Canada's Place in the Global Economy

[Edward Campbell]

Yest more, reproduced under the Fair Dealin provisions of the Copyright Act from the Globe and Mail, on the Kitimat LNG terminal:

http://www.theglobeandmail.com/globe-investor/kitimat-lng-terminal-wins-export-licence/article2200412/

Kitimat LNG terminal wins export licence

NATHAN VANDERKLIPPE
CALGARY— Globe and Mail Update

Published Thursday, Oct. 13, 2011

Kitimat LNG has been granted a licence to export liquefied natural gas from British Columbia, clearing the way for new trade with Asia that stands to significantly alter Canada’s energy geography.

The National Energy Board granted the 20-year licence Thursday.

“The board recognizes that forecast demand growth for LNG in the Asia Pacific region provides a new opportunity for Canadian producers to diversify their export markets,” it wrote in awarding its approval. “The board also recognizes that long-term oil-indexed sales contracts could provide for higher netbacks to Canadian producers.”

With “the size of Canada’s natural gas resource, proximity to markets in Asia and Canada’s stable political and regulatory environment, the board is of the view that KM LNG has the opportunity to compete in the global LNG market,” it wrote.

Kitimat LNG is owned by Apache Canada Ltd. (APA-N87.11-0.82-0.93%), EOG Resources Canada Inc. (EOG-N80.22-0.73-0.90%) and Encana Corp. (ECA-T20.77-0.01-0.05%) Those companies expect to make a final decision on building the project, which is forecast to cost more than $5-billion, early next year.

The Kitimat LNG project is a three-way joint venture between U.S. energy companies Apache Corp. and
EOG Resources Inc., along with Canadian gas giant Encana Corp. They are expecting to receive a crucial export permit
from the National Energy Board within days. A decision to proceed is expected by early next year. Gas could be on ships by 2015.
(John Lehmann/The Globe and Mail)

“It’s extremely exciting news for the project. This is one of the major milestones that we required for us to take a final investment decision,” said Kitimat LNG president Janine McArdle.

“This puts Canada in a new place in terms of being a new secure supplier to the Asian markets,” she said.

Kitimat LNG is already spending several hundred million dollars to prepare the ground for building the export terminal on the northern B.C. coast. That terminal would allow natural gas from northeastern British Columbia to be loaded onto tankers and shipped to customers in Japan, South Korea and China. Its construction would mark the first time Canadian natural gas producers have the ability to enter markets outside of the United States.

“This is a tremendous decision for the Canadian natural gas industry and for Canada generally,” said Gordon Nettleton, a lawyer with Osler who represented Kitimat LNG in the approvals process.

This is the first LNG export licence approved by the National Energy Board since Canadian gas markets were deregulated in 1985. Although the project will require transporting energy across British Columbia and loading it onto ships sailing through sensitive waters, it has been almost completely unopposed. That has made it a far different proposition from Enbridge Inc. (ENB-T33.95-0.10-0.29%) proposed Northern Gateway project, which would export oil along a similar route, but which has stirred great opposition. Many B.C. first nations are firm supporters of an LNG terminal.

The licence allows Kitimat LNG to export up to 10 million tonnes a year of liquefied natural gas. That’s equivalent to the output of two development stages at the terminal; the first is expected to enter service 2015, the second in 2017 or 2018.

Kitimat LNG applied for the licence last December.

Gaining export approval is a critical step for the project in its bid to secure long-term sales agreements with Asian buyers. It hopes it can finalize a number of those in coming months, before the final investment decision is made.

The export licence “gives the buyers long-term certainty of an export of gas from Canada,” said Rosemary Boulton, the former head of Kitimat LNG. “So it’s really a significant piece of regulation that should really go to move the project along to commercial reality.”

In a measure of how much gas the export terminal is expected to move, the licence allows Apache to export more gas than it currently has in established reserves. The 20-year term would use up virtually all of the reserves currently held by EOG, while Encana has substantially more than its export commitment would require.

All companies, however, said future development activities are expected to uncover and produce volumes of gas in excess of what will be exported.

The ability to fetch higher prices on export markets is a key driver of the project. In its approval, however, the NEB rejected arguments that exporting Canadian natural gas could harm Canadian consumers, either by depleting needed supplies or boosting prices.

“The export of the proposed term volume is unlikely to cause Canadians difficulty in meeting their energy requirements at fair market prices,” the board wrote.

“The board is of the view that the proposed export will not only open new markets for Canadian gas production, but that ongoing development of shale gas resources in B.C. and Alberta will ultimately further increase the availability of natural gas for Canadians.”

This is good news for Canada's energy sector and, indeed, for Canada generally.

 

[a_majoor]

Spain, as the largest of the PIIGS, will cause the most trouble for the Eurozone:

http://finance.yahoo.com/news/SampP-downgrades-Spains-debt-apf-1597200360.html?x=0&sec=topStories&pos=1&asset=&ccode=

S&P downgrades Spain's debt rating on weak economy
Standard & Poor's downgrades Spain's long-term debt rating, citing weak economy, bank risks

On Thursday October 13, 2011, 8:52 pm EDT
NEW YORK (AP) -- Standard & Poor's on Thursday downgraded its long-term debt rating on Spain, citing the country's weak growth prospects and risks facing its banks.

The Spanish economy is burdened by high unemployment, tight credit, heavy private-sector debt loads and prospects that its main trading partners will also stumble, S&P said in a statement.

"Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain's growth prospects," it said.

Spain's banking system will also likely weaken further as the pile of troubled assets rises, S&P said.

It cut its long-term rating to "AA-" from "AA." The outlook on the rating is "negative," which implies it could be lowered again at some point. But it affirmed its short-term rating of "A-1+" on Spain.

Spain is struggling to emerge from nearly two years of recession, and investors are fretting that Spain's soft economy will make servicing the country's debts increasingly difficult.

As a result, investors are asking for higher rates to lend money to Spain, raising fears that it could be next in Europe to require a rescue package. The S&P downgrade will likely further increase the cost of borrowing.

