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Triple Crunch Log                                                                                                            

China to add 500 GW of coal capacity between now and 2020.499

24.6.10. BP reinstalls the cap on the Macondo well, after a robot accidentally dislodged it yesterday. Meanwhile Obama’s job performance rating is at an all time low of 45%, and thick pools of oil have begun washing up on the Florida coast.500

Tony Hayward tells staff that BP is in “intensive care” but the worst is over. This in a series of town hall meetings in the UK.

Oil majors rethink willingness to partner with BP on fields where they are main operator. An exec at one company professes “shock” at the design of the Macondo well.501

Chris Huhne announces “green deal” and says renewables can protect UK from oil and gas crises. Speaking at the Economist energy summit, the new UK energy minister says new legislation (by November) will allow energy companies and others to spend up to £6.5bn on a massive energy efficiency overhaul of homes. Up to £200bn will need to be spent on upgrading the UK’s energy infrastructure in the next ten years and a lot of it must be renewables. In yesterday’s UK budget his DECC budget – already half allocated to nuclear decommissioning, is to be cut by 25%.502

Chavez nationalises 11 US oil rigs in Venezuela as his drive for socialism amid recession grows. They belong(ed)503

Basle committee thins down proposals for reform after intense bank lobbying. The recommendations included the need to set aside billions in extra capital.504

“The debt-financed model has reached its limit”, an Economist special issue argues. Japan owes the most as a percentage of GDP, including all financial –business debt, all non-financial-business debt, all household and all government debt: >450%. UK is second, almost at 400%.  Economist: “The answer to all problems seemed to be more debt. Depressed? Use your credit card for a shopping spree “because you’re worth it”. Want to get rich quick? Work for a private-equity or hedge-fund firm, using borrowed money to enhance returns. Looking for faster growth for your company? Borrow money and make an acquisition. And if the economy is in recession, let the government go into deficit to bolster spending. When the European Union countries met in May to deal with the Greek crisis, they proposed a €750 billion ($900 billion) rescue programme largely consisting of even more borrowed money.” “….From early 2007 onwards there were signs that economies were reaching the limit of their ability to absorb more borrowing.” “….Rising government debt is a Ponzi scheme that requires an ever-growing population to assume the burden—unless some deus ex machina, such as a technological breakthrough, can boost growth.”  “…..The problem with debt, though, is the need to repay it. Not for nothing does the word credit have its roots in the Latin word credere, to believe. If creditors lose faith in their borrowers, they will demand the repayment of existing debt or refuse to renew old loans. If the debt is secured against assets, then the borrower may be forced to sell. A lot of forced sales will cause asset prices to fall and make creditors even less willing to extend loans. If the asset price falls below the value of the loan, then both creditors and borrowers will lose money. This is particularly troublesome if the economy slips into deflation, as happened globally in the 1930s and in Japan in the 1990s. Debt levels are fixed in nominal terms whereas asset prices can go up or down. So falling prices create a spiral in which assets are sold off to repay debts, triggering further price falls and further sales. Irving Fisher, an economist who worked in the first half of the 20th century, called this the debt deflation trap.” “….This special report will argue that, for the developed world, the debt-financed model has reached its limit. Most of the options for dealing with the debt overhang are unpalatable. As has already been seen in Greece and Ireland, each government will have to find its own way of reducing the burden. The battle between borrowers and creditors may be the defining struggle of the next generation.”505

26.6.10. New Australian oil company Peak Oil and Gas plans a $55m IPO next quarter. The Perth based entity plans to use the funds for restarting an offshore oilfield in the Philippines, shutdown in 1992.506

27.6.10. Delays feared as BP relief hole nears Macondo well 6,060m below the sea surface and 4,500m below the seabed. The target is a 25cm-wide steel cased hole, itself encased in cement, and experts fear the unprecedented effort may not work first time. Each attempt takes days to weeks. Relief wells have always worked in the past, but often after several attempts. And they have never been tried at this depth.507

Krugman fears that G20 belt-tightening will mean a third global depression.  “This third depression will be primarily a failure of policy. Around the world – most recently at the weekend's deeply discouraging G20 meeting – governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending…. It's almost as if the financial markets understand what policymakers seemingly don't: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating. ….So I don't think this is really about Greece, or indeed about any realistic appreciation of the trade-offs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times. And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.”508

28.6.10. G20 Summit shows it will take another crisis to bring global economic reform, Larry Elliot concludes.  The communique from the weekend's meeting is easily summed up: do your own thing. The Americans cannot persuade the Europeans to hold off from fiscal tightening until the recovery is assured; the Germans and the British think the risks of a sovereign debt crisis are far more serious than the possibility of a double-dip recession.”509

Central bankers insist that governments must force banks to bolster capital, as anger spreads over G20 failure to take a harder line. Theis in the Bank for International Settlements annual report, which also argues for a rise in historically low interest rates around the world.510

BP is now spending $100m a day, and the total cost of the spill so far is $2.65bn. BP hopes to seal the well by mid July now, given progress with the relief wells.511

BP “staked future on expanding offshore drilling”, released company strategy document shows. A strategy paper shows this was to be its number one area for long-term growth.512

More BP bonds being borrowed for shorting than shares. The average for the corporate sector is 1% of bonds, but one BP bond has 24% on loan. The sentiment is very negative, to say the least.513

Energy from renewables falls in the UK: down 7.5% in the first quarter of 2010 compared to 2009, from 6.7%

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