Wednesday, July 11
Friday, July 6
Book Review: Private Empire – ExxonMobil and American Power by Steve Coll
If you were expecting Private Empire, the latest book by two-time Pulitzer Prize winning author Steve
Coll, to serve as a hit piece on ExxonMobil (and 'Big Oil' in general) you’ll be somewhat disappointed.
For anyone unfamiliar with his previous work, Steve Coll’s
earlier books include the highly recommended Ghost
Wars, arguably the definitive geopolitical account of the activities of
the CIA and other national intelligence agencies in Afghanistan and Pakistan
from the time of the Soviet invasion up to the eve of the 9-11. Ghost Wars won the Pulitzer Prize in 2004
for general non-fiction and was one of the books a newly elected President
Barrack Obama was reported to be reading upon entering office.
Steve Coll describes in an interview with Charlie
Rose what lead him to want to write Private Empire and how his original idea for the book was to tell a broader story about the oil industry in the style of Daniel Yergin’s The Prize. He soon realized, however,
that he needed a central character and Exxon was for him the only logical
choice.
Coll’s portrait of Exxon begins in March 1989 with the Exxon
Valdez oil spill in Prince William Sound, Alaska, an event which made the
company the most reviled in the United Sates. The book’s timeline spans the
subsequent transformation of the company, which was led by CEO Lee “Iron Ass” Raymond, up
through its present day stewardship by current CEO Rex Tillerson. Along the way
we learn a great deal about Exxon, including its somewhat peculiar cult-like corporate
culture, its blockbuster merger with Mobil, its controversial stance and
efforts on global warning, the access it enjoyed to political leaders such as
Vice President Dick Cheney, its somewhat misleading approach to reporting oil
reserves, and the company’s record setting financial success. The book in fact
makes for a compelling business case study and students of business history,
strategy and management will find much of interest.
The most interesting sections of the book are the ones detailing ExxonMobil’s operations in some of the world’s most politically
unstable regions. ExxonMobil’s bread and butter business is to invest billions
of dollars drilling holes in the ground in countries like Equatorial Guinea and
Chad and then spend the next 30-40 years working to make sure that nothing
interrupts the company's return on investment. Coll’s account of the 2004 attempted coup
in Equatorial Guinea by a group of British and South African mercenaries, who were supported from some elements within the Spanish government, is one of the most fascinating
stories in the book.
Continue reading the full review here.
Continue reading the full review here.
Tuesday, July 3
Saturday, June 16
Greece vs. Germany: Football Showdown Between Europe's Arch Debt Crisis Antagonists Looks Likely
 |
| Germany vs. Greece |
Anyone following the vitriol which has been spewed in the Greek and German media towards each respective country these past two years can't help but be intrigued by a possible matchup of the two Eurozone debt crisis antagonists on the football pitch.
Will Angela Merkel extend an olive branch and invite Greece's newly elected 'Sexy Alexis' Tsipras to share the spectators box at the match? Will tempers fueled by 2+ years of economic depression and feelings of being cheated and bullied boil over amongst the players? Would a lopsided German victory serve to further engrain in the Greek psyche the notion of a German-dominated Europe?
Or, more optimistically, will sport -- in its unique role in our society -- do what it does when it's at its best and serve as a means to bring disagreeing peoples together to help form the basis for a constructive way forward in the Eurozone crisis?
A more pressing question is how would Greece's advance to the quarterfinals affect tomorrow's national election? One can imagine the euphoria from victory over Russia working in favor of status quo parties such as New Democracy, which appear to have positioned themselves as more pro-Europe, and against protest parties like Syriza, which have benefitted from a frustrated, angry electorate.
If the matchup between Greece and Germany happens it would take place on Friday 22 June at 19:45 GMT.
Update: Greece did their part, beating Russia 1-0. Now if Germany can win Group B tomorrow we'll have our showdown.
Monday, June 11
Wednesday, May 30
On the Topic of Financial Collapse Fear Mongering
"Ireland is in a death spiral" -FT
"After the November President election the U.S. is facing a fiscal cliff" -Federal Reserve staff
"Eurogeddon!" -The PolyCapitalist
On and on go the warnings of cataclysm and pending financial doom. Technical jargon and existential risks are bandied about in frightening fashion, leaving the general, less-economically literate with very little ability to understand what's actually happening or just how bad things could really get if say Greece leaves the Eurozone, or another country defaults, or something like this occurs.