Moody's Investors Service has also warned it could soon downgrade Spain.

S&P said it now expects the Spanish economy, the fourth-largest in the eurozone, to grow about 0.8 percent this year and about 1 percent next year. Earlier this year, it had been forecasting 2012 growth of 1.5 percent

 

[Edward Campbell]

Here, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, is a respectable Marxist's (if that's not an oxymoron) view on the global economy:

http://www.theglobeandmail.com/report-on-business/economy/economy-lab/milner-economy/why-china-wont-save-the-global-economy/article2204619/

Why China won't save the global economy

BRIAN MILNER
Globe and Mail Blog

Posted on Tuesday, October 18, 2011

Loretta Napoleoni, an Italian economist best-known for her work on global money-laundering and the financing of terror networks, has turned her attention to China. In her latest book, Maonomics, she concludes that the Communists have turned into smarter capitalists than us.

It only seems logical that Ms. Napoleoni, a Marxist who lectures on ethics at Cambridge’s Judge Business School, would have high praise for China. But she is well aware that the Chinese leaders are no Marxist theoreticians.

And her purpose is less to laud China for its remarkable transformation of the past two decades than to highlight the failings of the Western capitalist model, which features widening income disparities, structural imbalances and under-regulated markets. “It’s a critique of our system. That’s why I wrote it,” the jet-lagged author said on a recent visit to Toronto. “I’m no China expert. I could have chosen Brazil. I just used China to show our failures.”

Here are some of Ms. Napoleoni’s thoughts on the state of economics, the euro zone’s future, what students are thinking these days and other global developments.

Q. From your vantage point in London, how do you see the euro-zone crisis unfolding.

A. It’s a disaster. The crisis very likely is going to break the euro. They’re not handling Greece the way they should. Frankly, Greece is beyond repair. These austerity programs aren’t working, because of the contraction of the GDP -- 7.3 per cent on a 12-month basis. People have no income.

What should the Europeans have done?

They should have given the €9-billion that the Greeks needed in January, 2010. This stability fund should have been in place before. But they had nothing. It didn’t make sense, because anything can happen.

Will China come to the rescue?

No. The Chinese are only buying what they need. The Chinese said clearly: ‘We will buy some businesses, some sector of the economy. We’re not going to buy your government debt.’ I don’t see why China should save Europe. What’s the advantage?“

What’s the economic message we should take away from your book?

The message is that there’s no one system that works better than any other. Economics is not an exact science.

Some people say it’s not a science at all.

Exactly. We don’t have sufficient new theories [to explain what’s happening]. Since Milton Friedman, we haven’t produced anything. And frankly, I don’t even think that Milton Friedman’s [monetarism] is a theory. We don’t have any systematic, cohesive theory, as we had with the classics. Friedman produced sort of an interpretation. It’s definitely only a monetary theory. It’s not a global theory, as Marx produced, or Smith or Ricardo. So that’s one big shortcoming.

Any others?

No theory works perfectly. There are moments in time in which one theory works better than another. But the bottom line is that where we went wrong is because of arrogance. The theory whereby the market works better than anything else -- the magic of the market -- clearly doesn’t work. Because nothing works forever. In that, the Chinese were very clever. They realized that communism would not work either. Why did the Soviet Union collapse? It collapsed because the economic system imploded. There was no growth. You can’t carry on for too long without any growth. No matter what theory you apply, the economy must grow. And the economy cannot grow only in monetary terms. Financial growth is not sufficient, as we have seen. Financial growth does not produce sufficient labour demand. It does not produce real industrial growth. You have to produce something; you cannot only invest.

That seems pretty basic.

Well, to be honest, to make people understand where things went wrong, we have to backtrack to an incredibly simple language. Because only through simple language can you see the stupidity of what’s happened over the last 20 years. You can talk about derivatives, credit default swaps, all of that stuff. But at the end of the day, we are facing the basic problem that we thought we could print money. And that’s what we’re doing. Eventually we’re going to have wild inflation.

We’re seeing worsening inflation in the emerging world, including China.

Yes, but Chinese inflation is due to an overheating of the economy. The economy is growing too fast. That’s healthy inflation. We’re printing money.

So you’re seeing a return to the stagflation of the 1970s, when the economy was weak and inflation strong?

Yeah. As soon as this deflationary phase turns.

Any risks of the Chinese making the same mistakes?

I don’t think we’re there yet. What China really wants is to be self-sufficient in economic terms. The Chinese aren’t interested in the world. It is a headache for them to deal with us. The domestic [Chinese] market is big enough for them to be completely self-sufficient. They’re also learning from our mistakes. What happened in the Asian crisis [of 1997-98] was fundamental for them to refuse opening up their financial system to deregulation [and outside capital]. They were very tempted, because they needed the money. But they realized [from 1997] that that was extremely dangerous.

What’s your prognosis for the global economy.

I think we’re going through a major shrinkage. The only countries that will continue to grow are the emerging markets, but they are only a small fraction of the global economy.

What impact will that contraction have on the emerging world.

Less than in 2008, because there is a lot of south to south trade. We’re going to see something similar to 2009-2010. We run the risk in the West that the whole thing will collapse.

So commodity producers should be okay.

Canada will be fine. Canadian banks are absolutely fine. The only negative side is that because the Canadian dollar is involved in the currency war, you will have a [further] appreciation of the currency.

You teach business ethics. What’s the attitude of your students?

They’re all disconcerted when they start, because it’s a completely unstructured class. You have to think in my class, and they don’t like it. They want money and they want jobs. Nobody wants to save the world. Nobody wants to invent anything new.

Maoonomics is published by Seven Stories Press. (384 pages).

As Loretta Napoleon suggests, Australia, Canada and a few other well managed resource based economies might well be "saved" by the Chinese, maybe Brazil, too - but I have faith in Latin Americans' ability (propensity?) to seize defeat from the jaws of victory. China neither needs nor, especially, wants to "save" the euro, much less Europe. It is likely that China will soften the US apparent decline into a longer recession - it's not a "double dip" recession in the US, rather it is turning from a normal "V" shaped recession into a terribly elongated "U" shaped one: \__________/  .

