Good report from Ed Rombach
Link here.
Daily Archives: April 18, 2011 @ 4:48 pm (Monday)
Saudi’s oil production down 900k bpd
Right, this is the second time they’ve said this.
It could all simply be ‘cover’ for lowering prices.
Lots of reasons why they might lower price:
Get it way down and ‘intimidate’ investors in alternatives.
Try to spur demand.
Try to support the world economy and their support their equity holdings.
Members of the royal family and/or other insiders may have established large personal shorts in fwd crude contracts, and now lower price to transfer wealth to their own personal accounts.
Supports any other scheme they may have dreamed up on their flights back and forth to London.
It’s good to be price setter.
Saudi oil minister says market oversupplied and cuts output
By Amena Bakr and Reem Shamseddine
April 17 (Reuters) — Saudi Arabia’s oil minister said on Sunday the market was oversupplied and the kingdom had reduced output, sending a the strongest signal yet that OPEC may not boost output in June to quell soaring oil prices.
Consumers have urged the exporters’ group to add supply to halt the rally in oil prices that has taken crude to its highest level in 2 1/2 years amid unrest in North Africa and the Middle East, but OPEC members say there is little they can do to bring prices down.
“The market is overbalanced … Our production in February was 9.125 million barrels per day (bpd), in March it was 8.292 million bpd. In April we don’t know yet, probably a little higher than March. The reason I gave you these numbers is to show you that the market is oversupplied,” Naimi told reporters.
Two Saudi-based industry sources told Reuters last week the kingdom had cut production.
Naimi’s words, echoed later on Sunday by his counterpart from the United Arab Emirates, are the clearest indications yet that the group is unconvinced there is a need for more oil despite the civil war that has slashed Libyan output and expectations Japanese oil demand will rise as it scrambles to rebuild its earthquake-shattered electricity grid.
“These statements underscore the breadth of the security premium currently in (oil) prices. Overall supplies are sufficient,” said John Kilduff of energy hedge fund Again Capital. “As we’ve seen in the past, however, a well-supplied market is not always a barrier to very high prices.”
NO COMMENT ON PRICE FROM NAIMI
Naimi declined to comment on the current price of crude.
Oil prices fell early last week after Goldman Sachs warned high prices may be eroding demand, but rebounded on signs of renewed health in the U.S. economy on Friday.
Nobuo Tanaka, the head of the International Energy Agency, which represents oil importers’ interests that warned last week high prices were cutting into oil demand, stopped short of saying OPEC needed to boost output, but suggested the group be more flexible in its thinking about supply.
“The market is getting tighter and if it is tighter the price may go up, which may have a negative impact to economic growth,” Tanaka told reporters.
Unrest in North Africa and the Middle East has left Saudi Arabia and other Gulf nations nervous of political unrest. The kingdom has promised nearly $93 billion in handouts to its citizens to keep them happy, making a sharp fall in oil prices a major risk for its budget.
Saudi Arabia and some other OPEC members unilaterally boosted oil production after the March uprising against Libyan leader Muammar Gaddafi shut down the bulk of the North African OPEC member’s oil industry but weak demand for the additional production appears to have prompted the reduction in output.
Naimi said Saudi Arabia had sold 2 million barrels of a special blend of crude that tried to replicate the high quality Libyan barrels lost. Demand for the blend has been tepid, according to oil traders.
What happened to Q1?
This is typical of recent announcements:
“With most of the news on 1Q growth now in, the GDP “bean count” looks even softer than it did a couple of weeks ago. The most recent disappointments have come on the export side—with trade now set to subtract significantly from growth in the quarter—and from inventories. Consequently, we are downgrading our real GDP growth estimate to 1¾% (annualized), from 2½% previously (and from 3½% not too long ago).”
So what went wrong?
Maybe, as I guessed at just prior to year end:
The effect of world austerity was underestimated, particularly in Europe and China?
The effects of income channel from QE2 (remember the Fed turning over $79 billion to the tsy that the economy would have earned if the Fed hadn’t bought/owned those securities?) were underestimated?
The effect of the year end tax adjustment was less than anticipated, as work for pay that was eliminated maybe had higher propensities to consume than the 2%, one year FICA reduction?
Rising gasoline prices slowed things down some?
Rising food price as we burn up our food supply for fuel wreak havoc world wide?
So how about Q2, which is starting about as high as Q1 did?
High food and gasoline prices continue.
Supply disruptions from the Japan.
The Fed owns more tsy secs and has thereby removed more interest income from the economy.
World austerity intensifies, now including the US.
China’s inflation fight intensifies.
And business top line growth starting to falter from modest levels?
