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Commodities: 'epic rout' or the new normal?

Stephanie Flanders | 14:25 UK time, Friday, 6 May 2011

The "epic rout" in commodity markets in recent days has left some traders and investors in a state of shock. But, if the damage turns out to be localised, Ben Bernanke will consider it useful - and we probably should as well.

The fall in prices - which has pushed the main US benchmark price of oil below $100 a barrel and saw the biggest ever one day fall in the price of Brent crude - has been linked to fears about the pace of the global recovery. That isn't good news. But nor is it strictly news.

The economic statistics have been showing signs of weakening in the real economy in the US and Europe for several weeks. The question is whether falling commodity prices make the situation better, or worse. Again, assuming there's limited collateral damage to the broader financial system, the answer ought to be better, for two reasons.

First, remember that one of the reasons we've been worried about the pace of recovery in the big advanced economies has been the rising price of oil and the rest, and the knock-on effect for inflation at a time when central bankers would rather not be raising rates.

It's early days yet - I wouldn't assume that the oil price will stay at this level. But if the global price of oil averages, say $110 a barrel over the next year or two, and not the $120 forecasters had been pencilling in, that could take about 0.2 percentage points off the rate of inflation in 2011 and 2012, relative to what was previously thought. If you're the ECB or the Bank of England, or the Federal Reserve, every little helps.

The other reason why Ben Bernanke and other central bankers will not be unhappy to see this week's price falls is that it suggests the first stage of unwinding the US central bank's emergency support for the US financial system is already quietly under way - and having the desired effect.

Though the ECB is the only major Western central bank to have formally raised interest rates, central banks around the world have been quietly mopping up some of the short-term liquidity that's been injected into the market since 2008. By signalling firmly that there were no plans for QE3, Ben Bernanke has made clear that the US is on that path as well, assuming there's no big market shock between now and June to make him re-think.

If the fall in commodity markets is part of the markets taking this information on board, Mr Bernanke and his central bank colleagues would probably think that was all to the good. In the current circumstances, the past few days of commodity market mayhem may actually be what "normalisation" looks like.

However, a lot depends on how long this price tumble continues - and the impact on other parts of the system.

Some have drawn comparisons with the spectacular fall in commodity prices in the early summer of 2008 after an equally dramatic run-up. This played an important role in the Lehmans meltdown a few months later: depending on whom you talk to, perhaps a decisive one.

The hope is that the past few days show the global economy moving further away from crisis and the emergency policies that it produced - NOT a premonition of another downward lurch. But we're all learning that nothing about this global recovery can be taken for granted.

Comments

  • Comment number 1.

    Is the instability in the commodity markets anything to do with the floatation of a massive commodity trader this week? It does seem rather a coincidence as the fundamentals which are being presented as the 'reason' have not really changed much in recent days?

    All these 'worries' about growth are nothing new - even if the pundits have such short term memories that do not recall that they have been around for a couple of years. I would characterise commodities markets in recent months as being in a condition of a small animal that has run off of a cliff and is feeling for the ground beneath its feet - prior to the collapse.

    The fundamentals are bleak. The daft individuals in the traders and banks who see that the old pre 2007 normality of the continuation of the debt fuelled boom restating are simply unaware. This is 1870 (or 1930) all over again and heaven help us all!

    Nothing will actually genuinely improve until property prices fall to a sensible multiple of earnings - then and only then will investing in doing things became a real business rather than high-stakes gambling. (Oh and interest rates must return to a rational level BEFORE this.)

  • Comment number 2.

    Simon Ward, chief economist at Henderson says: "Commodity bears may need to exercise caution near term since QE2 has yet to complete and the Fed could choose to "unsterilise" its recent purchases if weakness extends to equities and credit markets, resulting in a growth-threatening tightening of financial conditions. For the moment, however, events are probably playing out to the Fed's satisfaction. Inducing a correction in commodities, indeed, may have been an intention of Chairman Bernanke's refusal to entertain QE3 speculation at last week's press conference - consistent with the recent cessation of liquidity injections."
    http://tinyurl.com/42m37f5

  • Comment number 3.

    Just wait for the next round of QE...


  • Comment number 4.

    To be expected. I think Adam Posen said that it would be uneconomic not to see a reversion soon.