 

[Edward Campbell]

And more, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, on the \__Great Recession__/:

http://www.theglobeandmail.com/report-on-business/top-business-stories/great-recession-may-not-yet-be-even-half-over-study-says/article2205039/

Great Recession may not yet be even half over, study says

MICHAEL BABAD
Globe and Mail Update

Published Tuesday, Oct. 18, 2011

Great Slump not half over

A new study prepared for a Federal Reserve conference suggests the Great Recession may not even be half over yet.

The paper by David Papell and Ruxandra Prodan of the University of Houston, done for a Federal Reserve Bank of Boston conference today and tomorrow, looks at whether several recessions that are linked to financial crises, like the last slump, lead to a permanent loss in potential gross domestic product, or if it returns in time to its trend. And if it returns, is it a longer period than recoveries that follow recessions not linked to such crises?

The answer may be welcome news on the one hand – it should return to its trend – but on the other hand suggests a full rebound is years away.

I've summarized this, largely from their abstract, and the full study is certainly worth a read. They studied The Great Depression in the United States, severe and milder crises in advanced economies, severe crises in emerging markets and post-war slumps in the U.S. and other advanced markets.

"The preponderance of evidence for episodes comparable with the current U.S. slump is that, while potential GDP is eventually restored, the slumps last an average of nine years," they write. "If this historical pattern holds, the Great Recession that started in 2007:4 will not ultimately affect potential GDP, but the Great Slump is not yet half over."

The U.S. is now into its fourth year of the "Second Great Contraction," which began in the fourth quarter of 2007 and is eclipsed only by the Depression, they write. If it follows the pattern they've established, it would end in the last quarter of 2016.

"How long will the Great Slump last? Again restricting attention to the Great Depression and the post-war slumps for advanced economies, the slumps lasted from 7 ¼ years for Denmark, 7 ¾ years for Australia, 8 ½ years for Finland, 9 ½ years for Sweden, and 12 years for the U.S. Whether you consider all five slumps or just consider the two slumps following severe postwar financial crises in advanced economies (Finland and Sweden), the average duration is nine years. While this is not an estimate, it can be taken as a guide to the duration of the Great Slump."

We are in the third year now; six to go?

 

[Haletown]

And more, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail, on the \__Great Recession__/:

http://www.theglobeandmail.com/report-on-business/top-business-stories/great-recession-may-not-yet-be-even-half-over-study-says/article2205039/


We are in the third year now; six to go?

If the Americans re-elect Obamassiah in 2012, he'll do enough damage in his second 4 years to make that 6 years become 20.

 

[a_majoor]

The past is very eloquent, you can read how FDR made a normal depression "Great" with this book:

The Forgotten Man: A New History of the Great Depression by Amity Shlaes

Many of the actions by the Obama Admininstrtion and the Democrat controlled House and Senate starting in 2006 (and ending in 2010) read like a replay of the "New Deal", so why should anyone expect a different result this time?

 

[a_majoor]

Hmmmm

http://www.samizdata.net/blog/archives/2011/10/inflation_on_th_1.html

Inflation on the up
Brian Micklethwait (London)  Globalization/economics • UK affairs
Snapped by me earlier this evening:


One of the key arguments in Detlev Schlichter's Paper Money Collapse concerns the oft-repeated claim that the world's central bankers won't allow inflation to get out of control, because they are fully aware of what a very bad thing it is. But what if they also fear something else that they regard as even worse? Like the monster economic correction that a decades-long policy of easy money is now demanding, from the entire world?

The huge pile of paper next to this Evening Standard billboard seems rather appropriate, I think.

 

[a_majoor]

Defaults are more and more likely, so here is a look at how these things go down:

The Price of Argentina's Default
By Megan McArdle
Oct 18 2011, 4:25 PM ET 121

Dean Baker is tut-tutting at Planet Money for their segment on the 2001-2 Argentinian default:


NPR's Planet Money made its entry in the Stake Your Claim game show with a segment on Friday that claimed that Argentina is suffering horribly as a result of its decision to default at the end of 2001. It turns out that Argentina has actually been doing quite well since its 2001 default as the most recent data from the IMF show.

Source: International Monetary Fund.

As can be seen, Argentina was already in a severe recession prior to default. It had tied its currency to the dollar, which went through the roof following the East Asian financial crisis in 1997. While the United States could support the trade deficit that resulted from the over-valued dollar, Argentina could not. It eventually had no choice but to break its peg with the dollar and default on its debt in December of 2001. Its economy fell sharply in the next quarter, but had stabilized by the summer of 2002. It then began to grow rapidly and was above its pre-recession level by the end of 2004.

Paul Krugman piles on:

This isn't the only case where news organizations consistently report as truth something that didn't happen, while failing to report what did. Another one that comes to mind is the California electricity crisis of 2001-2002. As some readers may recall, that crisis was caused by market manipulation -- and that's not a hypothesis, Enron traders were caught on tape telling plants to shut down to create artificial shortages. Yet "news analyses" published after the whole thing was revealed would often tell readers that excessive environmental regulation and Nimbyism caused the crisis, with nary a mention of the deliberate creation of shortages.

And as you'll notice, in both cases the imaginary history just happened to be one more comfortable to status quo interests.

As it happens, I had just listened to that podcast when I saw that piece. And I can't believe that Dean Baker and Paul Krugman listened to the same podcast that I did. In fact, I find it hard to believe that they listened to it at all.

