Sunday, March 16, 2014

The economics of saber-rattling

One of the uglier realities of life is that if you are not in the way, war can be very good for the Producing Classes—at least for awhile.  In my corner of the world, the pioneer farmers became incredibly prosperous because of the increased consumption and Greenback economics of Lincoln and the Civil War.  Thorstein Veblen's father made so much money between 1864 and 1873 he was able to send his children to some fancy universities—not bad for an immigrant who nearly starved when he first arrived.  The party came to a crashing halt in 1873 when USA went back on the gold standard.  Midwest and western agriculture didn't really recover until the outbreak of WW I in Europe.  My uncle in Iowa made so much money growing the food necessary to plug the shortages caused by the collapse of European agriculture, he was able to retire as a middle-aged man in 1921.  This party ended when Britain went back on the gold standard in 1923.  The resulting economic collapse did not really end until USA started gearing up for WW II.  This stimulus was so effective that by 1962, USA industry was larger than the rest of the planet's combined.

Of course, the argument can be made that it isn't warfare itself that is so good for the Producing Classes, but the fact that war conditions provide relief from the crackpot economics that give us gold standards and global depressions.  There is absolutely nothing that prohibits us from using Greenbacks and Keynesian stimulus for more worthy goals.  In fact, this blog is dedicated to employing the enlightened economics we can seem to justify during wars for goals FAR more worthy—goals like meaningfully addressing climate change and the end of the age of petroleum.

Already we are seeing speculation as to what might happen to Russia if the rest of the world tries to gang up on her as "punishment" for her actions to protect her navel bases in Crimea.  As my Friday's post seemed to indicate, there are Russians who seem to think such a situation will be immensely good for her industry and other Producing Class activities.  And if the current situation gets Russia to rethink neoliberalism and try some more enlightened economics, economic sanctions will be the best thing that has happened to her in a LONG time.

What is most interesting about all this saber-rattling over Crimea is that like most of the real fights these day, the underlying cause is the fight over hydrocarbons.  Since it should be painfully obvious that planet earth cannot tolerate any more burning of those hydrocarbons, the enlightened economics that folks will use for more war-mongering could be much better deployed making the fight over fossil fuels irrelevant.  Unfortunately, we understand war and many desire it.  Creating conditions for peaceful prosperity?—not so much.

16% of natural gas consumed in Europe flows through Ukraine

Source: U.S. Energy Information Administration, IHS EDIN, and International Energy Agency

Alexander Metelitsa March 14, 2014

Europe, including all EU members plus Turkey, Norway, Switzerland, and the non-EU Balkan states, consumed 18.7 trillion cubic feet (Tcf) of natural gas in 2013. Russia supplied 30% (5.7 Tcf) of this volume, with a significant amount flowing through Ukraine. EIA estimates that 16% (3.0 Tcf) of the total natural gas consumed in Europe passed through Ukraine's pipeline network, based on data reported by Gazprom and Eastern Bloc Energy.

Two major pipeline systems carry Russian gas through Ukraine to Western Europe—the Bratstvo (Brotherhood) and Soyuz (Union) pipelines. The Bratstvo pipeline is Russia's largest pipeline to Europe. It crosses from Ukraine to Slovakia and splits in two to supply northern and southern European countries. The Soyuz pipeline links Russian pipelines to natural gas networks in Central Asia and supplies additional volumes to central and northern Europe. A third major pipeline through Ukraine (Trans-Balkan) delivers Russian natural gas to the Balkan countries and Turkey.

In the past, as much as 80% of Russian natural gas exports to Europe transited Ukraine. This number has fallen to 50%-60% since the Nord Stream pipeline, a direct link between Russia and Germany under the Baltic Sea, came online in 2011.

Natural gas flows through Ukraine vary by season, ranging from almost 12 billion cubic feet (Bcf) of natural gas per day in the winter to only 6 Bcf per day in the summer. An unusually mild winter in 2013 meant reduced natural gas flows through Ukraine and contributed to higher levels of natural gas storage in Europe (natural gas storage levels were 46% full as of March 13, compared to 23% full in the United States).