    Krugman blog, May 2, 2011, 'A Commodity Peak?':

    "WSJ: Commodity Surprise: Some Are Now Heading Down.
    Good reporting on the slumps in cotton, copper, etc. But why, exactly, is this such a surprise?
    Real commodity prices — that is, prices relative to the prices of goods that aren’t as volatile — have gotten very high by historical standards. Some of this probably represents a long-term upward trend, as emerging economies place pressure on limited resources, but even so, you wouldn’t expect continued rapid rises, and in fact you should expect some regression toward normal levels as supplies and to some extent demand respond. The only reason to believe that commodity prices would continue to soar would be if you thought that they were the harbinger of runaway inflation. But they aren’t. So if commodity prices come down, and headline inflation declines back toward core, we’ll see the inflationistas admit that they were wrong, right? Also, pigs will fly."

  • Comment number 5.

    Some indeed did fall. However, others continued to rise. Rare earth metals are continuing their epic sky rocket ride into the stratosphere. Some people talk about oil and corn and silver and gold, but REM's are the star performers and these little gems are at the heart of ALL high tech. No HT no spendy spendy consumers.

  • Comment number 6.

    Stephanie they're back up again in a day! Brent crude up over $8 since 9am this morning. Some analysts being quoted on this BBC report seem to think there is more supply going forward than demand. I believe that they are very very wrong. Within the next four years the world will en-masse come to realise that we have a real liquid fuels supply problem spearheading a general energy and commodities supply problem. The planet is finite and population growth and lifestyle aspirations of the billions in the BRIC's, OECD, and OPEC nations will come head to head with this inescapable limitation of our globe.

    John from Hendon gives the most likely explanation for the sudden two day dip in prices along with the fact that profit taking from the speculators who have bought oil and other commodities earlier has probably occurred.

    Fundamentally the world's demand for oil, coal, and other commodities continues to rise and the likes of Saudi Arabia are not being truthful about their ability to supply the quantities of oil required by this demand. In fact world liquid fuel maximum supply rate is or will very soon be heading downwards. Hence there is only one way for prices to go for oil in the medium term and it's not down.

    If high prices cause another recession (particualrly in China) then there may be a temporary (six month max) downward movement in oil price but on average it will continue to rise until we are financially forced to substantially alter our lifestyle and reduce our population to live with less oil and less energy and consumption of valueable commodities in general.

    Having shed loads of debt and stupid house prices doesn't help with our ability to invest away from oil either, but it will be forced upon us this decade.

  • Comment number 7.

    "But we're all learning that nothing about this global recovery can be taken for granted."

    Guess guess guess,
    Guess guess guess.
    All I do is guess guess guess.
    With a knick-knack paddy whack, throw us all a bone,
    Leave this dumb topic alone.

  • Comment number 8.

    Dross. Bubble economics is normality. Global assets will all end up in tax havens and humankind will be financially farmed by a few asset owners. The rules need changing.

  • Comment number 9.

    Maybe Commodities were well over-bought, over-priced and over-due for their devaluation vs the $ & £? Maybe too, that Glencore's hoped-for market value reflects at least part of the risky nature of some of its trades?

    Maybe Merve-the-swerve & his gang were correct after all? Maybe the recent months' up-lift in commodity inflation is transient after all, with all that implies for holding short-term rates steady?

    Maybe UK growth rates could significantly under-shoot the OBR's GDP growth assumption? On present trends, growth will fall a long way short and will result in lower tax receipts. That would slow the recovery and the consequent pace of deficit reductions.

    'Maybe' would be a suitably circumspect word for forecasting anything right now.

  • Comment number 10.

    Reading your blog, l'm beginning to get that feeling of being in a room with no lights.

    Everyone is fumbling around in the dark trying to find a way out,but no-one can

    find the door into the light. Perhaps l will sit on the floor.. and wait.

  • Comment number 11.

    Only way QE effects commodity prices is psychological. Since some market players did believe that QE was going to drive up prices, they bid up commodity prices and so we got this commodities bubble. In reality, central banks can only control the price (interest rates), not the quantity (amount of lending). QE is quite irrelevant, except for these psychological factors.

  • Comment number 12.

    Does the fact that commodities fell for a few days guarantee the fact that they will stay low? There's a mountain of money looking for something to invest in so one imagines the commodity gravy train will re-establish itself in the near future after its brief spell in the house of correction. In fact brent crude seems to have made 2.5 percent today so why bother with long term US treasuries for a pitiful 3%?

  • Comment number 13.