Let me start by saying two things: I agree with what I presume is the Baker/Krugman position, which is that Argentina needed to devalue and default.  However, I think the story is a bit more complicated than Baker makes out.  For starters, I'm not sure why Dean Baker chose to index to 1998, which makes it look as if Argentina's default were the key to stratospheric growth rates.  But if you index to 1980--the first year of the IMF data series--default and devaluation don't look quite so miraculous:

As you can see, the dollar peg was very bad for Argentina. When Argentina left the peg and defaulted on its debt, they ended a multi-year recession, and rebounded to nearly the GDP levels they'd enjoyed before the peg.  [Editor's note: tragic excel mistake now fixed] (The figures are based on real GDP in Argentine pesos).  But they didn't discover some miracle economic elixir; it's more like they stopped banging themselves in the head with a sledgehammer. They also got an enormous boost from a commodity boom driven by rising Chinese demand; Argentina produces a lot of agricultural exports, and when those prices rise, so does the Argentine economy.

However, even this obvious (in retrospect) step was not cost-free: GDP growth doesn't tell the whole story. Defaulting and breaking the peg wiped out a lot of domestic savings, further tanked the economy and the banking system in the short run, and cut off Argentina from the capital markets.  This was exacerbated by the way Argentina chose to default: they demanded extremely stiff "haircuts" from their creditors.  And since the bond agreements stipulated that the bonds were payable in dollars, and that disputes would be adjudicated in foreign courts (mostly, I believe, the US), Argentina had no way to force creditors to accept those terms.  Many of them didn't.

Of course, the creditors had no way to force Argentina to pay, either.  So there's a sort of standoff . . . except that those creditors still have legal claims on Argentine assets, and if any of those assets are found on foreign soil, the creditors can seize them.  Which in turn means that Argentina has a very hard time raising money abroad, since their creditors can legally seize the proceeds.  (Also, people don't like lending money to governments who refuse to pay more than 35 cents on the dollar to foreign creditors.)  Argentina has, I believe, been able to borrow some money, but nothing like what it was able to access before the crisis.

So who cares?  The Argentine government, that's who; that inability to finance deficits has pinched.  Devaluation raised the peso value of their debt, so rather than building up reserves, Argentina used the proceeds of its commodity boom to pay down debt and stimulate consumer demand.  When the global financial crisis drove commodities into a temporary slump, the government was caught out, unable to borrow the money they needed.  They turned to their equivalent of America's 401(k) system, seizing the money on the pretext of protecting the elderly.  They've also used central bank reserves to pay their debts. Their capital markets remain shallow and prone to capital flight at the first sign of trouble.  If there's more trouble in the global economy, what does the government do for an encore?  There's not much left to nationalize, and I don't think there's going to be a big appetite for their debt in the near future.

The shallowness of their capital markets has also made it hard to diversify beyond those booming commodities.  The other sectors of their economy have not, as I understand it, been developing as you'd like to see.  They remain vulnerable to falling prices in their key export sectors or appreciation in their currency.

All of which is not to say that devaluation and default were bad ideas (though you can, I think, make a strong argument that they would have been better off taking a more conciliatory approach towards their bondholders).  Argentina was in a very bad spot; I think that leaving the peg and forcing its creditors to take a haircut was the best of the terrible choices open to its governments.

Remarkably, this is exactly the point that the Planet Money podcast makes--if you listen to the whole thing.  I mean, sure, the host says something like "If you can believe it", but they explain very clearly that post-default, the Argentine economy boomed.  I don't understand why Krugman and Baker believe that they "claimed that Argentina is suffering horribly as a result of its decision to default at the end of 2001".  Here's the end of the podcast, with highlights added by the justifiably protesting Planet Money team:

Robert Smith: It has been a tough decade for Argentina, but a lot of people think that the default was the best thing to happen to them.

Zoe Chace: After the money was devalued, banks opened up again. Pesos weren't worth as much, sure, but Argentinian products suddenly looked cheap on the world market. And that's been really good for Argentina's economy. Exports of staple products like soybeans and wheat went up. And eventually, some investors started to lend Argentina money again...

Robert Smith: This whole thing is something of a happy ending, after a long nightmare of a story

Which is not surprising, because when it comes to Argentina, as far as I know, the "status quo" view is that default and devaluation were pretty much inevitable. I haven't spoken to anyone who thinks that with the economy stuck in a four-year recession, riots in the streets, and the government changing leaders every few days, Argentina could have held onto the peg much longer.  And once it left the peg, default was inevitable, because there was no way they could pay that much dollar-denominated debt while collecting taxes in radically devalued pesos.  The only question is whether the transition could have been handled better--a question that neither Krugman nor Baker address.

But as you'll notice, the imaginary history is more comfortable to the interests of a quick blog post.

Updated to correct an error in the chart, to add the relevant section of the podcast, and to clarify my points of disagreement with Krugman and Baker.

 

[Edward Campbell]

More, reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail on the West coast LNG terminal:

http://www.theglobeandmail.com/globe-investor/shell-makes-lng-move-at-kitimat/article2207932/

Shell makes LNG move at Kitimat

DAVID EBNER
Vancouver— Globe and Mail Update

Published Thursday, Oct. 20, 2011

Royal Dutch Shell PLC (RDS.B-N72.421.381.94%) has staked its position in northwestern British Columbia to build a liquefied natural gas export terminal, the second big industry name to make a major move.

Shell has purchased an old marine terminal on the Douglas Channel near Kitimat from Cenovus Energy Inc. (CVE-T35.09-0.16-0.45%) The company is working with partners Korea Gas Corp., Mitsubishi Corp. and China National Petroleum Corp.

The Douglas Channel, near Kitimat, B.C., leads to the Pacific Ocean
The Globe and Mail

The site could be the home of a terminal that would export two billion cubic feet of gas a day, industry chatter suggests. The amount is two-thirds of B.C.’s current gas production. A pipeline to bring the gas to Kitimat could follow the route staked by Enbridge Inc. (ENB-T35.050.310.89%) for the controversial proposed Northern Gateway oil sands pipeline.

Shell was mum on details.

“Right now we’re in the early stages of evaluating the potential for an LNG terminal,” said Shell spokesman Stephen Doolan on Thursday morning.