This blog is not entirely innocent of this criticism, and this post is a brief attempt to quickly address the question of whether our global financial system is on the precipice of a financial collapse if say something 'really bad' happens in Europe?
The short answer is no.
Now before I expand on that answer I would like to clarify something very important: this post is about financial collapse and not about the extremely high levels of unemployment, which have reached approximately 50% for young people in countries such as Greece and Spain. The youth and general unemployment problems today are serious and something to be very concerned about. But this post is not about that but instead about whether another Lehman-style event could occur where the world's financial system risks implosion if say a country like Greece pulls out of the euro, the current 'bank jog' in Spain accelerates, etc.
So why isn't the risk of financial collapse as bad as some would have use believe?
For starters, we have to keep in mind that our financial world is a virtual world. Today, money is largely a set of numbers on a computer. This means that even in the most extreme scenario of financial disorder, where policymakers completely blow it and the ATMs stopped working and the stock market tanked, that everything that is real and tangible - the houses, the food that is farmed, the physical assets - none of this goes away and will all be here the next day when you wake up in the morning.
Now having said that, a financial implosion would definitely have a major impact on our lives, particularly for those with fewer resources or who are unprepared. But life will go on for nearly everyone and could actually rebound quite quickly given other historical cases. For example, Argentina began recovering within months following its utterly complete financial meltdown in 2001 even though the country achieved the relatively rare trifecta of a currency collapse, a banking crisis, and a sovereign default all at once. Iceland has had a relatively quick turnaround following its 2008 financial implosion. And other Asian countries in the late-90s also turned the corner pretty quickly following major financial crises.
In the case of Argentina, dozens of people died in Dec. 2001 riots, so I don't want to minimize the very real suffering and dislocation which comes with a financial collapse. But Argentina's experience is a far cry from the level of suffering of say a war or severe natural disaster. In short, a 'cataclysm', it was not.
A further point needs to be made about the above examples, which is that they were all relatively isolated, contained crises that did not threaten a systemic collapse in arguably the same way as the current crisis. But this leads me to point number two, which is that a systemic collapse is extremely unlikely, particularly given two facts:
So I hear you asking whether all our problems are solved then because central banks like the Federal Reserve are all powerful, financially speaking, and able to contain any crisis which comes its way? Over the long-term, I would say no, they are not all powerful financially. But in the short-term, meaning right now and over the next few months at least, they are all powerful financially, and here's why.
Central banks like the Fed, ECB, Bank of Japan, and Bank of England which operate fiat currencies have an extraordinary power, which is that they can create an unlimited amount of money.
'Unlimited', meaning a truly infinite amount of money? Yes
What this means is that even if, for example, all the depositors in Spain and Greece withdrew every last euro from their local banks the ECB can supply all the notes that citizens want to hide under their bed mattresses. In short, the ATMs should never, ever run out of money in a fiat money system which is being managed by competent professionals.
But earlier I alluded to the fact that even though central banks can print an unlimited amount of money that they were not in fact financially omnipotent over the long-term, so what did I mean by that?
With the magic that is the computer a central bank could literally go and create and infinite amount of money. But there are side effects with central banks creating a lot of money, namely inflation. Without getting technical, simply put inflation is a rise in prices. Hyperinflation is a very large, sudden rise in prices.
But here is the crucial point to remember: rising inflation acts as a brake on a central bank's ability to create money. In other words, a rise in inflation is perhaps the key to understanding when central banks would be constrained in any effort to bail out the financial system.
Today, most of the world's advanced economies (North America, Europe) have relatively modest inflation, meaning low single digit annual percentage increases in official measures of core inflation. And even though they would say otherwise, the central banks in these advanced countries would be more than willing to trade an increase in inflation to stem the risk of a systemic financial collapse.
So how much more inflation would central banks be willing to tolerate as a tradeoff for not risking financial collapse? As the Bank of England has demonstrated in the past couple years, inflation creeping up towards 5% is not enough of a concern to prompt a significant deviation in policy. So my guess (it is a guess) is that at the extreme central banks like the Fed could tolerate up to 10% if they perceived the risks of collapse to be great enough before they would think twice about pulling another post-Lehman style bailout of the world's financial system. And since we're still in low single digit inflation this gives the Fed a decent amount of runway to maneuver.
