Daily Archives: October 14, 2011
On a drizzly evening in Zuccotti Park this week, where the Occupy Wall Street protesters are camped out with the modern revolutionary’s gear of iPhone, blue tarp and cappuccino, I spotted one young man wearing a T-shirt with an image of Ronald Reagan and the words “Bad Religion.”
It was the right outfit for the occasion. That’s because the greatest significance of the wave of leftist demonstrations that started in Lower Manhattan and rippled across the United States over the past few weeks is the potential challenge it poses to the Reagan Revolution.
During the 2008 campaign, Barack Obama drew shrieks from the Democratic base, particularly its Clinton wing, by naming Ron rather than Bill as a president who had “changed the trajectory of America.”
But Obama was right. We are all living in a world shaped by Reagan and his ideology of small “l” liberalism.
Three decades later, the triumph of Reaganism is remarkable. In the United States and Britain taxes shrank, regulation, especially of the financial sector, was pruned back, and state companies were sold off. Even Brussels was nudged toward liberalization.
The impact on the rest of the world was even more profound. Soviet Communism collapsed, China converted to capitalism and entered the world economy, India dismantled its protectionist License Raj, and many emerging market economies in Latin America and Africa embraced liberalization as the path to growth.
“Going back to the 1970s and 1980s is crucial,” said Branko Milanovic, a World Bank economist and author of The Haves and the Have-Nots, a 2010 book about income disparity around the world. “The ideology drove everything that happened in the next 30 years. Deng Xiaoping captured it best — ‘to get rich is glorious.”’
One result has been an unprecedented global economic boom. Its biggest beneficiaries have been some of the world’s poorest people, particularly in China and India: Shaohua Chen and Martin Ravallion of the World Bank have found that between 1981 and 2005, the number of people living in poverty in the developing world fell by 500 million. The West prospered as well, with relatively strong and consistent economic growth over the past three decades.
But something else has been happening, too. The triumph of economic liberalization has coincided with a sharp increase in income inequality. The growing gap is a worldwide phenomenon — it has been most striking in the United States and China, but income inequality has also grown, especially in the last past decade, in most developed countries, and in many emerging markets.
“What we now call the Reagan Revolution was a turning point in the American economy,” said Jacob S. Hacker, a political science professor at Yale University in Connecticut and author, with Paul Pierson, of Winner-Take-All Politics. “These patterns of rising inequality were established then.”
Economists, most notably Thomas Piketty and Emmanuel Saez, the data jocks who are the gurus of income inequality studies, have been pointing out the growing gap for a decade. But, particularly in the United States, which still determines the ideological weather for the rest of the world, that increasingly skewed distribution failed to catch fire as a political issue.
“Among elite opinion, this wasn’t talked about,” Jeffrey D. Sachs, director of the Earth Institute at Columbia University in New York and author of The Price of Civilization, published this month, told me. “It was viewed as impolite, it was viewed as class warfare.”
One reason the rest of society went along with that reticence is suggested by University of Chicago economist Raghuram Rajan, in his 2010 book Fault Lines — that the credit bubble of the 1990s and 2000s masked the stagnating wages of the U.S. middle class.
The financial crisis of 2008 brought that self-deception to an abrupt halt. And while the middle class is still in the doldrums, the top 1 percent has largely recovered, thanks in part to muscular intervention by the state. That one-two punch is why the old American taboo on talking about income distribution is lifting, particularly in Zuccotti Park.
“‘Class warfare’ has seldom had much traction in American politics because Americans tend to idealize the ‘free market’ as a separate sphere of life, with its own (rough) justice,” Larry M. Bartels, a political science professor at Vanderbilt University in Tennessee and author of “Unequal Democracy,” wrote in an e-mail reply to my questions.
“Escalating inequality and the wreckage of the Great Recession may now be focusing increasing anger on that top sliver — especially bankers, who are, conveniently, prominently implicated in the malfeasance that led to the financial meltdown of 2008 and (still) immensely rich.”
But the left shouldn’t declare victory quite yet. That’s because the anger of the United States’ squeezed middle class is also being harnessed by the right, and, at least so far, with greater and more focused political effect.
