And So It Begins…

From Spiegel….

The rocks are lying everywhere in the streets. Thousands and thousands of them. Iron rods are also littered about, as are makeshift wooden clubs and spent cartridges. The sharp stench of teargas floats through the air, mixed with the acrid odor of melted plastic. Flames shoot out of trash bins; a Japanese compact lies on its side. And from behind the fence surrounding the Athens Polytechnic, black clad rioters are chanting as loud as they can:

“Pigs! Swine! Murderers!”

“Pigs! Swine! Murderers!”

Facing them, around 10 or 20 meters away, is a unit of riot police, armed with truncheons and armored with shields and white helmets. Earlier, the police had spoken of following a strategy of de-escalation — but by late Tuesday night, that, apparently, had been discarded. “Come on out you cowards! Come out and get us,” yells the police commander. He bends down to grab a rock and hurls it at the demonstrators. His men do the same. It’s a revolt in reverse.

It is the fourth night since 15-year-old Alexandros Grigoropoulos died after being shot in the breast by a policeman. And still, peace refuses to return to the Greek capital.

From a different article in Spiegel….

The two seem enthusiastic as they chat to each other, smiling and cracking jokes. Perhaps they’re related. At the same time, the mates of a rioter standing next to him are busy ripping apart the sidewalk. The woman says goodbye, kissing both of his cheeks, before gracefully tottering away. Then one of the rioters turns around, picks up a large rock and throws it down into the street where the police are standing.

It’s the daily dose of anarchy in Athens, that entered into its fifth day on Wednesday.

The Greek riots are a textbook example of how deep a country can sink if it lacks democracy’s most important element, the support and acceptance of its people. The scales of democracy have tipped here, and one inevitably gets the impression these days that there are few left who still trust the government to find the right path. Their experiences with its scandals, cronyism and corruption are too deeply seated. And it is in their unanimous rejection of the elite that both business people and the Black Bloc anarchists have found common ground.

Spiegel almost makes it sound heroic to destroy the sidewalk and throw it at the police. Granted, the Greek political elite is pretty corrupt, but the people of Greece are hardly oppressed. If they were being oppressed, there would be a lot more then just one punk dead. Heck, the police are barred by law from entering the universities. This gives the rioters a place to rearm and regroup unmolested by the evil forces of authority. How is that for oppression? Whats more, the protesters have been rioting for almost a week without have any clear idea of what they hope to accomplish. I guess they just want hope and change.

Greece has the government that it deserves but that government has no authority.

I am bothered by the lack of transparency

From the Chicago Tribune….

Blagojevich is accused of a wide-ranging criminal conspiracy, including alleged attempts by the governor to try to sell or trade the U.S. Senate seat left vacant by President-elect Barack Obama in exchange for financial benefits for the governor and his wife. Blagojevich also is accused of obtaining campaign contributions in exchange for other official actions.

In my opinion, there are only two things that make this wrong. Number one, the dang guy was going to be selfish and he was going to keep all the money for himself. Number two, the bidding process was not transparent and open to to all comers. Other then that, I think selling it to the highest bidder is a great idea and one that Governor Paterson in New York should give serious thought to.

Look, New York State is short of money. People spends millions of dollars trying to win a senate race in New York state. I say that instead of giving all that money to TV stations to torture us all with ads, they should just put the money straight into the treasury to benefit everyone in the state.

Now some fools might protest that we won’t get the best person for the job this way. But given that Paterson is most likely going to appoint someone with no political experience to Hillary’s vacant spot just because they have a famous last name, I don’t think that argument holds much water.

Proof of Deflation?

From Bloomberg….

Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

Calculated Risk says…

My guess is the banks are parking the TARP money in short term treasuries – and that has pushed the yield to zero.

If I knew for a fact that this was true, I would be rolling around on the floor laughing. Just think about it, the government borrows a whole lot of money to bail out the banks and what do the banks do? They loan it back to the government.

A lot of people are going to use this as proof that we are in a deflationary spiral. But I would bet dollars to dimes that this is not the case. I expect the price of treasuries to drop as fast the price of oil did.

Think about it. A lot of oil producers are going to have to start selling off their reserves to maintain themselves in the style to which they have become accustomed. Russia has already started to do this. I expect that China will have to slow down on the purchases of treasuries if not halt them completely within the next six months. These factors combined will cause interest rates on treasury bills to shoot up.

