gulf of Mexico provides more than 40 per cent of all the seafood caught in the continental US, this phenomenon does not bode well for the region, or the country.

Naturally, local government officials are claiming that it is still safe to eat seafood coming from the Gulf of Mexico. That may be so but local fishermen say they would not eat much of the seafood they are now taking out of the Gulf. They believe the BP oil spill story will soon be back in the news and the news will not be pleasant.

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Egypt’s Arab Spring Revolution Goals Under Threat

travelwell — Thu, 12 Apr 2012 14:31:48 +0000

Last year’s Arab Spring revolution in Egypt engaged the imagination of many in the region and in the West who hoped that a new day was dawning in Egypt after president Mubarak’s iron fisted rule of nearly 40 years. That hope of meaningful democratic change for Egypt now seems imperiled.

An Egyptian court has approved a hardline Muslim candidate to run in the May Presidential race. The Salafi politician’s ultra-conservative stance has raised doubts that the elections will achieve the aims of the revolution.

50-year-old lawyer, Hazem Abu Ismail enjoys significant support particularly among Egypt’s conservative Salafi contingent.

He had previously been disqualified from the presidential race after reports that his mother had received US citizenship. According to the country’s law the parents and wives of all candidates must only have Egyptian citizenship. The court said on Wednesday that it did not have enough evidence to prove that Abu Ismail’s mother was an American citizen.

Thousands of his supporters had gathered outside the court in Cairo and greeted the ruling with cheers of “God is great!” and “Here is the President!” Abu Ismail is a Salafist and as such is an advocate of a strict interpretation of the Islamic faith. He will be up against other more moderate candidates like the Muslim Brotherhood’s Khairat el-Shater and former regime politicians such as former Foreign Minister Amr Moussa.

If he wins the election he says he will implement Sharia law forcing women to cover their heads in public. Although he accepts that women have to work out of economic necessity he emphasizes that “women must not be obliged to work outside the home.”

Arab Spring Expections Between a Rock and a Hard Place

Egypt’s electoral commission is expected to announce the final list of presidential candidates on April 26. The country’s twelve presidential hopefuls essentially fall into three categories: The revolutionary-minded liberals, ex-regime political figures and the conservative Muslim parties.

According to a poll carried out by state newspaper Al Ahram the current frontrunner is Amr Moussa who served as Foreign Minister under ousted President Mubarak with 30 percent support. While Hazem Abu Ismail occupies second place with the Brotherhood’s representative Khairat el-Shater bringing up the rear with a mere 1.7 percent approval.
The Muslim Brotherhood currently has the majority of seats in the Egyptian parliament and previously said it would not put forward a presidential candidate, not seeking to dominate the new Egypt.

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Commercial Truck Traffic Vital to US Economy

travelwell — Tue, 03 Apr 2012 23:15:20 +0000

Most Americans go through their days without thinking once about how fragile the complicated systems are that help them complete the many necessary chores essential to modern living.

Such things as filling up the gas tank, shopping at the grocery store, receiving funds at an ATM machine, navigating in traffic with the aid of traffic lights, and flipping a switch to receive electricity, are just a few essential activities taken for granted. Without the constant delivery of goods by truck traffic few essential daily activities would continue for long.

“Commercial truck traffic is vital to our nation’s economic prosperity and plays a significant role in mitigating adverse economic effects during a national or regional emergency.Our economy depends on trucks to deliver ten billion tons of virtually every commodity consumed—or nearly 70 percent of all freight transported annually in the U.S. In the U.S. alone, this accounts for $671 billion worth of goods transported by truck. Add $295 billion in truck trade with Canada and $195.6 billion in truck trade with Mexico and it becomes apparent that any disruption in truck traffic will lead to rapid economic instability.

The American Trucking Associations researched seven key consumer industries to quantify
the potential consequences of restricting or halting truck traffic in response to a national or regional emergency. This report details the findings.

The Food Industry
Every day, Americans purchase billions of dollars of groceries. Most of these goods are brought to market via daily truck deliveries.

• Significant shortages will occur in as little as three days, especially for perishable items following a national emergency and a ban on truck traffic. Minor shortages will occur within one to two days.At convenience stores and other small retailers with less inventory, shortages will occur much sooner.