Source: U.S. Energy Information Administration, International Energy Agency, and Eastern Bloc Energy. more

For more information, see EIA's country analysis note on Ukraine.

Deep State Descending

Howard Kunstler  March 10, 2014

And so it’s back to the Kardashians for the US of ADD. As of Sunday The New York Times kicked Ukraine off its front page, a sure sign that the establishment (let’s revive that useful word) is sensitive to the growing ridicule over its claims of national interest in that floundering, bedraggled crypto-nation. The Kardashians sound enough like one of the central Asian ethnic groups battling over the Crimea lo these many centuries — Circassians, Meskhetian Turkmen, Tatars, Karachay-Cherkessians — so the sore-beset American public must be content that they’re getting the news-of-the-world. Perhaps one of those groups was once led by a Great Kanye.

Secretary of State John Kerry has shut his pie-hole, too, for the moment, as it becomes more obvious that Ukraine happens to be Russia’s headache (and neighbor). The playbook of great nations is going obsolete in this new era of great nations having, by necessity, to become smaller broken-up nations. It could easily happen in the USA too as our grandiose Deep State descends further into incompetence, irrelevance, buffoonery, and practical bankruptcy.

Theories abound about what drives this crisis and all the credible stories revolve around the question of natural gas. I go a little further, actually, and say that the specter of declining energy sources worldwide is behind this particular eruption of disorder in one sad corner of the globe and that we’re sure to see more symptoms of that same basic problem in one country after another from here on, moving from the political margins to the centers. The world is out of cheap oil and gas and, at the same time, out of capital to produce the non-cheap oil and gas. So what’s going on is a scramble between desperate producers and populations worried about shivering in the dark. The Ukraine is just a threadbare carpet-runner between them.

Contributing to our own country’s excessive vanity in the arena of nations is the mistaken belief that we have so much shale gas of our own that we barely know what to do with it. This is certainly the view, for instance, of Speaker of the House John Boehner, who complained last week about bureaucratic barriers to the building of new natural gas export terminals, with the idea that we could easily take over the European gas market from Russia. Boehner is out of his mind. Does he not know that the early big American shale gas plays (Barnett in Texas, Haynesville in Louisiana, Fayettville in Arkansas) are already winding down after just ten years of production? That’s on top of the growing austerity in available capital for the so-far-unprofitable shale gas industry. That’s on top of the scarcity of capital for building new liquid natural gas terminals and ditto the fleet of specialized refrigerated tanker ships required to haul the stuff across the ocean. File under “not going to happen.”

Even the idea that we will have enough natural gas for our own needs in the USA beyond the short term ought to be viewed with skepticism. What happens, for instance, when we finally realize that it costs more to frack it out of the ground than people can pay for it? I’ll tell you exactly what will happen: the gas will remain underground bound up in its “tight rock,” possibly forever, and a lot of Americans will freeze to death.

The most amazing part of the current story is that US political leaders are so ignorant of the facts. They apparently look only to the public relations officers in the oil-and-gas industries and no further. Does Barack Obama still believe, as he said in 2011, that we have a hundred years of shale gas?” That was just something that a flack from the Chesapeake Corporation told to some White House aide over a bottle of Lalou Bize-Leroy Domaine d’Auvenay Les Bonnes-Mares Grand Cru. Government officials believe similar fairy tales about shale oil from the Bakken in North Dakota — a way overhyped resource play likely to pass its own peak at the end of this year.

If you travel around the upper Hudson Valley, north of Albany, where I live, you would see towns and landscapes every bit as desolate as a former Soviet republic. In fact, our towns look infinitely worse than the street-views of Ukraine’s population centers. Ours were built of glue and vinyl, with most of the work completed thirty years ago so that it’s all delaminating under a yellow-gray patina of auto emissions. Inside these miserable structures, American citizens with no prospects and no hope huddle around electric space heaters. They have no idea how they’re going to pay the bill for that come April. They already spent the money on tattoos and heroin. more
No one quite knows what to make of our current German Prime Minister who is being led to believe that going off to war is what great German leaders do.  Since the German economy is probably the most vulnerable to any catastrophe in Crimea, one can only hope that cooler heads will prevail.
Merkel the Puppet

The Failure of German Leadership


Washington, enabled by its compliant but stupid NATO puppets, is pushing the Ukrainian situation closer to war.