This room to maneuver is what is meant when it is said that the Fed, which controls the world's most important reserve currency, and other central banks still have lots of ammunition.
The existence of this ammunition is likely a factor behind why given all the current distress in Europe that the stock markets haven't fallen further. In other words, the markets expect central banks to step in and flood the financial system with money if Greece leaves the euro or a banking run accelerates. Even the supposedly hemmed in by the Germans/hard-money crowd ECB. After LTRO and all the sovereign bond debt purchases, anyone who still thinks the ECB won't step in to save the system if things go completely pear shaped by creating a lot money is living in a fantasy. And this flood of central bank money would likely be very bullish for stocks in the short-term.
Should inflation increase significantly, then the ability of central banks to rush in and save the day could be diminished. But for now, they have the power to act, and that's why (for now) a general financial collapse is not on the immediate horizon.
So in sum, if you want to understand when it might be time to get worried, keep an eye on official measures of core inflation, particularly if it starts creeping up near the 5% level as that is about the time a proper central banker will begin to twitch over fears of runaway inflation.
Now, in terms of how you want to position your investment portfolio given the above, the very first post on this blog just over two years ago argued for allocating some of your portfolio into gold, which is arguably the best hedge against excessive central bank money printing. Even though the price of gold has gone up significantly in the last two years this blog still stands by that recommendation for long-term investors.
"After the November President election the U.S. is facing a fiscal cliff" -Federal Reserve staff
"Eurogeddon!" -The PolyCapitalist
On and on go the warnings of cataclysm and pending financial doom. Technical jargon and existential risks are bandied about in frightening fashion, leaving the general, less-economically literate with very little ability to understand what's actually happening or just how bad things could really get if say Greece leaves the Eurozone, or another country defaults, or something like this occurs.
This blog is not entirely innocent of this criticism, and this post is a brief attempt to quickly address the question of whether our global financial system is on the precipice of a financial collapse if say something 'really bad' happens in Europe?
The short answer is no.
Now before I expand on that answer I would like to clarify something very important: this post is about financial collapse and not about the extremely high levels of unemployment, which have reached approximately 50% for young people in countries such as Greece and Spain. The youth and general unemployment problems today are serious and something to be very concerned about. But this post is not about that but instead about whether another Lehman-style event could occur where the world's financial system risks implosion if say a country like Greece pulls out of the euro, the current 'bank jog' in Spain accelerates, etc.
So why isn't the risk of financial collapse as bad as some would have use believe?
For starters, we have to keep in mind that our financial world is a virtual world. Today, money is largely a set of numbers on a computer. This means that even in the most extreme scenario of financial disorder, where policymakers completely blow it and the ATMs stopped working and the stock market tanked, that everything that is real and tangible - the houses, the food that is farmed, the physical assets - none of this goes away and will all be here the next day when you wake up in the morning.
Now having said that, a financial implosion would definitely have a major impact on our lives, particularly for those with fewer resources or who are unprepared. But life will go on for nearly everyone and could actually rebound quite quickly given other historical cases. For example, Argentina began recovering within months following its utterly complete financial meltdown in 2001 even though the country achieved the relatively rare trifecta of a currency collapse, a banking crisis, and a sovereign default all at once. Iceland has had a relatively quick turnaround following its 2008 financial implosion. And other Asian countries in the late-90s also turned the corner pretty quickly following major financial crises.
In the case of Argentina, dozens of people died in Dec. 2001 riots, so I don't want to minimize the very real suffering and dislocation which comes with a financial collapse. But Argentina's experience is a far cry from the level of suffering of say a war or severe natural disaster. In short, a 'cataclysm', it was not.
A further point needs to be made about the above examples, which is that they were all relatively isolated, contained crises that did not threaten a systemic collapse in arguably the same way as the current crisis. But this leads me to point number two, which is that a systemic collapse is extremely unlikely, particularly given two facts:
- what was learned from the recent Lehman-experience in 2008 by the current crop of policymakers.
- the world's central banks, especially the Federal Reserve, still have loads of financial ammunition.
So I hear you asking whether all our problems are solved then because central banks like the Federal Reserve are all powerful, financially speaking, and able to contain any crisis which comes its way? Over the long-term, I would say no, they are not all powerful financially. But in the short-term, meaning right now and over the next few months at least, they are all powerful financially, and here's why.
