Category Archives: markets

Sanctions and Competition

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Hungary, Poland, Slovakia, and Czech Republic have directly appealed to our Congressional leadership to expedite turning on the export spigot for our natural gas.  These four nations see the directness and immediacy of the advantage of buying natural gas from us rather than from the Russians.

There’s another effect, though, from our increasing our gas, and oil, exports as quickly and as far as we can.  That’s the effect on oil and gas pricing in the global markets.  Such a large and easy increase in supply will depress those prices, which will have a competition-based double whammy on Russia: it will deprive Russia of billions of dollars in income from its own oil and gas exports by lowering the price, sharply, that Russia can demand, through depriving Russia of its energy monopoly.  Keep in mind, also, that the Russian economy almost exclusively is built on oil and gas exports—it has nothing else other than cheap, second tier military equipment, and while that remains a strong Russian industry, it’s not strong enough to carry the Russian economy, much less provide the funding necessary for Russian…adventurism.

The other whammy also is in those sharply lower oil and gas prices.  That decrease will make it easier for erstwhile Russian “clients,” including Hungary, Poland, Slovakia, Czech Republic, Ukraine, the EU (Germany, France, and Great Britain especially) to get their energy from somewhere more reliable than Russia, and at a cheaper price.

That cheaper price for these others produces a separate whammy for them: cheaper energy can be only to the good for their economies as they struggle to break out of the doldrums remaining from the global Panic of 2008.

But that’s what competition does—it lowers prices and sets economies free to generate prosperity.  An attempt to boycott Russian oil and gas is unnecessary.

Crimea and Sanctions on Russia

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Promptly opening the export spigot on our own oil and gas production and accelerating our development of those fields, including on Federal land (which will have minimal production effect today; although it’ll have significant effect in the near- to mid-term by significantly expanding the supply of oil and gas on the global market) will produce an immediate spike down in the global price of oil and gas, which will have an associated immediate negative impact on the value of Russian oil and gas exports.

Blocking Russian access to credit on the global banking system—even just on the American banking system—and requiring cash-only transactions will have a negative impact on Russia’s cash reserves.

Seizing the personal banking and physical assets held by the Russian oligarchs and by Putin will remove billions of dollars’ worth of value from these folks—and it’s the oligarchs as much as a mendacious Russian legislature who are the source of Putin’s political power.

Of course, a significant fraction of the success of the sanctions will depend on how well Europe does its part.  Their participation will go a long way toward identifying who truly believes in the sanctity—as opposed to the convenience—of national sovereignty and who just engages in empty rhetoric for personal gain.  Their participation will go a long way toward identifying who our friends are and who are just summertime soldiers.  Their participation will go a long way toward determining who stands with Ukraine and who are willing only to talk about standing with Ukraine.

We can’t let their timidity stand in the way of our acting, though.  Nor can we let the fact that the sanctions will bring Russian retaliatory sanctions on us deter us.

Russian Foreign Minister Sergei Lavrov said Friday sanctions imposed by the West “would inevitably hit the United States like a boomerang.”  Their foreign ministry added they “will not accept the language of sanctions and threats,” and will respond if sanctions are imposed.

What sanctions can Russia impose?  They can block further Western/American investment in Russian oil and gas field development.  They can block further Western/American investment in oil and gas delivery systems (read: pipelines).  They can cease existing Western/American investments throughout their economy, not only in their oil and gas industry.  They can begin dumping their holding of American Treasuries.  They even could deny us access via their territory and airspace to our bases in the ‘Stans from which we support our war effort in Afghanistan.

This will hurt us, to be sure.  But who else will it hurt?  Russia can’t develop its oil and gas industry without us—that’s why we’re there.  What they have developed has been being depleted for more than 10 years; those assets are declining in value.  Their economy is utterly dependent on oil and gas.  Recall the damage done Texas’ strictly oil and gas economy during the first Arab oil embargo and the Nixon price controls.

Dumping their US Treasury holding will devalue the rest of what they hold, decreasing their ability to convert the rest into cash with which to complete the now-demanded cash only transaction.

Our war in Afghanistan is winding down, and those bases already are becoming less and less critical to our efforts.

The oligarchs’ loss of their own overseas assets and their loss of access to non-Russian banking, even to their overseas villas and other assets will hurt Putin’s primary supporters where it hurts the most: in their own pocketbooks.

The sanctions that will boomerang on us will boomerang right back on them, and worse.

And our own actions will determine whether our own administration truly believes in the sanctity of national sovereignty, with whom we are friends, whether we stand with Ukraine.  I’ve no doubt where the American people stand.

Obamacare Dissembling

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The Obama administration announced Wednesday that it will let people keep health insurance plans that would otherwise be out of compliance with ObamaCare for another two years….

