Saudi Arabia pledges to make up for Iranian Oil pulled from the Market due to Sanctions

Posted by PITHOCRATES - January 15th, 2012

Week in Review

New Iranian sanctions may take their oil off the market.  No worries, though.  For our friends the Saudis will make up for that lost oil (see ‘Saudis have enough oil to make up for Iran’ by Reuters posted 1/14/2012 on The Jerusalem Post).

Saudi Arabia says it has enough oil output capacity to meet global customers’ needs if new sanctions keep Iran from exporting oil, a top US Republican lawmaker said on Friday.

House of Representatives Majority Leader Eric Cantor spoke to Reuters by telephone from Europe after several days of meetings in the Middle East, including Saudi Arabia. Saudi oil minister Ali al-Naimi was among the officials he met.

“The Saudi government indicated that it was ready and able to meet needs of its customers,” Cantor told Reuters. Saudi Arabia is the world’s largest oil exporter. Its top customers include the United States, Japan, China and South Korea.

Saudi Arabia is a friend of peace and stability.  And of the United States.  Like Egypt used to be.  Before we asked Hosni Mubarak to step down before giving him a chance to introduce reforms.  Now Egypt may go Islamist.  And be friendlier to Iran.  Something neither the United States nor the Saudis want.  Because a larger Iranian influence in the Middle East will not promote peace and stability.  The common goal of the United States.  Saudi Arabia.  And pretty much every nation not aligned with Iran.

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Standard & Poor lowers the Credit Rating for Nine European Countries

Posted by PITHOCRATES - January 15th, 2012

Week in Review

Interest rates are subject to the laws of supply and demand.  The more questionable a borrower looks to be able to repay the loan the higher the interest rate.  Because there is a low supply of people willing to loan to such risky borrowers.  So they have to offer higher rates to get people to take a greater risk.

When S&P took away America’s AAA rating this did not happen, though.  Not because America was immune to the laws of supply and demand in the bond market.  But because Europe had even bigger problems.  And they just got worse (see S&P cuts credit ratings for France, Italy, Spain by JAMEY KEATEN posted 1/14/2012 on Yahoo! News).

Standard & Poor’s swept the debt-ridden European continent with punishing credit downgrades Friday, stripping France of its coveted AAA status and dropping Italy even lower. Germany retained its top-notch rating, but Portugal’s debt was consigned to junk.

In all, S&P, which took away the United States’ AAA rating last summer, lowered the ratings of nine countries, complicating Europe’s efforts to find a way out of a debt crisis that still threatens to cause worldwide economic harm.

Austria also lost its AAA status, Italy and Spain fell by two notches, and S&P also cut ratings on Malta, Cyprus, Slovakia and Slovenia.

Some are arguing that this won’t impact the Eurozone bailout.  Because of the austerity measures the troubled countries have taken.  But it doesn’t help.  It just pushes the final resolution of the Eurozone debt crisis further out.  And probably makes it more unpleasant.

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Russia’s Ambitious Unmanned Mars Mission Fails

Posted by PITHOCRATES - January 15th, 2012

Week in Review

The Russians planned a mission to land a spacecraft on a moon of Mars.  Excavate some material.  And return to Earth.  You’d have to go back to America’s Apollo Moon Program for something as bold.  Unfortunately their mission failed (see Russian space probe crashes into Pacific by VLADIMIR ISACHENKOV posted 1/15/2012 on my way).

A Russian space probe designed to boost the nation’s pride on a bold mission to a moon of Mars came down in flames Sunday, showering fragments into the south Pacific west of Chile’s coast, officials said…

The Phobos-Ground was designed to travel to one of Mars’ twin moons, Phobos, land on it, collect soil samples and fly them back to Earth in 2014 in one of the most daunting interplanetary missions ever. It got stranded in Earth’s orbit after its Nov. 9 launch, and efforts by Russian and European Space Agency experts to bring it back to life failed…

Russia’s space chief has acknowledged the Phobos-Ground mission was ill-prepared, but said that Roscosmos had to give it the go-ahead so as not to miss the limited Earth-to-Mars launch window.