German Chancellor Merkel has failed her country, Europe, and world peace. Germany is the strength of the EU and NATO. Had Merkel said “No” to sanctions on Russia, that would have been the end of the crisis that Washington is brewing, a crisis unlikely to be ended short of war.

But Merkel has signed away the sovereignty of the German nation and assigned the fate of Germany to a province in the American Empire. Thus has Merkel and the weak German leadership consigned the world to war. Already blamed for World War 1 and World War 2, now Germany will be blamed for World War 3.

Washington’s mismanaged Ukrainian coup has cost Washington Crimea, which Washington wanted most of all in order to deprive Russia of its warm water naval base on the Black Sea. In addition, the mismanaged overthrow of an elected government in Ukraine is threatening to also lose the Russian cities of eastern Ukraine. Like Crimea, eastern Ukraine consists of former Russian areas that Khrushchev stuck into Ukraine in the 1950s.

In what is clearly a fruitless and pointless effort to get Crimea back, Washington is demanding that Russia interfere in Crimea and prevent Crimea from seceding from Ukraine. If the Russian government refuses to follow Washington’s orders, Washington has announced that it will inflict “damaging sanctions” on Russia. Initially, EU countries expressed an unwillingness to go along with Washington, but with bribes and threats, Washington has conquered Merkel and has its European puppets lined up following orders.

Washington understands that economic sanctions are a far less threat to Russia than the loss of its Black Sea naval base. Washington also understands that Putin cannot possibly abandon the millions of Russians in eastern and southern Ukraine to the mercy of the anti-Russian and unelected government imposed by Washington in Kiev. As Washington knows that its threat of sanctions is empty, why did Washington make it?

The answer is in order to drive the crisis to war. Washington’s neoconservative nazis have been agitating for war with Russia for a long time. They want to remove one of the three remaining restraints (Russia, China, Iran) on Washington’s world hegemony.

Washington wants to break up the BRICS (Brazil, Russia, India, China, South Africa) before these countries form a separate currency bloc and avoid the use of the US dollar.

Russia will respond in kind to Washington’s sanctions. European peoples and Western banks and corporations will suffer losses. It would be at least two or three years before Washington has in place means of delivering US natural gas achieved by fracking and contamination of US water supplies to Europe to take the place of Russia’s cutoff of energy to Europe.

The Western presstitute media will dramatize the Russian response to sanctions and demonize Russia, while ignoring who started the fight, thereby helping Washington prepare Americans for war. As neither side can afford to lose the war, nuclear weapons will be used. There will be no winners.

All of this is perfectly clear, just as was the obvious conclusion of the march of events leading up to World War 1. Now, like then, the people who see the outcome are powerless to stop it. Delusion rules. Arrogance and hubris overflow. Statements and actions become ever more reckless, and then there is hell to pay.

Americans and Europeans, if they had any awareness at all, would be in the streets violently protesting the coming war toward which the insane criminals in Washington are driving the world.

Instead, the German chancellor, the French president, the British prime minister and the Western presstitute media continue to lie: It was legitimate for the West to steal Kosovo from Serbia and to steal the Ukrainian government, but it is not legitimate for the Russian population of Crimea to exercise self-determination and return to Russia. Washington and its EU puppets even have the audacity to declare falsely, after overthrowing an elected government in Ukraine and installing an unelected one, that Crimean self-determination violates the Ukrainian constitution, which no longer exists because Washington destroyed it.

The criminally insane government in Washington has pushed the Russian bear into a corner. The bear is not going to surrender. more
The German dilemma from inside Germany.  This piece isn't especially thoughtful or enlightened.  If Germany wants to be one of the world's leaders, the first thing she needs to do is upgrade her intellectuals.  The current crop seems most likely to follows trends set by folks in USA.  The current finance minister is stupid on steroids—something easily determined when you hear him quoting those towering academic frauds—Rogoff and Reinhart.