    Why isn't anyone questioning the morality of all this commodity speculation with our basic foodstuffs? In the US Wal Mart were reporting how those who live paycheque to paycheque are now running out of money to feed themselves before the next cheque arrives. Where is the morality in all of this when a few speculators are allowed to become billionaires at the expense of thousands if not hunderds of thousands of individuals ability to feed themselves?
    I believe that there is a real danger to the long term stability of our society if something isn't done to remove or regulate this massive speculative activity. What if you could only make a contract against physical produce and not create contracts out of thin air?

  • Comment number 14.

    Benanke says that oil prices are high due to demand. 10% drops in a single day don't sound like demand slow down. That is speculation driven by loose monetary policy.

    The FED is playing a dirty game. They are printing money and they know it is not going where they want it (housing). So they are forcing regulators to hike margins on commodities. This forces people to put up more margin or sell. Still this is not enough for such a big drop in oil.

    The house of cards is starting to fall also. QE is nothing but a stealthy way to give money to the banks. The US economy is slowing down again. If they can't do QE3, oil will be back to 50. US Bonds will soar as deflation will be on the agenda again and 1% return is good on 5% deflation.

    Or there will be more QE until we arrive at where Japan is today.

  • Comment number 15.

    Finally, Stephanie. Commodity falls were simply due to an alleged combined secret profit taking decision during recent traders meetings, resulting in their chums fully prepared and funded to buy up same stock at lower prices...

    .. Same old same old. There is no story nor surprise here - only the usual 'trader club' activity. These traders are still selling in May and going away to their private islands, or wherever.

    Naturally, there is the usual stream of blurb about markets, wars, derivatives. Percentages this, shortages that. The dollar this, or the pound that - or Euro, whatever.

    It's all complete gonads when your 20 years of pension contributions mysteriously disappear while we, as tax-payers, are still paying the interest on the loans, to pay for the loans, to bail out the banks that are over-charging on loans and on and on. Aaaaargh!

  • Comment number 16.

    All of those 'buy silver now' adverts in the past few weeks ..... meant it was too late already!

  • Comment number 17.

    zfvr wrote:

    "Only way QE effects commodity prices is psychological" In the UK isn't £200 billion a bit pricey for a psychological effect. Surely Paul McKenna or Derren Brown could have been secured for a snip of that.

  • Comment number 18.

    Might be more to do with the Glencore floatation.

    What comes down must go up. Specially if you make your money both ways.

    And the taxpayer pays for it all.




  • Comment number 19.

    Not all commodities are the same and changes in price may well reflect different supply and demand conditions.

    As #5 points out rare earth metals are soaring - that has very little to do with speculation and everything to do with substantial rises in demand and very restricted supply (there is a reason why these are called "rare" earth metals).

    Food price rises also have a significant demand component - the Chinese and Indian diets are changing, they are eating more wheat and meat (and catching up with our western levels of obesity and type 2 diabetes as a result).

    But... whilst the price of money is effectively zero, it should come as no surprise that speculation in all forms of assets expands. As John_from_Hendon says we need, as soon as possible, to increase interest rates. Where John and I may disagree is how quickly we should do that. However, that brings me to a second point, if both US and UK authorities are now able to withdraw support to the banking industry and wean them off the life support systems that banks have been on for most of the last 3 years that must mean that the time to raise interest rates will be sooner rather than later.

  • Comment number 20.

    Yeah, of course price falls are based on fundamentals, like the fundamental of the CME raising margins on silver - now why would they do that? and why don't you report this? Why not explain to the people how silver spot price has tanked in the past few days when the ratio of physical purchases to physical sales has been at 101:1

    Why raise margins on silver and remain so relaxed about agricultural commodities - the prices of which go a long way to explaining uprisings in various countries around the world.

    Why not just give the people some truth?

  • Comment number 21.

    #19 Justin150. Prices in substantially everything have long since severed all connection with supply and demand, or indeed any other form of rational analysis. Check out which major banks have again reported a perfect quarter with not a single day resulting in anything other than profit. To achieve this in a free market you are looking at odds of something like 2 billion to 1 - so how do they do that then?

  • Comment number 22.