If you doubt that the winner-take-all U.S. economy is one of the Tea Party’s inspirations, consider the remarks this week by its heroine, Sarah Palin. In a speech in Seoul, she railed against “crony capitalism,” complaining that “well-connected banks get bailed out” and “certain companies get special deals through governments.”
Palin’s remedy to crony capitalism is to double down on the Reagan Revolution — lower taxes and shrink government further. Progressives have not yet come up with a solution of such seductive simplicity. Their standard prescription — higher taxes, more regulation, a stronger social welfare net, and more investment in education — may be sensible. But it lacks the rallying power of Palin’s call to smash crony capitalism by depriving the elites of their political tool — big government.
Even the energized protesters in Zuccotti Park know their left-leaning populist movement has found its complaint — “we are the 99 percent” — but not its remedy. They heard as much from Slavoj Zizek, the best-selling Slovenian philosopher, who was this week’s celebrity intellectual speaker: “We know what we do not want. But what do we want?”
After a lecture on income inequality and its pernicious consequences delivered on the square on Tuesday by Sara Burke, a policy analyst at a New York research organization, and illustrated with charts from I.M.F. economists, one listener said she was keen to “educate” people about the issue. But to do that, she wanted Burke to help her with something: “What’s my sound bite?”
The politician who answers that question will be the Reagan of the left.
- Bloomberg Backs Down On Evicting OWS Protesters From Zuccotti Park (crooksandliars.com)
- Friday Free-For-All: #OWS Hidden Agenda Exposed (nicedeb.wordpress.com)
- Occupy Wall Street protester: I want my college tuition paid because that’s what I want; Update: Landlord asks cops to clear Zuccotti Park – for cleaning (hotair.com)
While now facing greater scrutiny from regulators, contractors in the oil-service industry have considerable liability protection to fight the citations and any subsequent fines, legal experts say. They also have enough market muscle to strengthen liability protection in their contracts with oil companies.
Previously, U.S. regulators have held the rig operator responsible for whatever happens under its watch. The operator hired contractors, who perform drilling, seismic or cementing operations and whose contracts protected them from any liability.
That was upended by the Deepwater Horizon mishap in April 2010, which resulted in 11 deaths, the biggest accidental marine oil spill in history, and tens of billions of dollars in costs. BP said blame also falls on Halliburton, which was in charge of cementing the failed well shut, and Transocean, the drilling contractor that owned the Deepwater Horizon rig. U.S. investigations have widely cast the blame among all three companies.
The citations, issued Wednesday, set a precedent for holding contractors at least partially responsible for such accidents, and may increase the contractors’ exposure to civil suits from anyone claiming damages from the spill, analysts said.
The contractors have pledged to fight the accusations. Halliburton said that it is fully protected against penalties and losses from the Deepwater Horizon incident by its contract with BP. Transocean also said it intends to appeal.
However, if the courts determine that the government has the right to issue a citation to oil-service contractors, there is no contract that will protect them from the fine, according to Larry Nettles, an environmental attorney with Vinson & Elkins, a Houston law firm. “In most jurisdictions the courts do not allow indemnification for fines and penalties, because it defeats the purpose,” which is to punish bad behavior, Mr. Nettles said.
Still the industry is expected to bulk up its contracts even more in the wake of the regulators’ action, legal experts say, to get as much liability protection as possible. The contractors currently have considerable bargaining power to win such new concessions from rig operators on contract protection. Relatively high oil prices have led to a shortage of drilling crews and have put oilfield services at a premium, giving the contractors the upper hand in negotiations.
“When oil prices are high and there’s lots of activity, service contractors can drive a very hard bargain,” said Owen Anderson, a professor of law specializing in energy at the University of Oklahoma.
(c) 2011 Dow Jones & Company, Inc.
