Tuesday, November 18, 2008

Daily Sources 11/18

1. Eurointelligence reports that recent poll suggest there is a narrow majority in favor of ratifying the Lisbon Treaty in Ireland, which had rejected the treaty in a referendum held this June. The issue will allegedly surface at the December EU summit meeting in Brussels. Sweden and the Czech Republic are the other countries which have yet to ratify the treaty. Germany and Poland have ratified the treaty, but have yet to deposit certification of their ratification with the Government of Italy, which is the final requisite step. As has been noted in earlier posts, nations with banking sectors too large for their respective national governments to shore up in case of an emergency, such as those found in Sweden, the Czech Republic, and Ireland, are likely to see the advantages of monetary union if they have not so far. It appears that the economic argument may persuade some of the advantages of a closer political union, which is what the Lisbon Treaty is a step toward. (Sweden is set to consider the treaty on November 20--Thursday.)

2. Shobhana Chandra at Bloomberg reports that the US Labor Department released data today suggesting that producer prices fell by an annual rate of 2.8% in October. Core prices, which exclude energy and food costs, rose by 0.4%. The cost of oil therefore accounts for most of the drop--the largest seen since data was first collected in 1949. In an interesting counterpart story, Brian Blackstone at Real Time Economics reports that chief U.S. economist at IHS Global Insight Nariman Behravesh's rule of thumb is that a $0.10 drop in gas prices equates to about a $12 billion tax cut.
"Mark Zandi, chief economist at Moody’s Economy.com, estimates that if oil prices just stay under $75 a barrel - December crude settled just below $55 Monday - it’s worth the equivalent of a $200 billion stimulus. If oil prices were to eventually fall to around $50 a barrel, hardly a farfetched notion, the stimulus would climb to $250 billion."
That's just in the United States, even taking into account countries with subsidized oil product prices, the stimulus of lower prices world wide must be considerable--I would guess that at $55/b it would be along the lines of half a trillion dollars, or nearly 1% of world GDP (at roughly $54 trillion.) In a related story by the UK Economic Times, IMF chief Dominique Strauss-Kahn on Monday in Tripoli said that as much as 2% of world GDP, or $1.2 trillion, should be spent on stimulate the economy. He also argued that the European Central Bank should consider a further benchmark interest rate cut.

3. Eurotintelligence reports that according to Denis Snower in FT Deutschland, investments account for 45% of Chinese growth. He suspects that investment will drop by 50% in the current financial crisis, or 22% of GDP. Beijing's stimulus program, coming in at 16% of GDP, may therefore fall well short of covering the difference. Daniel Colover at Platts writes that traders are reporting fairly steep declines in Chinese demand for West African crude. Traders report declines in West African shipments of 500,000 tonnes per month, or about 121.7 kb/d. The United States is the other large taker of West African crudes, which tend to be light and sweet and thus easy to refine into profitable products.

4. The Associated Press reports that Chinese President Hu Jintao toured Havana today.
"China is Cuba's second-largest trading partner, with the two sides generating $2.7 billion annually. Only Venezuela trades more with Cuba -- about $7 billion.

The island's state-run news agency AIN reported the two countries had reached "almost a dozen" agreements, including plans to rehabilitate the island's aging ports and earthquake detection systems."
There is a lot of speculation on how much oil Cuba might have in reserves off shore. China's state oil companies are involved in prospecting for it.

5. Platts reports that Iranian oil minister Gholamhossein Nozari said today that one of the likely outcomes of the November 29 extraordinary meeting of OPEC will be an effort to encourage non-OPEC countries, and specifically Russia, to cooperate in the management of oil prices. Nozari also confirmed on state run TV that there was an agreement for Russian and Qatari companies to cooperate on the development of South Pars, per Hashem Kalantari at Reuters. He also put the kibosh on the notion that the natural gas thus produced would go to Qatar for liquefaction and further export from there. In a related story, Hossein Jaseb of Reuters reports that Iran expects to commission its nuclear power plant at Bushehr next year at some point after February.

6. Juan Cole argues at informed comment that the recent abduction of an Iranian diplomat in Pakistan is evidence that the Taliban in determined to target Tehran for its cooperation with the West. Ideologically the Taliban is Sunni-extremist and tends to regard the Shia Islam of Iran as apostate. A representative was quoted as saying the abduction was a reprisal for:
"the arrest of top Al-Qaeda leaders in Iran, for facilitating the US invasion on Iraq through pro-Iran militias and last but not the least for waging the war on the Taliban in Pakistani Khurram agency where Iran provided arms and ammunition to the Shia tribal groups to fight against the Taliban ...."
In a related story, Ali Akbar Dareini at the Associated Press reports that the Iranian head of the Judiciary, Ayatollah Mahmoud Hashemi Shahroudi, has greeted positively the news that the al-Maliki cabinet had reached an agreement with the US regarding the status of forces in Iraq. The Iraqi parliament is expected to consider the agreement by November 24. Robert Dreyfuss at the Nation argues that Iran has quietly dropped its opposition to the agreement, signaling to Obama that Iran stands ready to talk and work with the US. Dreyfuss notes Muqtada al-Sadr's vehement opposition to the agreement and I have noted the potential threat Sadr presents to the leadership of the Iranian theological and revolutionary credibility.

7. Menzi Chinn at Econbrowser has an analysis at Econbrowser looking at the likely consequences should consumption continue to fall sharply in the US:
"If the US has truly stopped being the consumer of last resort, then to the extent the impending consumption decline in the US is autonomous (largely unrelated to income), we should expect the repercussions to be widely felt amongst our trading partners."
Well-worth reading in full.

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