    1. At 15:00pm 6th May 2011, John_from_Hendon wrote:

    Nothing will actually genuinely improve until property prices fall to a sensible multiple of earnings - then and only then will investing in doing things became a real business rather than high-stakes gambling. (Oh and interest rates must return to a rational level BEFORE this.)
    ============================
    Could it be that wages are the problem? Globalisation and the EU influx on new workers has certainly hammered my wages - I am currently earning less than I did in 1999 - given that the value of money halves every 10 years, maybe house prices in the UK at least are normal given the population and the availability of land but more of the population is poorer thanks to Labours 'Immigration and Wages' policy.

  • Comment number 23.

    3. At 15:05pm 6th May 2011, Eddy from Waring wrote:

    Just wait for the next round of QE...

    ----------------------------------------------------

    That would be the same scam as before then?

    The part where the gov introduces its OWN (OUR) money into circulation the BANKS snap it up at 0.5% and then instead of investing in businesses simply buy more gov bonds paying 3-5% !! The banks make a killing of between 5-9 times the intrest due on the QE money the economy does NOT benefit AND the deficit gets LARGER because the gov pays 5 to 9 times the ammount of intrest on its (OUR) money..

    Would it not be better for the government to do what the banks do and just pay into its accounts say 50billion to spend on infrastructure and social housing (this money would be debt free no interest) maybe the seven barage could be put back on the menu the point is that the jobs would be created unlike the QE system which just lines the pockets of the banks..

    Lets TAKE BACK the control of OUR own money !!!!

  • Comment number 24.

    @19 - 'Jusin150' on 06 May.

    That's OK then Justin 150. As long as people pay too much for their food in the UK who are NOT obese or suffering from type 2 diabetes - that's all right then when their wages can barely meet fixed or variable overheads like rent, mortgage, heat, light and water bills. Plus getting to work and home again bills.

    Yes, 'Justin150' raise interest rates - that will really help our UK fragile economy.

    As for your comments on costs of 'rare earth metals' being down to supply and demand and not speculation - who are you trying to fool - they are one and the same to traders. Plus you quote 'John_from_Hendon'. Chuckle.

  • Comment number 25.

    Definitely the Glencore IPO. They are not looking to raise cash. They are looking to LIQUIDATE over priced assets... 21 May may well be the end of something. A big commodity sell-off will cause carnage... GFC2??

    There are quite a few critical events that are about to explode within the next two weeks. Hold on tight but feel free to gloat when the bankers start squealing :-)

  • Comment number 26.

    Breaking news from Der Spiegel - the smelly brown stuff is headed towards the fan!

    Greece Considers Exit from Euro Zone

    http://www.spiegel.de/international/europe/0,1518,761201,00.html

    What will THAT do to commodities?

  • Comment number 27.

    All sorts of events in the last few weeks and months have given speculators excuses to push up the prices of commodities - especially oil.

    The 'Arab Spring', the weakness of the smaller EU states, Japan in a retrenching period after the earhquake all indicated shortfalls - but now the death of OBL, more a political than an economic factor, seems to have shocked markets into a sense of realism.

    Nobody at the user end of the commodity market - manufacturers and processors - seems to think there's a supply problem. Supplies of oil in particular no longer depend solely on Texas, the Gulf or the North Sea.

    Then some economic positives emerge, panic ensues and positions (and a***s) have to be covered.

    We may have seen a very flimsy commodity bubble and if realism is allowed to prevail oil will be back below $90 within a week.

  • Comment number 28.

    Economics is not science and never has been. Any attempt at rational analysis is doomed. One thing is certain and that is there are finite resources. If that is the new normal then so be it. But to claim there ever was a normal is just sophistry.

  • Comment number 29.

    11. At 16:38pm 6th May 2011, zfvr wrote:

    "...Only way QE effects commodity prices is psychological..."

    +++++++++++++++++++++++++++++++++++++++

    Well mightn't you as well say the only way the availability of mortgages affects property prices is "psychological"? ("I can't get the cash so can't buy it", says my "psychology").

  • Comment number 30.

    23. At 18:47pm 6th May 2011, deadpansean
    ++++++++++++++++++++++++++++++++
    Yes.

  • Comment number 31.

    Not everybody thinks that the US is automatically on a path to a tightening of monetary policy as pointed out below.

    "Now we only have one days evidence so care is needed, but it does allow me to illustrate why I have felt that a new round of Quantitative Easing which would no doubt be called QE3 is not only quite possible but even probable. If it is true that the end of QE2 will cause a fall in commodity and equity markets then some of the inflationary pressure in the world will be reduced. So a stated barrier to QE3 will be removed in this scenario as Chairman Bernanke blames commodity prices for US inflation.