Canada is on the verge of a natural gas export boom, with Kitimat as its epicentre. A door to Asia is a desperately needed lifeline for the country’s natural gas producers. The industry has been badly hurt by the emergence of abundant shale gas in the United States, which has caused prices and profits to collapse. Shipments to the U.S., Canada’s only export customer, have been halved.

Shell is chasing competitors. An Apache Corp. (APA-N91.291.131.25%)-led consortium last week won a 20-year licence to export LNG from Kitimat and a decision to proceed on the $5-billion-plus project is expected by early 2012.

Shell has chosen LNG powers as partners. Korea Gas and Mitsubishi are two of the world’s biggest importers of the fuel. Gas (NG-FT3.630.041.25%) is predicted to play a greater role in Asia in the next decade, particularly with the pall over nuclear in Japan, and growth in the region is expected to outpace LNG markets elsewhere.

Canadian producers hope to tap higher prices in Asia. The companies also worry that major discoveries of shale gas in B.C., as well as reserves in Alberta, will be left in the ground without an export route to Asia. For Shell, LNG appears to be a salve to save an earlier deal. In 2008, it overpaid in a $5-billion deal for Duvernay Oil, which had a strong position in B.C. shale gas.

Shell is already moving on LNG in Australia, where it is building a floating terminal, which would be the world’s largest shipping point to supply Asian customers.

“For [Shell Canada], it’s about Asia. We’re sitting on the doorstep of a great market,” Lorraine Mitchelmore, Shell Canada president, told The Globe and Mail in a recent interview. “It’s an obvious market for Western Canada gas.”

The deal for the Cenovus site closed on Wednesday. The price wasn’t disclosed. Cenovus previously paid about $40-million for the site in late 2010 in a deal with Methanex Corp. (MX-T25.000.030.12%) Cenovus continues to import a very light oil called condensate at the terminal and ship it by rail to Alberta. Cenovus uses condensate to dilute its raw oil sands bitumen so it can move the product in pipelines. Cenovus gets about 20 per cent of its condensate through Kitimat.

“Nothing’s going to change on the ground [in Kitimat] for the foreseeable future,” said Rhona DelFrari, a Cenovus spokeswoman.

Electricity to power LNG terminals is a longer-term question. The first phase of the Apache project – about 700 million cubic feet of gas a day, set to be running in 2015 – can be powered by B.C.’s existing electricity infrastructure. Other expansions would need more juice. Christy Clark, the new B.C. Premier, has made LNG a big part of her political agenda. Even as she pushes British Columbia Hydro and Power Authority to cut costs to keep rates low for consumers, she is also demanding the public utility get ready for huge expansions in the northwest, to power LNG and new mines, all of which will likely make power more expensive for everyone in B.C.

“LNG expansion will not be held back by a lack of supply of electricity,” the Clark government declared this fall.

It's important to remember that there are two projects here: one for LNG and another for bitumen ~ both to supply the Asian markets.

 

[Edward Campbell]

The bond market, bless its cold, little heart, is doing what it is meant to do - giving Greece (and a few others that will follow suit) a route to getting its house in order. No need to feel sorry for the bond holders who will take the "haircuts" - they knew the risk going in; the bond market is 100% honest: higher risk = higher yields; lower risk = lower yields; you want the high yields you accept the risk and the occasional haircut that goes with it.


Move along, nothing to see here ... :nevermind:

The nature, size of the haircut is discussed in this article which is reproduced under the Fair Dealing provisions of the Copyright Act from the Globe and Mail:

http://www.theglobeandmail.com/report-on-business/international-news/eu-ponders-60-haircuts-for-greek-debt/article2209648/

EU ponders 60% haircuts for Greek debt

PETER SPIEGEL
Brussels— Financial Times

Published Friday, Oct. 21, 2011

Greece’s economy has deteriorated so severely in the last three months that international lenders would have to find €252-billion ($353-million) in bailout loans through the end of the decade unless Greek bondholders are forced to accept severe cuts in their debt repayments.

The dire analysis, contained in a “strictly confidential” report by international lenders and obtained by the Financial Times, is more than double the €109-billion in European Union and International Monetary Fund aid agreed just three months ago.

Under a more severe test run by economists for the so-called “troika” of lenders – the IMF, European Central Bank and European Commission – Greece’s bailout needs could balloon to €444-billion, the study said.

The report also made clear European leaders are considering “haircuts” on Greek bonds far higher than previously known. The study determined that in order to bring a second Greek bailout back to the €109- billion agreed in July, bondholders would have to take a 60 per cent loss on their current holding.

That is significantly more than the 21 per cent haircut agreed in a deal with private investors three months ago. The analysis says that a 50 per cent haircut, increasingly considered the most likely scenario among European policy makers, would put the second Greek bailout at €114-billion, or €5-billion more than the July deal.

“Recent developments call for a reassessment,” the report said. “The situation in Greece has taken a turn for the worse.”

The debt analysis report was only distributed to national capitals on Friday afternoon, just hours before finance ministers for the 17 euro zone countries arrived in Brussels for a deliberation over Greece that lasted late into the night.

European officials said the delay was due, in part, because of a disagreement between the IMF and the ECB over whether Greece could meet its debt obligations without significant writedowns. The IMF argued that Greek bondholders needed to take larger hits, while the ECB has repeatedly warned that such defaults could spread market panic.

In a clear reference to that dispute, a footnote said the ECB “does not agree with the inclusion” of the report’s haircut scenarios.

In order to deal with the possible market panic from such large haircuts, euro zone leaders have agreed to increase the firepower of its €440-billion rescue fund.

Euro zone leaders had hoped to finalize an agreement on a second Greek bail-out at a highly-anticipated summit on Sunday. But disagreements between France and Germany over how to increase the fund’s wherewithal have forced them to put off a decision until a second summit, which will now be held on Wednesday.