And this time the fiscal safety nets are in jeopardy as govt’s believe they have ‘run out of money’ and need to tighten up, with Japan now the prime example, looking at tax hikes to ‘pay for’ earthquake damage.
China Daily | Zhou Pledges More Tightening as China Raises Reserve Ratios
As previously discussed, changing reserve ratios and the like does nothing more than raise the cost of funds to the banks, much like a ‘normal’ rate hike.
And, also as previously discussed, higher rates more often than not add to inflationary pressures, rather than subtract from them.
Ultimately, it is the fiscal adjustments that bite, including reduced deficit spending (both proactive and, more common, via automatic stabilizers, particularly increased tax receipts due to nominal growth) and reduced state lending, all of which is in progress. Reductions in state lending are also, functionally, best considered ‘fiscal’ measures.
This all typically results in a very hard landing.
China Raises Reserve Ratio to Curb Inflation as Zhou Pledges More to Come
April 17 (Bloomberg) — China increased banks’ reserve requirements to lock up cash and cool inflation, and central bank Governor Zhou Xiaochuan said monetary tightening will continue for “some time.”
Reserve ratios will rise a half point from April 21, the People’s Bank of China said on its website yesterday, pushing the requirement to a record 20.5 percent for the biggest lenders. The move came less than two weeks after an interest-rate increase. Zhou sees no “absolute” limit on how high reserve requirements can go, he said April 16.
The nation’s fifth interest-rate increase since the financial crisis may come as soon as next month after inflation accelerated in March to the fastest pace since 2008, Societe Generale SA said. Chinese policy makers may also consider allowing faster appreciation in the yuan, described by the U.S. as “substantially” undervalued, to reduce the cost of imported commodities such as oil.
Higher reserve requirements “will help tighten monetary conditions and prevent banks from lending aggressively in the coming month,” said Liu Li-Gang, an Australia & New Zealand Banking Group economist in Hong Kong who formerly worked for the World Bank. Policy makers may also increasingly rely on the yuan to contain “imported inflation,” Liu added.
Geithner’s Case
The Shanghai Composite Index rose 0.4 percent as of 11:09 a.m. local time. Non-deliverable yuan forwards were little changed, indicating expectations for the currency to rise about 2.3 percent in the next 12 months from 6.5293 per dollar.
U.S. Treasury Secretary Timothy F. Geithner says a stronger Chinese currency would both counter inflation within the Asian nation and aid efforts to reduce economic imbalances that contributed to the global financial crisis.
The yuan has gained about 4.5 percent against the dollar since June last year, when China scrapped a crisis policy of keeping the currency unchanged against the greenback. Analysts’ median forecast is for the currency to climb to 6.3 per dollar by year end.
Speaking in Washington yesterday, PBOC Deputy Governor Yi Gang said the yuan is close to being freely usable, which would allow it to be included in the International Monetary Fund’s Special Drawing Rights basket. He said April 15 that a gradual appreciation of the currency would help his country overcome inflation.
BBC News – World Bank president: ‘One shock away from crisis’
Glad they understand the real world problem.
The problem is their policy recommendations that cause these conditions in the first place.
And now they are asking G20 nations who they’ve led to believe they are on the brink of becoming the next Greece to pledge financial support.
World Bank president: ‘One shock away from crisis’
April 17 (BBC) — The president of the World Bank has warned that the world is “one shock away from a full-blown crisis”.
Robert Zoellick cited rising food prices as the main threat to poor nations who risk “losing a generation”.
He was speaking in Washington at the end of the spring meetings of the World Bank and International Monetary Fund.
Meanwhile, G20 finance chiefs, who also met in Washington, pledged financial support to help new governments in the Middle East and North Africa.
Mr Zoellick said such support was vital.
“The crisis in the Middle East and North Africa underscores how we need to put the conclusions from our latest world development report into practice. The report highlighted the importance of citizen security, justice and jobs,” he said.
He also called for the World Bank to act quickly to support reforms in the region.
“Waiting for the situation to stabilise will mean lost opportunities. In revolutionary moments the status quo is not a winning hand.”
At the Washington meetings, turmoil in the Middle East, volatile oil prices and high unemployment were also discussed.
IMF chief Dominique Strauss-Kahn raised particular concerns about high levels of unemployment among young people.
“It’s probably too much to say that it’s a jobless recovery, but it’s certainly a recovery with not enough jobs,” he said.
“Especially because of youth unemployment… there is now a risk that this will be turned into a life sentence, and that there is a possibility of a lost generation,” he said.
Senator Richard Blumenthal- not so innocent subversion
I spoke with Senator Blumenthal for several hours on MMT just over a year ago, before he was elected Senator.
He read my book and asked the right questions.
He knows imports are real benefits, exports real costs.
He knows the trade deficit is a good thing for America.
