Sunday, June 30, 2013

Oil Production Just Wont Peak

Global oil production rose by 2.2%, or 1.9 million barrels per day, last year. Perhaps one day there will be "peak oil", but with all the new oil discovered in America, Norway, Brazil and Israel, it seems unlikely to come anytime soon.

Friday, June 28, 2013

Irish Economy-Contracting Or Booming?

"Ireland’s economy lurches back into recession" says the headline in The Irish Times, based on a drop in GDP. The problem is that for Ireland, GDP is misleading.

The reason for that is that because of Ireland's low corporate income tax rate, multinational companies, tend to attribute too much of their profits to Ireland, by having their Irish subsidiaries charge their non-Irish subsidiaries unreasonably high prices when supplying them with goods & services and similarly having their non-Irish subsidiaries charge their Irish subsidiaries unreasonably little. Yet apart from the (at most)12.5% of the profits that is paid in corporate income tax, those profits goes to foreigners, not the Irish. And because those alleged profits only reflect tax avoidance, it gives a misleading picture of how much value is produced there. For this reason, GNP, which subtracts the profits of foreign companies in Ireland, provides a more accurate picture of the Irish economy than GDP.

And  for some unknown reason, foreign companies have sharply reduced the profits they attribute to their Irish subsidiaries during the latest year. As a result, even as real GDP fell by 0.9%  real GNP rose by as much as 6.1%!

That 6.1% number seems implausibly high considering that the unemployment rate has fallen by only 1½ percentage points, something that probably reflects price index problem. Nominal GNP rose by only 4.8% meaning that the real GNP number assumes 1.3% deflation, even as consumer prices rose by about 1%.

Still, while growth was almost certainly lower than 6.1%, it was clearly far above zero, meaning that Ireland has joined the Baltic countries in recovering from the slump.

In a separate report, BTW, Ireland's current account surplus rose to a record €9 billion, or nearly 7% of GNP, in the year to the first quarter.

Thursday, June 27, 2013

Did GDP Numbers Underestimate Growth

Matthew Yglesias notes the downward revision of U.S. GDP but argues that because GDI was stronger, the GDP number may underestimate growth.

However, as it happens, income numbers were actually weaker than the spending numbers as net factor income from abroad fell significantly for the second quarter in a row.

Yglesias furthermore assert that incomes during Q4 2012 were boosted artificially as some salary and dividend payments were made in advance to evade the higher 2013 tax rates. But Yglesias here reveal his ignorance about national accounting. Higher dividend payments don't affect national income as the level of retained corporate earnings is reduced by the same amount, and similarly advance salary payments will reduce corporate profits by the same amount.

Wednesday, June 26, 2013

Candidate Obama Vs. President Obama

Obama as a candidate:

Protect Whistleblowers. Often the best source of information about waste, fraud, and abuse in government is an existing government employee committed to public integrity and willing to speak out. Such acts of courage and patriotism, which can sometimes save lives and often save taxpayer dollars, should be encouraged rather than stifled.
Now where is that Obama now.......?

"Change we can believe in", yeah believe in if you're really gullible.....

Tuesday, June 25, 2013

Ecuador's Strange Currency Policy

Heroic whistleblower Edward Snowden, who is being pursued by the Obama government for exposing its lies, its hypocricy and its violations of people's privacy, has been criticized by some for hiding in countries which violate human rights, like China, Russia and in the future possibly Cuba, Venezuela or Ecuador.

But that doesn't reflect sympathy for such governments (as a Ron Paul-supporter, Snowden is of course opposed to all political authoritarian policies) or unawareness that they're not consistent guardians of human rights. What it likely means is that Snowden knows that governments that for various reasons wants to "stick it" to the U.S. governments are precisely the ones that would resist U.S. pressure to have him extradited. By contrast, for example Iceland, who was previously mentioned as a possible haven for Snowden is a country that is eager to maintain good relations with the U.S. government, and is dependent on it through the Icelandic membership in NATO (and its lack of an own military)  for its national defense. If I had been Snowden, I would therefore have felt a lot less safe in Iceland than in Russia, Venezuela or Ecuador.

However, the fact that Ecuador might be Snowden's final destination makes its currency policy seem very strange. Ecuador is one of the Latin American countries that has unilaterally imposed the U.S. dollar as its currency. But unlike the countries that are formally part of the euro area, Ecuador's participation in the dollar area does't give the country any part of the seigniorage profits that the printging of the dollars used in its country creates. Instead, all these profits goes to the U.S. government, the government that Ecuadoräs government wants to "stick it to", by for example giving Snowden asylum. Having the U.S. dollar as currency thus in effects amounts to foreign aid to the U.S., by a government supposedly committed to fighting its imperialism.