- New Federal Report Spreads Blame in Gulf Blowout, Spill
- BP Contractors Could Face Fines Over Gulf Oil Spill
- BOEMRE Looking to Expand Oversight to Drilling Contractors
- Oil Firms Face Liability Protection Issues (online.wsj.com)
- BP Contractors Could Face Fines Over Gulf Oil Spill (gcaptain.com)
- BP Contractors Could Face Deepwater Fines (online.wsj.com)
- Serious New Regulatory Risks Arise for Oil Contractors (BP, RIG, HAL, CAM, SLB, BHI, NOV) (247wallst.com)
By Abhijit Neogy and Glenn Somerville
(Reuters) – Proposals to double the size of the IMF as part of a broader international response to Europe’s debt crisis immediately ran into resistance from the United States and others, burying the idea for now and firmly putting the onus back on Europe.
The outlines of the plan, that had the backing of several developing economies, emerged as G20 finance ministers and central bankers began meeting in Paris to discuss a world economy under threat from European nations mired in debt.
One G20 source said some policymakers backed injecting some $350 billion into the International Monetary Fund. Other options under consideration included loans, special purpose vehicles and note purchase agreements.
Treasury Secretary Timothy Geithner wasted no time in shooting the idea down. The IMF’s dominant shareholders, including the United States, Japan, Germany and China, are content that the fund’s $380 billion worth of resources is enough. Canada and Australia also voiced opposition.
“They (the IMF) have very substantial resources that are uncommitted,” Geithner said.
The United States is among countries keen to keep pressure on the Europeans to act more decisively to end the two-year-old debt crisis that began in Greece but has since spread to Ireland and Portugal and is lapping at Spain and Italy.
“The first priority here is for Europeans to put their own house in order,” Australian Finance Minister Wayne Swan said.
The finance ministers of France and Germany, under pressure from the rest of the world to act in concert, made a fresh commitment to have a plan for the euro zone in place before a summit of G20 leaders in Cannes on Nov 3/4.
Speaking after a lunch meeting with President Nicolas Sarkozy, French Finance Minister Francois Baroin said: “We will continue our discussions in the coming days but we have already come to some agreements that will be very important.”
Standard and Poor’s cut Spain’s long-term credit rating, citing the country’s high unemployment, tightening credit and high private sector debt.
French and German officials are trying to put flesh on the bones of a crisis resolution plan in time for a European Union summit on October 23. Fears about the damage a default by Greece — and possibly others — could inflict on the financial system have driven a confidence-sapping bout of market volatility since late July, with global stocks falling 17 percent from their 2011 high in May.
Unlike in 2009 when the G20 launched coordinated stimulus to pull the world out of crisis, the rest of the world is chafing at Europe’s slow response while Washington and Beijing are sparring over the yuan currency.
The Franco-German crisis plan is likely to ask banks to accept bigger losses on their Greek debt than the 21 percent spelled out in a July plan for a second bailout of Athens, which now looks insufficient.
“It will be more, that’s more or less certain,” French Finance Minister Francois Baroin said.
It should also lay out a system for recapitalizing banks and plans to leverage the euro zone’s European Financial Stability Facility to give it more punch.
Japanese Finance Minister Jun Azumi said he would share with his G20 counterparts Japan’s “bitter experience” of failing to contain its 1990s banking crisis by doing too little, too late.
Whilst the EFSF has the resources to cope with bailouts for Greece, Portugal and Ireland, it would be overwhelmed by the need to rescue a bigger economy such as Italy or Spain.
“We see heightened risks to Spain’s growth prospects due to high unemployment, tighter financial conditions, the still high level of private sector debt, and the likely economic slowdown in Spain’s main trading partners,” S&P said.
The most effective method would be to turn the EFSF into a bank so it could draw on European Central Bank resources. Both Germany and the ECB are opposed to that.
The G20 may refer to the euro crisis in its communiqué and in closing news conferences on Saturday evening, but little else of substance is likely to be inked in with a EU summit in nine day’s time the make-or-break moment.
ROLE OF IMF
G20 sources said most BRICS economies were in favor of bolstering the IMF’s capital as a crisis-fighting tool.
“We have said this before and have conveyed this again, that if emerging economies and the BRICS are called upon to contribute, we can do it via the International Monetary Fund,” one of the sources said. “India is open to it, China and Brazil are also okay with the idea.”
