Days of Discontent : Trends Issue Transition points in the Global Financial Crisis

 

Days of Discontent : Trends Issue Transition points in the Global Financial Crisis

Mary-Anne Moore

Originally published August 6 2011

By now, the fall of 2008 seems a distant memory, or perhaps better thought of as a bad dream. The ‘world financial crisis’, ‘the great recession’, the ‘banking collapse of 2008′, ‘the stock market collapse’; there were many names for what is still happening today. The trend is large and global and still unfolding in all its unvarnished details. At certain places along the way, somewhat predictable transition points occur. This trend had been building up steam over the years, and was run full tilt after the events of 9/11 settled, under the Bush Administration. No one wants to lose the election because of a bad economy. The wealth it created from the dynamics, became an addiction for the players that were benefiting, who turned a blind eye. This included everyone from the subprime homeowners who must have had some idea that this was not something they really could sustain, to the CEO’s of major banks who could easily see the writing on the wall. When it became apparent to the major players involved that the bubble was about to burst, the focus shifted to managing this event for the best possible outcome. By 2007 the housing market had turned in the USA. M. Panzner releases his book ‘Financial Armageddon…’ in 2007. By the spring of 2008 Fannie May and Freddie Mac had been considered for nationalization, according to rumours online. There were signs of stress. Bear Stearns failed. By June of 2008 the ‘Hindenburg Omen’  had happened. R.B.S. and others were telling their clients to get out of the stock market. The election was starting to loom large on the horizon. Everything triggered at an opportune moment, interestingly enough. Some media reported the line that ‘no one saw it coming’.

A stock market bubble nears the bursting point by an election, bursts, sending shock waves throughout the global banking system, much of it already in crisis mode. Everything is thrown into a panic mode. Shortly after companies living on extended leverage to maximize profit and compete globally, are out of easy access to cash and fail or have massive layoffs.  Much later, the second wave in the monthly mortgage reset charts starts coinciding with the political footballing of debt ceilings and uncertainty, and a political union that never worked out the details of monetary union is unable to deal with a partially submersed balloon of debt. When you look back at it, one can see why things happened the way they did, at the time they did. Looking at the graphs below, one can see the second wave peak being pushed down the road.

Macro-trends are so large they awash all, in their wake. Often it is like trying to stop the tide from coming in, you know it is approaching, but what to do.  Our analysis of them let us try to minimize the severity, and reshape their path somewhat as they unfold. Being aware of them helps us adjust to our future needs, and hopefully find the time to react accordingly. The further we can see in the future of macro-trends, especially the critical trends and transition points, the more time we will have to react. Hopefully if we know, we can act in the best interests of society as a whole. Unfortunately the bulk of trend watching, which is in itself a very trendy niche the past few years, is done for profit of some sort. Macro-trends are difficult to ‘feel’ in any detail, because of the complexity involved, and are difficult to read as much of the data tends to be inaccurate, incomplete, and overly extrapolated. Immediate economic or political reasons often drive the response agenda, which do not always focus on the larger issues in play. But do we really understand how to navigate, if we do not know what direction to take for the long term? If we are only driven by short term interests, who is managing our longer term interests?

Gold has shot up dramatically in this latest crisis point, with values testing the $2000/oz mark. Hugo Chavez has even caused a stir in the rocketing gold market by announcing his plans on repatriating his gold abroad and nationalizing gold production located in his country. Gold, the dollar, and stocks are playing musical chairs with investors, as money chases safety, and a chance of profits in the volatility. Higher levels of fear and frustration are being reflected in the general populace as discontent festers. There have been periodic outbursts of social unrest in Europe, but continued joblessness and the stress of volatility may exacerbate unrest in the US, with a triggering event.

‘History Made’

In the relative quiet of a hot summer weekend, news emerged of the historic downgrade on the American debt from triple AAA status. While the American dollar remains the world’s reserve currency, a psychological bridge has been crossed in the world, and it is really this that will have the larger impact on world economics. In the larger context, the huge imbalances that have held despite pressures to the contrary, will have been changed by a seemingly insignificant event to some. It was a shift in perception, articulated. It will be remembered as historic, more for this. The event would have come at some point or other, in some shape as this, but it has arrived now. The larger the economy, and America has a huge economy still, the larger the impact. The blame game has begun, but in all fairness this imbalance has been around for many years, as the ‘elephant in the room’ no one cared to speak about, or deal with. Increasing national debt covered the effects of increasing trade imbalances, and unfunded domestic obligations. This ‘elephant’ was not only an American issue, but existed in many a country’s closet. A ‘herd of elephants’ if you will. As ‘it’ stood quietly in the corner, we stopped seeing it and life seemed to continue along its way. The creature has been awoken with this transition point in the global financial crisis like some terra cotta figure come to life, and is in play now. It will be a natural reaction to try and make it go ‘back to sleep’, but the likelihood of this, is a function of political cohesiveness of actions done for the good of a country, in a climate of ‘what can you do for me’. In a pre-election year the turmoil is expected. The larger part of the problem unaddressed is not really how to put the elephant back to sleep, but how to regain its health. How to put it on a diet and give it the exercise it needs to be healthy again. The analogy is useful in that you cannot starve the beast to health by severe austerity, nor can you not do the required exercises to transition the economy to where it should be, and modernize it along the way to the new reality. True health cannot be achieved by dieting alone, cutbacks must allow a focused jobs plan that is future orientated and takes into consideration the evolving context of the situation.

