Category Archives: Economics

Miscellaneous economy stuff

That’s Nice

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JPMorgan thinks the current suite of economic sanctions against Russia could shrink its economy by 20% quarter-on-quarter and by 3.5% on the year. JPM also admits that these estimates may badly overestimate the downward movement. Also,

In conjunction and cooperation with the European Union, Japan, the UK, Canada, and others, the United States has effectively frozen financial transactions of Russian central bank assets held by Americans, a senior administration official told reporters during a briefing on Monday.
The intended effect is to cripple the Russian economy and use up the country’s “rainy day fund” as its currency, the ruble, plummets in value, the official said.

However, these sanctions carefully and deliberately leave untouched the bulk of Russia’s income—its foreign sales of oil and natural gas, with Russia our second largest source of imported oil as of last August.

The European Commission, France, Germany, Italy, United Kingdom, Canada, and the United States issued a joint statement on Saturday that “selected” Russian banks would be removed from the SWIFT financial system.

Except for the Central Bank of Russia, its central bank, and those oil and gas transactions.

Commerce Department unveiled…export controls [that] include semiconductors, computers, telecommunications, information security equipment, lasers and sensors. In addition, BIS’s [Bank of International Settlement, the bank of nations’ central banks] rule imposes stringent controls on 49 Russian military end users, which have been added to its entity list.
The European Union, Japan, Australia, United Kingdom, Canada and New Zealand announced that they would implement “substantially similar restrictions.”

Export controls aren’t export bans….

Some ladies from the South might say, “That’s nice,” regarding these economic moves, or even “Bless their hearts” regarding the persons making them.

However.

How many divisions, much less bullets, do those sanctions provide Ukraine in the here and now, as women and children are butchered by Putin’s barbarians as his invading horde begins increasingly to target apartment buildings and residential neighborhoods? How many divisions do those sanctions cause Putin to withdraw from Ukraine as his military prepares a Stalingrad-esque starvation siege of Kyiv or a Grozny-esque destruction of it, and begins its Grozny-esque burning of Kharkiv to the ground?

The economic sanctions actually are a good start, and they should continue in effect until Putin, his oligarch syndicate cronies, their deputies and assistants and lower down made men, and the members of the Duma are long gone from the Russian government and economy. But those sanctions are wholly inadequate alone. Ukraine will lie in ashes, its survivors existing in Russian serfdom, long before those sanctions take material effect.

Ukraine needs lethal weapons—antitank, antiaircraft, antimissile, along with anti-infantry and small arms—and those lethal weapons need to include, also, offensive weapons with which to drive Putin’s barbaric military out of Ukraine altogether. Ukraine needs tons of ammunition for those weapons and training in the use of many of them.

Ukraine needs food and medical supplies for Kyiv, Kharkiv, Odessa, Kherson, Mariupol, and on and on.

Yet Another Reason

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…to adjust our supply chains, especially the beginning points of them in this case.

Palladium and neon gas are seriously needed for chip production, and Russia’s invasion and attempt to conquer or destroy Ukraine is about to have a major effect on the supply of those items if nations and businesses don’t make the required adjustments.

Russia and Ukraine produce 40% to 50% of semiconductor-grade neon, according to market-research firm Techcet CA LLC. Largely derived from steel manufacturing, neon gas is used in lasers that help in the design of semiconductors.
Approximately 37% of the world’s palladium production comes from Russian mines, according to Techcet, and the metal is used in sensor chips and certain types of computing memory.

As a follow-on, palladium at least might be sourced from the People’s Republic of China, expanding that nation’s influence over the economies and national security of the US and the nations of Europe.

However expensive the shift will be, changing to other sources are critical to security. The PRC notwithstanding, South Africa is nearly as large a palladium producer as Russia. The US can produce our own neon gas either directly, or as a byproduct of steel production with further refinement for use in chip production.

It’s not only production of palladium and neon that matters, though. Currently, the PRC is the major producer of finished chip components and of finished chips themselves. That, also, needs to change, and other producers of chips and components need to be found, and producers need to be developed domestically.