• Consumer fear and panic will exacerbate shortages.The forecast of a winter storm quickly exhausts basic commodities at grocery stores and supermarkets. It takes retailers up to three days to recover from these runs on supplies. News of a truck stoppage—whether on the local level, state or regional level, or nationwide — will spur hoarding and drastic increases in consumer purchases of essential goods.Shortages will materialize quickly and could lead to civil unrest.

• Supplies of clean drinking water will run dry in two to four weeks.According to the American Water Works Association, Americans drink more than one billion glasses of tap water per day. For safety and security reasons, most water supply plants maintain a larger inventory of supplies than the typical business. However, the amount of chemical storage varies significantly and is site specific. According to the Chlorine Institute, most water treatment facilities receive chlorine in cylinders (150 pounds and one ton cylinders) that are delivered by motor carriers.

On average, trucks deliver purification chemicals to water supply plants every seven to 14 days. Without these chemicals, water cannot be purified and made safe for drinking. Without truck deliveries of purification chemicals, water supply plants will run out of drinkable water in 14 to 28 days. Once the water supply is drained, water will be deemed safe for drinking only when boiled. Lack of clean drinking water will lead to increased gastrointestinal and other illnesses, further taxing an already weakened healthcare system.

Healthcare
Both healthcare providers and consumers rely on regular delivery of medications and healthcare supplies to hospitals, pharmacies, nursing homes and other healthcare facilities. Trucks deliver nearly all of these supplies.Al Cook, former president of the Materials Management Association and current member of the Medical Materials Coordinating Group, which is advising the U.S. Department of Health and Human Resources on emergency preparedness, describes over-the-road commercial transportation as “life and death to being able to care for sick people.”

• Without truck transportation, patient care within the truck stoppage zone will be immediately jeopardized. According to Cook, many hospitals have moved to a justin-time inventory system.In fact, some work from a low-unit-of-measure system. This means that essential basic supplies, such as syringes and catheters, are not ordered until the supplies are depleted. These systems depend on trucks to deliver needed supplies within hours of order placement. Internal redistribution of supplies in hospitals could forestall a crisis for a short time; however, in a matter of hours, hospitals would be unable to supply critical patient care.

• If an incident of national significance produces mass injuries, truck transportation is the key to delivering urgently needed medical supplies necessary to save lives.According to Cook, there are not enough medical supplies in any local area to support a large scale medical emergency. The Medical Materials Coordinating Group has worked with U.S. Health and Human Services to develop contingency plans that will coordinate national distribution of essential medical supplies during a national emergency.

Prepared by the American Trucking Associations these contingency plans ensure that affected areas receive adequate medical supplies to support the crisis while also maintaining adequate supplies for the basic medical needs of the larger community. Cook states that the medical redistribution program relies on trucks as the primary mode of transport to carry out the expedient redistribution of supplies, and ties the success of the program to the ability of trucks to access medical facilities and warehouses during an emergency situation.

• Hospitals and nursing homes will exhaust food supplies in as little as 24 hours. Hospitals and nursing homes receive daily truck deliveries of food for patients. The International Food Distributors Association notes that because these facilities lack significant warehousing capabilities, a truck stoppage will result in food shortages within 24 to 48 hours, particularly among perishable items.

• Pharmacy stocks of prescription drugs will be depleted quickly. Although pharmacies typically carry several weeks inventory of many drugs, seasonal pharmaceuticals, such as antibiotics and flu-shots during winter months, have faster turnover rates. According to the National Association of Chain Drug Stores, most of the nation’s 55,000 drug stores receive daily merchandise deliveries by truck.

• Hospitals and other diagnostic and treatment facilities will exhaust supplies of radiopharmaceuticals and oxygen. Radiopharmaceutical supplies for cancer treatment and diagnostic services, which have an effective life of only a few hours, will become unusable. Hospital size and storage capacity determine the amount of oxygen a facility can maintain; howeever, in general, hospitals will exhaust oxygen supplies within seven to ten days.

Read more … When Trucks Stop, America Stops

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