Considering that a key reason for wanting to share a currency is to promote trade relation and considering that the Ecuadorian government's hostile relationship to the U.S. government is likely to limit trade, the choice of U.S. dollars as currency is all the more strange

Saturday, June 22, 2013

Putting The Israeli-Arab Conflict In Perspective

From  Evelyn Gordon in Commentary Magazine

As I noted last month, the Syrian conflict alone has killed more than five times as many people [ 80,000 to 120,000] in just two years as the Israeli-Palestinian conflict has in all of Israel’s 65 years of existence. And that’s without even mentioning the ongoing Muslim-on-Muslim carnage in places like Iraq (almost 2,000 killed in the last three months) or Pakistan, much less historical events like the Iran-Iraq War of 1980-88, which killed more than one million people.
Her estimate seem to exclude the people killed in the Israeli-Arab wars of 1948, 1956, 1967 and 1973, but even adding them would still mean fewer killed than in the Syrian civil war.

Thursday, June 20, 2013

Fed Unlikely To End QE

Both bonds and stocks, not just in the U.S. but interestingly in most other countries as well,  have sold off heavily after the Fed expressed optimism about how the U.S. economy would develop, something that was interpreted as a signal that it might reduce its bond purchases.

I however doubt that they will actually do that anytime soon. The U.S. economy is expanding, but very slowly, so slowly that the employment to population ratio was no higher in May 2013 than in May 2012.

And though Bernanke may have hinted that the criteria for drawing down QE is a 7% unemployment rate, the official statement keeps mentioning the 6.5% rate, along with expected inflation of 2.5%

Furthermore, the negative market reaction to the possibility of reduced QE may prove to be a case of "self-preventing prophecy". The large sell-off to the hint of such policy change could deter the Fed from actually going through with it.

Wednesday, June 19, 2013

U.S. Government Bond Strike By Foreign Investors

I have previously discussed the so-called bond strike in Japan and argued that it was rational, but that a bond strike was rational with regard to many other governments bonds as well, including U.S. Treasury securities.

As is noted here, it now seems that many foreign (meaning in this context, non-Americans) investors are finally realizing it too. Both governmental and private foreign investors sold more Treasuries than they bought in April, and though both are still net buyers during the latest year, net purchases have dropped dramatically, from $173 billion to  $116 billion for governments and from $289 billion to $122 billion for private investors. Instead, they have bought more stocks and higher yielding agency and corporate bonds.

This is of cource a partial explanation both for the rise in Treasury yields and in stock prices.

Monday, June 17, 2013

Iranian Presidential Election Means Nothing

Some people cheer the election of relatively moderate cleric Hassan Rowhani as new President of Iran. However, even if Rohwani is less crazy than his predecessor Mahmoud Ahmadinejad and Supreme Leader Ayatollah Khamenei that has little or no importance.

Remember, Iran is not a democracy, it's a theocracy. It's constitution says that it must be ruled by the will of Allah, but since Allah of course never appears (Since he doesn't exist....), it is up to Supreme Leader Ayatollah Khamenei to interpret what the will of Allah is. That means that he can overrule all decisions by the President and the Parliament and has the final say on all issues.

The President is thus in Iran not really a decision maker, he is more of a bureaucrat in charge of administrative and representative tasks. As such, he has almost no power, meaning that the oppressive terrorism supporting ways of the Iranian government won't change even if that is what Rohwani would have wanted.

What his election does indicate is however that there is increasing popular discontent with the clerical regime. In part because of sanctions imposed on Iran because of its suspected nuclear weapons programme and in part because of irrational economic policies, the Iranian economy is nose-diving, creating widespread economic hardship among the people. Meanwhile, much of the money the government still has is being diverted in to supporting Hezbollah in Lebanon and the Assad regime in Syria. Unlike Ayatollah Khamenei, most Iranians care more about putting food on their table than propping up the Assad regime, so they choose to express their discontent by electing Rohwani.

Unfortunately, the will of the people, and Rohwani, will in a theocracy take a back seat to the will of the alleged voice of Allah, Ayatollah Khamenei.

Saturday, June 15, 2013

Obama Wagging The Dog

So Obama has decided to arm the Sunni Jihadist rebels in Syria because he claims that he has gotten conclusive evidence that the Assad regime has used chemical weapons. "Evidence" that comes from the same people who were so sure that Saddam Hussein had lots of WMD and by sheer "coincidence" comes when Obama is in trouble because of the way he has been invading people's privacy. Yeah right....

You know what, Obama, if you gives us the same access to the alleged evidence and your discussions with your security advicors that you have given yourself of people's private communication, that might be credible. Otherwise, I and all other rational people will have to assume that you're wagging the dog.

Abe Exporting Deflation From Japan

The popularity of "Abenomics" among non-Japanese pro-inflationists is puzzling for many reasons. One is, as I've noted before, the fact that Japan with its 4% unemployment rate was already very close to full employment, so even using Keynesian models there is little it can do to boost growth.