What will be unexpected is the size of the social wave of discontent that will follow. This will prove problematic for governments, and for political parties as an unhappy population breaks its trust of traditional parties and institutions, and reaches out to express itself in new political movements, beyond the Tea party. Radicalization along the lines of the 60′s will re-emerge. Themes from revolutionary eras will be brought into current focus, as wealth disparities only increase in this time. We will see ‘waves of social unrest’ emerge from the wake of the Global Financial Crisis, as we fall into a direction change with this transition point.

2012 

The Second Wave of the financial crisis continues particularly in Europe where the downgrading of EU countries, and political crisis it engendered threatens the Eurozone. The political restructuring of Europe is occurring in response to the crisis.The periphery of the EU is in shambles as regions and countries such as the Baltics and Poland struggle with collapsed economies and banking systems, a by-product of mortgages denominated in Euros but paid back in the currency of the land, now sharply depreciated. The population now resentful of their earlier goals of joining western Europe, look toward other alliances such as the Baltic region, and whose interests are now being curried by the hand of Russia. In America, the United States struggles with continued unemployment and regulatory challenges, as the 2012 election begins to heat up the national political scene. In Canada, the regulatory framework of the banking system has saved it from the devastation of other regions, but the struggles of its major trading partners and the debts various levels of Canadian governments have, and are deciding to address, will begin to have a major impact in 2012 along with the demographics of a later boomer generation. The first boomers, born in Canada in 1947, will not reach the traditional retirement age of 65 until 2012.

Europe has its moment of social fireworks heighten as the battle over the epicentre of European debt, in particular Greek debt, is being fought over both politically, financially, and socially, with demands of extreme austerity by rescue packages being rejected by a population that no longers cares. By April the Greeks should know the extent of the austerity demands and bailouts amounts that will or will not be coming to a more measured degree, that should light the fuse for the periphery of the EU to rethink their EU imperative. What ever the case, shock waves can be expected to impact the global markets to some extent. This along with rising oil prices may cause a demarcation, a critical transition point for the global economy.



 

‘Oil, Black Gold’ Trends Issue: Energy Transitions


MaryAnn Moore 4/03/2011
Geopolitical Historical Background

“The Greatest Single Prize in all History”       George F. Kennan  

Guest Post Written by Tim Fuller

By 2003, most Americans perplexed and traumatized by the attacks of September 11, 2001, were willing to give their Commander in Chief and his administration the benefit of the doubt.Invading Iraq seemed to some an odd play in the new found War Against Terrorism, which had started in Afghanistan. However tyrannical and murderous Iraqi leader Saddam Hussein was, the country under his reign was maintained as a secular state;1 with most of his barbarity was performed in the name of power politics, not Allah.

Soon enough, a trickle of dissent toward the Iraqi invasion became a torrent …“ especially as the disorder and violence in the streets of Baghdad began to spiral out of control. Beyond the now infamous ‘Weapons of Mass Destruction’ rationale, Bush was finding almost weekly new reasons to justify the invasion. One reason that was not part of the Bush rationale, yet rang true with pundits and analysts alike, was the issue of oil reserves in Iraq …“ thought to be second only to that of Saudi Arabia.

This was a simple enough proposition and fit the profile of an administration that was dominated by former oil executives and analysts in its top spots (including Dick Cheney, Condoleeza Rice and George W. Bush). But Iraq has an inconvenient history of nationalism, expansionism and general chaos that repeatedly threatened the recovery of its oil. It has rarely been able to produce more than a quarter the output of America’s top oil trading partner, Saudi Arabia. But for the eighty years since its discovery, the value of Iraqi oil has always been based more on its potential output than its actual production. A 2008 U.S. government document states: ‘Iraq may be one of the few places left where vast reserves, proven and unknown, have barely been exploited

The current figures that show Iraq with the second largest oil reserves in the world are based on assessments done prior to 1972, when the country’s petroleum industry was nationalized and effectively closed off to foreign interests. More recent peculation has estimated the possible volume of oil reserves in Iraq at between 200 to 400 billion barrels.7 These numbers suggest that Iraq could, under the right conditions, become the largest producer of oil in the world. The landmass known today as Iraq has rarely been peaceful or autonomous. No sooner did the nation lose the shackles of five hundred years of Ottoman domination did it then fall under the imperial aspirations of Britain and Western Europe, who were collectively busy with covert studies of the area’s geology. Oil had been discovered in Kuwait in 18998 and Iran in 19089 and speculation grew soon enough that Iraq, still known as Mesopotamia would be similarly blessed with rich deposits of oil:

“Among the foreign powers the British, seeing Iraq as a gateway to their Indian colony and oil as lifeblood for their Imperial Navy, were most aggressive in their pursuits in Mesopotamia, aspiring to gain physical control of the oil region. During the war, Sir Maurice Hankey, secretary of the War Cabinet, advised Foreign Secretary Arthur Belfour in writing that control of the Persian and Mesopotamian oil was a first-class British war aim”10

Following the First World War, Britain was able to create a new country that could become a key geopolitical component of Mid-East colonization. But with a considerable inattention to tribal areas within the Persian Gulf region, the borders of the new colony of Iraq were splayed across religious and racial divisions leading to the first of many challenges to the new nation and its new rulers.[Gertrude] Bell [senior British political officer in Basra during WWI] was arbitrarily drawing lines on the map to make a new country out of three former Ottoman provinces “ Mosul in the north, Baghdad in the center and Basra in the south. The districts were composed, respectively, of Kurds, Sunni Muslims and Shiite Muslims, all of whom hated each other and the British even more…

By 1920, the country was in full rebellion, from Shiite tribesmen in the south to Kurds in the north. There were some 425 deaths on the British side and an estimated 8,000 to 10,000 among the Iraqis.â€11 Despite this chaos, the U.S.A. was keen to get involved in the Persian Gulf. The Americans had been well aware of the resource battles going on in the former Mesopotamia and began a focused effort on getting in on the plan.

