Is monetary policy still too tight?

NYT looks at Bernanke's battles with legislators.

Were oil prices a bigger part of the recession than given credit for?

There are two broad views on our newly resurgent global bubbles--the increase in asset prices in emerging markets, fuelled by capital inflows, with all the associated bells and whistles (including dollar depreciation). These run-ups in stock market values and real estate prices are either benign or the beginnings of a major new malignancy.

The benign view, implicit in Secretary Geithner’s position at the G20 meeting last weekend, is most clearly articulated by Frederic (Ric) Mishkin, former member of the Fed’s Board of Governors and author of "The Next Great Globalization: How Disadvantaged Nations Can Harness Their Financial Systems To Get Rich," in the Financial Times this morning.

Ex-Bear Stearns fund managers acquitted of subprime-related fraud charges.

Why big news on diminishing oil supplies didn't move markets.

As the world tries to cut its carbon emissions in the next few decades, natural gas will become increasingly crucial as a stopgap fuel, since it produces less CO2 pollution than coal or oil. At least, that's what the EIA thinks will happen. And the geopolitical implications of this trend are interesting.

Over the past few days, the Internet burped up three noteworthy energy-related studies that I kept meaning to blog, but never found the time. Thankfully, that's why some visionary on the Internet invented link dumps:

When Obama was running for president last year, he chided Republicans for taking their eye off the ball in Afghanistan. Now that we’re all appropriately obsessed with each new installment in the AfPak saga, it seems Americans (and the media) are paying less attention to Iraq.

If you've been following the trials of the auto industry this last year, then you already know GM's management team, led by former CEO Rick Wagoner, left a lot to be desired. But, even so, Wagoner comes off as unbelievably lame in Steve Rattner's account of his time as Obama's auto guru. To wit:

At GM's Renaissance Center headquarters, the top brass were sequestered on the uppermost floor, behind locked and guarded glass doors. Executives housed on that floor had elevator cards that allowed them to descend to their private garage without stopping at any of the intervening floors (no mixing with the drones).

In my relatively few interactions with chairman and CEO Rick Wagoner, I found him to be likable, dedicated, and generally knowledgeable. But Rick set a tone of "friendly arrogance" that seemed to permeate the organization.

Certainly Rick and his team seemed to believe that virtually all of their problems could be laid at the feet of some combination of the financial crisis, oil prices, the yen-dollar exchange rate, and the UAW. ...

As we continued our rather awkward conversation [about his ouster], Rick suddenly asked, "Are you going to fire Ron Gettelfinger too?" Startled by the reference to the UAW head, I replied, "I'm not in charge of firing Ron Gettelfinger," and Rick soon left to brief his board on our decision.

How bout a little personal responsibility? After all, as Rattner notes, "any management team that had burned through $21 billion of cash in a year and another $13 billion in the first quarter of 2009 could not be allowed to continue." 

The question is whether Wagoner's successor, Fritz Henderson, is really up to the job of changing GM's culture. He was, of course, part of the same management team that made a habit of shuttling directly from the executive suite to the garage and back. (No word on whether or not that's changed.) Also, you get the impression from Rattner's account and others that the auto task force would have liked to hire an outsider, but thought there was a limit to the amount of change the company could withstand. My favorite indicator that Henderson was far from the ideal choice comes from this Times piece:

The U.S. increasingly displays characteristics that we have seen many times in middle-income “emerging markets”--new dimensions of vast inequality, forms of financial instability that benefit the best connected, and consistently easy credit for the privileged. But this raises the question: Who exactly is going to dominate our economic and political landscape moving forward? 

I've highlighted a couple recent papers investigating the causes of the commodity price boom, pre-crisis. This one chalks it up as a perfectly expectable response to rising demand, while this one says that though there's little evidence of manipulation, the financialization of commodities did allow the market to develop a bubble.

Now here comes a third paper from a group of Fed economists examining another possible cause for the oil price boom -- the interplay between Federal Reserve decisions, the dollar, and countries who try to align their monetary policies with the U.S.:

This explanation, which for convenience we will call the "dollar bloc" story, starts with the premise that many developing economies have pegged their currencies to the U.S. dollar. Accordingly, when the Federal Reserve loosened monetary policies, starting in the fall of 2007, these developing countries had to loosen their policies as well, even though such loosening was not appropriate to their economic circumstances. This led to an overheating of their economies, excess demand for commodities, and sharp increases in commodity prices.

But the researchers, Christopher Erceg, Luca Guerrieri, and Steven Kamin, find this explanation lacking. First, the following chart shows how interest rates in dollar-linked countries didn't, as conventional wisdom presumes, follow the U.S.'s downward:

When the world last left Wesley Clark in early 2004, he was a streaking meteor of a presidential candidate. Still fresh from leading NATO in the Kosovo war, he arrived as a savior for the left, who saw a bulletproof patriot that the rest of America could believe in; hero of the netroots, beloved by Michael Moore and Madonna; hope of the Clintonites, delighted by such a clean ideological slate.