Central banks like the Fed, ECB, Bank of Japan, and Bank of England which operate fiat currencies have an extraordinary power, which is that they can create an unlimited amount of money.
'Unlimited', meaning a truly infinite amount of money? Yes
What this means is that even if, for example, all the depositors in Spain and Greece withdrew every last euro from their local banks the ECB can supply all the notes that citizens want to hide under their bed mattresses. In short, the ATMs should never, ever run out of money in a fiat money system which is being managed by competent professionals.
But earlier I alluded to the fact that even though central banks can print an unlimited amount of money that they were not in fact financially omnipotent over the long-term, so what did I mean by that?
With the magic that is the computer a central bank could literally go and create and infinite amount of money. But there are side effects with central banks creating a lot of money, namely inflation. Without getting technical, simply put inflation is a rise in prices. Hyperinflation is a very large, sudden rise in prices.
But here is the crucial point to remember: rising inflation acts as a brake on a central bank's ability to create money. In other words, a rise in inflation is perhaps the key to understanding when central banks would be constrained in any effort to bail out the financial system.
Today, most of the world's advanced economies (North America, Europe) have relatively modest inflation, meaning low single digit annual percentage increases in official measures of core inflation. And even though they would say otherwise, the central banks in these advanced countries would be more than willing to trade an increase in inflation to stem the risk of a systemic financial collapse.
So how much more inflation would central banks be willing to tolerate as a tradeoff for not risking financial collapse? As the Bank of England has demonstrated in the past couple years, inflation creeping up towards 5% is not enough of a concern to prompt a significant deviation in policy. So my guess (it is a guess) is that at the extreme central banks like the Fed could tolerate up to 10% if they perceived the risks of collapse to be great enough before they would think twice about pulling another post-Lehman style bailout of the world's financial system. And since we're still in low single digit inflation this gives the Fed a decent amount of runway to maneuver.
This room to maneuver is what is meant when it is said that the Fed, which controls the world's most important reserve currency, and other central banks still have lots of ammunition.
The existence of this ammunition is likely a factor behind why given all the current distress in Europe that the stock markets haven't fallen further. In other words, the markets expect central banks to step in and flood the financial system with money if Greece leaves the euro or a banking run accelerates. Even the supposedly hemmed in by the Germans/hard-money crowd ECB. After LTRO and all the sovereign bond debt purchases, anyone who still thinks the ECB won't step in to save the system if things go completely pear shaped by creating a lot money is living in a fantasy. And this flood of central bank money would likely be very bullish for stocks in the short-term.
Should inflation increase significantly, then the ability of central banks to rush in and save the day could be diminished. But for now, they have the power to act, and that's why (for now) a general financial collapse is not on the immediate horizon.
So in sum, if you want to understand when it might be time to get worried, keep an eye on official measures of core inflation, particularly if it starts creeping up near the 5% level as that is about the time a proper central banker will begin to twitch over fears of runaway inflation.
Now, in terms of how you want to position your investment portfolio given the above, the very first post on this blog just over two years ago argued for allocating some of your portfolio into gold, which is arguably the best hedge against excessive central bank money printing. Even though the price of gold has gone up significantly in the last two years this blog still stands by that recommendation for long-term investors.
Tuesday, May 29
Monday, May 28
Lagarde Sacrifices Herself to Help Greece's Pro-Bailout New Democracy Party?
The Eurogeddon chess game is getting desperate so don't be surprised to see a few political/PR curveballs over the next few weeks in front of the 17 June Greek election runoff.
Case in point is this weekend's snarky comment from the typically ladylike Madame Lagarde. But before we get to that, some background:
The single worst thing than can happen from the perspective of the Troika (the IMF, EU, and ECB) and Greek elites right now is for Syriza and its 37-year old leader, 'Sexy Alexis', as he's now being called, to do well in the 17 June Greek election runoff.
In the most recent May elections Greek voters turned away from the two pro-bailout/austerity parties, PASOK and New Democracy, as they were seen as tools of the Troika. This rejection by voters sent a shiver up the Troika's spine as they know that should Syriza and Alexis Tsipras prevail he will likely walk away from the terms of the bailout and thereby call the Troika's bluff to either a) cut off Greece's banking system from further ECB funding or b) terminate any further bailout money to Greece's government. Either one of these moves will likely trigger a financial panic and spoil everyone's summer vacation plans.