[There was an] assertiveness on the part of the American government for an “open-door policy” on oil concessions. Advanced by President Wilson, the policy  meant equal access for American capital and interests. The policy was in response to  reluctance of European oil companies to welcome American companies to the  Mesopotamian oil scene.

In a speech from 1919, American President Woodrow Wilson had laid out his doctrine, which would help define the U.S. economic imperialism model for decades to follow:

Since trade ignores national boundaries and the manufacturer insists on having the world as a market, the flag of his nation must follow him, and the doors of the nations which are closed against him must be battered down. Concessions obtained by financiers must be safeguarded by ministers of state, even if the sovereignty of unwilling nations be outraged in the process. Colonies must be obtained or planted, in order that no useful corner of the world may be overlooked or left unused.

America’s resolve to stake a claim in the Iraqi oilfields led, in 1922, to a 24% share in the TPC, or Turkish Petroleum Company “ a precursor to OPEC, with British, French and Russian and Armenian (and, ironically, no Turkish) interests also involved.14 Even at that time, the Western powers of the day “ in this case, Great Britain, were rationalizing their zealous interest in the seemingly barren lands surrounding the Persian Gulf.

[British Foreign Secretary] Lord Curzon argued that the policy of His Majesty’s Government on Mosul was not in any way related to oil, that instead it was guided by the desire to protect interests of Iraqi people consistent with its mandatory obligations, that his government and TPC had no monopolistic designs on Iraqi oil, and that the Iraqis would be the chief beneficiaries of oil exploitation in Iraq.

In 1924, Curzon was arguing that Britain had Iraq’s interests in mind with regards to its resources, but events of the previous four years said otherwise. Reports from the 1920 revolts detailed some of Britain’s less-than-benevolent actions towards the loyal subjects of Iraq.

Arab casualties numbered in the thousands and Winston Churchill, British Colonial Secretary, is quoted as saying, ‘I do not understand this squeamishness about the use of gas. I am strongly in favor of using poison gas against uncivilized  tribes’¦British technology was able to produce a range of hideous weapons for use against the defenseless Arabs and Kurds: phosphorus bombs, war rockets, metal crowsfeet to maim people and livestock, shrapnel, liquid fire, and delay-action bombs.

And yet, something underneath the flat fields of Kirkuk, Baghdad and Mosul was continuing to inspire two of the worlds most powerful nations to press on in an effort to control land that had not yet produced a drop of oil. But in 1927, in an area north of the Kurdish town of Kirkuk, they had an unexpected discovery.

Black crude and gas gushed violently to the surface with a thunderous sound. It was what the oil hands call a “blowout”: losing control of a live oil well. The countryside was flooded with oil, and a thick pall of gas filled the air. Two drillers lost their lives. It took nine days to bring the well under control. Kirkuk soon became a major oil town.17

With Iran, Kuwait, and now Iraq all attracting foreign investment, an underdeveloped and poor area of the Persian Gulf, now known as Saudi Arabia, was desperate to attract some Western oil concerns of its own. By 1933, an agreement was signed between King Saud and the California-based Standard Oil Company, which gave the U.S. rights to Saudi oil development for sixty years.18 Five years later, in 1938, oil was first struck in the Hasa region, along the shores of the Persian Gulf.19 The Saudi oil deal was arranged not with members of the U.S. government, but with a handful of wealthy private citizens invited by Saud. Only after oil was discovered did the U.S. government officially get involved, but soon enough the Saudi oil deals became the cornerstone of U.S. policy in the Middle East. One American official – George Keenan, was quoted in 1944 stating, “The oil in this region is the greatest single prize in all history.”20

Secretary of the Navy, James Forestell laid the issue out in detail:

The prestige and hence the influence of the United States is in part related to the wealth of the government and its nation in terms of oil resources, foreign as well as domestic. It is assumed, therefore, that the bargaining power of the United States in international conferences involving vital materials like oil and such problems as aviation, shipping, island bases, and international security agreements relating to the disposition of armed forces and facilities, will depend in some degree upon the retention by the United States of such oil resources.21

During WWII, the Middle East became the main source of global oil production and the richest suitor for this production became the U.S.A. By 1951, Britain’s share of oil production in the Middle East had fallen from 80% to 31%; conversely, the U.S. share rose to 60%.22 The period following WWII also saw a political divergence for the Western powers. While Britain was making strides to consolidate its investments in Iraq and Egypt “ concerning itself more with a growing threat of Arab nationalism, the U.S. was adapting its energy policy to keep Middle Eastern governance and oil out of the hands of its new foe, the U.S.S.R.

The dominance of the U.S. in the Persian Gulf began in earnest during the years of the Eisenhower administration. The President himself was a seasoned war commander “ a celebrated five-star general who had an even-handed grasp on the consequences of military action. Eisenhowers Vice-President, however, was keen to utilize the American war apparatus to fight the Soviets and secure the treasure below the grounds of the Persian Gulf region.

Nixon wanted to do something about Iraq. He believed that the foreign policy apparatus and particularly the State Department were being too cautious and the result was Communist gains around the world and particularly in the Middle East. He also wanted a substantive foreign policy role in the administration to bolster his coming presidential bid.