Yes, you read it right. Here is the essence: If the Saudis (and other OPEC producers) export fewer hydrocarbons, the buyers should still pay as if they were purchasing the old amount. They should pay what the Saudis could charge when the market was tight and the demand high, and the arrangements should not made in the Arab bazaar, but by treaty. It's a nice world that Riyadh lives in. Perhaps this is King Abdullah's gracious response to President Obama's servile bow.

"Less global warming would be good, right?" ask Jad Mouawad and Andrew C. Revkin in a report in Tuesday's Times. No, they answer themselves: "Not to an oil giant."

This comes up now because of the upcoming Framework Convention on Climate Change in Copenhagen. The fact is that the Saudis (as well as the Iranians, the Venezuelans, the emirates, and other big producers) are frightened that their incomes will fall if the attendees commit themselves to "improvements in fuel economy and rising mandates for alternative fuels in the transportation sector." Yes, it could be happening ... and it could be happening this year.

Jake Schmidt, director of the Natural Resources Defense Council, has a very apt--in fact, devastating--analogy: "It is like the tobacco industry asking for compensation for lost revenues as a part of a settlement to address the health risks of smoking." In fact, if a smoker stops smoking, why don't we oblige him to pay for his cigarettes anyway?

In ClimateWire today, Darren Samuelsohn has a valuable profile of Lindsey Graham, who's emerged as the highest-profile swing vote on climate change, especially after his Times op-ed with John Kerry over the weekend urging the Senate to pass legislation. It seems Graham's been particularly impressed by the national-security arguments in favor of curbing America's carbon dependency:

In recent weeks, Obama has been talking about the need to pare back subsidies and tax breaks for the oil industry—both here and abroad. That's fine, though as I've noted, many biofuels subsides deserve at least as much scrutiny, if not more. Fortunately, that sentiment seems to be spreading: The GAO just released a report on U.S.

This is interesting. A small band of Senate Republicans are now suggesting they could, potentially, endorse the Kerry-Boxer climate bill—but only if it includes sufficient support for nuclear power and offshore oil drilling. Here's Lindsey Graham:

The new Kerry-Boxer climate bill in the Senate shows a lot of love for the natural-gas industry, as Brad noted yesterday.

An oft-repeated argument against the notion that speculation drove the recent price-spike in oil is that we never saw an increase in oil stockpiles.

The logic goes like this: If prices are increasing, then buyers of oil would cut back while producers would pump more to sell at the higher price. Who buys the extra supply? Speculators who hope that prices will go even higher. This process would involve the stockpiling of oil by speculators/manipulators. But according to available data, outstanding oil inventories didn't increase during oil price boom.

But this assertion ignores important changes in how oil markets work since crude became an investment vehicle, says MIT's John Parsons. His key claim is that the financial-ization of oil brought about a change in the term structure of oil futures. A term structure is the relationship between future prices at different dates.

All told, the draft Senate climate bill that John Kerry and Barbara Boxer unveiled today looks awfully similar to the Waxman-Markey bill that passed the House back in June. Everything you've read about that earlier bill, griping and cheering alike, basically still applies. Plus, lots will change as this bill shimmies its way through at least five different Senate committees, so there's no use pretending this is a final product or anything. Still, there are a few differences between this Kerry-Boxer draft and the House bill that are maybe of interest and worth highlighting:

Paradise Found: Nature in America at the Time of Discovery

By Steve Nicholls

(University of Chicago Press, 524 pp., $30)

American Earth: Environmental Writing Since Thoreau

Edited by Bill McKibben

(Library of America, 1,047 pp., $40)

Defending The Master Race: Conservation, Eugenics, And The Legacy Of Madison Grant

By Jonathan Peter Spiro

(University of Vermont Press, 462 pp., $39.95)

A Passion for Nature: The Life of John Muir

By Donald Worster

(Oxford University Press, 535 pp., $34.99)

A Reenchanted World: The Quest for A New Kinship With Nature

By James William Gibson

(Metropolitan Books, 306 pp., $27)

Eco Barons: The Dreamers, Schemers, and Millionaires Who Are Saving Our Planet

By Edward Humes

(Ecco Books, 367 pp., $25.99)

I.

In contemporary public discourse, concern for "the environment" is a mile wide and an inch deep. Even free-market fundamentalists strain to display their ecological credentials, while corporations that sell fossil fuels genuflect at the altar of sustainability. Everyone has discovered how nice it is to be green. Will popular sentiment translate into public policy? There is reason to be skeptical.

