the visible hand

it is the theory which decides what can be observed – einstein

Archive for October, 2007

It worked in Iraq….

Posted by ecoshift on October 31, 2007

A British perspective on US oil policy in Iraq.

thanks to calculated risk for the video link…

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oil, china, iran and alternatives to fossil fuel

Posted by ecoshift on October 31, 2007

Given the current sanctions and saber rattling about Iran I found the following few articles interesting. Turns out China has been helping Iran develop a major oil field since 2006 and gets at least 10% of their oil from Iran.

As China’s oil consumption has doubled in the past ten years looks like China has been busy: oil pipelines extend into China from and through Russia as well as Turkmenistan, Kazakstan, Pakistan, India and Myanmar.

Naturally China sees a heightened national interest in the Gulf states so it’s selling weapons as well as buying oil.

In addition, Iran is now willing to accept yen in exchange for oil and Japan is making the move.

So, here’s my vote for irony of the day: The US is spending billions jockeying for position in the middle east and central asia in order to feed our still growing demand for gasoline in the US. So, it follows quite naturally that GM is opening an $250 million R&D facility in China to help China reduce China’s reliance on fossil fuels.

Makes perfect sense. That way there’s more for us. What’s good for GM, is good for the country.

I’m not making this up.

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Guesstimates Won’t Cut It Anymore

Posted by ecoshift on October 28, 2007

Guesstimates Won’t Cut It Anymore – New York Times
By GRETCHEN MORGENSON
Published: October 28, 2007

THE props holding up the values of risky mortgage securities finally started to give way last week. And that means the $30 billion in losses and write-downs taken by big brokerage firms in the third quarter are not likely to be the last.

Even as developments in the credit markets went from bad to worse this year, investors for the most part have remained upbeat about the values of the mortgage securities they held. One reason that they could keep their heads in the sand was that these complex securities are hard to value in good times, impossible during periods of stress.

Executives of companies with big stakes in mortgages also accentuated the power of positive investor thinking. Emerging periodically from their corner offices, these executives opined that in spite of rocketing delinquencies, most loans continued to perform well. Rating agencies, fending off complaints that they had been slow to downgrade, maintained that they would adjust their ratings only after they saw actual loan failures. Government officials trotted out regularly to contend that upheaval in the mortgage market was a minor scrape.

After last week, however, it was no longer plausible to deny that mortgage loans, and the complex securities derived from them, had crashed — and caused a lot of damage in the process.

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Cost of ‘War on Terror’ could rise to $2.4 trillion

Posted by ecoshift on October 24, 2007

Iraq, Afghanistan could cost $2.4 trillion – Oct. 24, 2007
By Steve Hargreaves, CNNMoney.com staff writer
October 24 2007: 12:57 PM EDT

NEW YORK (CNNMoney.com) — The wars in Iraq, Afghanistan and anti terrorist efforts abroad could cost the country $2.4 trillion over the next ten years, according to a report Wednesday.

The money, over 70 percent of which would go to support operations in Iraq, includes the estimated $600 billion spent since 2001, Congressional Budget Office Director Peter Orszag said in testimony before the House Budget Committee. That estimate includes projected interest, since the government is borrowing most of the funds required.

The wars in Iraq, Afghanistan and anti terrorist efforts abroad could cost the country $2.4 trillion.

The $2.4 trillion would pay to keep 75,000 troops deployed overseas from 2013 to 2017. About 210,000 troops are currently deployed. It does not include the Pentagon’s normal spending, which in 2007 is estimated to be about $450 billion.

The estimated $2.4 trillion works out to about $21,500 per American household.

Without interest, the war efforts are projected to cost about $1.7 trillion. Several lawmakers noted the wide gap.

“This entire war has been paid for with a government credit card,” one lawmaker said.

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Save the Planet: Vote Smart

Posted by ecoshift on October 23, 2007

Save the Planet: Vote Smart – New York Times
By THOMAS L. FRIEDMAN
Published: October 21, 2007

People often ask: I want to get greener, what should I do? New light bulbs? A hybrid? A solar roof? Well, all of those things are helpful. But actually, the greenest thing you can do is this: Choose the right leaders. It is so much more important to change your leaders than change your light bulbs.

Why? Because leaders write the rules, set the standards and offer the tax incentives that drive market behavior across a whole city, state or country. Whatever any of us does individually matters a tiny bit. But when leaders change the rules, you get scale change across the whole marketplace. And the energy-climate challenge we face today is a huge scale problem. Without scale, all you have is a green hobby.

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Steep decline in oil production brings risk of war and unrest

Posted by ecoshift on October 22, 2007

Steep decline in oil production brings risk of war and unrest, says new study
Ashley Seager
Monday October 22, 2007
The Guardian

· Output peaked in 2006 and will fall 7% a year
· Decline in gas, coal and uranium also predicted

World oil production has already peaked and will fall by half as soon as 2030, according to a report which also warns that extreme shortages of fossil fuels will lead to wars and social breakdown.