He knows that his proposals would reduce our real terms of trade and lower our standard of living.
And he knows taxes function to regulate aggregate demand,
and that we can readily sustain full employment by keeping taxes at the right level for a given size of government.
He remarked that it was how he had learned it at Harvard in the 1960’s.
And he called me several times to discuss specific issues in detail.
With this letter he has turned subversive for presumed political gain.
I see it as a clear case of politics over patriotism.
I likewise discussed this with Senator Carl Levin, but maybe 15 years ago, who also seems to have decided to place politics over patriotism.
If I had the authority, I would prosecute for treason.
April 14, 2011
The Honorable Timothy J. Geithner
Secretary of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220
Dear Mr. Secretary,
We write to urge you to make fundamental currency misalignment a central issue at the G-20 meeting in Washington, DC this week. For too long, this issue has festered, harming not only American companies and workers, but also the economy of every country that meets its International Monetary Fund (IMF) commitments to allow the level of its currency to be determined by markets.
The consistent interference of a few countries in currency markets creates an uneven global playing field, perversely encouraging other countries to intervene as well. The resulting currency misalignments distort global markets, creating instability at a time when the world can ill afford it.
While multiple countries are guilty of currency manipulation, China unfortunately stands out from the rest. Its mercantilist policies occur on a grand scale. In the fourth quarter of 2010, China intervened in currency markets by purchasing $2 billion worth of foreign currency a day, adding $199 billion to its foreign currency reserves. Not surprisingly, in its recent 2011 Global Economic Outlook, the IMF calls the RMB “substantially weaker than warranted” and finds a “key motivation for the acquisition of foreign exchange reserves seems to be to prevent nominal exchange rate appreciation and preserve competitiveness.”
China’s policies work as intended: The RMB has had almost no appreciation against the dollar since May 2008. China’s illegal practices make Chinese-produced goods cheaper than similar products made in America, driving up our trade deficit with China and putting Americans out of work. The United States’ trade deficit with China reached a staggering $273 billion last year, costing our country thousands of jobs.
The IMF cites the accumulation of official foreign exchange reserves as “an important obstacle to global demand rebalancing.” Removing this obstacle should be a key U.S. priority. Ironically, China’s refusal to allow the RMB to appreciate in a meaningful way is contrary to its own best interest. Economists agree that China needs to rebalance its economy to rely more on domestic consumption than on export-led growth. This necessary rebalancing would ultimately tame Chinese inflation, improve global economic growth, and remove a key barrier to a more fruitful U.S.-China relationship.
The United States does no one a favor by downplaying this crucial issue. We urge you to work together with all countries harmed by currency manipulation to press China to allow the level of the RMB to be determined by markets, not government interventions. When everyone plays by the same rules, our entrepreneurs and workers can compete and win in the global economy.
Sincerely,
Sen. Debbie Stabenow
Sen. Sherrod Brown
Sen. Olympia Snowe
Sen. Carl Levin
Sen. Sheldon Whitehouse
Sen. Bob Casey
Sen. Ben Cardin
Sen. Kirsten Gillibrand
Sen. Jack Reed
Sen. Richard Blumenthal
World Finance Chiefs Chastise US on Budget Gap
So with the entire world completely wrong,
but nonetheless in charge,
seems a reasonable bet to assume weak demand and a too wide output gap/too high unemployment will continue indefinitely?
That is, fear of looming national solvency crisis (becoming the next Greece)
is causing the world to go, at best, the way of Japan, as the real risk remains deflation.
Not that there won’t be relative value shifts, particularly where there is pricing/monopoly power.
With crude oil the main concern.
The ignorance remains overwhelming, on monetary operation and trade policy, as well as fiscal policy, as highlighted below:
World Finance Chiefs Chastise US on Budget Gap
April 17 (Reuters) — World finance leaders Saturday chastised the United States for not doing enough to shrink its massive overspending and warned that budget strains in rich nations threaten the global recovery.
Finance ministers in Washington for semi-annual talks took sharper aim than in previous years at the United States’ $14 trillion debt.
While most of the criticism came from emerging market economies, some advanced nations joined the chorus.
Dutch Finance Minister Jan Kees de Jager warned that if the United States and other advanced nations move too slowly it could undermine confidence in the global economy.
“Insufficient budgetary consolidation may spark off further escalation of debt sustainability issues, with repercussions on confidence and the still fragile financial sector,” de Jager told the International Monetary Fund’s steering committee.“Debt dynamics in other advanced economies, including the United States, are of concern.”
The IMF this week said the U.S. budget deficit was on course to hit 10.8 percent of nation’s economic output this year, tying with Ireland for the highest deficit-to-GDP ratio among advanced economies. It urged Washington to move quickly to put a credible plan in place to tighten its belt.