    So I have established the fact that QE3 might now be possible how do I go forward and wonder if it is now probable?..........."
    http://t.co/gnWcI1E

    It is true that inflationary pressures were one of the reasons Ben Bernake said that he could not have more monetary easing so if they go away and the US economy slows again.....?


  • Comment number 32.

    Heading: Commodities: 'epic rout' or the new normal

    +++++++++++++++++++++++++++++++++++++++++++++++

    I think this is one of the minority of occasions when we need to be precise about what "normal" means. It does not mean "commonplace" or "everyday". It means relating to a norm. Accordingly we need to consider what a norm is. This is some subject and has exercised analysts such as philosophers quite often. However, I gather it's come to be accepted that as humans are social beings, a norm is that which, if adhered to by the majority, would, in the opinion of the wise and virtuous, tend to enhance the well-being of the same, (whatever that might be).

    Whether the use of the word in the headline fits in here or not isn't at all clear to me.

  • Comment number 33.

    This is blight and even more bad hair cuts have been spotted on the forthcoming event horizon. Somehow I don’t think that Pistols at dawn is going to be a viable option within these foreseeable scenarios as the Liberty Bell has already sounded all hands on deck. So ducking behind any of these barrels is not going to keep your heads above water line for very much longer.

  • Comment number 34.

    #26 Merely another ruse from the Feds Book of extend and pretend to give the dead cat bounce in the USDX another shove as the Euro solf off, it will work for a week or so then the $ will turn down again and the commodities will rise gradually again.

  • Comment number 35.

    #23 deadpansean
    Damnit bbc please enable voting on comments. I have an urge to click the + 1 button.

    There IS a place for direct government investment, when it is so blindingly obvious that it would be more efficient than fattening up worthless banks with worthless money. If the entire QE budget had been spent entirely on windfarms and nuclear power stations, we would not give two hoots about the current commodity problems. Not to mention the massive amount of jobs it would have created.

    I was asking myself today, how the bloody hell does the uk economy work, when we don't even make anything anymore? The answer of course, as proved by the massive ongoing correction in the spending power of the average uk citizen, is that *it does not work*!

    We all ran off a cliff at some point in the 90s and we're just now starting to look down.

  • Comment number 36.

    @33 at 20:50pm on 06 May 2011 - 'Sean_Tunctan' - Interesting. Are you talking about Donald Trump? Let's hope so - your irony is hilarious.

  • Comment number 37.

    It is sad that politicians and some journalists, although not necessarily Flanders, fall for the idea that some assets should always fall in price, such as food and oil while other assets should always rise in price, such as property or pension funds.

    It really is rather childish as of course one man's asset price rise is another man’s asset price fall and so falling commodity prices is just as bad news for those who are long (producers, sellers etc.) as it is good news for those that are short (consumers, buyers).

    All assets are subject to market forces and trying to rig markets to push some assets up while others are pushed down is a fruitless long-term exercise that King Canute would recognise easily.

  • Comment number 38.

    its just the usual seasonal adjustment. the oligarch 'tax' has been collected not they taking profits till the next 'tax' in the autumn.

  • Comment number 39.

    You know the world has gone mad when I read the link to this article "fall in commodity prices may not be a bad thing".
    Of course it is not a bad thing, it is a good thing!!
    It is no wonder the banks are bust when financial 'experts' see falling prices as a bad thing!!

    Unbelievable!

  • Comment number 40.

    People only have so much money to spend, no point having a product that no one can afford, capitalism at it's best methinks..

  • Comment number 41.

    I heard the printer is down.
    The engineer should have it fixed by Friday so they can run it over the weekend to print enough money to restore the prices.

  • Comment number 42.

    39. At 03:57am 7th May 2011, esbo wrote:
    "...It is no wonder the banks are bust when financial 'experts' see falling prices as a bad thing!!..."
    +++++++++++++++++++++++++++++

    The problem is not what the prices actually are, to the many people who have bet large sums on them going one way or another...

  • Comment number 43.

    For an economics blog there should be explainations & debates about just why capitalism is prone to crises.

    The trouble is the Keynesian & neo-classical theories are inadequate.
    This is because they have no objective foundation for value (for money, for prices).
    Both are based upon the subjective marginal utility theory of value.