The German-based Energy Watch Group will release its study in London today saying that global oil production peaked in 2006 – much earlier than most experts had expected. The report, which predicts that production will now fall by 7% a year, comes after oil prices set new records almost every day last week, on Friday hitting more than $90 (£44) a barrel.

…the EWG study relies more on actual oil production data which, it says, are more reliable than estimates of reserves still in the ground. The group says official industry estimates put global reserves at about 1.255 gigabarrels – equivalent to 42 years’ supply at current consumption rates. But it thinks the figure is only about two thirds of that.


Change in Major Crude Oil Reserves, 2001-2006
Dr. Jean-Paul Rodrigue, Dept. of Economics & Geography, Hofstra University

There is however some controversy concerning the true extent of oil reserves, especially in the Middle East. OPEC countries may have vastly overstated their reserves, mainly because production quotas are based upon estimated reserves. This means that the larger its reserves, the more an OPEC country can export oil…

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Brazil’s real gains to 7-yr high

Posted by ecoshift on October 18, 2007

Brazil’s real gains to 7-yr high, stocks end up
|News | Market News | Reuters

Brazil’s currency, the real (BRBY: Quote, Profile, Research), gained nearly 2 percent to 1.788 per U.S. dollar, its strongest level since August 2000. The real surged even as the central bank bought dollars on the spot foreign-exchange market to soak up the flood of greenbacks to Brazil.

The central bank voted unanimously on Wednesday to keep the benchmark Selic rate unchanged at 11.25 percent.

Brazil’s rates are among the highest in the world when discounted for inflation, making it attractive for international investors to put funds in local fixed income securities to boost returns. The absence of further rate cuts following two years of monetary easing boosted that appeal.

The prospects of rate cuts in the United States also helped bolster the real as investors flee lower-yielding countries to pour cash into Brazil.
“There will be an enormous difference between domestic rates and those overseas, which increases the appetite for Brazilian assets,” said Julio Cesar Vogeler, a currency trader at the Didier Levy brokerage.

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competition vs cooperation: in search of something upbeat

Posted by ecoshift on October 18, 2007

It’s true, I’ve been busy and out of town for a while. But the suggestion from gulo gordo that I needed to post “something upbeat” also slowed me down. I’ve spent a bit of time mulling it over.

Recent rising markets climbing walls of worry seem irrational, fundamentally unstable and unlikely to provide long-term benefits for the broad majority of citizens. And, of course unending economic growth creates it’s own environmental problems even when it’s achievable. So, I’m not really upbeat about economic growth for it’s own sake. I do seem to have my own irrational hope that falling markets will provide the motivation and the opportunity for us to rethink our economic strategies and build more effective policy. But, neither of these points of view could be called upbeat by any stretch.

I’ve heard quite a few people over the years opine that rising energy costs will give US producers a competitive advantage over imports in domestic markets — and encourage locally based economies. Here we go: 90 bucks a barrel today. T Boone Pickens says 100 bucks a barrel is coming, maybe by the end of the 4th quarter. But, domestic markets are weak. How ironic that this advantage comes at a moment when what we really need is the ability to sell into global markets while US domestic consumption takes a breather and tries to get handle on it’s mortgage payments and credit card debt. So maybe, at least for the time being, rising transportation costs won’t be much of an advantage until we see stronger growth in domestic consumption. Not too upbeat here either.

So now, the declining dollar is supposed to help US manufacturers compete in global markets. And I suppose if it falls far enough (how far?) US labor costs will achieve parity with emerging markets. Sounds good, even fair on a global scale. Though if you work for wages it’s hard to really be upbeat about it. It’s also worth noting that a falling dollar has other impacts on US competitiveness. Some analysts observe that the rapid increases in oil prices pointed out above are partly a function of the declining dollar. Measured in euros oil prices look much more rational — hardly parabolic at all. So the rest of the world can still afford it. That means that oil and gas prices won’t necessarily go down as much as we might hope when the US finally has to cut back on it’s energy bill. And oil isn’t the only imported material necessary for US to produce into export markets that other countries will be able to better afford. Many nominally US products contain multiple inputs from overseas — from electric motors, to electronic chips, to basic commodities and raw materials. So the advantages bestowed on US competitiveness by the declining purchasing power of American wages against a trade weighted basket foreign currencies may be significantly mitigated as well. Guess I’m not too upbeat here either.

So, um. Upbeat… well… still thinking.

All of these efforts — the good news and the bad — are based on economic theory over two hundred years old. Sure, it’s been refined… and refined some more. But the basic concept, as it’s used in the business and political vernacular remains substantially intact: markets are wiser than individuals and have an almost magical ability to transmogrify individual striving, ambition, and even greed into a strangely altruistic endeavor that produces the most good for the most people.

To accomplish this magic capitalist markets are linked to Darwinian concepts of unforgiving competition and harsh environmental judgment that lead to the strengthening and evolution of species and increasing complexity and stability in systems. Individual economic striving, economic competition and harsh market corrections similarly strengthen and build complexity and capacity for survival in human societies — at least for society as a whole — at least in theory.

