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November 5, 2008
Finance & Economics, Financial Crisis, History & Society, In Other Words, Politics & World Affairs
(While the world comes to terms with yesterday’s historic call for change, Nouriel Roubini and his team have pulled together a laundry list of the many great challenges that lie ahead…)
Barack Obama, the 44th President of the United States
RGE Monitor
The 2008 U.S. Presidential election was historic itself owing to the candidates’ profile. But the timing of the elections as the U.S. and global economy are in the midst of the worst financial crisis and recession in decades reminds us of the Great Depression era and the 1980s recession when incoming Presidents Roosevelt and Reagan faced immense challenges to cure the economy’s woes.
By the time Obama takes his oath in January 2009, he will face an economy which is still in a middle of a severe and prolonged recession where households will continue to face unaffordable mortgage and other debt, declining value of homes (that financed their consumption all these years), risk of debt default or foreclosure, tight access to credit with stringent borrowing conditions, erosion of their retirement savings amid the bearish stock market, over a million lay-offs taking the unemployment rate to 7-8% and critical foreign policy challenges.
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Filed by The Editor on November 5th, 2008
October 3, 2008
Finance & Economics, In Other Words, Politics & World Affairs
(As Canadians flock to the polls later this month, quietly supplying 22 percent of America’s oil and 13 percent of its natural gas, its neighbours to the south have barely noticed. Cross-border oil flows are inevitable – given that America controls of a mere 2% of the world’s oil reserves and consumes almost 25 percent of supply – and securing its long-term petroleum assumes the full participation of Alberta’s carbon-rich tar sands and the off-shore bounty at Hibernia. Even Governor Palin’s Wildlife Reserve is virtually useless without passage by pipe across Canada’s Western provinces. Given the importance of “Securing America’s Energy Future” during a twin election year, it’s surprising that talk hasn’t returned to NAFTA, cleaner energy, or agricultural subsidies.
Then again, maybe it isn’t…)
Canada’s role missed in U.S. energy debate: Yergin
By Jeffrey Jones
BANFF, Alberta (Reuters) - The way Daniel Yergin sees it, the high-stakes debate over energy security in the U.S. presidential campaign has ignored one of the most critical parts of the United States’ oil supply equation: Canada.
The United States’ neighbor to the north has quietly become its largest foreign oil and gas supplier, and that has actually improved energy security in the United States, said Yergin, energy and geopolitical analyst, Pulitzer Prize-winning author and chairman of Cambridge Energy Research Associates.
Meanwhile, Canada’s oil industry is struggling at home to keep boosting production of the country’s vast oil sands while facing major new environmental and cost hurdles, Yergin said.
“People debate oil imports, but what they don’t know is 22 percent of oil imports come from Canada, that 13 percent of our natural gas comes from Canada. Imports of energy from Canada need to be seen in the larger context of the trade and investment network that ties the two countries together,” he said in an interview in the mountain resort of Banff, Alberta.
“This shows interdependence at work.”
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Filed by The Editor on October 3rd, 2008
March 25, 2008
Finance & Economics, Politics & World Affairs
Assuming that the United States decides to impose a $25 per barrel tariff on all imported oil (crude and product), and—Canada and Mexico were not exempt—let’s explore how this might affect:
a. The volume of oil imported into the United States?
Volume responses to a $25 tariff would vary over time. In the near-term, there would only be a negligible decrease in the volume of oil imported (given a low short-run elasticity of energy demand) as industries, supply chains, and consumers remain highly dependent on existing petroleum infrastructure. The redistribution of the tariff (with tax reductions) would partially offset the incremental cost to businesses and consumers, but the policy is unlikely to completely offset the macroeconomic effects of a 33% increase in a key industrial input.
In the mid-term, as industries and generators begin to shift away from higher-cost imported oil, domestic oil producers might begin building out untapped Arctic capacity and utilities might begin diversifying their energy portfolios into lower-cost fossil fuels and alternative energy technologies. Together, these processes should cause a more substantial decline in import volumes.