    For these professional economists the MU theory is better than the classical labour theory of value.
    But few of them have seemingly taken the time to read & understand Marx's solution to Ricardo's flawed labour theory of value.
    Marx connects labour to commodities to the market.
    Not only does this show where all profit comes from (the difference between the value created & sold by labour with the amount paid in wages), but is also enables a theory of crisis to be developed based upon exchange-value (aggregate prices) becoming out of line with (labour) value.

    Whilst this theory gives a good insight & explanation for crises, it is essentially qualitative.
    This is because it is extremely difficult in practice to measure 'socially necessary labour' value within the economic cycle.
    The law of value may be the mean point of economic cycle, but unproductive labour, rent, interest, equalisation of the rate profit, etc mean that the quantification of value separate from exchange-value within the cycle is near impossible.
    And today's economists want quantities.
    Even though Marx was very much a scientist ("question everything" he advised) he was intelligent enough to know that not everything could be quantified & that insight can come from qualitative explanation.

    Value is both objective & strangely immaterial.

  • Comment number 44.

    #22. DevilsAdvocate wrote:

    "1. John_from_Hendon wrote: ... Could it be that wages are the problem? "

    Nope... you have fallen for the bankers lies. House prices should be (by historical precedent) about three times earnings then ONLY reason they are not is that bankers found that they could trap borrowers into giving they all of their money!

  • Comment number 45.

    25. At 18:49pm 6th May 2011, Supersage64 wrote:


    There are quite a few critical events that are about to explode within the next two weeks. Hold on tight but feel free to gloat when the bankers start squealing :-)

    =================================

    But prepare to dip into your pocket to fund the next bail-out.

    The 'new normal' in case no ones noticed is that banks can walk on water and ordinary people will pick-up the tab.

  • Comment number 46.

    26. At 18:57pm 6th May 2011, Sasha Clarkson wrote:

    Breaking news from Der Spiegel - the smelly brown stuff is headed towards the fan!

    Greece Considers Exit from Euro Zone

    http://www.spiegel.de/international/europe/0,1518,761201,00.html

    What will THAT do to commodities?

    ==================================================

    Nothing.

    My holidays in Greece will be cheaper though.

    Also 'consider'. A good definition is 'to think carefully about, especially in order to make a decision; contemplate; reflect on'

    It is a given that all of the PIIGS have been weighing up their options.

    It is also a given that some of them will make the wrong call.

  • Comment number 47.

    It is a shame that so many econimic journalists have to be so sheep like with the use of this phrase "New Normal". For me it is almost as annoying as that other stupid phrase about "Green Shoots".
    When will economic commentators who use this phrase wake up to the fact that there is absolutely nothing normal about the current global economic situation. To begin with, there is a major structural shift taking place in the balance of economic power between the developed western economies and the Asian giants of China and India. This does not necessarily mean the absolute decline of the West, but it certainly represents a relative decline. This is of course a long-term shift.
    In the short term, there is nothing normal about the Fed, the ECB, the Bank of Japan injecting trillions of dollars, euros and yen into the global system. Governments always meddle in the economic markets at some level or another. But this level of intrusion is unprecedented. Therefore when Stephanie says: "But we're all learning that nothing about this global recovery can be taken for granted" I wonder why it has taken somebody of high intelligence to take so long to come to this conclusion. Of course you cannot take anything for granted in this global "recovery" Stephanie! If you took away the trillions pumped into the system by the US, Europe and Japan, then you would not even have a recovery. This is what makes it far from normal. Try calling it the "Abnormal Recovery", at least it would be a little more honest.

  • Comment number 48.

    Instability in markets.

    'Spain's Housing Minister Beatriz Corredor believes prices are now so low they are a bargain. She says the widely reported problems faced by many foreign buyers belong firmly in the past.

    "At the height of the biggest boom in 2008, we calculate that prices were 30% higher than they should have been," she says.'

    Sounds very familiar. But not a squeak at the time, just let the sheep rush over the cliff. This is very similar to the UK where it is quite clear that it was known property was overpriced yet not a word was spoken about it by those watching from above, or the banks playing the mortgage game to their short term gain. Not my job to comment guv, not my job. Well maybe not but this sort of market abuse just leads to a total lack of faith in market regulation, bearing in mind that nobody hooks themselves up to a 25 year structured debt if they believe the value will fluctuate wildly and leave no escape route. And if you think the market is rigged you dont play in it. You abuse your customer base at your peril, and there has been plenty of abuse. No I have not bought a place in Spain. Safe as houses, lifes a beach. Nope.