Despite the deteriorating picture painted by the official analysis, euro zone finance ministers approved its €5.8-billion portion of the next €8-billion tranche of bailout aid, an agreement that came a day after the Greek parliament yet again passed new austerity measures amidst some of the most violent street protests in over a year.

The deterioration in Greece’s financial situation described in the troika’s debt analysis report is deep and across the board, and Greece is likely to be forced to rely on bail-out loans to finance its operations through at least 2021.

The much-touted Greek privatization program, which was expected to bring as much as €66-billion in cash to help pay down debt, is now expected to bring in €20-billion less, and lenders are now assuming that the Greek government will continue to lag in implementing repeatedly-promised austerity measures.

“In keeping with experience to date under the program, it is assumed that Greece takes longer to implement structural reforms, and that a longer time frame is necessary for them to yield macroeconomic dividends,” the report said. “A longer and more severe recession is thus assumed.”

This, 60%, is a fair measure of how far Greeks - the Greek people, collectively - have been living beyond their means; Greeks have been taking 60% more in government services than for which they have been willing (or able) to pay. The fact that the Greeks quesstimated they could raise €66-billion by selling assets but can only, really, raise €45 billion (about a 30% difference) just reinforces the problem. Italy, Portugal, Spain and France are also living beyond their means.

:witch: Scary!  :vamp:  Especially if you, or your pension plan or mutual funds, are holding € denominated bonds  :raven:  or even stocks.  :franksmonster:

 

[a_majoor]

Check your investments and mutual funds for anything denominated in Euros...

http://opinion.financialpost.com/2011/10/20/when-greece-goes/

When Greece goes
   
Special to Financial Post  Oct 20, 2011 – 9:35 PM ET

Europe must firewall Spain and Italy before Athens defaults

By Desmond Lachman

Can we be spared a Lehman-style crisis when Greece’s hard default occurs? After two years of denial about the European periphery’s solvency problem, European policymakers are finally, albeit grudgingly, facing up to reality. Indeed, they are now privately recognizing that Greece is very likely to default by year-end. And they have also come to the conclusion that such an eventuality makes it imperative both that an effective firewall be erected around Spain and Italy and that Europe’s banks need to be recapitalized.

It remains to be seen whether, by the time of the scheduled G20 Summit on Nov. 3, this recognition will be translated into credible and effective measures that will finally allow European policymakers to get ahead of the markets. If past performance is any guide, one has to wonder whether this will be yet another doleful instance of a “too little, too late” European policy response to an ever-deepening crisis.

Greece’s International Monetary Fund adjustment program is in tatters. The IMF itself is now acknowledging that Greece’s economy, which has already contracted by about 12% since 2009, will contract meaningfully further in 2012. And the IMF is also recognizing that Greece will not meet the IMF’s budget targets for 2011 and 2012. As a result, Greece’s public debt-to-GDP level will soon rise to 172%, or to more than twice the level that might be considered manageable.

As if to underline how unsustainable the Greek situation is, in the midst of the deepest of domestic recessions, the Greek government is now being required by the IMF to undertake further painful fiscal adjustment measures to meet its ever-elusive budget deficit targets. And to this effect, not only is the IMF insisting that Greece introduce an unpopular property tax, it is also asking a socialist PASOK government whose very existence depends on public-sector patronage to cut public wages and to reduce public employment. Little wonder that social and political tensions in Greece are now on the boil.

The IMF is also acknowledging that the Greek government will need more funding to finance its 2012 budget deficit. This is inducing the IMF to seek substantially greater debt reduction from Greece’s bank creditors through the “voluntary” debt exchange that was originally proposed. As might be expected, the banks are resisting the IMF’s proposal, which might complicate the IMF’s efforts to finalize its intended program review by mid-November.

Mindful of the 2008-09 Lehman experience, European policymakers are fully aware that a Greek default could cause real contagion to the rest of the European periphery. They are particularly fearful that a Greek default could engulf Italy and Spain, Europe’s third- and fourth-largest economies respectively, which would pose an existential threat to the euro.

Despite these perceived risks and reflecting domestic political constraints from electorates opposed to further bailouts, European policymakers seem to be in no rush to put a credible firewall in place. In particular, they have yet to come up with a plan to leverage up the European Financial Stability Facility from its present size of ¤440-billion ($616-billion) to the ¤2-trillion range that most market analysts think would be needed to shield Spain and Italy from the fallout of a hard Greek default.

Responding to increased banking sector strains that both the IMF and the European Central Bank fear could tip Europe back into recession, European policymakers are now proposing a co-ordinated effort to recapitalize the European banking system. However, they have yet to come up with concrete proposals as to how they are to increase the system’s capital by the ¤200-billion that the IMF estimates would be necessary to put Europe’s banks back on a sound footing. Public differences between the French and German governments on who should pay for the bank recapitalization do not give grounds for encouragement.

The late professor Rudi Dornbusch famously said that in economics things take longer to happen than you think that they will, and then they happen faster than you thought that they could. Hopefully, European policymakers will now recognize that in Greece we are likely in the “faster than you thought they could” phase of the crisis — then we might dare to hope that they will act expeditiously in constructing an effective firewall and in recapitalizing their banks in a manner that will spare us from a Lehman-style crisis when Greece’s hard default occurs.

Financial Post
Desmond Lachman is a resident scholar at the American Enterprise Institute. On Wednesday he participated in The Greek Collapse, a TVO special on The Agenda with Steve Paikin, available here.

 

[Kirkhill]

If it wasn't my money these idiots were playing with I would be convinced this was being directed by Peter Sellers (Or perhaps Clouseau)

The conference to decide the future of the world (or at least the Eurozone) is called off because Sarkozy and Merkel are on the outs over comments he made about her ability to stick to a diet.

The French President of the IMF, who replaced the French President of the IMF who was caught with his privates on display in New York, explains to the French Finance Minister who replaced her that there is no money..... She explains the situation in words of one syllable.  Unfortunately they were English words and the French Finance Minister doesn't speak English.