Then the fun will really start. But on the bright side, I don’t think people will be worried about deflation anymore.

Oil Prices Too Low Even For Saudi Arabia

From CBS….

Saudi Arabia reportedly needs to sell oil for at least $55 dollars a barrel to cover the cost of running the country. Fossil fuels finance 75 percent of the country’s entire domestic spending budget, but oil is selling for below that breakeven price.

This metric is a little misleading. Saudi Arabia needs to sell a certain amount of oil at $55 dollars a barrel to fund their country. I have never seen anyone say what that amount is, but the point is an important one to remember. It is the reason that OPEC has little real pricing power in an economic downturn.

In theory OPEC can raise the price of oil just by cutting production. In fact, Saudi Arabia could do this all by themselves if they wanted to. The problem is that a price rise is not enough solve many oil producers funding problems . To keep from going broke, a lot of oil producing countries (Iran, Venezuela, Russia, among others) need a rise in the price of oil without demand destruction. In the current environment, that is a quite a trick to pull off.

That is why when Iran and others scream for OPEC to cut production they really mean that they want Saudi Arabia to cut production. They have no intention to cut production themselves. The Saudi oil minister Ali Al-Naimi makes this very point later on in the article saying….

“Iran tries to keep the price way up; and Venezuela’s trying to keep the price way up. You don’t consider that oil as a weapon?” Stahl asked.

“If you looked at these countries you just named, every one of them would like to sell every barrel they can,” Al-Naimi commented.

“At as high a price as they can get away with,” Stahl remarked.

“Right,” Al-Naimi said.

As a result of these kinds of games, I don’t see OPEC cuts as being very successful at raising the real price of oil anytime soon no matter what headline cuts they announce. Oh sure, the price might jump up and down some, but I don’t think you will see a sustained rise anytime soon (short of a war occurring).

However, in the long term, the real price of oil is going to rise. Simply put, if Saudi Arabia can’t support itself at the current price, no petro state can support themselves. That means that a lot of petro states are going to go bankrupt in the near future. Iran and Venezuela are in a particularly weak position with Russia and Mexico not far behind. The resulting chaos will drive prices back up. It may even drive them way up.

So enjoy the cheap gas you are going to get for the next year or so. It will not last.

There was no "gratuitous" support

From a interview with Gao Xiqing, president of the China Investment Corporation,

Americans are not sensitive in that regard. I mean, as a whole. The simple truth today is that your economy is built on the global economy. And it’s built on the support, the gratuitous support, of a lot of countries. So why don’t you come over and … I won’t say kowtow [with a laugh], but at least, be nice to the countries that lend you money.

Talk to the Chinese! Talk to the Middle Easterners! And pull your troops back! Take the troops back, demobilize many of the troops, so that you can save some money rather than spending $2 billion every day on them. And then tell your people that you need to save, and come out with a long-term, sustainable financial policy.

Everything this guy says in this interview has a lot of truth in it. Even the part quoted above has a lot of truth in it.

But “gratuitous support?” Give me a break. We all know why the Chinese lent the Americans so much money. It was a calculated policy to help their exporters. An insanely stupid policy perhaps. But calculated none the less.

They got what they paid for. History was put on hold for 8 years. Like the Great Wall of China, that was an impressive achievement. But I think it will look rather futile in the end.

Having said all that, the man’s complaint is basically valid. China has taken a lot of crap from ignorant people in the US who don’t realize how good they had it or how much of that was due to China’s intervention. The exercises of US power in Iraq and Afghanistan along with the attendant economic boom would have been impossible without China’s economic support.

However, doing the world a favor and getting hated for it is what being a superpower is all about. People are always going to see the downsides of a exercise of power by a another nation and they will never acknowledge the benefits. Just ask any American.

Edit: It should be noted that China is still shoveling money down the rat hole.

However, I think Brad Setser is overstating his case a bit. I think that when we finally get good data on the November and December we our going to find that China’s exports fell through the floor. That is going to put downward pressure on the Renminbi all by itself.

One notes that Russia has been running a current account surplus for a long time. During that period they followed China in trying to hold down the value of their currency. Now they are struggling to keep the Rubble from collapsing in value.