Richard M. Nixon was a senator during the McCarthy trials of the early 1950s, and had a reputation as a fervent anti-communist. Despite his position as Vice-President, Nixon was relatively powerless when it came to foreign policy. Events in the Middle East and the world abroad were pointing toward an apparently inevitable domination by the Soviet Union, which had evolved from an ominous presence in Eastern Europe to a behemoth of industrial and military power. The U.S.A. was not only contending with the apparently overwhelming Soviet threat, but was busy trying to put out fires throughout the Middle East. Coupled with this was the continued participation of a Great Britain that, though largely stripped of its wealth and imperial power, remained influential within the region. In 1952, Gamal Abdel Nasser spearheaded a coup that saw the fall of the British-friendly monarchy under King Farouk. Britain was dealt another blow in 1956 when Nasser nationalized the strategically crucial Suez Canal. As it had done five years earlier in Iran, the Central Intelligence Agency (CIA) devised in 1958 plans for the Iraqi military to oust Egyptian President Nasser and return Farouk to power. But the Iraqi army marched no further west than Baghdad and chose instead to violently overthrow King Faisal II who, like Farouk in Egypt, had maintained friendly relations with Britain.24 This proved to be yet another tangible threat to American strategic plans in the Middle East. The U.S. had been assuming most of the economic and military roles left in the wake of Britain’s post-war collapse. The nationalist regime in Baghdad, it was thought, would open the door to Soviet control of the region. In an eerie precursor to what was to become known as the Bush Doctrine, the U.S. was caught in a fight-or-flight issue of survival.

It appeared that only preemptive intervention could prevent Iraq from falling under Soviet Communist domination. In the shadow of Sputnik and armed with an alarmist Special National Intelligence Estimate on the future of Iraq, the intelligence community, the State Department, the Pentagon, and activist interventionist elements in the Eisenhower Administration argued about the necessity of preemptive intervention to avert disaster. The intervention never happened; the Communist threat disappeared; and Iraq continued on its fractious, brutal road careening between instability to dictatorship.

Historically, the events of 1958 and 1959 had significance beyond the upheaval. In October of 1959, a young member of the Arab Socialist Baath Party named Saddam Hussein was one of six men chosen to assassinate Iraqi President Qasim. The CIA supported the Nasser backed attempt to oust Qasim and seemed concerned only that a fervent anti-Communist element “ the Baath Party “ would be the replacement. The plot failed, and Hussein escaped to exile in Beirut and later in Cairo with the help of Egyptian intelligence agents. Despite the failure, the CIA continued to support Hussein by paying for his apartment and putting him through a training course.26 Four years later, in 1963, the CIA-backed Hussein and the Baath Party in Iraq achieved their goal of overthrowing President Qasim.

Noting that the Baath Party was hunting down Iraq’s communists, the CIA provided the submachine gun-toting Iraqi National Guardsmen with lists of suspected communists who were then jailed, interrogated, and summarily gunned down, according to former U.S. intelligence officials with intimate knowledge of the executions. Many suspected communists were killed outright the mass killings, presided over by Saddam, took place at Qasr al- Nehayat, literally, the Palace of the End.

Though the failed 58 coup first brought Hussein into prominence with the CIA, the successful coup of 63 raised his profile considerably. Hussein was made head of the new regimes intelligence authority, a position that lasted less than a year before the Baath Party itself was overthrown. Hussein jailed for two years, but re-asserted his position in 1968, when the Baath Party again gained control following yet another coup. Now Hussein was Vice President of Iraq and deputy head of the Revolution Command Council. In 1970 Hussein agreed to a peace agreement with the Kurdistan Democratic Party  a move that was to give Baghdad control over the vast oil reserves of the Kurdish north, and, in 1972, allow for the nationalization of Iraq’s oil industry.28 By 1972, Richard Nixon who had wanted to invade Iraq in 1958 to counter the overthrow of the Western-friendly monarchy had returned to American politics with a vengeance, winning the Presidential election for a second term. In 1973, on the heels of both the Soviet-backed Iraqi oil nationalization effort and the OPEC oil embargo, Nixon revisited his tactical plan to invade the Middle East.

President Richard M. Nixon was prepared to act more aggressively than previously thought to secure America’s oil supply if the embargo, imposed by Arab nations in retaliation for America’s support for Israel in the 1973 Middle East war, did not end. The declassified British memorandum said the United States considered launching airborne troops to seize oil fields in Saudi Arabia, Kuwait and Abu Dhabi, but only as a “last resort.” The seizure of the oil fields was “the possibility uppermost in American thinking when they refer to the use of force,” the memorandum said.The document did not rule out the possibility that Washington would consider pre-emptive strikes if Arab governments, elated by the success of the oil weapon, began issuing greater demands.29

Among Nixon White House staffers during this time were future Bush administration kingpins, Donald Rumsfeld and Dick Cheney. Iraq had cut off diplomatic ties to the U.S. as a result of American support for Israel in the Six Day War of 1967. But in 1979, the game changed again when Saddam Hussein used the unanswered threats of ongoing Shia revolts throughout the Gulf as an excuse to seize control of the Baath Party and assume sole control of Iraq. Once again, the U.S. responded by renewing relations with Hussein “ partly to compensate for their loss of influence in Iran following the Islamic Revolution of 1979, and to try to regain an elusive stake in the Iraqi oil fields 30. In the midst of the lengthy hostage crisis, that saw Iran seize 53 American embassy staff, U.S. President Jimmy Carter laid out a Middle East policy that continued to make oil the paramount concern. In his State of the Union address in January of 1980, Carter said,

“Let our position be absolutely he clear. An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States of America, and such an assault will be repelled by any means necessary, including military force.”31