Mars is the Earth’s neighbor.  Phobos-Ground was going to take about 3 years for a round trip to a Mars moon.  The launch was rushed because of the different orbits of Mars and Earth.  It’s sort of like throwing a pass in the NFL.  You don’t throw the ball to the receiver.  You throw it where the receiver will be.  So they had to launch Phobos-Ground so it would arrive where the moon of Mars would be.  Not where it was.

Because of these great distances and the movement of the planets, navigating between these heavenly bodies is not easy.  Also, this was an unmanned mission.  Because as of now the technology does not exist to build a ship large enough with enough food and water and energy to sustain human life for a roundtrip to Mars.  Not to mention the affect of weightlessness, the lack of exercise, fresh air, sunshine, etc.  Or what would happen if an astronaut or a cosmonaut or other space traveler caught a cold or suffered an appendicitis.  An unmanned mission was difficult enough.  A manned mission is beyond the realm of possibility.  For now.

Space travel is costly, difficult and highly risky.  Just to reach Mars.  Let alone intergalactic travel.  The obstacles to overcome may be insurmountable.  Yet if those having the technology were to do so they no doubt would have the technology to end hunger, control the weather and eliminate war.  And have no conceivable reason for contacting a far distant planet.

Unless they’re just incredibly bored.  And have money to burn.  Or are like the Professor on the television show Gilligan’s Island.  Who could build a radio receiver out of coconuts but couldn’t figure out how to patch a hole in a boat.  Smart enough to do the complex.  But not smart enough to something simpler.  Which would negate the necessity of the more complex.

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Labour Supports Pay Freeze for Public Sector Workers

Posted by PITHOCRATES - January 15th, 2012

Week in Review

Deficits have consequences.  Because you can’t just keep on borrowing money you don’t have.  So eventually the day comes when everyone realizes that they must live within their means.  Even political opponents (see Balls backs public sector pay freeze posted 1/14/2012 on the BBC News UK).

Shadow chancellor Ed Balls has indicated Labour will support a pay freeze for public sector workers in order to help reduce the deficit.

Mr Balls told BBC Radio 4’s Today programme that getting people into jobs must come before higher pay.

The UK’s deficit is about 10% of GDP.  Ditto for the US.  The UK’s debt is about 95% of GDP.  The US is about 100% of GDP.  In Reagan’s last year as US president it was only about 51% of GDP.

Deficits and debt are rising to dangerous levels.  They’re so high in the UK that the Labour party, the party of public sector workers, will support a freeze for public sector workers.  That’s serious.  For even in the US where the numbers are even worse the Democrats (the party of public sector workers) don’t dare to breathe such sentiments.  They still talk about making the rich pay their fair share of taxes.  They never talk about cutting spending.  Never.  Unless it’s defense spending.

The Brits are trying to do the responsible thing.  Even the political opposition is going along because it’s in the best interests of their country.  Suspending politics as usual at the highest levels.  It would be nice to see something like that in their former colony.  The United States.

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Free Market Competition versus Cronyism and Monopoly

Posted by PITHOCRATES - January 15th, 2012

Week in Review

There is a general misunderstanding of what capitalism means.  When most people criticize capitalism, they’re not criticizing capitalism.  But, instead, crony capitalism.  Where some in business seek special favors from government.  Thus preferring the privilege of cronyism over free market competition.

Economics can range between two poles.  Free competition.  And monopoly.  Free competition is an essential element of capitalism.  Whereas monopoly requires the power of the state to enforce (see Competition and the Economists by Murray N. Rothbard posted 1/10/2012 on Ludwig von Mises Institute).

To Adam Smith and to his successors, “competition” was not a term defined with mathematical precision; it meant, generally, “free competition,” i.e., competition unhampered by governmental grants of exclusive privilege. And “monopoly” tended to mean such grants of governmental privilege.

To Adam Smith, for example, “competition” was used in the common-sense way that businessmen use it: to mean rivalry between two or more independent persons or firms. “Free competition” meant absence of grants of exclusive privilege, freedom of trade and freedom of entry into occupations; “monopolies” meant grants of exclusive privilege.

When Smith used the term “competition,” for example, he used it to describe the competition among buyers, which bids prices up when demand exceeds supply, or the competition of sellers, which bids prices down when supply is greater than demand.