Why Berlin can't go it alone on Russia

Author Michael Knigge  14.03.2014

Germany’s special ties with Russia give Berlin a crucial role in trying to solve the Crimea Crisis. But that doesn’t mean that Berlin alone can push Moscow to alter its stance, as some media reports insinuate.

Reading analytic pieces by influential international press outlets these days ( here, here, and here) one gets the impression that Berlin is the sole arbiter on Russia and can somehow just wave a magic wand that will make Vladimir Putin reconsider his actions.

It's a catchy idea whose only problem is that it is overly simplistic and thus wrong.

To be clear, Germany has a unique relationship with Russia. As the EU's largest country and biggest economy situated in the center of Europe, it is only natural that Berlin would play a key role in any discussion between the EU and Russia on how to overcome the current crisis.

Beyond that, Germany's own experience in dealing with its eastern half after the fall of Berlin Wall and its close economic and political ties with Russia give it added clout and a big stake in the crisis. Germany imports roughly 40 percent of its oil and gas from Russia, which makes it Berlin's largest energy supplier.

But it's not just Germany that needs Russia. The dependence is mutual. Germany is Russia's third largest trading partner; some 9 billion euros in direct investments and more than 6,000 German companies active in Russia play an important part in the Russian economy.

Joint effort

Notwithstanding that influence, Berlin is simply not the singular external player with the power to persuade Russia to rethink its game. It does not have the economic and political leverage to unilaterally make Moscow change tack anytime soon. Imposing economic sanctions would not only hurt Russia, but also hit the German economy, Europe's growth engine. What's more, sanctions would take time to have an impact, and as important as Germany is economically for Russia, only concerted Western sanctions would do the trick.

"I don't think Germany alone can do this," James F. Collins, US ambassador to the Russian Federation from 1997 to 2001 told DW.

"Honestly, Putin is the only one who can make this crisis go away and he has been remarkably resistant to listening to anybody," noted Olga Oliker, a senior Russia expert with the Rand Corporation in Washington.
While both underscored Germany's central role in solving the Ukraine crisis, they dismissed the narrative that Berlin in and of itself could influence Moscow to change course.

"Germany will need to bring along colleagues in the EU and be part of a larger community to be influential," said Collins. "And I think it will also be influential to the extent Washington and Berlin are on the same page."

Leadership question

The claim made in recent press coverage that the US has abdicated its leadership role on Ukraine to Germany is as naïve as is the idea that we are on the brink of a "Russo-German Europe."

The more sober, if less juicy description, of how Europe and the US deal with Russia and the Ukraine is that of close cooperation that involves a division of labor as evidenced this week.

While German Chancellor Angela Merkel discussed the crisis with Polish Prime Minister Donald Tusk on Wednesday, US President Barack Obama hosted Ukraine's interim prime minister in a high profile Oval Office meeting. And in what has been billed as a last chance to avert a further escalation of the crisis before the Crimea referendum, US Foreign Secretary John Kerry was scheduled to meet his Russian counterpart in London on Friday.

"The reality is it's a kind of complimentary activity," said Collins.

Washington is deeply engaged in the Ukraine crisis diplomatically and militarily. But the fact is that Ukraine and Crimea are simply not geopolitical priorities for the United States and that Washington's economic exposure to Russia and the region is considerably weaker than that of Germany and the EU.

Matter of principle

"For the United States Ukraine is far from a vital interest," notes Oliker. "For Europe and for Germany it is much more of one due to proximity, due to gas pipelines and due to just a much closer economic relationship with Russia. For the United States it's a matter of principle and certainly Europe as a whole is a vital interest of the United States."

Neither Germany, the EU nor the US have a silver bullet that can coerce Russia to change course on Ukraine anytime soon. In the long-run however, a joint, coordinated effort that may well involve meaningful sanctions by all three parties is the best option to make Moscow reconsider its game. more

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