It is ironic in retrospect to think that the man who, for Republicans, symbolizes all the worst aspects of liberalism, would be the first President to state, in public and without reserve, what the U.S. policy in the Middle East had been for at least thirty years previous.Variations on this Carter Doctrine have been put into action by subsequent administrations, every one of which has used some form of military action to attack and thus defend U.S. energy interests in the region. Since the Iraqi invasion of Kuwait in 1990, however, U.S. military policy in the Persian Gulf has been almost exclusively focused on Iraq. It is understandable why the U.S. might be willing to defend the source of almost 50% of its oil supply, Saudi Arabia. Production costs from other U.S. suppliers are much more expensive, ranging from $5.00 per barrel for oil from Malaysia to more than $20.00 per barrel for North American produced oil 38. The Bush administrations focus on energy security in the Gulf region has been a poorly kept secret since before the Iraq invasion in March 2003. Vice-President Dick Cheney (in 1999, as CEO of Halliburton, the worlds largest oil services company):

Producing oil is obviously a self-depleting activity. Every year you’ve got to find and develop reserves equal to your output just to stand still, just to stay even.  For the world as a whole, oil companies are expected to keep finding and developing enough oil to offset our seventy one million plus barrel a day of oil depletion, but also to meet new demand by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from? The Middle East with two thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies. Energy is truly fundamental to the worlds economy. The Gulf War was a reflection of that reality. 44

The problem with a U.S. foreign policy that treats oil as an essential part of its security strategy is that, at some point, it will be challenged. If this happens, the U.S. will be forced to enlist its military to defend its energy resources. At best, this will result in merely the death of any number of enemy combatants and at worst, the death of American men and women. For over one hundred years, the U.S. has used oil to power its dominant engine of economic progress, which has, in many ways, allowed its citizens to enjoy a better standard of living and improved health.


Trend Analysis

MaryAnn Moore Originally Published April 4 2011

The current shift is being driven by two larger trends still in motion, the revolution in the Arab world, and the impact of the Japan earthquake on the current nuclear industry, along with pre-existing trends of green/alternative energy, the increasing prices of energy, and the development of momentum in alternative technologies and conservation.

The largest producer of oil, the Saudi Arabia Dynasty, have planned their future to deal with the aftermath of having much less oil to depend on for wealth. Interestingly enough they have asked for funding from the UN’s climate change fund, to reset their course on renewable energy sources. They plan to harvest their future domestic energy needs from the sun with solar technology. Meanwhile, China has over $54 billion dollars invested in renewable energy, and has announced a 20 year plan for Thorium Molten Salt Reactors to meet domestic energy needs. President Obama has announced a resourcing of America’s energy needs from the North American region, and those in the energy field such T.Boone Pickens, and George P Mitchell, have looked towards optimizing energy extraction from their own backyard.

The ‘Pickens Plan’ looked at wind power turbines on the ‘wind corridor’ between Canada and the USA, and also focused on the conversion of automobiles to natural gas; while George Mitchell and his company Devon Energy used light sand fracking to optimize the extraction of natural gas in hard shale rock with techniques such as horizontal or angled drilling. This natural gas could also be used for the production of electricity, with a lower carbon imprint than coal. In the auto industry, Magna’s Frank Stronach, is now focused on the development of an electrical car and with his history in the automotive industry he is likely to have an impact on this growing industry where he already has a relationship with Ford in the development of the ‘Focus’ electric car. Japanese car manufacturers have long focused on energy efficiency, and the eventual transition to an electric vehicle. Toyota, the largest producer of hybrid electric vehicles with the ‘Prius’, have developed a plug-in version. Chevy has the ‘Volt’, and even luxury electric sports cars are making an appearance. G.E. has announced plans to build the largest solar panel factory, aiming to become a global player in the industry. G.E has already signed agreements to supply solar panels that would generate a total of 100 megawatts of power to customers. G.E. to facilitate this objective has purchased PrimeStar Solar, with a factory that set an efficiency record in converting sunlight to electricity.

Our Useage

Global industrial energy consumption has increased by 21% since 1990, with the bulk of the growth of non-OECD emerging countries, and mainly in China. Contrasting this is a survey or 21 IEA developed countries, where energy efficiency improvements reduced energy consumption by 21%. The trend is reversed in the household sector where energy consumption was higher in OECD developed countries at a 22% increase since 1990 (to 2005), versus an 18% increase in non OECD countries. In energy use in the household sector, space heating-the largest portion, increased by only .04% since 1990-2005, while appliances drove the demand increasing consumption by 57% from 1990-2005.

In transportation ( both passenger and freight), global energy use increased by 37% since 1990, and grew most quickly in non-OECD countries. The demand for energy was driven by road transport which rose 41%, and road transport accounts for more than 89% of overall transport energy increases. Freight energy use increased 27% since 1990, and was driven by an increase in truck transport which rose by 34%, as measured by tonne/kilometer of haulage. The vehicles primarily use oil products, specifically diesel. Passenger transport energy use increased 24% from 1990, and cars accounted for 87% of overall passenger energy use. The energy of cars being provided by oil products specifically gasoline. Increases in actual passenger activity rose the most with air travel, then cars. Over all passenger activity increased 30% from 1990-2005, as measured in passenger/km.

In the service sector, global energy use increased by 37% from 1990-2005, and increased mainly in the non-OECD countries where the increase was 53% versus a 32% in OECD countries. Electricity is the primary energy type used for lighting, office equipment, and HVAC. There are however large differences between countries in what is used and for what, with OECD countries using electricity  and natural gas, while oil being used instead with the OECD Pacific region, Mexico, and China. China also uses coal heavily, along with South Africa. Biomass is used with India. In Russia 50% of demand is met by district heating. In Canada and the USA, energy use has been rising faster than floor space, increasing the energy intensity of the sector.