In any event, there’s also little reason to go back to buying either of these from Russia, even if it is driven out of Ukraine. So long as the current men and women of the Russian government—at all levels—remain in place, that nation cannot be trusted with anything.

Business and Climate Risk

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The Securities and Exchange Commission wants information from our businesses

about their climate risks as it gears up to propose new disclosure requirements on the topic.

In particular (so far):

The SEC requested information from the companies [43 or more US public companies] about significant risks related to climate change. The risks ranged from physical effects such as severe weather to litigation and regulatory compliance costs.

However, the only real risks American businesses face from the claimed climate situation are two. One is from Government regulations as Government men and women overreact to claims of dire climate evolution. Examples of this risk are that litigation and regulatory compliance cost bit and this:

The Biden administration and the SEC under Chairman Gary Gensler have made combating climate change and nudging investors to deploy more capital toward greener businesses a priority.

The other risk is from Government men and women using claims of dire consequences of climate evolution to expand bureaucratic power. The SEC’s demands for “climate risk decision-making” data preparatory to issuing related disclosure regulations is an example of this.

Yes, He Can

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Since Russia President Vladimir Putin—the man then-Presidential candidate Joe Biden (D) bragged was so afraid of him—invaded Ukraine, oil prices have gone up to levels not seen since the Obama years, even beyond the inflation levels Biden-Harris’ current war on our energy industry had already driven them: $105/barrel. Biden-Harris proclaimed last Thursday,

I know this is hard and that Americans are already hurting. I will do everything in my power to limit the pain the American people are feeling at the gas pump.

Jason Furman, one of ex-President Barack Obama’s (D) economic minions, claims—and he’s actually serious—

This is a world price and the president is largely powerless to do much[.]

Both men are being cynically disingenuous; Biden-Harris’ dissembling, though, given his position in our current government and on the world’s stage, is especially pernicious.

Our President actually could do quite a bit about oil prices for our nation and for our friends and allies; he could do quite a bit about energy prices generally, were he not in thrall to the “green” extreme Left.

He could, for instance, reopen the Keystone XL pipeline and work to get Canada to reopen oil flows from its end.

He could get out of the way of drilling leases on Federal land.

He could get out of the way of fracking for domestic oil and natural gas.

He could get out of the way of American exports of oil and liquid natural gas to Europe.

He could rescind the myriad anti-hydrocarbon regulations he enacted via Executive Order or that he had his several Cabinets enact through rules.

The list is really quite extensive.

Biden-Harris has moved to release oil from our strategic reserve, but that’s merely insulting in its puniness and in its use to distract from energy price inflation.

Instead, Biden-Harris is allowing energy prices, especially those for oil and natural gas, to rise rapidly, and that benefits no one more than it benefits Russia, which needs high oil prices to support its budget—especially during its assault on Ukraine.

I-Bonds

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For a partial solution to our nation’s high and growing inflation rate, Joshua Rauh and Kevin Warsh propose increasing the existing cap on I-Bonds that Treasury issues. Under the present cap, Americans are barred from buying more than $10,000 of I-Bonds per year plus committing up to $5,000 of a year’s tax refund to such purchases. Rauh and Warsh want to raise those caps.

However, the connection between this and inflation mitigation is at best tenuous. Selling more I-Bonds only gives the Federal government more money to spend, which is inflationary; it increases the interest payments that must be made annually, which is government spending and so inflationary; and it increases the national debt, which is future inflation.

It’s no solution at all.

Furthermore, given the Biden-Harris administration’s penchant for ever more, and acceleratingly more spending—and that of their cronies, the Progressive-Democratic Party in control of both the House and Senate—it’s not clear to me how raising, or even eliminating, the cap on I-Bond purchases by us citiens would have any material inflation-mitigating outcome.

On a larger matter regarding I-Bonds; TIPS; and other Treasury Bonds, and Bills, and Notes in general—I’m not sure why anyone would want to lend any money at all to a Biden-Harris-led US government. Maybe we should stop lending, and stop rolling existing loans. Collect on the bonds instead, and invest the proceeds in productive endeavors, like, say, the private economy where us average Americans conduct our commerce through our mom-and-pop enterprises and our businesses, small, medium, and large.