Having said that, it clear that China is still growing its reserves to some degree. The only question is by how much.

The World Begins To Fall Apart

From the Belmont Club….

Thailand is an example of what happens when a society becomes divided to the point of paralysis and neither faction is willing to abide by the term of the other faction. W. Scott Thompson at the IHT argues that Thailand has always been vulnerable to a logjam but always had a monarch to clear it. Now the monarch can’t clear it and everyone is waiting to see what happens next.

We have not been following Thailand much lately. But they are in the process of falling apart.

Speaking of nations that are falling apart, Ukraine is going from bad to worse. As everyone knows, Ukraine is deeply divided between the pro EU western half of the country and the pro Russian eastern half of the country. Now a country that was almost ungovernable in the best of times is facing an economic crisis that would shake the foundations of well governed nation. This from the Economist….

Ukraine’s currency is plummeting in response to the country’s declining economic prospects and financing difficulties. With the IMF now having a major say in policy decisions, non-market solutions are improbable; instead, the aim is to achieve an orderly depreciation rather than a rout. Ultimately, a weaker exchange rate will be beneficial to the economy. Yet the adjustment will be painful, and this may fuel political impulses that run counter to IMF strictures.

And of course, there is always Pakistan.

As I have argued previously, you are going to see lot more of this as the economic crisis deepens.

Mercenaries Don't Get Treated Well

From Danger Room…..

Iraq’s parliament on Thursday signed off on a Status of Forces Agreement that paves the way for withdrawal of U.S. forces within three years. The pact — which has been in negotiation for nearly a year — provides legal cover to U.S. troops stationed in the country after a U.N. mandate expires at the end of the year.

But here’s the interesting part: the agreement also makes thousands of U.S. contractors subject to Iraqi law. According to the final version of the text, Iraq will have the “primary right to exercise jurisdiction over United States contractors” and their employees.

Oceans of ink were spilled arguing that it was a mistake for the US to depend so heavily on contractors in Iraq because history has demonstrated that mercenaries were unreliable. One thing that almost no one mentioned was that history also demonstrates that mercenaries are historically the first ones thrown under the bus.

This concession is a poisonous gift from President Bush to the left. On one hand leftest commentators are overjoyed that the hated security contractors might now face “justice.” On the other hand, this concession is going to vastly complicate Obama’s life.

I don’t think Bush approved of this agreement with such machivilian thoughts in his mind. But he could have hardly made Obama’s life harder if he tried.

Things that give bats a bad name

From Alice the (British) Architect…..

These days, thanks to a draconian law brought about by people with beards wearing tweeds and sandals, lobbying the government on a day the government just wanted something to do, disturbing a single bat is a crime worthy of hanging. Well, not quite that bad, you understand, but a severe fine and a criminal record is more than enough to make someone think twice about waking the little critters from their daily slumber.

I notified English Nature, as the law dictates, and they sent a ‘bat worker’ round to spend the evening monitoring. The builders continued to work elsewhere, away from the roof, as quietly as possible (digging a foundation, if you must know). Despite charming assurances from the Bat People on the telephone, I received a horrible letter saying that all work must cease at once, and could not start again until the bat season was over, and how dare we even consider repairing the roof when the bats needed it. (There was no mention of the people who also happened to live there, and for whom the building was actually constructed).

From later on in the post….

We got off lightly. There are some kinds of bats that are so rare, that some buildings are simply not allowed to be worked on at all (according to a colleague who this happened to) even if it is listed and in danger of falling down. There are some people with colonies of 300 bats in their roof, all peeing and pooing into the insulation. Despite what the nicey nicey literature on English Nature’s website says about bat poo being ambrosia from heaven, it actually stinks. Many churches have bats, and whilst in some parts of the building they do not cause much of a problem (the belfry!) bat droppings all over the ancient furnishings are not particularly desirable. English Nature’s advice? Put cloths over everything.

Unlike most people, I like bats. I never had the problems with them that most people seem to have. There is something cool about seeing bats flying around and I always figured that anything eating bugs was a friend of mine. But if they had laws like this in America I would be killing every bat I could find. There are ways of killing the buggers without being caught.

But it is no surprise that England has laws like this on the book. If they let pirates go because they are afraid of violating their human rights, they ought to treat the bats at least as well.