The German Finance Minister is accused of being arrogant.  :

The Belgian President of the EU calls for a European Empire ..... based in France and Germany ..... to the chagrin of everyone else.

The Spanish and the Italians tell them all to get stuffed.

The Luxembourg Finance Prime Minister leaves for a smoke out behind the shacks because EU rules and the President wont allow him to smoke inside

And the Belgian Finance Minister books off early to go see TinTin.......

;D ??? : > :crybaby:


Sunday Telegraph

Eurozone summit - despair and backbiting in the corridors of power

The ever-worsening eurozone crisis has sent relations between its leaders to an all-time low, reports Bruno Waterfield in Brussels

Nicolas Sarkozy's ''two faced'' personality has been cited as a major factor in his dysfunctional relationship with Angela Merkel Photo: REUTERS

By Bruno Waterfield, Brussels

8:30PM BST 22 Oct 2011





Just when the eurozone governments thought it could not get worse for Europe's single currency, it did.


Shell-shocked EU finance ministers meeting in Brussels on Saturday were already reeling from the worst Franco-German rift for over 20 years and a fractious failure to resolve the problems that have brought Greece, and the euro, close to the brink.


But then a new bombshell hit as a joint report by the EU and the International Monetary Fund (IMF) warned that, without a default, the Greek debt crisis alone could swallow the eurozone's entire €440 billion bailout fund - leaving nothing to spare to help the affected banks of Italy, Spain or France.


An EU already rocked by divisions between France and Germany over how to increase the "firepower" of the European Financial Stability Facility (EFSF) in order to save the wider eurozone from Greek contagion now faced the prospect of losing it all in one go.


As dark-suited finance ministers contemplated the pains au chocolat laid out on their desks alongside their talking points and position papers, Jan Kees de Jager, the Dutch finance minister, told colleagues: "We've got to get real. People are talking about new defences but with one gulp the whole €440 billion could be gone, leaving the eurozone with no protection at all."


Compounding the trauma, Christine Lagarde, the French finance minister turned IMF chief - and one of the few key players who appeared to be enjoying herself in her new headmistress-like role - issued a grim warning to her former European peers.

The IMF would no longer be willing to pick up a third of the total bill for rescuing Greece, a contribution worth €73 billion, unless European banks were prepared to write off 50 per cent of Greek debt.

"It was grim. The worst mood I have ever seen, a complete mess," said one eurozone finance minister.

In a change to the normal euro summit venue in the pink marble clad Justus Lipsius building, finance ministers were meeting next door to allow security staff to carry out a 24 hour security sweep before Europe's leaders arrive on Sunday.

The relocation to an administrative block, the Lex building, added to the flat and leaden atmosphere as ministers trooped into neon strip-lighted, brown carpeted office space without natural sunlight.

Outside the security cordon on the other side of the road to the building's entrance on Avenue Livingstone, anarchist graffiti on a wall proclaimed in French: "After Greece, Belgium, the insurrection is coming."

There were already moments of near insurrection inside, however. The Joint IMF and EU report gave the eurozone's haircut hawks - those, led by Germany, who want the banks to accept a bigger loss on some of the money loaned to Freece - the opportunity to give "a bloody hiding" to both France and the European Central Bank. Both have been resisting any talk of a Greek debt default for fear it would damage French banks and rock the stability of financial institutions.

According to insiders, Wolfgang Schaeuble, Germany's finance minister, could not resist taking an "I told you so" approach - he had been, after all, the first to call for an "orderly" default for Greece 18 months ago, at a time when the cost of such a move was less than one third of the price today.

"Schaeuble is a man who does not mince his words, whose reputation for harshness and arrogance is well earned. He was, frankly, unbearable," said one diplomat.

Francois Baroin, the young and inexperienced French finance minister, attempted to hit back, complaining that the IMF's default medicine would hit France the hardest; the country's banks are highly exposed and could threaten its "untouchable" AAA rating.

But Mrs Lagarde, who had held his post until taking up the IMF job this summer, "shut him up" by brandishing the report and pointing to it its detailed figures. "She really slapped him down - and in perfect English too, a language he cannot speak," said a diplomat.

It is an odd fact that eurozone meetings are generally conducted in English, the language of international finance, and that Mrs Lagarde enjoys using it. It seems to have added to the relish with which she conducted herself yesterday, coolly enjoying what insiders observed was her first opportunity to engage in political and intellectual combat with her French - and other - colleagues.

Interpersonal relations between eurozone leaders have hit an all-time low, reflecting sharp disagreements between Germany and France over using the ECB to bailout the euro and presenting an additional obstacle to finding a "grand solution" to Europe's debt crisis.

Nicolas Sarkozy's "two faced" personality has been cited as a major factor in his dysfunctional relationship with Angela Merkel.

During one-to-one, face-to-face meetings with the German Chancellor, the French President is said to be "syrupy", "ladling on the charm", but when her back is turned or she leaves the room, Mr Sarkozy changes tack.

Chancellor Merkel is said to have been deeply wounded by one anecdote that Mr Sarkozy is said to have told another head of government about her.

"She says she is on a diet and then helps herself to a second helping of cheese," the French president allegedly said after a dinner meeting with Mrs Merkel.

Such cattiness will not have been forgotten by Mrs Merkel when she sat down to dine with Mr Sarkozy last night in an encounter billed as a "make or break" moment to save the euro by patching up Franco-German relations.

A row between the pair in Frankfurt on Wednesday overshadowed leaving-do celebrations to mark the end of Jean-Claude Trichet's nine years as the head of the ECB.

"Their shouting could be heard down the corridor in the concert hall where an orchestra was about to play the EU's anthem, Ode to Joy," said an incredulous EU official.

Finance ministers - including George Osborne, the Chancellor - expressed frustration on Saturday that their emergency meeting could take no decisions of substance until Mrs Merkel and Mr Sarkozy had buried the hatchet.

"This Ecofin meeting has been reduced to an academic seminar, an exercise with absolutely no purpose," complained one finance minister.