Another G20 source said the IMF would present a plan which had broad support to its executive board to make short-term credit lines available to fundamentally healthy countries hit by liquidity crises. It could aid euro zone countries hit by the current crisis of confidence in the bloc’s sovereign debt.
The Paris meeting may give the green light to regulators for new rules on banks deemed ‘too big to fail’, including capital surcharges, due to be officially approved in Cannes.
Any real progress on bigger goals such as setting parameters to measure global imbalances and reining in speculative capital flows is unlikely to come before a November 3-4 summit in Cannes, where France passes the G20 baton to Mexico.
A French finance ministry source said that for Cannes, France hoped to have two or three measures agreed for countries showing imbalances: consolidation measures for those with high deficits and stimulus measures for those with surpluses.
“We are going to try to make some progress and obtain, perhaps not tomorrow or Saturday but by Cannes, a list of measures country by country,” he said. “These must be measures which will have an impact on the real economy.”
A separate G20 source said after preparatory talks late on Thursday that China would commit in Paris to boost its consumption through a five-year plan, via households and companies as well as infrastructure.
The G20 countries make up 85 percent of global output.
An April G20 meeting placed seven large economies under review — the debt-burdened United States, export driven China and the economies of France, Britain, Germany, Japan and India. Officials have said privately the aim was to get Beijing to discuss the yuan, and China’s cooperation is essential to the success of the process.
China and the United States sparred this week over a U.S. Senate bill to press Beijing to raise the yuan’s value, and the issue is likely to create a sideshow at the G20 talks, even if the euro zone crisis pushes it off center stage.
- G-20 kicks off crucial weeks for euro crisis (marketwatch.com)
- G20: Geithner To Continue Demand For EZ Action On Crisis – 1 (forexlive.com)
- US rejects plan to strengthen IMF in euro zone crisis – Reuters (news.google.com)
By Conway Irwin
Controversial estimates of potentially enormous new energy reserves highlighted by energy company strategists have sparked a wave of optimistic forecasts for fossil fuel development.
“We’re very much at the very, very, very beginning of the revolution, and we don’t even see where this is going yet.
“It won’t make sense to talk about unconventional,” Banaszak said. The Energy Information Administration (EIA) has forecast that shale gas’ share of US natural gas supply will rise to 46% in 2035 from 14% in 2009. “Even today it’s already, by some estimates, between 20% and 28% of the natural gas that’s produced in the United States,” Banaszak said.
The Novelty Of Shale Remains
Despite rapid development of the unconventional gas sector in the US, shale as a viable source of gas is still a relatively recent phenomenon. Both the ultimate volume of recoverable reserves, and their impact on domestic and global markets, remain to be seen.
Estimates of natural gas resources available in the United States has risen dramatically in recent years, and upward revisions continue. EIA estimates of potential shale gas resources in the US more than doubled in the agency’s 2011 Annual Energy Outlook from the year before, to 862 trillion cubic feet.
Banaszak compared these rising estimates to previous upward revisions in areas like the deepwater US Gulf of Mexico and Alaska’s Prudhoe Bay. “There’s definitely a pattern, as the industry operates in a new resource area, we learn more about it, we learn to understand it better, and estimates often change,” Banaszak said.
“We’re very much at the very, very, very beginning of the revolution, and we don’t even see where this is going yet. Any idea you have about where this is headed is probably still not fully informed, because we’re just still learning,” said Banaszak.
Unearthing Shale Liquids
The same trends of rising production volumes and reserve estimates may be emerging in liquids-rich onshore unconventional fields.
“It is an area where a lot of progress is being made,” EIA deputy administrator Howard Gruenspecht told AOL Energy.
Gruenspecht highlighted the Bakken Shale, which spans parts of North Dakota, Montana, and Saskatchewan in Canada, and the Eagle Ford in Texas, as among the most prominent of US onshore oil plays. He also noted prospects for the Utica Shale, which spans parts of the US midwest and northeast, as well as Quebec.
The Utica “has not provided significant production growth yet, but there is certainly a lot of talk that this will be a liquids-heavy resource,” Gruenspecht said.
