Daily Digest

Daily Digest 3/4 - Stagnation Or Inequality, Bernanke's Negative Feedback Loop, The 2011 Oil Shock

Friday, March 4, 2011, 10:54 AM
  • Economics Focus: Stagnation Or Inequality
  • Utah Pushes To Accept Gold, Silver As Alternative Currency
  • Bernanke’s Unstoppable, Self Reinforcing, Negative-Feedback-Loop
  • Fed and ECB - A World Apart
  • The 2011 Oil Shock
  • Oil Markets And Arab Unrest: The Price Of Fear
  • UN: Food Prices Hit Record High In February
  • In Price of Farmland, Echoes of Another Boom

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Economics Focus: Stagnation Or Inequality (jdargis)

The book explores the puzzling stagnation in the typical American wage since the 1970s. The prevailing view has been that soggy median wages can be explained by widening income inequality. But Mr Cowen blames lagging pay on a shortfall in growth itself. Output data have been overstated, he reckons, thanks to rising contributions from hard-to-value industries. Worse, economic engines in the rich world are running ever slower as countries exhaust easy sources of rapid growth.

Utah Pushes To Accept Gold, Silver As Alternative Currency (pinecarr)

A month ago we reported that the state of Virginia has established a subcommittee to study alternatives in the case of a terminal "Fed" breakdown, and would propose gold as a sound alternative to the existing fiat currency. Now, the state of Utah has gone a step further and is actually voting, as early as today, on whether to recognize gold and silver coins, issued by the federal government, as legal currency, a move that would send a huge signal to the Marriner Eccles building that Americans have had enough of the Fed's dollar debasement. "The coins would not replace the current paper currency but would be used and accepted voluntarily as an alternative.

Bernanke’s Unstoppable, Self Reinforcing, Negative-Feedback-Loop (pinecarr)

Wracked up by both parties over many decades our debt has evolved into a yearly deficit that can no longer be serviced with tax revenue and borrowing.

To avoid default Ben Bernanke chose to monetize the un-payable portion of our deficit. Each month about 100 billion dollars are created out of thin air to cover our government’s bills. This has set forth an unstoppable, self reinforcing, negative-feedback-loop.

Fed and ECB - A World Apart (Joe P.)

The U.S. Federal Reserve (Fed) and the European Central Bank (ECB) are divided by a common goal: price stability. Fed Chairman Bernanke has made it clear in his recent testimony and speeches that the Fed would react should food and commodity inflation lead to an increase in core inflation. Let's spell this out: the Fed is ready to R E A C T. We are not aware of any central bank that is proud of reacting, but rather acting preemptively to mitigate inflationary concerns; naturally, a central bank may often be forced to react, but to do so by design puts the cynical view that central bankers are too far behind the curve into a new light.


The 2011 Oil Shock (jdargis)

The markets’ reaction has been surprisingly modest. The price of Brent crude jumped 15% as Libya’s violence flared up, reaching $120 a barrel on February 24th. But the promise of more production from Saudi Arabia pushed the price down again. It was $116 on March 2nd—20% higher than the beginning of the year, but well below the peaks of 2008. Most economists are sanguine: global growth might slow by a few tenths of a percentage point, they reckon, but not enough to jeopardise the rich world’s recovery.

Oil Markets And Arab Unrest: The Price Of Fear (jdargis)

The situation in Libya is grim, as the rebels and the forces of Muammar Qaddafi battle for control of the country’s only resource. Brega, the seat of the Sirte Oil Company in the east of the country, has changed hands three times in recent days. Most of the oil workers have fled, and production has fallen by two-thirds. The ports of As Sidra, Brega, Ras Lanuf, Tobruk and Zuetina, which together handle almost 80% of Libya’s oil exports, were all seized by the rebels; two have now been retaken by Colonel Qaddafi’s forces. The rebels remain in control of Africa’s largest oilfield, Sarir, pumping some 400,000 barrels on a normal day. But for how long?


UN: Food Prices Hit Record High In February (Alfredo E.)