Oil in North America

Oil in North America often offers the allure of energy independence with the revulsion of environmental impacts. One of the largest possible sources with 173 billion recoverable barrels, the Tar Sands in Alberta Canada, has long been viewed as a double edged sword. Extraction depends on a costly, environmentally insensitive process whereby open pits are dug to get the surface ‘finds’, the ‘paydirt’ is transported to nearby separation plants, and the tarry sand is crushed and diluted until the bitumen is skimmed off. It requires energy, lots of water, and leaves behind ‘tailings’, residue sand, some unclaimed bitumen, water, clay particles and contaminants. Extraction of deeper reserves requires pumping water/steam to melt the bitumen and make it easier to suck it up to the surface. This uses natural gas, and can affect the water table. It has the reputation of ‘dirty oil’, although it is hard to think of the industry as clean by any stretch of the imagination.The oil would have to be piped to refineries in the American Midwest, for the specific processes required. Other offshore sources that have been looked at include deep sea drilling in Gulf of Mexico, Alaska, and to the Arctic Ocean, which is melting and opening up more. The Gulf’s oil spill disaster with the Deep Water Horizon Rig has made a lasting impact on that option.In fact, the process as a whole can make one wonder if we have not sold our souls for the opportunity to put gas in our cars. The environmentalists say ‘kill the Tar Sands’, and we will have clean energy developed to meet our needs.

Future Options

With a range of possibilities before us, we have the ability to use a strategy that would leave the world with more energy than we need, that was cost efficient, and environmentally sensitive. We could plug in our electric cars to our batteries charged with solar panels, in the very near future, recharge our car and drive off. The technology is here. Thorium powered reactors could run our societal energy needs, along with ocean tide/hydro electric generation, and wind turbines/solar farms. We can transition from an unhealthy dependence on foreign oil, to an intermediate stage, to cleaner energy sources. We can keep our money for ourselves rather than giving it away, and squandering our limited natural resources.

‘The Choice for Japan – Silence or Conversation’ April 5 2011

Japan has been plagued by their stoicism and silence. They have declined some of the advice from the IAEA, and some offers of help from other countries. The issue of nuclear safety and problems have been a chronic problem since they have gone full steam into nuclear power. In a country that has few natural resources to power their large economy, this made sense, but to a country that lies in one of the most earthquake ravaged zones in the world, it does not. The current and past incidents at the Fukushima nuclear power plant have been well documented. Both successive Japanese governments and the Electric producing companies like TEPCO and Kepco, have tied their collective futures to the nuclear industry. Japan has the third highest number of plants, and the world’s largest nuclear reactor, for a country that is an island. Even with this number of plants Japan barely meets its energy demands, and the loss of the Fukushima reactors leaves Japan in roving blackouts. Only the locals who have to live by these plants get a voice of sanity heard, at times, amongst the kamikaze’s who willingly risk all, in the name of economic success. TEPCO most recently has offered the local town by Fukushima several hundred thousand dollars, enough for $12 per person, for their inconvenience. Workers at these plants over the years have not had proper dosemeters, proper equipment, and even had a process where they mixed uranium by hand in steel buckets, a process which led to 2 workers being killed by the ‘unintended criticality’ they caused, and the contamination of 400 nearby residents. After surviving the horrific Hiroshima and Nagasaki, the Japanese have lived with nuclear accidents on a smaller scale for years. It is as if their fate had been tied, unwillingly, to the power of nuclear fission. It is difficult to see how they would react differently, with the Earthquake and Tsunami to take the blame. It is shameful, as one day the ‘unintended criticality’ may contaminate a much larger region, kill many more, and still the stoicism and silence would go on, no doubt, in a culture dominated still by saving face, honour, and sacrifice. In this way, the Japanese government and power companies close their eyes, not only to a dangerous future, but to safer options available.







References

1 Hard, R. (2005, Aug 23). An Islamic republic of Iraq? BBC News Retrieved from http://BBC.com

2 Luft, G. (2003, May 12). How much oil does Iraq have? Saban Center for Middle East Policy at the Brookings

Institution. Retrieved from http://Brookings.edu

3 Paul, J.A. 2002, December. Oil in Iraq: The heart of the crisis. Global Policy Forum. Retrieved from


4 Ibid.

5 Ibid.

6 Energy Information Administration. (2009, June). Country analysis briefs – Iraq. Retrieved from http://eia.doe.gov

7 Oil in Iraq: The heart of the crisis

8 Demirmen. F. 2003, April 25. Oil in Iraq: The byzantine beginnings. Global Policy Forum. Retrieved from


9 Ibid.

10 Ibid.

11 Kifner, J. (2003, Jul 20).Britain Tried First. Iraq Was No Picnic Then. New York Times. Retrieved from


12 Oil in Iraq: The Byzantine beginnings

13 Wilson, Woodrow. (1919). Taken from the online article, World Wars decide who controls world trade. The

Institute for Economic Democracy. Retrieved from http://ied.info/

14 Oil in Iraq: The Byzantine beginnings

15 Ibid.

16 Simons, G. (2002, December). Making of Iraq. The Link 35 (5). Retrieved from http://ameu.org

17 Oil in Iraq: The Byzantine beginnings

18 Pollack, J. (2002, September). Saudi Arabia and the United States, 1931-2002. MERIA Journal. 6 (3). Retrieved


19 Ibid.

20 Ibid.

21 Richman, S. (1985, January 10). The United States and the Persian Gulf. Cato Policy Analysis No. 46. Retrieved


22 Ibid.

The Greatest Single Prize in All History Tim Fuller

16

23 Barrett, R. 2008, April. Intervention in Iraq, 1958-1959. The Middle East Institute Policy Brief No. 11 April

2008. Retrieved from: http://globalpolicy.org

24 Worrall, R. (2007). Coping with a Coup d’Etat’: British Policy towards Post-Revolutionary Iraq, 1958-63.

Contemporary British History, 21(2), 173-199. Retrieved from Academic Search Premier database.