A study by the National Petroleum Council, an advisory group that represents oil and gas industry views, suggested that at the high end of the spectrum, tight “shale” liquids plays in the US and Canada could hold recoverable resource potential of 10-20 billion barrels, and future production may exceed 1 million barrels per day.
But forecasting with any accuracy is as difficult for unconventional liquids as it has been for unconventional natural gas. “It’s very early days”, said president of consultancy Strategic Energy & Economic Research (SEER) Michael Lynch.
The large shale liquids deposits in the US — which Lynch said number “at least a dozen” — could collectively hold 100 billion barrels of oil in place, with around 1-3% recoverable. Even at low recovery rates, with such a large resource base, “1% means 1 billion barrels”, Lynch said. He suggested that each deposit could add 50,000 barrels per day each year once equipment and personnel are available.
And unconventional onshore oil reserve estimates may rise substantially as new discoveries are made and producers hone techniques to extract liquids from tight rock. “You’re going to get more recovery per well, lower costs, quicker times, and so forth”, Lynch said.
“Tight Race” Between Onshore and Offshore
Tapping oil and liquids from unconventional formations has already begun to impact US oil production, which rose in 2009 and 2010 after declining steadily since the mid-1980’s. But other sources of output, such as the deepwater Gulf of Mexico, may be equally important to future domestic production growth.
Oil production in North Dakota has risen sharply in recent years, recently surpassing 400,000 barrels per day, thanks in large part to the Bakken Shale. But “while the trend in North Dakota and the unconventional resources is certainly worthy of note, it does not replace the offshore Gulf, particularly the deepwater,” Gruenspecht told AOL Energy.
US offshore crude production from the Gulf of Mexico averaged 1.6 million barrels per day in 2010, accounting for almost one-third of total US oil production, according to the EIA. “We’re talking in North Dakota about production that’s well less than a third of the federal Gulf of Mexico production,” said Gruenspecht.
The NPC study lists potential recoverable oil resources in the US Gulf of Mexico at the high end of the range at 40-60 billion barrels — three-to-four times its estimates for unconventional “tight oil”. According to the NPC, production from the Gulf could rise to 3 million barrels per day in the near- to medium-term if discovered reservoirs yield commercial volumes and drilling returns to levels of activity seen prior to the 2010 oil spill from the Macondo well.
But Lynch foresees a “tight race” between production growth from US unconventional onshore plays and the deepwater Gulf of Mexico.
For shale liquids, “it seems like there’s a lot of potential, and the obstacles are relatively few”, Lynch said. Such obstacles could include new regulations that limit the use of hydraulic fracturing, or procuring sufficient hydraulic fracturing equipment to drill large numbers of wells.
In the deepwater drilling areas, companies’ push into new areas has the potential to unearth supergiant fields. “When you start talking about billion-barrel fields, that’s a lot of oil. And the implication is that if there’s one billion-barrel field, there are probably a lot more 400 million barrel fields,” he said.Related Articles
- USAEE: Framing The Debate Amid Constant Change (10/13/2011)
- From A Distance: US Output Grows, But Oil Imports Still Essential (10/13/2011)
- Follow the #usaeedc hashtag for conference coverage (10/10/2011)
- Big Oil: To Create Jobs, Let Us Drill More (9/08/2011)
- Exxon Mobil Signs Huge $500 Billion Deal For Russian Oil (8/30/2011)
- Natural gas shale play development now going global (mb50.wordpress.com)
- Since September 7, 2011… Do We Know Who Owns the Natural Gas in Shale in Pennsylvania? Now the Supreme Court of Pennsylvania must decide whether to hear this appeal. (marcellususa.com)
- New Frontiers: the attention turns to some up-and-coming plays (mb50.wordpress.com)
- China shifts interest in Canadian energy companies (calgaryherald.com)
By Clifford May
Ayatollah Ruhollah Khomeini, leader of Iran‘s 1979 Islamic Revolution, had a saying: “The Americans cannot do a damned thing.” Tehran has tested that proposition time and again – conspiring, over three decades, to kill Americans in Lebanon, Saudi Arabia, Iran and Afghanistan.