Free market competition keeps consumer prices down.  Because of that competition between sellers.  When there is crony capitalism there is less competition.  And elements of monopoly.  Which lets prices stay high.  This is crony capitalism.  It lets those politically connected escape free market competition.  So they can enjoy higher selling prices.  And you can only do this with friends in high places.  Who have the power to suspend free market forces by legislation.  Which is the only way you can.

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A Keynesian has an Austrian Moment

Posted by PITHOCRATES - January 15th, 2012

Week in Review

There are a few schools of economics.  The Keynesian school gain prominence following World War I.  Governments like it because it justifies big government.  And government interventions into the free market to ‘fix’ market failures.  Using the power of central banking and monetary policy.  And fiscal tax and spend polices.  With such interventions they believe they can eliminate or at least lessen the impact of recessions.  Because the architects of these policies believe they are smarter than market forces.

Another prominent economic school is the Austrian school.  Which favors limited government.  Low taxes.  A sound currency.  And where the government doesn’t use the central bank and monetary policy to manipulate currency and interest rates to interfere with market forces.  For they believe, as history shows, such interventions into market forces results in worse and prolonged recessions.

So that’s just a very brief overview of these two schools.  John Maynard Keynes was a Brit.  And very influential in Europe.  Where his policies are still embraced in these social democracies.  But even these devout Keynesians can have a moment of doubt and waiver in their beliefs.  Even chief correspondents in the most esteemed newspapers (see ‘Strangely Austrian’ posted 1/10/2012 on the Ney York Sun).

In any event, Mr. Rachman notes that Dr. Paul has recalled dining with Hayek and being inspired by Ludwig von Mises, “another economist of the Austrian school.” He writes that this explains Dr. Paul’s “otherwise baffling remark” after the Iowa caucus, in which the Texan said: “I’m waiting for the day when we can say we’re all Austrians now.” He calls Dr. Paul the “purest advocate of a powerful conviction on the American right that the US is afflicted by an over-mighty state.” He notes that “Paulite suspicion of central banks that threaten to debase the currency is powerfully echoed in Germany — where the Hayekian right is horrified by the operation of the European Central Bank . . .”

Mr. Rachman doesn’t predict which trend will set the tone for the new age. But he offers this confession: “Under normal conditions I would probably sign up with the social democratic tendency. The Tea Party is not my cup of tea.* [* His erstwhile king, George III, wasn’t all that crazy about it either.]  But I spent the weekend reading newspaper accounts of the ever more incredible figures that may have to be poured into the bail-outs for banks and countries in Europe. Then I turned the page to read of demands for more protectionism and regulation in the EU. For light relief, I then went to see ‘The Iron Lady’ — the new film about Margaret Thatcher. The whole thing has left me feeling strangely Austrian.”

Strangely, indeed. The importance of the column lies in the fact that Mr. Rachman is not just any scrivener. He is the chief foreign affairs commentator for the leading Keynesian newspaper in England. Here he is kvelling over Ron Paul and the Austrians.

The “we’re all Austrians now” line is a play on what Richard Nixon reportedly said when he decoupled the U.S. dollar from gold in 1971, unleashing double-digit interest rates and inflation.  He said, “I am now a Keynesian in economics.”  Which was a play on what Milton Friedman wrote in 1965, “In one sense, we are all Keynesians now; in another, nobody is any longer a Keynesian.”  Dr. Paul is waiting for the day when those in government abandon the failed policies of Keynesian economics and adopt the policies of the Austrian school.

Margaret Thatcher was British prime minister during the Eighties when Ronald Reagan was the U.S. president.  Who were both adherents to the Austrian school of economics.  And who both saw incredible economic growth when they were in office.  By following those Austrian policies.

After listening to Dr. Paul in the U.S. Republican primary race, reading some articles on the financial problems of Europe and the cost of their bailouts, the European Union’s demand for protectionism and regulation to protect their markets and then seeing the film about the Great Margaret Thatcher Mr. Rachman was given pause for thought.  Which often happens when you actually learn Austrian economics.  Because it makes sense.  And there is a lot of economic history proving the success of these policies.  But will it last?  Probably not.  Because Keynesians just like Keynesian economics so much.  Like a religion.  They accept it on faith.  And want to believe.

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