While Scott Gration's appearance before the Senate Foreign Relations Committee in August was deeply uninspiring, in the weeks that followed, the U.S. special envoy to Sudan did manage to make some fitful progress. He prevented a violent resolution to the issue of territorial rights in the oil-rich region of Abyei, and he at least tried to get Khartoum into talks with resistance and civil society groups from Darfur. It seemed that his efforts to engage Khartoum were falling short of total disaster.

But things have since gone downhill: Gration's attempts to jump-start the Darfur peace process have sputtered. Even as Gration has called for the U.S. to lift sanctions against Sudan, Khartoum has reneged on much of the previous progress made in the 2005 Comprehensive Peace Agreement (CPA), and it is again sponsoring violence against Southern Sudan, using armed militias. Meanwhile, Khartoum is taking advantage of Gration's goodwill and demanding rule changes that will undermine the crucial popular referendum and the election mandated by the CPA. No wonder that Gration is losing the trust of leaders in Darfur and South Sudan—even as he seems to have convinced Khartoum that he is on its side.

Now, in a mind-blowing statement in today's Washington Post, Gration seems to dispense with the idea that pressures of any sort can influence Khartoum: "We've got to think about giving out cookies," he explains. "Kids, countries--they react to gold stars, smiley faces, handshakes, agreements, talk, engagement."* It's unclear where all of Gration's goodwill toward Khartoum is meant to lead. Few people believe his strategy is going to work--common sense suggests that it won't--and now, it looks like few of his initiatives have produced anything resembling sustainable success.

Landscape and Memory

by Simon Schama

(Knopf, 652 pp., $40)

We rush across the gleaming surface of the ocean, moving rapidly but smoothly above the untroubled beauty of the dark waters. Jagged cliffs and wild surf, rugged hills and lush grass pass beneath us. Music plays. Finally we reach our destination, where the action begins. It may be a prison from which a psychopathic bomber prepares to break out, or a clearing where poor Scottish farmers will discover the hanged bodies of their chiefs, or a village where women will be impregnated by aliens. Whatever the details of the action that follows, the sequence of images--from any one of the fashionable movie openings of the last two years or so--teaches the same lesson: nature is the realm of purity and beauty, and man imports violence to this separate world from his own corrupt and frightening habitat, the city.

Looks like this week's climate banter wasn't totally substance-free. Earlier today, G20 governments finally agreed to phase out subsidies for fossil fuels, which jack up demand for oil, gas, and coal by artificially lowering prices. The phase-out would happen in the "medium term," with no specific timetables (countries like India want a slow transition so poor people don't get hit with a swift price spike).

Over in the Financial Times today, Fiona Harvey gets a sneak peek at a new International Energy Agency report, which finds that worldwide carbon-dioxide emissions have undergone a "significant decline" this year—shrinking 2.6 percent, the steepest CO2 drop in the last four decades. Steeper even than the drop after the OPEC oil crisis in the late '70s. Okay, well, no kidding, there's a severe recession going on. Industrial output is declining. What'd we expect?

According to the WSJ this morning (top of p.A1), the U.S. is pushing hard for the G20 to adopt and implement a “Framework for Sustainable and Balanced Growth,” which would amount to the U.S. saving more, China saving less, and Europe “making structural changes to boost business investment” (and presumably some homework for Japan and the oil exporters, although that is not stressed in the article).

This is pointless rhetoric, for three reasons.

On Wednesday, the Interior Department finally terminated a program few people had ever heard of: the royalty-in-kind (RIK) system, which allowed oil and gas companies to drill in public lands and pay the government in oil, rather than cash. Over the past decade, the program, run out of an office in suburban Denver, had allowed companies to underpay the government by $10 million. But that's not why it was shut down--the tale goes well beyond ordinary waste and abuse and into the delightfully tawdry realm of sex, drugs, and graft.

Onlookers knew that the RIK system was a bad idea from the start. In the mid-1990s, oil companies saw that the royalties they owed the government were rising alongside the price of oil, and proposed that they should just be allowed to pay the government in oil to "simplify" the process--even though the proposed system would require a new, multimillion-dollar office within the Minerals of Management Services (MMS). But Alaskan Senators Frank Murskowski and Don Young, themselves the recipients of oil industry largesse, liked the idea and pushed it through.

Just like that, the government had entered the oil and gas business, collecting commodities and selling them on the open market. Even though early trial runs showed that the Treasury was making less money this way than through the old way of simply taxing mining companies--in part because the government now had assumed the responsibility of managing and marketing a natural resource--the program kept growing, while whistleblower warnings and government reports were brushed aside. Eventually, 40 percent of all royalties for drilling rights were collected in-kind, with such weak auditing that investigators called it an "honor system." (For more context, read the Project On Government Oversight's full report from last year, or even this rollicking Washington Monthly story from 1999.)