But, there is this: there is a missing link. Families care for each other without economic compensation. Parents care for children, children care for parents. People volunteer for community groups. People donate to charity. Our heroes sacrifice for their ideals, not for pots of mercenary cash. People, together, do what individuals cannot accomplish on their own. Caring for the old, the young, the infirm, the disadvantaged are touchstones in our political debates. People don’t only compete. People also cooperate.

These traits appear universal. At least some of us hope so:

We share the same biology
Regardless of ideology
Believe me when I say to you
I hope the Russians love their children too

— Sting

It may be reasonable to suggest that in the natural Darwinian order cooperation and individual sacrifice have some survival value for the species or the system as a whole. That is, as long as you are not an economist.

I’m in my fifties. I’m not expecting the world to suddenly reach enlightenment or to end all war. People compete. No doubt about it. No one can deny it. Given much of what we see in the world today calling what people are willing to do to each other competition is clearly an understatement. And, the ability of market economics to harness individual desires for success to serve broader social goals is not to be discarded.

But, just suppose the discipline of economics made some room for the concept of cooperation as well as competition.  I view the following snippets from several articles as positive developments. I don’t know that they have enough momentum… or enough definition… to truly qualify as upbeat… but here they are. See what you think:


In Economics Departments, a Growing Will to Debate Fundamental Assumptions – New York Times
By PATRICIA COHEN

For many economists, questioning free-market orthodoxy is akin to expressing a belief in intelligent design at a Darwin convention: Those who doubt the naturally beneficial workings of the market are considered either deluded or crazy.

But in recent months, economists have engaged in an impassioned debate over the way their specialty is taught in universities around the country, and practiced in Washington, questioning the profession’s most cherished ideas about not interfering in the economy.

“There is much too much ideology,” said Alan S. Blinder, a professor at Princeton and a former vice chairman of the Federal Reserve Board. Economics, he added, is “often a triumph of theory over fact.” Mr. Blinder helped kindle the discussion by publicly warning in speeches and articles this year that as many as 30 million to 40 million Americans could lose their jobs to lower-paid workers abroad. Just by raising doubts about the unmitigated benefits of free trade, he made headlines and had colleagues rubbing their eyes in astonishment.

“What I’ve learned is anyone who says anything even obliquely that sounds hostile to free trade is treated as an apostate,” Mr. Blinder said.

Nowak – In Games, an Insight Into the Rules of Evolution – New York Times
By CARL ZIMMER

When Martin Nowak was in high school, his parents thought he would be a nice boy and become a doctor. But when he left for the University of Vienna, he abandoned medicine for something called biochemistry. As far as his parents could tell, it had something to do with yeast and fermenting. They became a little worried. When their son entered graduate school, they became even more worried. He announced that he was now studying games.

In the end, Dr. Nowak turned out all right. He is now the director of the Program for Evolutionary Dynamics at Harvard. The games were actually versatile mathematical models that Dr. Nowak could use to make important discoveries in fields as varied as economics and cancer biology.

“Martin has a passion for taking informal ideas that people like me find theoretically important and framing them as mathematical models,” said Steven Pinker, a Harvard linguist who is collaborating with Dr. Nowak to study the evolution of language. “He allows our intuitions about what leads to what to be put to a test.”

On the surface, Dr. Nowak’s many projects may seem randomly scattered across the sciences. But there is an underlying theme to his work. He wants to understand one of the most puzzling yet fundamental features of life: cooperation.

Is ‘Do Unto Others’ Written Into Our Genes? – New York Times
By NICHOLAS WADE
Published: September 18, 2007

Many people will say it is morally acceptable to pull a switch that diverts a train, killing just one person instead of the five on the other track. But if asked to save the same five lives by throwing a person in the train’s path, people will say the action is wrong. This may be evidence for an ancient subconscious morality that deters causing direct physical harm to someone else. An equally strong moral sanction has not yet evolved for harming someone indirectly.

Where do moral rules come from? From reason, some philosophers say. From God, say believers. Seldom considered is a source now being advocated by some biologists, that of evolution.

At first glance, natural selection and the survival of the fittest may seem to reward only the most selfish values. But for animals that live in groups, selfishness must be strictly curbed or there will be no advantage to social living. Could the behaviors evolved by social animals to make societies work be the foundation from which human morality evolved?

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Crude Oil Rises to Record $90 / Dollar drops against Euro

Posted by ecoshift on October 18, 2007

Bloomberg.com: Worldwide
Crude Oil Rises to Record $90 After Dollar Drops Against Euro
By Gavin Evans

Oct. 19 (Bloomberg) — Crude oil rose to a record $90 a barrel in New York after the U.S. dollar fell against the euro, enhancing the appeal of commodities as an investment.

Investors purchased oil on speculation the Federal Reserve will cut borrowing costs to bolster the U.S. economy when the bank next meets Oct. 31. Interest-rate futures show a 70 percent likelihood the Fed will lower its target rate for overnight loans a quarter-percentage point to 4.5 percent.

“There’s still no end in sight in terms of what people are willing to pay,” said Bob Frye, commodity broker at Access Futures & Options Trading in Woodlake, California. “With the weakness in the dollar” we may get to $96 if prices stay much above $90, he said.

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