Some experts point to key differences compared to those years: for one, the price of rice, a dominant component of regular diets in many parts of the world, is much lower today. Still, aid group Oxfam called the hike "deeply worrying."

The Food and Agriculture Organization said in a statement that its food price index was up 2.2 percent last month, the highest level since January 1990 when the agency started monitoring prices.

In Price of Farmland, Echoes of Another Boom (jdargis)

The surge in prices has been dizzying throughout the Midwest, with double-digit percentage increases last year in Illinois, Indiana, Iowa, Kansas, Minnesota and Nebraska. In parts of Iowa, prices for good farmland rose as much as 23 percent last year, according to the Federal Reserve Bank of Chicago.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."


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1) Fed Assets Rise to Record

"The Federal Reserve’s total assets rose by $11.9 billion to a record $2.55 trillion, the fifth record in as many weeks, as the central bank bought Treasury securities in the second round of its quantitative easing strategy.

Treasuries held by the Fed rose by $22.8 billion to $1.24 trillion as of yesterday. "

"Illinois government employees, downstate teachers and university staff have been promised $139 billion worth of retirement benefits, but the pension systems have only $63 billion in assets. Eventually, the state will have to come up with money to make up that difference.

As state government devotes more money to government pensions, it leaves less for education, law enforcement, human services and other needs.

Illinois borrowed about $3.7 billion this year to help make the annual contribution to retirement systems. The amount owed in the next budget will top $5.4 billion, the auditor said. That's part of the massive budget deficit haunting Illinois."

"The mayor's office on Thursday said it's looking at possibly laying off 2,300 city workers. That figure came from dividing a $130 million budget shortfall by the average city worker income of $55,000."

  • Other news, headlines and opinion:

Norway Oil Drillers Hit Record Dry Spell as Reserves Wane

Detroit's Schools Pay High Price to Borrow

Sacramento City Unified Braces For Major Budget Cuts

Caltrain board declares fiscal emergency

15000 police, firefighters rally against benefit cuts in Trenton

Pension problems weigh on Pittsburgh


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Oilquake in the Middle East


Published on Thursday, March 3, 2011 by TomDispatch.com

Oilquake in the Middle East: The Collapse of the Old Oil Order

Whatever the outcome of the protests, uprisings, and rebellions now sweeping the Middle East, one thing is guaranteed: the world of oil will be permanently transformed.  Consider everything that’s now happening as just the first tremor of an oilquake that will shake our world to its core. 

For a century stretching back to the discovery of oil in southwestern Persia before World War I, Western powers have repeatedly intervened in the Middle East to ensure the survival of authoritarian governments devoted to producing petroleum.  Without such interventions, the expansion of Western economies after World War II and the current affluence of industrialized societies would be inconceivable.

Here, however, is the news that should be on the front pages of newspapers everywhere:  That old oil order is dying, and with its demise we will see the end of cheap and readily accessible petroleum -- forever.

Ending the Petroleum Age

Let’s try to take the measure of what exactly is at risk in the current tumult.  As a start, there is almost no way to give full justice to the critical role played by Middle Eastern oil in the world’s energy equation.  Although cheap coal fueled the original Industrial Revolution, powering railroads, steamships, and factories, cheap oil has made possible the automobile, the aviation industry, suburbia, mechanized agriculture, and an explosion of economic globalization.  And while a handful of major oil-producing areas launched the Petroleum Age -- the United States, Mexico, Venezuela, Romania, the area around Baku (in what was then the Czarist Russian empire), and the Dutch East Indies -- it’s been the Middle East that has quenched the world’s thirst for oil since World War II.

In 2009, the most recent year for which such data is available, BP reported that suppliers in the Middle East and North Africa jointly produced 29 million barrels per day, or 36% of the world’s total oil supply -- and even this doesn’t begin to suggest the region’s importance to the petroleum economy.  More than any other area, the Middle East has funneled its production into export markets to satisfy the energy cravings of oil-importing powers like the United States, China, Japan, and the European Union (EU).  We’re talking 20 million barrels funneled into export markets every day.  Compare that to Russia, the world’s top individual producer, at seven million barrels in exportable oil, the continent of Africa at six million, and South America at a mere one million.