In the long-run, a more fundamental shift away from a high-carbon, high-cost, oil-dependent economy is likely to unfold, at which point oil imports would begin to decline more precipitously as demand for energy is almost completely replaced with lower-cost substitutes. This progression is an example of a typical “adjustment lag”.
b. The world price of oil?
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Filed by The Editor on March 25th, 2008
February 29, 2008
Finance & Economics, Politics & World Affairs
(An excerpt from the mid-term “problem set” in ENR-302…)
3. The country of Xanadu is dependent of the use of domestically produced methanol for 100% of its energy needs. The price of methanol is set by a competitive market and the fuel is priced at $2.50 per gallon. Two large companies supply 80% of the market and each has costs of $1.50 per gallon. The opposition party and most of the national labor unions argue that these two companies are making obscene profits. They demand that the President place a mandatory price cap of $2.00 on the price of methanol to prevent “this abuse of market power.”
Assume that the elasticity of demand is 0.4 and the elasticity of supply is 0.8. Discuss in 250 words or less, the impact on supply and demand, if the President gives in and caps the price of methanol at $2.00 per gallon. Explain your answer.
Filed by The Editor on February 29th, 2008
February 1, 2008
Finance & Economics, In Other Words, Politics & World Affairs
(Another interesting analysis on the trade-off between economics and security. In this case, the existence of a low-cost, high-value, recreational good with addictive/inelastic demand has produced a covert, vertically integrated, structurally dynamic supply chain in northern Mexico. Stopping it would be akin to damming a river with a cheese cloth. Without a considerable increase in legal supply, a decrease in illegal demand, or ideally both, there’s little chance that the industry will dry up any time soon. More likely, as the author suggests, “The children and grandchildren of the Zetas will be running banks, running for president, building art museums and telling amusing anecdotes about how grandpa made his money running blow into Nuevo Laredo.” Sounds like the Bronfman affair all over again, without the legalization…)
The Geopolitics of Dope
By George Friedman, Strategic Forcasting
Over recent months, the level of violence along the U.S.-Mexican border has begun to rise substantially, with some of it spilling into the United States. Last week, the Mexican government began military operations on its side of the border against Mexican gangs engaged in smuggling drugs into the United States. The action apparently pushed some of the gang members north into the United States in a bid for sanctuary. Low-level violence is endemic to the border region. But while not without precedent, movement of organized, armed cadres into the United States on this scale goes beyond what has become accepted practice. The dynamics in the borderland are shifting and must be understood in a broader, geopolitical context.
The U.S. border with Mexico has been intermittently turbulent since the U.S. occupation of northern Mexico. The annexation of Texas following its anti-Mexican revolution and the Mexican-American War created a borderland, an area in which the political border is clearly delineated but the cultural and economic borders are less clear and more dynamic. This is the case with many borders, including the U.S.-Canadian one, but the Mexican border has gone through periods of turbulence in the past and is going through one right now.
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Filed by The Editor on February 1st, 2008
January 18, 2008
Finance & Economics, Financial Crisis, History & Society, Politics & World Affairs
(An expanded look at the role corporations and hospitable business environments have played in stabilizing the anarchic system of international relations. This work is based on an earlier paper which focused on the “rise of the modern corporation” as a key independent variable in the calculus of global security…)
Private Risk, Public Reward:
Stabilizing Frameworks and the Rise of Corporate Hegemony
By Devin DeCiantis | ISP-351 | Economics & Security
“The modern corporation as an institution is entitled to much more respect than it has frequently received.
It is, in fact, an institution at a cross-road in history,
Capable of becoming one of the master tools of society - capable also of surprising abuse.”
- Adolph Berle, Jr. The Twentieth Century Capitalist Revolution, 1954
Traditional theories about power structures have focused on the role of states as principal agents in international affairs. In aggregate, these theories justify most of the major geopolitical incidents that have shaped the modern world order, but none of them effectively do so on their own. That’s not to suggest that existing theories based on political cooperation don’t have their place among the predictive frameworks of the 20th century. Many of them have helped to explain some of the century’s most important economic and security inflections. This paper simply suggests that where prevailing theories break down, a careful examination of the often quiet and understated rise of the modern corporation may offer a compelling supplementary explanation.
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Filed by The Editor on January 18th, 2008