Here are some interesting articles about the financial crisis. Reports from the front lines…
- “Crude mathematics“, Michael Meacher, op-ed in The Guardian, 28 November 2008 — “A plunging oil price means cheaper petrol now – and no fuel later as industry investment shrivels.”
- “Vallejo’s Fiscal Freefall“, Governing, November 2008 — “Are other cities with budget trouble on the verge of asking the courts for relief?”
- “Schwarzenegger Calls Fiscal Emergency in California“, Bloomberg, 1 December 2008 — California is just the first of many States to see their finances collapse in this recession.
- “Record number of Americans using food stamps“, Reuters, 3 December 2008 — In September, before the full force of the recession hit! Imagine what the total will be 3 months after unemployment skyrockets, when people run out of savings!
1. “Crude mathematics“, Michael Meacher, op-ed in The Guardian, 28 November 2008 — “A plunging oil price means cheaper petrol now – and no fuel later as industry investment shrivels.” Excerpt:
A snip at $48.50. Now that the price of a barrel of benchmark Brent crude continues to fall like a stone in the global recession, a drop of no less than two-thirds since the high point of $147.50 just four months ago, the relief is huge among motorists and hard-pressed consumers.
Conversely, for the oil-producing countries (especially Russia, Iran, Saudi Arabia, the UAE and Venezuela) it is potentially cataclysmic, though some, such as the US, may rejoice at that. But there is another dimension to this oil-price slide which has been little noticed, but which long-term is extremely serious.
If oil prices remain well below a certain critical level for any significant period of time, large amounts of investment in expected oil production capacity will simply be written off, and the consequence could then be a recovery-stopping supply-side crunch within little more than two years.
That critical level is widely reckoned within the oil industry to be $90 a barrel. A current price as low as half that critical level is already forcing many companies to drop oil projects, and the banking crisis is also squeezing project financing for foreign oil companies operating in OPEC and outside.
… A prolonged slump in the oil price at below $50 a barrel will thus inevitably lead to another cycle of shortages and soaring prices. This intense price volatility is the first stage of the devil’s see-saw that is likely to accompany the coming of Peak Oil, which is widely expected within the next five years.
These very sharp boom-and-bust capitalist cycles in oil may well turn out to be even more globally destabilising than the credit crunch. What is clearly needed, though sadly highly unlikely, is an international conference (perhaps as a serious offshoot from the lightweight G20 conference a week ago?) to reach a binding agreement on the oil price for a five-year period rolled forward, which might then avoid the massive overshoot in prices at both peak and nadir which we are seeing at the present time, with potentially calamitous consequences.
2. “Vallejo’s Fiscal Freefall“, Governing, November 2008 — “Are other cities with budget trouble on the verge of asking the courts for relief?” Excerpt:
When the town of Vallejo, California, declared bankruptcy this spring, Mayor Osby Davis predicted – and rightly so – that he’d get an earful from his constituents, employees and retirees. What he didn’t anticipate was the chorus of phone calls from mayors outside the city, both close by and clear across the country. They told him they were watching Vallejo’s bankruptcy proceedings closely, and some of them, he says, indicated that “they find themselves not too far behind us.”
Vallejo, a city of 120,000 about 35 miles northeast of San Francisco, flat-out went broke this year through a combination of generous public-safety salaries, declining property values and fiscal mismanagement. The city is estimating a $17 million deficit for the current fiscal year.
Previous municipal bankruptcies generally arose from adverse legal rulings or poor investment decisions. But Vallejo’s predicament stems largely from economic conditions felt by cities across the nation, namely declining revenues and rising employee costs. And that scares the dickens out of cities, unions and municipal bondholders.
“Vallejo was sort of the canary in the coal mine – the sickest patient goes first,” says Dean Gloster, an attorney representing Vallejo’s unions. “Even better-run cities are going to be facing similar issues as health care costs rise and the baby boomer generation reaches retirement age.”
A September report from the National League of Cities points to precarious fiscal conditions in cities across the nation, due to falling revenues from property, sales and income taxes and rising costs from inflation, energy, infrastructure, salaries, health care and pensions. “Vallejo is significant in the sense that the reasons they are doing it are factors that are going to be in place in cities across the country,” says Chris Hoene, director of policy and research for the National League of Cities. “You can see the Vallejo situation as something that cities across the country watch as a way to bring costs under control.”
3. “Schwarzenegger Calls Fiscal Emergency in California“, Bloomberg, 1 December 2008 — California is just the first of many States to see their finances collapse in this recession. Excerpt:
California Governor Arnold Schwarzenegger, saying his state is going broke, declared a fiscal emergency and ordered the incoming class of lawmakers into a special session to fix a widening $11 billion deficit.
Schwarzenegger, a 61-year-old Republican, wants lawmakers to raise taxes and cut spending to narrow the gap that is projected to swell to $28 billion over the next 18 months. He invoked powers granted him in 2004 to declare a fiscal emergency, which gives the Legislature 45 days to plug the shortfall. If they fail to find a solution in that time, they are barred from doing any other legislative work until they do.
“Without immediate action, our state is heading for fiscal disaster,” Schwarzenegger told reporters today in Los Angeles. “I’ve had to make tough choices that I wish I didn’t have to make, and I know this is a terrible time to raise taxes, but it’s also a terrible time to make cuts to very important programs. But in an emergency like this, we have to take quick action to avoid even worse problems, even if they include decisions that we don’t like.”
Lawmakers were unable to agree on a plan to close the gap during a three-week special session that expired yesterday. Schwarzenegger has warned that the state will run out of cash in February and can’t borrow money from Wall Street to pay bills such as payroll until lawmakers trim the deficit. The state’s finances are reeling from declines in stock markets that have sapped tax revenue from income and capital gains.
4. “Record number of Americans using food stamps“, Reuters, 3 December 2008 — Excerpt:
Food stamps, the main U.S. antihunger program which helps the needy buy food, set a record in September as more than 31.5 million Americans used the program — up 17 percent from a year ago, according to government data. The number of people using food stamps in September surpassed the previous peak of 29.85 million seen in November 2005 when victims of hurricanes Katrina, Rita and Wilma received emergency benefits, said Jean Daniel of the USDA’s Food and Nutrition Service.
One in 10 Americans were participating in the food stamp program as of September, said Dottie Rosenbaum, analyst with Center on Budget and Policy Priorities, a think tank. That’s approaching the all-time high of 10.5 percent of the population that used the program in 1994, and is similar to levels seen in the early 1980s, she said.
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- about the Financial crisis – what’s happening? how will this end?
- about the End of the post-WWII geopolitical regime
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