The Government Shuts Down Wind Mills and Shell Takes a FL*NG at Sea

The Wind May Blow, But the Power Does Not Flow

Pipelines and/or transmission are the choke point of energy policy. Getting energy from there to here is a big problem. Wind energy is useless if there is no transmission to get it to market. This summer, the Bonneville Power Authority is periodically disconnecting wind power from its grid. (See "Tilting at Windmills" in the Economist.)  Why?  There is so much excess melt water that the Authority is giving away hydro power for free and even paying utilities the cost of getting that power from there to them.  Unfortunately there is not enough transmission to fully share the Pacific Northwest's bounty with the rest of America.  Hence the idle windmills.    Ludwig von Mises's ghost must be experiencing schadenfreude as it mutters "another triumph for socialist planning!"

Getting Natural Gas from There to Here

Natural Gas coming out of the ground does little good unless it can be captured and transported to markets. So what do you do if you find natural gas way out at sea? Your project is in deep water economically and financially (pun intended) and will thus be dead in the water because you can not get the gas to market.  (Sorry.)

John R. Hays, Jr. is fond of reminding me how high tech the oil and gas industry is.  Shell now gives us more evidence of just high tech it is.  Six hundred engineers from around the world have worked on the world's first floating liquefied natural gas facility (FLNG).  Watch the video below to learn about the development phase of the Prelude FLNG Project to define, design and evaluate plans for the facility.  They built a scale model of the FLNG facility and tested it in tanks in artificial marine conditions to see if it would withstand wind and high waves.  The plan is to capture gas from a field far off of Broome, Western Australia, liquify it at sea, and ship the liquified natural gas (LNG) to markets.

FT interview with Carmen Reinhart, co-author of This Time is Different, about the crisis in Greece

This Time Is Different:
Eight Centuries of Financial Folly
Carmen M. Reinhart & Kenneth S. Rogoff

Joseph Count de Maistre once wrote of "history, which is empirical politics."  I find it makes for good empirical economics and finance as well.  Carmen Reinhart and Kenneth Rogoff have written a history of eight hundred years of financial crises.  I am remined of the Pete Seeger song, "Where Have All the Flowers Gone?"  The refrain is:

"When will they ever learn? When will they ever learn?"

On May 5, 2010, Aline van Duyn, the Financial Times' U.S. Markets editor, interviewed Carmen Reinhart, co-author of This Time is Different.  In this first video, they talk about the history of financial crises and their patterns (4m 41sec).

Then the hangover

What happens after a crisis has happened?  In this second video, they talk about the aftermath of financial crises  (4m 55sec)  To my simple-minded ears, the consequences of financial crises sound awfully much like Austrian unemployment rather than Keynesian unemployment.  How heretical!

I Owe, I Owe, It's Off the Cliff We Go!

In this next video, the discussion turns to the role of debt and monetary policy. (3m 13sec) Maybe the economy hasn't read the textbooks?

Was it a Greek who said there was nothing new under the sun?

And then, in this last video, they turn to the crisis in Greece, and the possibility for contagion and restructuring .(4m 11sec) Note this was done over a year ago.

Did the Fiscal Stimulus Cause a Net Loss of Jobs?

Ohio State University economists Tim Conley and Bill Dupor have done a study of the impact of the fiscal stimulus embodied in "The American Recovery and Reinvestment Act." They concluded that the Act created or saved 450,000 state and local government jobs but destroyed or forestalled a million private sector jobs. Investors' Business Daily editorialized "That's a net loss of half a million jobs."

The working paper, "The American Recovery and Reinvestment Act: Public Sector Jobs Saved, Private Sector Jobs Forestalled",  bases its statistics analysis on a cross-sectional analysis by the state and a program.

Scott Davis, UPS, and the Economy

May 21 2011 Scott Davis, the chief executive of United Parcel Service, tells the FT’s Gillian Tett that US growth numbers are disappointing. Mr Davis points to exports as a bright spot but says that there needs to be more forward movement on bilateral free trade agreements.

Click through this link to see the UPS Chief talk to the Financial Times it takes 8m 36sec:

http://video.ft.com/v/952418309001/UPS-s-Scott-Davis-full-interview

No Wonder We Have a Trade Deficit: Did You Know You Need Permission to Export Natural Gas?

As the U.S. Balance of Payments Drives Us Deeper Into the Hole

The U.S. is running a current account deficit of almost a half trillion dollars (c. $450 billion.)  China has accumulated some $2 trillion of dollar denominated foreign exchange reserves in its $3+ trillion hoard.  The U.S. Treasury is in hock to China for over $1.1 trillion.  Our energy trade deficit was approximately $850 billion in 2010.  That means that other than energy, our current account had a surplus of some $400 billion.

Getting our international accounts into surplus and preserving the reserve currency status of the dollar should be a priority.  The President has called for doubling our exports in five years.  It is not clear what might make that happen, but exporting something the U.S. has in surplus should be good news.  Or so you would think.

Cutting Into Our Energy Deficit Should Be a Good Place to Start

Gregory Meyer writes in the Financial Times, "The US approved the first exports of large quantities of natural gas through the Gulf of Mexico," specifically, the Department of Energy granted a license for Houston's Cheniere  Energy to "refit a gas import terminal to condense and ship up to 2.2bn cubic feet a day" of liquified natural gas (LNG.)  According to the DOE, "In August 2010, [Cheniere's] Sabine Pass Liquefaction, LLC filed a two-part application requesting authority to export up to 803 billion cubic feet per year of domestically produced natural gas as LNG for a period of 20 years. On September 10, 2010, the Department approved these exports to 15 countries with which the U.S. already has a Free Trade Agreement covering natural gas. Today the Department is extending this authorization to include all other countries except those that lack the ability to receive imports or those with which trade is prohibited by U.S. law or policy."

