Points to Ponder is an occasional series of thoughts (points) that come to mind and that I can articulate in the written word. They are ponderings because I really do not have any clear answers to the points under consideration.
By John Tobin
Let me begin by apologizing for yet another pondering that is not directly tied to energy. However, the current fiscal issues here in the U.S. and globally including the Euro will drive the health of the global economy and, therefore, the current demand for energy. It might even impact the normal demand picture globally in the long run, if our governments cannot come to grips with these issues. So ponder we must.
The clearest of these very foggy pictures comes from Europe. The European Union and the creation of a single currency and tariff-free cross-border trade were a great, but incomplete, start at “unity”. The completeness issues could be kicked down the road as long as there were no real threats to the global economy. Obviously, the past 4 years have brought the “kick the can” approach into question. As has been noted by many pundits, the best signal that Europe is screwed up is that they have an Italian as the head of the European Central Bank and a German as Pope. It’s all backwards.
“Sovereign” debt is the issue. The debt reflects each sovereign nation’s policy for its own spending with no real regard for the rest of its partner nations in the EU. While most of Europe has a large financial commitment to the “welfare state”, it is how the individual countries pay (or can’t pay) for it that is at the heart of the current crisis. The PIIGS (Portugal, Ireland, Italy, Greece and Spain) are the potential contagion that would infect the entire global economy.
Current solutions that are being proposed still kick this can down the road. At best they will buy time to work on real solutions to complete unity. What is required is for each member to give up some of its sovereignty so that a common fiscal policy can be enforced. The current proposed treaty is certainly a step in this direction.
We still have promises we cannot keep,
and even more miles to go before we sleep.
With apologies to Robert Frost
Sovereignty is a big and very bitter pill to swallow. Today the leadership, as it is, rests with Germany and France. Are the “Merkozy” (Merkel and Sarkozy) elites something the rest of the 27 nations can accept? Would it take a EU wide election to find such leadership? Would such a vote be the final capitulation of sovereignty? But can it succeed if the U.K. is not a party?
Will the PIIGS’ leadership have the strength and public support to get their fiscal houses in order? Or will the new players simply be a clone of Silvio Berlusconi and George Papandreou who I’ll call Silvio Papa•oom•mow•mow?
It’s got to be the water
As a side note we should not forget the Arab Spring. Here on the southern shores of the Mediterranean we see the reach for freedom and democracy, and all the uncertainties over oil supply that this movement entails. In the cradle of democracy, Greece, and all along the northern shore we see how the promises we cannot keep can screw up this system of freedom even where it is democratically instituted.
It’s got to be in the water. There is no other explanation of both situations. So let’s close the locks on the Suez and dam the Strait of Gibraltar, and maybe the contagion can be controlled. But how does this explain the Super Committee? (Note: Perhaps the U.S. debt crisis is my fault as two years ago I did scuba dive in the Aegean and might have brought the contagion home with me.)
Of course we still must dispose of the contagion. So I propose that we pump the water into the shale fields in the area and frac the entire mess. Makes as much sense as anything else. But I digress.
The problem facing the Super Committee was basically the same. We have asked our elected representatives to expand our social safety net. Yet, the promises of Social Security, and health care, etc., cannot be met.
This committee was almost doomed to failure from the beginning. Its partisan makeup, in spite of the good intentions and reputations of the individual participants, was still subject to extreme pressure from the parties and special interests. Even the nuclear trigger for mandatory cuts in 2013 is now less than certain, as Congress could change the legislation.
Therefore, we should be really disappointed that with the inevitability of failure the committee did not think big, as in $4 trillion. They still would have gone down in flames, but the flames would have been huge and the brightness could not be ignored.
It is not the return on my investment that concerns me,
it is the return of my investment.
While Rogers was worried about the health of public banks during the depression, this is just a modern expansion of concern to the entire global financial community no less the energy industry.
(Note: I am reminded in my morning “Peanuts” comic strip that this is Beethoven’s birthday. So let’s ponder beautiful music for now. It beats the hell out of pondering this fiscal mess.)