So the Troika are now desperate to see PASOK and or New Democracy do better in the 17 June election. So how can they help them?
Angry Greek voters are looking for someone to blame, and as long as PASOK and New Democracy are seen as part of the problem it's unlikely that voters will put them back into power. So one strategy is to try and reshift the political blame onto the external Troika, which would have the effect of diverting negative feelings away from PASOK and New Democracy. This would help the two pro-bailout Greek parties reposition themselves as domestic victims rather than as co-conspirators with the hated foreigners.
And now you understand why the typically politie Christine Lagarde, head of the IMF, probably deliberately roiled the Aegean kettle this weekend with a comment about how it's 'payback time', and Greeks need to pay their taxes.
Queue the Greek firestorm.
And lo and behold, New Democracy, who of course along with PASOK quickly denounced Lagarde's rhetoric, is again rising in the polls.
Nice move, Troika.
And, by the way, Lagarde doesn't pay any taxes on her $551,700 in annual compensation.
Case in point is this weekend's snarky comment from the typically ladylike Madame Lagarde. But before we get to that, some background:
The single worst thing than can happen from the perspective of the Troika (the IMF, EU, and ECB) and Greek elites right now is for Syriza and its 37-year old leader, 'Sexy Alexis', as he's now being called, to do well in the 17 June Greek election runoff.
In the most recent May elections Greek voters turned away from the two pro-bailout/austerity parties, PASOK and New Democracy, as they were seen as tools of the Troika. This rejection by voters sent a shiver up the Troika's spine as they know that should Syriza and Alexis Tsipras prevail he will likely walk away from the terms of the bailout and thereby call the Troika's bluff to either a) cut off Greece's banking system from further ECB funding or b) terminate any further bailout money to Greece's government. Either one of these moves will likely trigger a financial panic and spoil everyone's summer vacation plans.
So the Troika are now desperate to see PASOK and or New Democracy do better in the 17 June election. So how can they help them?
 |
| Agent Provocateur: Christine Lagarde, IMF Chief |
Angry Greek voters are looking for someone to blame, and as long as PASOK and New Democracy are seen as part of the problem it's unlikely that voters will put them back into power. So one strategy is to try and reshift the political blame onto the external Troika, which would have the effect of diverting negative feelings away from PASOK and New Democracy. This would help the two pro-bailout Greek parties reposition themselves as domestic victims rather than as co-conspirators with the hated foreigners.
And now you understand why the typically politie Christine Lagarde, head of the IMF, probably deliberately roiled the Aegean kettle this weekend with a comment about how it's 'payback time', and Greeks need to pay their taxes.
Queue the Greek firestorm.
And lo and behold, New Democracy, who of course along with PASOK quickly denounced Lagarde's rhetoric, is again rising in the polls.
Nice move, Troika.
And, by the way, Lagarde doesn't pay any taxes on her $551,700 in annual compensation.
Video: Happy Memorial Day
Memorial Day is a time for Americans to say thank you to those who have served and are serving in the U.S. armed forces, and to remember in particular those who have been killed or injured in the line of duty. If you know someone in the U.S. service it takes just a few moments to say thank you and it really is appreciated by those who serve.
And even if you don't agree with the Afghanistan war or other U.S. military activities that are currently underway remember that as Vietnam General William Westmoreland said, “The (U.S.) military don’t start wars. Politicians start wars.”
Memorial Day is also a good time to reflect on war in general and the tremendous suffering and destruction it causes. While there is still war we should not stop asking what are its root causes, and what more can we do to try and prevent it?
The question of why war occurs is no doubt complex with many factors, but one component to keep in mind is the sheer size and business of war, and the affect it has on the livelihoods of millions of people.
Many are familiar with President Eisenhower's 1961 farewell address, and his famous warning about the 'Military-Industrial Complex'. If you haven't watched his full speech it is well worth the 15 minutes of your time.
Ike, a well respected leader with impeccable military credentials, was in a strong position to offer up such a warning.
One wonders if we'll ever see another Ike, or FDR, or TDR or Truman as U.S. President. One has the impression that they just don't make them like that anymore.
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