25 Intervention in Iraq

26 Sale, R. (2003, April 10).Saddam key in early CIA plot. United Press International. Retrieved from


27 Ibid.

28 U.S. Department of State Document. (2002, October). Timeline: Saddam Hussein’s Iraq. Retrieved from


29 Alvarez, L. (2004, January 2). Britain says US planned to seize oil in ’73 crisis. New York Times. Retrieved from

nytimes.com

30 Timeline: Saddam Hussein’s Iraq

31 Klare, M. (2009, January 22). Repudiate the Carter doctrine. Foreign Policy in Focus. Retrieved from


32 U.S. Department of Defense. (2010, April 6). Defenselink casualty report. Retrieved from http://.defense.gov

33 Fischer, H. (2007, September 5). Iraqi civilian deaths estimates. CRS Report for Congress. Retrieved from


34 Krugman, P. 2004, May 7. The oil crunch. The New York Times. Retrieved from http://www.nytimes.com/

35 Oil in Iraq: The heart of the crisis.

36 Ibid.

37 Ibid.

38 Ibid.

39 Ibid.

40 Paterson, G. 2007, September 16. Alan Greenspan claims Iraq war was really for oil. The Sunday Times.


41 Wright, G. 2003, June 04. Wolfowitz: Iraq war was about oil. Guardian Unlimited. Retrieved from


42 CNN.com. 2006, October 11. Transcript: Bush’s news conference. CNN. Retrieved from http://cnn.com

43 Aigner-Treworgy, A. 2008, May 02. McCain: Iraq war was for oil? MSNBC. Retrieved from:


44 Institute of Petroleum. 1999, November 15. Full text of Dick Cheney’s speech at the IP Autumn lunch. Retrieved




45. International Energy Agency Publications 2005:


   ‘Tracking Industrial Energy Efficiencies and CO2 Emissions’

    ‘Energy Use in the New Millenium: Trends in IEA Countries’


My Rose Colored Glasses…Trends Issue – Global Pension Funds Crisis

MaryAnn Moore
3/20/2011



For some of us the day we finally are able to retire and collect our pension check is a day that has longingly been looked for. But for many it may come as a rude shock to find it wasn’t what we had been promised, that somewhere along the way the secrets that had been swept under the rug, are now painfully out in the open. Most pension funds were never properly funded in the first place, and the financial collapse of 2008 has only made the predicament worse, often as a result of ‘funds in funds’ structured investing with little due diligence. The problem is coming to light as states, provinces, and municipalities are struggling to rectify their underwater budgets and have a limited ability to pay what they promised. U.S. state pension funds face an estimated shortfall of at least one trillion dollars for employees’ pensions and retirement benefits, according to the Pew Center on the States, with Illinois in the worst shape, with only 54% of its pension obligations funded. Over the last ten years , many states had shortchanged their pension plans in good times and bad. The Center’s director called the period of time as ‘a decade of irresponsibility’. In the U.S. there has been for some time a shift away from employer defined benefit programs to defined contribution programs to employee controlled, 401K type plans. With staffing cutbacks and early retirement in place, they are frequently faced with having more retired obligations than working ones. States are also mandated under their Balanced Budget Amendment to not spend more than their income, and requires a balance between revenues and expenditures. The legacy of unsustainability of entitlements and obligations versus the real economy has diverged to the point that a reconciliation of these two trends will be an explosive and difficult process. The Federal Government has tried to offset the budget pressures with the ARR Act and the State Fiscal Stabilization Fund, but these are running out, and the realities of Baby Boomers retiring have created a state budgetary crisis. Some 45 states and D.C. are projecting budget shortfalls for 2012.

The Republican ‘United States’ vs. America – Part One

Republican state such as Wisconsin, Ohio, and Indiana are considering or currently tabling legislation. Indiana has tabled legislation making it a Class A Misdemeanor for an employer to require an individual to become or continue as a member of a labour organization, or pay dues to such an organization. It would seem to be a challenge to both the blue collar worker, and the existing interpretation of the First Ammendment in regards to the ‘Right of Association‘, although the arguement is made around the ‘Right to Work‘. Democrats are trying to stall and stop this process where possible, with their power base long having been in the labour unions.

Pension Plans have had problems identified with their structure from the seventies. Anthropologists (O’Barr and Conely, ‘Fortune and Folly…’) have examined the process from a behavioural perspective and concluded the governance process was ‘culture bound, pseudoscientific, fawning in their relationship with outside service suppliers, blame deflecting, and generally ineffective’.  In 2003, Keith Ambachtsheer, using the CEM database found that the typical US pension fund carries six times as much policy risk as active managment risk, relative to it’s liabilities. He also stated that the worst errors can be traced to an industry-wide focus on maverick risk, as most work as agents, not principals, making it easier to fail conventionally, than succeed unconventionally.1.

In his book ‘Pension Revolution’ Ambachtsheer reviews a process which could transition pensions from what he labels as ‘fuzzy pension deals’ to ‘risk sharing co-ops’ and ‘the optimal pension system’ known as ‘TOPS‘. TOPS is to deal with the ‘human foibles issue’ by using auto-enrollment, and auto-pilot mechanisms that dynamically adjust individual contribution rates over time, and links optimal investment policy for each participant to their age. TOPS are to be run by arm’s length expert pension co-ops to minimize inherent conflicts, and the high cost that the run for the biggest profit financial service industry brings to the table. He envisions pension funds being run from the inside out, rather than by external agents from the outside for their own purposes.This format is already used in Australia and the Netherlands, where all workers are mandated to join, and by doing so are highly motivated to engage in reviewing processes, and building a better system. Even in Britain, the Turner Commission Report for the National Pension Savings Scheme advises for auto-enroll, with an opt out clause, and auto-pilot mechanisms for a life cycle investment approach, and to use retirement savings for life annuities. It recommended the structure of the NPSS as an arm’s length, expert pension co-op.

