Articles tagged with "interest rates"
Posted by Euan Mearns on October 17, 2011 - 10:02am
Tags: $100 oil, bank of england, debt, energy efficiency, energy policy, euan mearns, financial times, insolvency, interest rates, iranian revolution, m. king hubbert, oecd, peak oil [list all tags]
David Cameron describes the economic downturn as "no normal recession" UK Prime Minister David Cameron to party conference, 5th October 2011.
This is the fourth post in the series following the oil price, markets and general health of the global economy examining the simple theory that OECD recession may result from annual average oil price exceeding $100 / bbl.
The annual average price (AAP) of Brent went through $100 on around 16th August 2011 and the AAP stood at $105.3 on 12th October. The AAP high point in the 2008 price spike was $104.8 on 9th October that year.
Below the fold are observations and commentary on debt, economic growth, interest rates, commodities prices and government policy. This is not intended to be quantitative analysis but instead is intended to provide a platform for discussion in the comments.
This is a guest post from Steve from Virginia. Steve's real name is Steve Ludlum.
Last week, Dave Murphy (EROI Guy) explored how increasing energy prices during the run up to 2008's $147 bbl peak affected purchasing power of consumers and subsequently the solvency of the establishment that relied on that purchasing power. He mentions James Hamilton:
Hamilton acknowledges early on in his report that the proportion of income spent on energy is an important determinant of consumer spending patterns. The theory is fairly simple: if energy expenditures rise faster than income, then the share of income for other things besides purchasing energy must decline, such as spending on mortgage payments for a second home in Las Vegas. In other words, rapid, large increases in energy prices may curtail consumption enough to trigger larger financial problems – like the bursting of a housing bubble – that when aggregated across an economy may cause or contribute significantly to a recession.
I will show an even greater connection between energy prices, interest rates, and the financial sector, based in large part on a review of minutes of the Federal Reserve Open Market Committee (FOMC) from the end of 2002 to 2007. It appears the Fed’s inflation expectations were very closely linked to petroleum prices. Because of this, the rise in oil prices led the Fed to raise interest rates in an attempt to control inflation, which in turn had unintended consequences.
Open letter from Mervyn King governor of the Bank of England to Alistair Darling, Chancellor of the Exchequer. Click for full letter.
Posted by Stoneleigh on October 19, 2007 - 8:55pm
Tags: asset-backed commercial paper, central banking, credit crunch, debt, derivatives, foreclosure, interest rates, libor, liquidity, recession, securities law, subprime [list all tags]
In the US, as one door has closed on subprime lending, another has opened on credit card debt. Actually living within one's means doesn't always seem to be an option, for some due to poverty and for others due to greed. Either way, the debt hole Americans (and Canadians, and the British) are collectively digging themselves into is getting deeper by the day, and they start young.
As losses mount, the role of mortgage fraud, by both borrowers and lenders, and also potential securities fraud, is being revealed. The litigation is only just beginning, but be prepared for a storm of legal action and recriminations. The ratings agencies are looking vulnerable to European action as their ratings enabled the sale of bad loans to European institutions, under conditions of conflict of interest.
Signs of stress are spilling over from the world of high finance to the real economy, where trucking and shipping are feeling the slowdown. Meanwhile Canada (several months behind the US) is still seeing a booming housing market, but for how long?
Posted by Stoneleigh on September 25, 2007 - 4:22am in The Oil Drum: Canada
Tags: agriculture, climate change, credit crunch, derivatives, drilling, electricity, hydro, interest rates, mining, natural gas, nuclear, oil sands, royalties, sovereignty [list all tags]
The week after we saw bank runs in the UK, a measure of calm has returned to the markets thanks to a combination of central bank bailouts, government deposit guarantees and interest rate cuts. For all that heavy intervention, one derivatives market expert warns that we are still at the beginning of the beginning of the credit crunch.
On the Canadian energy scene, the debate over the Alberta oil and gas royalties review continues. Alberta, which has lower royalties than comparable jurisdictions, wants its fair share, but that could affect Ottawa's tax take. Investors concerned about the royalty issue seem keen to extract themselves from tar sands investments. With the Canadian dollar at parity with the US dollar for the first time since 1976, there are concerns about the ability of the Canadian economy to adapt and compete.
Concerns on the climate front center on the potential for methane-powered runaway warming thanks to new research on the Paleocene-Eocene Thermal Maximum. The direct relationship between carbon offsets and increasing child labour in the third world is also worth highlighting.
One of the world's leading experts on credit derivatives, Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years. He seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice.
I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the laughter. So I tried again. "Second inning?" More laughter. "First?"
Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy....
....When you add it all up, according to Das' research, a single dollar of "real" capital supports $20 to $30 of loans. This spiral of borrowing on an increasingly thin base of real assets, writ large and in nearly infinite variety, ultimately created a world in which derivatives outstanding earlier this year stood at $485 trillion -- or eight times total global gross domestic product of $60 trillion.
Canada's economy is moving and shaking. The loonie reached parity with the US dollar for the first time since the Gerald Ford presidency. But don't be fooled: it's not the Canadian economy that does so great, it's the US that sinks ever further ever faster, and the rest of the world is sinking with it, including Canada.
The long-awaited report on the royalty rates for the Alberta tar sands was published, and it recommends raising the royalties significantly. Both the industry and the business-friendly media in Canada cry foul, and worse. Just a few months ago, Shell said their tar sands operation was immensely profitable, but now the tune has changed.
Some voices say raising the royalties reeks of too-big government, and comparisons with Hugo Chavez fly everywhere. But those same voices do want the government to pay for the Mackenzie Valley pipeline.
Go here for the full report.
Tim Hearn, chief executive officer of top oil sands producer Imperial Oil, said any additional royalties would harm companies already facing sky-high labour and construction costs for their projects.
“I'm not in a position today to say whether we've reached a tipping point or not because I can't tell you,” Mr. Hearn said. “But there's enough things working against us that if all this stays in place as is, there will be an effect in the industry, clearly.”
A former oil executive who was on the review panel lashed back at energy executives, saying they should concentrate on better managing their own businesses and contain cost increases rather than “whining” about higher royalties.
“I don't have any sympathies,” said Sam Spanglet, who ran Shell Canada Ltd.'s oil sands operation before retiring several years ago. “[Alberta is] still going to be very competitive. I feel very confident.”
Some Calgarians were angry, with one broker e-mailing his clients with the subject line: “Caracas on the Bow River,” comparing Alberta with Venezuela and its socialist President Hugo Chavez, who expropriated oil assets this year.
“If [the report is] enacted, investment decisions will be impacted … [the report] reads a bit like a Chavez-style manifesto,” Steve Larke, a Peters & Co. Ltd. broker, said in the e-mail.
In previous installments of what is becoming a potted series on economics, Stuart looked at interest, and I talked about demurrage, a kind of money tax that is designed to encourage long term thinking.
Some observers, on seeing the idea of negative interest/a money tax, remark that such a currency would have a hard time competing for users if it were to exist in a free market of currencies as it would be less desirable to hold than a currency that became more valuable over time.
Others point out that it's unlikely such a radical change could be brought about short of revolution. In these uncertain times nothing should be discounted but it is probably more profitable to look at less radical alternatives.