Now we have learned of a plot to launch terrorist attacks on American soil. One hesitates to imagine the consequences if, after this, we allow Khomeini’s heirs to acquire nuclear weapons. No one will be able to say we were not warned.
Lessons? Short term, Iran must be made to pay a price. The sanctions implemented so far have been only a shot across the bow. There is more that can be done economically. In addition, the millions of Iranians who oppose the theocratic regime should be supported and empowered. There are other painful measures we can take. We need to make clear that all of them are very much on the table.
Longer term, we need to finally recognize that Iran and other self-proclaimed jihadi regimes and groups are waging a war – a real war, not a metaphoric war. In response, America’s economic policies must become national security policy. As Bernie Marcus, the entrepreneur who founded the Home Depot recently said: “If the country is not strong economically, we can’t be strong period.”
Energy policy also must become national security policy. Right now, 97 percent of all transportation systems in the United States can run only on petroleum-based products. That makes oil a strategic commodity, one whose price is manipulated by OPEC, a conspiracy in restraint of trade dominated by Iran and other regimes hostile to America.
If transportation fuel were more abundant and cheaper, that would weaken Iran and OPEC while strengthening both our economy and national security. How do we get there from here?
Most immediately: Re-open the Gulf of Mexico to oil production. In 2010, following an offshore drilling rig explosion, the federal government instituted a moratorium on drilling in the Gulf. It was essential to find out whether other rigs were at risk. Once that question was answered, the moratorium was lifted – in theory. In fact, the Interior Department has been refusing to issue permits for offshore operations.
David Holt, president of the Consumer Energy Alliance, a pro-energy advocacy group, calculates that 200,000 jobs have been killed as a result, and that another 380,000 are threatened. Re-opening the Gulf for energy production, he said, would “create thousands of new jobs in nearly every state across the country, spur economic growth and enhance our national security.”
The Gulf is not the only area where vast amounts of energy are waiting to be tapped. New technologies, such as “horizontal drilling” and hydraulic fracturing, have made it possible to recover vast amounts of oil and natural gas from the Bakken oil fields of Montana and North Dakota, and the Marcellus Shale in the Appalachian Basin.
But when Harold Hamm, the discoverer of the Bakken oil fields, recently told President Barack Obama about “the revolution in the oil and gas industry and how we have the capacity to produce enough oil to enable America to replace OPEC,” Obama was dismissive, saying that within five years there will be batteries that will allow cars to get the equivalent of 130 miles a gallon.
In other words, America’s energy, economic and national security policies boil down to this: waiting for the development of new, improved batteries that can be used in electric vehicles that we hope will replace the existing fleet of gasoline-powered internal combustion engines, thereby reducing the funding we are providing our sworn enemies at some point in the future. That’s like dealing with a house on fire by waiting for a blizzard.
As part of this hope-for-change policy, the Obama administration also has been stalling on approvals for the Keystone pipeline, a privately funded project that will bring oil to the United States from the tar sands of Western Canada, creating 20,000 jobs with no taxpayer money. And the White House has spent no political capital pushing for an inexpensive modification of new automobiles that would allow motorists to fill their tanks not only with gasoline but with a variety of liquid fuels that can be made from natural gas, coal, urban garbage, agricultural waste and such crops as sugarcane.
Making policy is challenging when progress on one front means losing ground on another. But right now a single set of policies could strengthen us economically and make us more secure. What we need are leaders willing to demonstrate that Khomeini was wrong: Americans can do a damned thing.
- Yergin Chaper 33 Outline (iranrevolt.wordpress.com)
- Greens want terror oil in your gas tank (mb50.wordpress.com)
- Harold Hamm: How North Dakota Became Saudi Arabia (online.wsj.com)
- Yergin Chapter 34 Summary (iranrevolt.wordpress.com)
- By Blocking Gulf Drilling, Obama Costs Jobs and Raises Gas Prices (usnews.com)
- How North Dakota Became Saudi Arabia (junksciencesidebar.com)
- US Moves to Isolate Iran, Push Stronger International Action – BusinessWeek (news.google.com)