Canada, however, is looking at ‘pooled registered pension plans’ that is targeted for middle-income private sector workers and the self-employed. It is in essence a defined contribution Registered Pension Plan, with third party administration. The hope is that by pooling together plans, the group will benefit from lower investment management costs, improvements in fiduciary duty, and allow for portability. It is to be voluntary in membership.The concern is that its adds an additional burden to employers, along with the usual CPP deductions, and that ultimately it will result in a cut to employee pay.

Ireland has been hit very hard by both the collapse and partial recovery of the equity market in 2008, of which it’s pension fund was heavily weighed, and the stress of the it’s banking system failures. It had been predicted that up to 50% of pension funds in Ireland were set to collapse in 2009 without government intervention. Over 90% of pension plans in Ireland are of the defined benefit structure, and companies were looking at the option of declaring bankruptcy, to escape their obligations. The current coalition government between Fine Gael and Labour, is looking at what state assets to sell to deal with their financial crisis. The state is planning on issuing a sovereign annuity bond to Irish pension funds, that will provide a high yield, to help stabilize the situation somewhat. There is also consideration of issuing infrastruture bonds, rather than selling off state assets. However the bonds are designed, the problem they are trying to solve remains difficult.

Other European countries are examining the effect of raising the retirement age, on their obligations. There has been social protests over these changes in several countries, but these changes are minor, when compared to the actual effects of a plan bankruptcy, as what has happened in several companies and small cities in the U.S.

‘A Tale of Two Cities’

In Pritchard, Alabama, the city simply stopped paying pension checks. The pension fund was predicted to be out of money by July 2009, and the city filed for bankruptcy, but had it’s petition thrown out of court. Unfortunately for most of it’s pensioniers and contributors, Pritchard does not have the means to pay. It had been a city that peaked in the 1970’s at a population of 45,000, and now only has 27,000 residents and 144 retirees. The city has had chronic problems, and is in decline. In 1999 the city declared bankrutpcy when it’s finances were a mess, the pension fund had been in trouble at that time. The city ignored a court order to replenish the funds. In Setember 2009 Retired Fire Captain Alfred Arnold was 66, and his checks stopped. He was forced to return to work, which he found in Mobile Alabama as a security guard for a mall. The retirees had not been paid at that time (Feb 2011) for 17 months, and 14 retirees had died during that time period. Some of the retirees have stated that if there is no money for them, then there should be no money for city administrators also. Since that time, 2 more pensioners have died, one retired fire fighter died in a house without electricity, running water, heat or gas. There has been a proposal to offer the pensioners around 40% of their entitlement, and the city is still working on a solution.

Another city that has declared bankrupcy, Vallejo, California, is a city that contrasts sharply to Pritchard. It became, with a population of 121,000, the state’s largest city to declare bankruptcy in 2008. It had been rather lavish in pay, as compared to other cities in the state, for it’s public workers, and 74% of the cities annual budget was taken up by fire, police, and pension obligations. When it declared bankruptcy however, while it reduced some health benefits for retirees, it did not touch pension contributions. Retirees still enjoy their benefits although the police force has been markedly reduced, and the city cut funding for seniors and youth centers, arts organizations, and did little for business, even though the bankrupcy judge held the city ‘had authority to void its existing union contracts in an effort to reorganize’. Obviously, the city had a different perspective.

‘A Demographic Timebomb’

Much of the underlying beliefs, that facilitate ignoring the funding issue, have thoughts that reflect the live today, pay tomorrow, creed of our consumer culture, and feelings that the next generation will have to deal with it.What many Boomers have forgotten is that the generation following them is significantly smaller, much less affluent, and will be totally unable to fill the huge hole in funding. Boomers will not be able to retire in the style they are expecting to live in. In 2005, there was 5 workers in the U.S. to fund 1 retiree, and by 2030 there will only be 3 workers to fund 1 retiree. The chickens not only have come home to roost, but found there is no bar to rest on.

The U.S. Boomers are but the tip of the iceberg. U.S. Boomers will be the first of cohort of Worldwide Boomers retiring in the industrialized world, peaking around 2020. Canada will follow a few years later, as will the U.K. and Europe. The latter will have a longer lasting wave, and peaks around 2025-2030. China has a similar peak with population that will occur around 2050. Demographics are quite different for the industrialized and third world, with the third world having more of their population base in the youth demographic, reflecting a generally higher birth rate.

As the pension issue becomes a larger trend in various countries, states, and cities, it should be evident that we can set priorities that protect the most vulnerable and ease the way for the development of a better pension system than what currently exists, and does more then simply drop the ball on the individual, after other interests have failed.

‘Into the Frying Pan’ Update March 28 2011

In Wisconsin, legislative officials appear to be feeling the heat, and lashing out at the protests unions that have been mounting. Most recently, an email was sent to the Governor of Wisconsin by a deputy suggesting that he fake being physically attacked by a union member. Also, a tweet from the a deputy attorney general, who was fired shortly after as a result, proclaimed that live ammunition should be used on union demonstrators by police. Actions such as these will not endear this government to the public or unions, who already are angry, in fact these action may act as a catalyst, in galvanizing labour protests even further.

June Update

In Canada, workers went on strike with issues that involved pensions, for Air Canada it was the switch from defined benefits with their pensions, and for Canada Post, it involved a 3.2 billion dollar deficit with their plan. Both were being legislated back to work by the federal government. Protests continue in the U.S. and in other parts of the world trying to grapple with debt issues and restructuring.






1. May/June 2003 Editorial in the Financial Analysts Journal