Another fact which should make it less popular is that while it will cause inflation to increase in Japan it will lower inflation elsewhere.

The reason for that is the key result of it so far has been to dramatically lower the value of the yen, by about 20% against the U.S. dollar and 25% against the euro. Unless reversed, this dramatic exchange rate drop can result in three different outcomes:

1) Raise prices in Japan
2) Lower prices elsewhere
3) Result in a permanently lower real exchange rate for the yen

Most likely, we will see a combination of the three. That we ultimately will have 1) is something we can all agree on, and that is officially what the purpose of "Abenomics" is. Unofficially though, it seems likely that Abe also wants to achieve 3) to raise net exports, and that is in fact so far the main result. As firms who has so far been slow to adjust prices gradually do so we will get more of 1) and 2), and therefore less of 3), but it seems likely that even in the long term.

But Abenomics will to a large extent also cause a lot of 2), which is to say, it will have a deflationary effect. Why? Well, for three reasons. One is that a weaker yen will reduce export earnings from Japan in other countries, reducing nominal income. Another is that Japanese demand for oil and other internationally traded commodities will fall as the yen prices of these commodities have soared, and that means that the prices of these commodities in terms of for example dollars and euros will drop.

And a third reason is that a weaker yen will lower prices of imports from Japan. Between 2006 and 2012, prices of Japanese imports in the U.S. rose by between 1 and 2 % per year, but in the latest year, they have dropped by 1.4%. This still implies that they have dramatically increased their margins, but as time passes competitive pressure will likely lower those margins, leading to continued declines in import prices from Japan.

In other words, non-Japanese pro-inflationists are cheering for a policy that has a deflationary effect on their economies!

Presumably, their response is that they hope other central banks will mimick the Bank of Japan's policies. But with interest rates near zero, and with much of the effect of Abenomics coming from the dramatic drop in the yen and with exchange rates being a zero sum game (one currency area's depreciation is another's appreciation), the scope for that is limited

Thursday, June 13, 2013

Choosing Policies Without Knowing What They Choose

Illustrating how America is definitely not "the land of the free"  any more, Republican leaders expressed support for Obama's mass surveillance program and called the heroic Edward Snowden a "traitor". Only resigned congressman Ron Paul has expressed support for Snowden while his son, Senator Rand Paul,refused to take any position saying "it's a complicated issue". While Senator Paul is less bad than other Republican officials

Anyway, like most official conservatives, Ralph Peters denounces Snowden, making a curious argument:

In his I-love-me interview, he further opines that the American people, not the government, should decide about programs such as those he revealed. He should have stayed in school until he got to the Civics block on democracy. The American public does vote on these programs — through their representatives in Congress. That’s why we have regular elections.

But how can you vote on something, whether directly in a referendum or indirectly by choosing representatives, if you don't know about it? Knowing about something is of course a necessary requirement for voting about it. It is only because of Snowden that Americans get to vote about it.

Tuesday, June 11, 2013

Germany As Example Of The Gravity Model Of Trade

Here is a chart of Germany's 10 biggest export destinations and import suppliers in 2012:
5 out of 10 in both categories are euro area countries, namely 4 of the 5 euro area countries that borders Germany, namely France, the Netherlands, Austria and Belgium. The fifth euro area country that borders Germany, Luxembourg, isn't included because of its small size, while Italy is with even though it doesn't border Germany because of its large size (and because the distance isn't that great).

4 non-euro area countries, China, the U.K., the U.S. and Switzerland is also in both categories. In the first three cases that reflects the large sixe of these economies (though Britain is also relatively close geographically as well), while in the case of Switzerland it reflects that it borders Germany.

Russia is not among the top 10 export markets, but it is the seventh largest import supplier, no doubt reflecting mainly supplies of natural gas and other energy products. Poland is not among the top 10 import suppliers, but it is the tenth biggest export market.

In short, Germany's trade is mainly with countries that are geographically close or whose economies are relatively large, or both in the case of France and to a lesser extent also Britain and Italy.

This is consistent with what one could call the gravity model of trade. The extent to which the gravity of various celestial bodies affects us depends in part om how large they are and in part on how close they are. Earths gravity affects us the most because we are on it. After that, the Sun and the Moon affects us the most, in the Sun's case because of its enormous size and in the Moon's case because it is the celestial body closest to us, except for Earth.

Similarly, the extent to which we are affected by the "gravity" of other economies depends in part on how large these economies are and in part on how close they are.  The reason why economic size increases an economy's "trade gravity" is of course because a larger purchasing power increases the likelyhood that they have things to sell to other countries and have the ability and will to buy from others. The reason why geographic proximity increase the extent to which others are affected by the "trade gravity" is because it imply lower transportation costs.