So pointless was the gathering, that Didier Reynders, the Belgian finance minister, left early to attend the world premiere of the new Tintin film, The Secret of the Unicorn.

Mr Reynders will be presenting Steven Spielberg, the film's director, with the royal insignia of a "Commander of the Order of the Crown".

As well as the breakdown of the Franco-German motor, the EU is facing a rebellion from Italy, Spain and others over "imperious diktats" issuing from Paris or Berlin.

And to cap it all, as The Sunday Telegraph can now reveal, Herman Van Rompuy, the EU president who is regarded by many as too close to Berlin, angered many countries when he made confidential proposals for the creation of a European finance ministry.

His plan, which has considerable backing from the growing body of EU bureaucrats who see a unified EU treasury as the only solution to the problem of countries spending more than the euro can stand, would mean a centralised body able to override national budgets and enforce cuts on profligate governments.

Anything like it would be the most radical step in the history of the European Union, going further than any vision of the founding fathers who drew the line at giving away fiscal and military sovereignty.

"People were furious," said one diplomat from a small eurozone country. "It is bad enough that these ideas are all dreamt up by German or French officials. Even worse, Van Rompuy had the arrogance to suggest that the EU finance ministry should be based in either Frankfurt or Paris."

As talks dragged through Saturday to satisfy Italian and Spanish concerns over "arcane drafting language", a frustrated George Osborne, the Chancellor missed his flight back to Manchester, the closest airport to his Tatton constituency.

Jean-Claude Juncker, the prime minister of Luxembourg and chairman of the eurogroup of finance ministers, joined journalists outside the security cordon of the EU summit venue for a cigarette. He has been forbidden to smoke inside by Mr Van Rompuy. "I needed a break," he said. "I have no idea how long all this is going to take."

 

[Nemo888]

We have no good choices in this faltering economy. Many are facing a retirement income 30% less than if they retired 3 years ago. Returns on investment are as low as 1.5% Things are bad.

Do we choose quantitative easing and hyper inflation or stagnation and joblessness mired in debt for decades?  It's like asking where do you want to be shot.

IMO outsourcing  our manufacturing base has wrecked us. I don't think you can have a healthy economy without domestic manufacturing. The West gave away all our ability to create wealth. Then relied on bankers and credit to cover up that fact. No politicians have the guts to fix the fundamental l problems. So I'm guessing a long period of stagnation and joblessness. Followed by lower wages to compete with Asia.

 

[Brad Sallows]

Of course the politicians don't have the "guts".  Why would they as long as voters refuse to drive the "entitlement" parties down to single-digit support, let alone allow them to govern?  This only ends when we stop pretending that one of the roles of government is to provide "good paying jobs" instead of to provide basic essential services at the lowest possible cost, or absolutely run out the fiscal freedom of manoeuvre which allows us to pretend.  Collectively, the latter has happened and the music has stopped; all that is happening now is the fight over the remaining chairs.

 

[Edward Campbell]

Of course the politicians don't have the "guts".  Why would they as long as voters refuse to drive the "entitlement" parties down to single-digit support, let alone allow them to govern?  This only ends when we stop pretending that one of the roles of government is to provide "good paying jobs" instead of to provide basic essential services at the lowest possible cost, or absolutely run out the fiscal freedom of manoeuvre which allows us to pretend.  Collectively, the latter has happened and the music has stopped; all that is happening now is the fight over the remaining chairs.

:goodpost:  :+1:

I think Brad has is pretty much exactly right. Neither the "Wall St 1%" nor the politicians are to blame. We certainly cannot blame the Armenian, Brazilian or Chinese, etc workers, nor their governments for that matter. I, at least, refuse to blame corporations who are doing their fiduciary duty to their owners (stock holders). Who is left?
.
.
.
.
.
.
.
.
.
.
.
Look here:

and consider that:

 

[Nemo888]

So how do you suggest we fix the fact that we don't make anything anymore? Wage parity with 90c an hour foreign workers would fix it,....

We don't have many good choices.

 

[Kirkhill]

........ No politicians have the guts to fix the fundamental l problems. So I'm guessing a long period of stagnation and joblessness. Followed by lower wages to compete with Asia.

I agree with Brad, Edward AND Nemo.  But I'm guessing that we won't have to rely on the existence of the politicians' guts.  I'm guessing that we won't have a repeat of the '70s, or even the '30s, because this time around there is little appetite for the Big Government solution and such Big Governments as exist are financially broke, politically busted and desparately unpopular. 

Previous efforts at "fixing" the economy were extended because the governments actually had levers to pull.  Now all the levers are broken.  We will be finding out quickly enough how The Market resolves these issues.

And as to Asian Wages:  Asian wages may be low compared to the West's wages, but when I consider what Asia looked like when I was a kid in school 50 years ago Asia looks a whole lot more Western than it did then.  Wages may be low but they suffice to deliver sneakers, jeans and t-shirts; western style apartments; beer, whisk(e)y, Big Macs and KFC; and flat-screens and I-Phones.....  Their market delivers the same goods that our market does but generally at a fraction of the cost .... often due to competition (illegal knock offs) .... and always due to low taxes.

 

[Nemo888]

Perhaps we should start a cold war with China. Push human rights and liberalism like mad leftists in the media. While sending in agents to organize unions and start making their workers lazy and demanding.

;D Remember it was my idea.

 

[Fishbone Jones]

Perhaps we should start a cold war with China. Push human rights and liberalism like mad leftists in the media. While sending in agents to organize unions and start making their workers lazy and demanding.

;D Remember it was my idea.

A true and tested method, to be sure

 

[Brad Sallows]

>So how do you suggest we fix the fact that we don't make anything anymore?

Get out of the way and remove impediments to starting and running a business.  Is it the role of the higher HQ staff to make life awkward or easier for the lower commanders?  Bureaucrats should have much less inherent power to say "no" and should be at risk of losing their jobs if they fail to expedite the needs of entrepreneurs and citizens in general.  They must serve, not rule.