Yet, just a bit over a year ago, when President Barack Obama first “waived” the Business Mandate, he threatened to veto a House bill that would have codified that delay and that added a comparable delay of the Individual Mandate—what he’s now “waiving” for those two years.

Obama vastly prefers diktat to legitimacy.

Administration…Foot-Dragging

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Russian energy exports.  Ukraine, for instance, gets some 40%-50% of its natural gas from Russia, and Europe gets roughly 30% its natural gas from Russia.  Recall, just a few short years ago, too, the Russian extortion of cutting off those gas flows—in the middle of winter—over an alleged bill-paying (or not) scandal: it wasn’t those who supposedly weren’t paying the country’s gas bill who were harmed, though, it was the citizenry threatened with freezing temperatures in their own homes.  And as part of the Russian extortion, they cut off gas flows to Europe, too.

Now comes the Obama administration, with its control over our own ability to export natural gas to various places—for instance, to Europe and to Ukraine—or to the world generally.  The one export targets would directly break Russia’s hold over Ukraine and Europe, while the other would, at the least, drive down the price of natural gas, making it easier for those two to find and import other sources.  Yet this is the claim of Bill Gibbons, spokesman for President Barack Obama’s Energy Department:

Regarding specific Energy Department actions on LNG exports, the Department remains committed to an expeditious and responsible process.  We continue to make public interest determinations on a case-by-case basis, carefully considering economic, energy security, environmental and geopolitical impacts, among other factors.

Surely, breaking Ukraine’s and Europe’s dependence on Russian energy sources is a matter of geopolitical impact, especially with Russia having invaded Ukraine.  Yet the Energy Secretary, who under DoE’s permitting process can deny applications to countries that don’t have a free trade agreement with us, has approved all of six applications in the last three plus years to such countries, and he has some 24 more applications sitting on his desk with no action in the offing.  Certainly, all of those predate the present Russian assault, but acting on those export applications, rather than dissembling about them, would have an immediate favorable impact on Ukraine and Europe, if only through natural gas pricing on the world market—which would help these while harming Russia.

This administration automatically foot drags, even in an on-going crisis, on any matter pertaining to international affairs.  It has no understanding of foreign affairs, and so it’s wholly incapable of anticipating and planning for global events; this lack underlies its foot-dragging.

It’s no wonder our enemies have such contempt for us—and Ukraine is in the strait it’s in.

Speaking of Out of Touch

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Senator Bernie Sanders (I, VT) demonstrated the depth of his condition of out of touchness in a Tuesday op-ed in The Wall Street Journal.  Although Sanders’ out of touchness is amply demonstrated by his full-throated defense of the dinosaur that is the United States Postal Service, I want to look at a couple of other things he said in his piece.

First, there’s this:

There are very powerful and wealthy special interests who want to privatize or dismember virtually every function that government now performs, whether it is Social Security, Medicare, public education or the Postal Service.  They see an opportunity for Wall Street and corporate America to make billions in profits out of these services….

He says this in all seriousness, as if shrinking government and returning the bulk of its functions to the private sector where they belong is somehow a bad thing.  And that there would be profit in that private sector (and not only for “Wall Street and corporate America,” but also for medium-sized and small businesses and the Americans these would employ) is something only an avowed Democratic Socialist like Sanders would decry.  Moreover, it’s not only the powerful and special interests who want this shrinking of government and a divestment of its present array of “functions.”  Apparently he’s missed the Tea Party revolution that’s been going on these last five years.

He also had this (with some overlap with the quote above):

They see an opportunity for Wall Street and corporate America to make billions in profits out of these services, and couldn’t care less how privatization or a degradation of services affects ordinary Americans.

This is a false dichotomy.  Privatization doesn’t at all degrade services—it improves those extant and leads to vast expansion of new services, and at lower prices than before.  This is the example of the breakup of Ma Bell, effective at the start of 1984.  Under Ma Bell, we had a very good land line telephone system.  After the breakup, we got an even better land line system of competing companies (until their effective remerger); a cell phone system of competing companies; a cable system of more-or-less competing companies, which also compete for telephone business; and all of them competing for Internet business—including telephony communications.

A further example is the USPS, which prior to the divestment of package delivery and mail service other than first class, did a very good job of delivery.  Now we have competing package and special delivery service companies that are cheaper, faster, and even more reliable, and they have a broader range of special delivery services that the USPS is scrambling to match.  Additionally, all those communications services above are functionally competing for first class mail delivery, too, even though only the USPS can handle formal first class.  That’s what email, texting, Skype, AIM Chat, Twitter, and on and on—even that other dinosaur, faxing—are doing.

Apparently, Rip van Sanders has been sleeping through the end of the 20th century and this beginning of the 21st.