Brazil’s finance minister, Guido Mantega, offered sharp words in a thinly veiled attack on the United States. “Ironically, some of the countries that are responsible for the deepest crisis since the Great Depression, and have yet to solve their own problems, are eager to prescribe codes of conduct to the rest of the world,” he said.
The Group of 20 countries agreed on Friday to a plan that could put more pressure on the United States to fix its deficits as well as push other leading economies to address
their own shortcomings.
The IMF’s advisory panel on Saturday said issues of financial stability and sovereign debt stability must be addressed, saying in a communique that “credible actions are needed to accelerate progress.” It emphasized the need for fiscal consolidation in advanced economies while avoiding overheating in emerging economies.
The Obama administration and the U.S. Congress are locked in battle over how best to fix the deficit. Republicans are pushing for deep spending cuts as part of the argument over raising the nation’s $14.3 trillion debt limit, something which is needed to avoid an unprecedented U.S. debt default.
The Republican-led House on Friday approved a plan to slash spending by nearly $6 trillion over a decade and cut benefits for the elderly and poor.
President Barack Obama, who has offered a competing vision to curb deficits by $4 trillion over 12 years, said Thursday the Republican plan would create “a nation of potholes.” The White House is wary about cutting spending sharply while the economic recovery remains fragile.
Treasury Secretary Timothy Geithner told fellow finance ministers on Saturday caution was needed. “We are committed to fiscal reforms that will restrain spending and reduce deficits while not threatening the economic recovery,” he said.
Geithner was quick to say others whose policies contribute to global imbalances must change too, “especially those whose fundamentals call for greater exchange rate flexibility…”
The United States has repeatedly called for China to relax its limits on the yuan currency.
Yi Gang, a deputy governor of China’s central bank, called for “more rigorous” efforts by advanced economies to tighten budgets and said the IMF needs to strengthen its monitoring of these rich nations.
Russian Finance Minister Alexei Kudrin, taking aim at the U.S. Federal Reserve, said central banks that buy government debt to keep interest rates low were abetting fiscal profligacy.
The Fed is on course to complete the purchase of $600 billion in U.S. government debt by the end of June, which would take its total purchases of mortgage-related and government debt since December 2008 to nearly $2.3 trillion.
Echoing Republican lawmakers and even some Fed officials, Kudrin said those purchases blurred the line between monetary and fiscal policy in a way that could jeopardize a central
bank’s independence.
“We observe this process with some wonderment, since it amounts to the monetization of those countries’ budget deficits,” Kudrin said.
Sen. John Kerry- read my book and lose the long face
MMT to Senator Kerry-
Read ‘The 7 Deadly Innocent Frauds of Economic Policy’,
Lose the long face, and save us from ourselves.
Taxes function to regulate the economy, not to bring in dollars to spend
The idea that US- the actual issuer of its own currency, can be the next Greece- a user of the currency like a US state, a business, or a household, is entirely inapplicable.
There is no looming US government funding crisis.
There is a massive shortage of aggregate demand.
It’s not silly, it’s tragic.
Sen. Kerry: Budget Deal Makes America Look ‘Silly in a Lot of People’s Minds’
By Nicholas Ballasy
April 12 (CNSNew.com) — Senator John Kerry (D-Mass.) said the budget deal negotiated by House Speaker John Boehner (R-Ohio), Senate Majority Leader Reid (D-Nev.) and President Barack Obama makes America look “silly in a lot of people’s minds.”
“I think it’s no secret that I didn’t like the process,” Kerry said at a Capitol Hill press conference on Tuesday. “I don’t think it served the United States Congress or Senate well to have that fraction of the budget, with 100 percent of the cuts coming from 12 percent of the budget, threaten to hold up the government of the United States to the point of shutdown.”
“I think it did all of us, frankly, I think that process did us all a disservice as Americans,” he said. “I think the country looks silly in a lot of people’s minds when we have so much bigger budget challenges in front of us.”
Kerry appeared with Senator John McCain (R-Ariz.) at the press conference where they announced their legislation, “The Commercial Privacy Bill of Rights Act of 2011,” which they said would protect individuals’ personal information from being sold by companies without their knowledge.
Kerry commented on the budget process at the end of the conference.
“John McCain would agree with me and, as I think so many of our colleagues do now, there’s no way to resolve our budget challenge unless we put everything on the table,” said Kerry. “That means Medicare, Medicaid, fix Social Security without cutting benefits and, obviously, look at the Defense Department spending, procurement and other things. Everything has to be on the budget.”
The budget compromise reached late on Friday (and to be voted on this Thursday) to avoid a government shutdown cuts federal spending by $38.5 billion for the rest of fiscal year 2011.