As it happens, Middle Eastern producers will be even more important in the years to come because they possess an estimated two-thirds of remaining untapped petroleum reserves.  According to recent projections by the U.S. Department of Energy, the Middle East and North Africa will jointly provide approximately 43% of the world’s crude petroleum supply by 2035 (up from 37% in 2007), and will produce an even greater share of the world’s exportable oil.

To put the matter boldly:  The world economy requires an increasing supply of affordable petroleum.  The Middle East alone can provide that supply.  That’s why Western governments have long supported “stable” authoritarian regimes throughout the region, regularly supplying and training their security forces.  Now, this stultifying, petrified order, whose greatest success was producing oil for the world economy, is disintegrating.  Don’t count on any new order (or disorder) to deliver enough cheap oil to preserve the Petroleum Age.

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UK facing 1970s-style oil shock


UK facing 1970s-style oil shock which could cost economy £45bn – Huhne

Britain is facing a 1970s-style oil price shock that could cost the UK economy £45bn over two years, the climate and energy secretary, Chris Huhne, is expected to warn in his first intervention on the issue since the start of Middle East political crisis.

In Thursday's keynote speech on the impact of the oil crisis, Huhne argued that an $100 (£61) a barrel price for oil transforms the economics of climate change in Britain.

Climate and energy secretary says an oil price of $100 a barrel transforms the economics of climate change

  • He disclosed the Department of Energy and Climate Change's (Decc) economists have warned that if the oil price rise turns into a 1970s-style shock the cumulative loss to the UK economy would be worth £45bn over two years. Decc's economists made the calculation on the basis of oil prices rising from $80 a barrel last year to $160, according to Huhne.

    At $102 a barrel, oil is at a two-and-a-half year high and there have been predictions that if the political turmoil spreads across the Gulf, the price will rise considerably more.

    Huhne will say: "If the oil price doubled, as from $80 last year to $160 this year, it could lead to a cumulative loss of GDP of around £45bn over two years. This is not just far-off speculation: it is a threat here and now."

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Nicely written!!!

Nicely written!!!

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Cloning not working. New focus: Transgenic Technology

Major Farm Animal Cloning Project Cancelled Due to Disease and Deaths

By Sharon Seltzer

After 13 years of studying how to prevent abnormalities in cloned animals, AgResearch has ended its cloning project because too many of the animals died.

AgResearch is a New Zealand based company that has spent more than a decade trying to perfect the cloning of animals for use in scientific and medical research.

Their cloning trials tried to create: animals that produced a type of “super milk”, sheep that were resistant to eczema, pregnant sheep that wanted to eat more food, and special proteins to be used in human medications.

But on Monday the company released a report that said “only 10 percent of the cloned animals survived through the research trials” and because of the” unnecessary suffering” of the animals they had stopped their cloning projects.

Although AgResearch has ended cloning projects, the news is not all good.  The company now plans to focus its attention on a newer research method – Transgenic Technology. This procedure uses embryonic stem cells to create new life. However, the first-generation of transgenic animals appears to be having the same high mortality rates as the cloned animals.  Last year two baby goats died and four other animals had to be euthanized. ...

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DTM, interesting article on

DTM, interesting article on "Oilquakes"; thanks!  As much as I've learned the last couple of years, it still takes me aback to read articles like that, that so clearly present a different perspective and world-view than what we grew up believing. What is the saying, old beliefs die hard?

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Utah, those rebels!

I had to laugh at that article.  So Utah wants to "let Utahans pay their taxes with gold."

Nice deal if you can get it.  I would like to formally announce that I will accept all US gold and silver coins in payment of any debts to me.  Fifty dollars a crack for gold eagles and $1 for silver eagles is a deal I'll take all day.

And this: "Attorney and Tea Party activist Larry Hilton, author of the original bill, said he doesn't foresee any roadblocks."

that's right, Larry, make the bold statement.  What a maroon...

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