Please note: Cheniere had to ask permission to help right our balance of payments! 

Apparently we have rules that prohibit exporting natural gas.  Getting a "Get Out of Jail Free" card also allows others to lobby against the license.  In this case a group called the Industrial Energy Consumers of America lobbied against Cheniere.  No wonder the dollar is on the ropes!

Are these rules some fossilized leftovers from the 1970s?  ("A sober economic historian would judge the years 1973 to 1982 as the worst decade in the last sixty years." See also "When Will They Ever Learn?") In that horrible decade, we had widespread natural gas shortages caused by government price controls.  A tangled web of administrative rules, laws, and policies tried to contain the damage done by price controls.

Some background:

Pioneers like Michell Energy developed some tricky technology that has allowed Americans to tap huge new reserves of natural gas.  These reserves are trapped in deep shale formations that require very unconventional drilling techniques to capture the gas.  These reserves ("shale gas" for short) have been the focus of a drilling boom in the U.S. and have created an enormous glut of natural gas.

This is the one great "good news" news story in recent years for the U.S. economy. Natural gas prices are fluctuating near $4 per mmBtu. Henry Hub Natural Gas settled at $4.32 today.  This is close to a third of its 2008 peak.  By way of comparison, the energy equivalent price of oil would be about $16 per mmBtu.  This means Americans are getting a great bargain.

Internationally, prices are much higher.  Britons pay over twice our price for natural gas and in Asia the price is more like four times as much.  In much of the world, natural gas contracts are tied to the price of oil.  Why are these price differences not arbitraged away?  It is not easy to get natural gas from one place to another.  The U.S. has facilities for re-gasifying imported liquified natural gas (LNG).  These facilities were built in the 1970s: remember those artificial shortages?  Our facilities are limited for liquifying natural gas for export.  Hence this project and similar ones.  How many are going to rush to invest in such facilities if they will wait for eight months may to be told, "No you can't!"

Good Bye Reserve Currency?

It was a bit of a shock to read James Politi writing in the Financial Times that the, "World Bank sees end to dollar’s hegemony."  The shock was not that the dollar will lose its status as the sole reserve currency in the long run, but that the source of the forecast was the World Bank.  The lead author of the report of the World Bank report was Mansoor Dailam.  He sees a "multi-currency system" with the euro, the renminbi, and the dollar playing roles.  Dr. Dailam argued the "shift will be driven by the increasing power and strength of emerging market economies, with six countries – Brazil, China, India, Indonesia, Russia and South Korea – accounting for more than half of global growth in 14 years."  From now to 2025, the World Bank pegs emerging economies as growing 4.7% and the developed economies barely hitting a 2.3% growth rate.

The FT quotes the report as saying, “The current predominance of the US dollar would end sometime before 2025 and would be replaced by a monetary system in which the dollar, the euro and the renminbi would each serve as full-fledged international currencies.”

Our favorite hawk, Federal Reserve Bank of Kansas City President Thomas Hoenig, spoke with Bloomberg in London.   On Bloomberg Television's "The Pulse," Maryam Nemazee asks Hoenig about the Fed's quantitative easing strategy, recent revelations on the Fed's lending during the financial crisis, the U.S. job market and banking regulations. 

Employment Was Up in March

The Bureau of Labor Statistics (BLS) reported jobs on U.S. payrolls were up 214,000 in March and the unemployment rate fell to 8.8 percent. Particularly encouraging was a 17,000 increase in manufacturing jobs.

And What About the Aircraft Industry?

The BLS did not publish data for the aerospace industry, but it did report that jobs in transportation equipment were up 6,100. If we exclude motor vehicles and part, the rest of the sector (mostly aerospace) was up 2,900 jobs. That is good news for Wichita.

Wichita's Unemployment Rate Falls Compared to Last Year

The Kansas Department of Labor gave us new evidence that Wichita is continuing on its slow road to economic recovery.  Dan Voohris reported in the Eagle, "The unemployment rate in the Wichita area fell in February to 8.4 percent from 8.7 percent in January, according to the Kansas Department of Labor.
It was also below the rate of 8.9 percent in February 2010."   It is prudent to compare the new data for February with February a year ago since the data have a strong seasonal swing.

Voohris quoted Friends University finance professor and Mammon Among Friends blogger, Malcolm Harris, as saying, "'We're seeing a trend, and that trend is in the right direction'...But, he cautioned, 'we've got a long way to go.'"

This theme was taken up by the Associated Press.  Referring to Wichita, the wire service reported: "The falling unemployment rate in Wichita shows an improving jobs trend in this aviation manufacturing hub that was hard hit by the economic downturn."

Dan Voorhis found evidence that the demand for temporary workers has been strenghthening which is often a harbinger of increased demand for permanent workers.  From the Arnold Group's Phillip Hayes, Voohris learned that in February hours worked by temporary workers were up 85 compared with a year ago. "Demand started to increase in April and continues to do so." He learned from Hayes that "The conversion of those temporary workers to full time, though, is just beginning."  Naturally enough, "Employers are reluctant to convert temps to regular employees in case demand drops."  

Particularly encouraging is that Hayes "is seeing the strongest demand for manufacturing workers."  Is that a further sign that the aircraft industry is reviving or might this be a sign that other sectors are taking the lead?  The data are not telling. Boeing and Airbus have both increased their production rates for their single aisle mainstays.  Nationally aerospace employment has gone up more often then not these last eight months. While that may be a straw in the wind and the wind seems to be blowing in the right direction, but it is a pretty wimpy breeze by Kansas standards.