 China and the U.S. are because of their large size important trading partners for almost all countries in the world (except for countries like Iran where political factors prevent trade). By contrast, relatively small countries can be important trading partners to neighbors. Denmark's, Finland's and Norway's economies are relatively small but they are still all among the top 10 trading partners of Sweden, with Norway being in fact the second biggest after Germany.

There are some exceptions to this rule, but in the most cases it reflects political factors, with the non-existent trade between the Arab countries and Israel being the best example of this.

Monday, June 10, 2013

More On "Revelation" Of Government Intrusion

Interestingly, it turns out that Edward Snowden, the whistle-blower who formally revealed what I think most of us already suspected regarding how the U.S. government, using companies like Microsoft, Google, Apple and Facebook, monitors what we (including non-Americans) do on the Internet, was a Ron Paul-supporter who contributed to his Presidential campaign. Considering that Paul was the only candidate consistently defending people's civil liberties, that is of course very logical.

He is now in Hong Kong, and has applied for political asylum in Iceland, but the U.S. government will no doubt try to hunt him down for the "crime" of letting people know the truth about how it violates the right to privacy of Americans and non-Americans alike.

The irony here is that when concerns about the surveillance of people is being raised, government officials keep telling us "if you've got nothing to hide, then you've got nothing to fear". Well, that is obviously true, but "having something to hide" doesn't imply planning terrorism, or even less serious crimes. People can for many legal and legitimate reasons oppose that other people find about for example their sex life or various other offline or online activities. This is true for everyone, but especially much for people who for example face stalkers or others that could harm you if they find out where you are or what you are doing. And as there are always going to be government employees with access to the information it collects, these employees can use it for such purposes, either because they wish to harm someone themselves or collaborates with such people.

One example of this was how a doctor in Sweden of Afghan origin accessed the supposedly classified medical files of teen age girls of Afghan origin to see if these files indicated that the girls have had pre-marital sex, and if so pass on that information to the parents, something that could result in an "honor murder", or at best "only" that the girl will be disowned by her family.

The point is that even if the purpose if this surveillance is to track down terrorists, it can be misused by the government employees that has access to it. And as the case of the Afghan doctor illustrates, having rules saying it can't be misused won't work, because it will be the employees themselves who will decide what is or isn't proper use (at least when it is accessed).

And here is the irony, if it is really the case that only people who have something criminal to hide, has reason to oppose that others monitor them, shouldn't that apply to the government itself? If that is the case, then why should Snowden's actions be considered criminal? Either the Obama administration here concedes that what it has done is criminal, or it concedes that a key argument for its policy in this area is false.

Friday, June 07, 2013

How Shocking...

So the U.S. government monitors every from of communication made in U.S. Internet companies like Facebook, Yahoo, Microsoft and Google. Don't get me wrong here, I don't like it, as it can be abused by the individuals doing the monitoring, but is this really surprising to anyone?

Tuesday, June 04, 2013

Turkish Protests Not Like "Arab Spring"

As you may have heard there have been large scale protests in Istanbul and other large cities in Turkey against Prime Minister Tayyip Erdogan and his ruling moderate Islamist AKP Party. Many are now comparing these protests to the so-called "Arab spring" two years ago.

However, there is a crucial difference. "The Arab spring" was more like an "Arab winter" as it was dominated by Islamist forces who opposed the current regimes because they were too secularist and too friendly to the West and Israel.

By contrast, the Turkish protests are explicitly anti-Islamist opposing the attempts by the AKP to gradually undo the secular heritage created by modern Turkey's founder, Kemal Atatürk, by for example more draconian alcohol restrictions. The secular anti-Islamist nature of the protests is illustrated by the fact that not only are a large portion of these protesters female, but virtually all of these female protesters don't wear a hijab (headscarf), as can be seen in the below pictures from the protests.

By contrast, the few female protesters that you saw in Egypt's uprising against Mubarak usually looked more like this:

If there is a historical precedent to the current protests against Erdogan's Islamist government, it would be the  attempted uprising against Iran's Shia Islamist theocracy, which was violently surpressed by the Revolutionary Guard military forces directly loyal to the dictator Ayatollah Khamenei. True, Erdogan is a lot more moderate and isn't totalitarian as Ayatollah Khamenei is, so Erdogan's regime is far less evil, but he has tried to gradually move Turkey in a Islamist and partly authoritarian direction, which is to say he has tried to make secular democratic Turkey more like Iran. And just like the 2009 protesters in Iran,  today's protestors in Turkey are pro-freedom and pro-secularism. 

Of course, Obama and most Western leaders gave barely any support to the anti-Islamists in Iran, while supporting the Islamists during the Arab winter. Will they now abandon their buddy Erdogan just like they abandoned their former ally Mubarak?. Let's hope so, but I wouldn't bet on it.