  • Comment number 49.

    Commodities: 'epic rout' or the new normal?
    Commodities epic route is nowhere near normal.
    Ben Bernanke, in releasing QE2, caused commodity prices to rise world-wide while devaluing the American dollar so that American products could do otherwise than sit on the shelves gathering dust.
    The vehicle, QE2, has been felt world-wide, but nevertheless Ben Bernanke has found it useful. The world did not.
    You can't measure health of economy or product performance by the price of oil; this is only one factor. The real factors are food prices, other commodity prices.
    The economic statistics have been showing weakness in the US & European markets.
    We should be returning to valid capitalism which includes supply and demand = price on the market, but we are not (and personally, I don't think we will in the immediate future). Too much hanky-panky is affecting the supply; too much hanky-panky is affecting the demand. For gracious' sakes, we don't really know the capital position of anything, including oil.
    Inflation will come regardless of the the price of oil - which is only one factor.
    Whether Bernanke is happy or not will be revealed; he will either resist QE3 and raise interest rates to avoid inflation; or he will let loose QE3 and maintain next-to-nothing interest rates.
    By the way, I see absolutely NO true recovery in the United States; I mean none!
    By signalling no plans for QE3, Ben Bernanke has made something clear, so clear that I can't see it. Can you?
    It could be something more like if CDS/derivatives comes under stern regulation, if huge fines are levied, the American investment banks had better not be locked into any monetary fiscal policy that constrains us and hinders the cover-up.
    In the current circumstances, the past few days of commodity market mayhem may actually be what "normalisation" looks like in a very abnormal, non supply-and-demand, non firewalled world where investigations are starting to abound = mayhem.
    You have a very penetrating point with this statement: "Some have drawn comparisons with the spectacular fall in commodity prices in the early summer of 2008 after an equally dramatic run-up. This played an important role in the Lehmans meltdown a few months later..." I can almost feel it in my bones; something huge comes this way, and it's not pretty.

  • Comment number 50.

    Sounds that nations that got ahead with socalled "green technologies" are the winners as this implicated to be independent from oil especially in the cars industry.
    It in the past it seemed "green" technologies have been laughed at, this risks of nuclear power got more evident.
    Crashes with air planes or terroristic attacks on nuclear plants are no longer unimportant risks.
    Nuclear power is no longer wanted in Germany, pushing other energetic solutions ahead. These developed solutions are ahead of others, good for exports. This sells.
    UK economy did rely on the financial market, the Republic of Ireland, once hailed as Celtic tiger economy, have been revealed as unsubstantial or even bancrupt.
    Green technologies make money, the demand increased after the Japanese disaster.

  • Comment number 51.

    #50 new_germany,

    What has the relevance of German nuclear reluctance got to do with the commercial viability of 'green technologies'? The major developments in 'green technology' appear to be led by countries other than Germany or the UK for that matter.

    Perhaps you would also like to consider the increasing reliance upon Russian gas that Germany is using to fill their power needs. Strategically this is dangerous and is far from being a 'green' solution.

  • Comment number 52.

    There has always been 'instability' in markets ... it depends on which trader sneezes first.

    As for Greece and the Euro news that broke today. Go for it people get your sovereign currency back and return to independence and what you do best. I would also suggest that Spain and Portugal do the same. Everything was ticking over just fine until the Euro was illegally imposed.

  • Comment number 53.

    #43, duvinrouge,

    You make some very interesting points. Whilst I am not a fan of Marxist theory (probably because it becomes almost impossible to disasociate it from his socio/political thoughts) you points about value, social capital and quantification have great significance for our present situation.

    Perhaps the easiest start-point lies with social capital. By that I do not mean merely 'hard' infra-structure investments but also the value of social provisions (benefits and pensions). We have absolutely no idea of the value of these investments, we are merely swamped with notions of the costs. Hence, in any turn-down in the economy we are sold the notion that they should be cut or sold-off. You only have to look at Condem policy here in the UK and the requirements of the bail-outs for Greece and Ireland (and I presume Portugal). Nobody appears to try and put a figure on the true loss of value for the economy in so doing. Instead we are told that the private sector will be more efficient - but increating what we are never told!

    To my mind we need to dump ALL of the economic theories. We need to develop a true understanding of the relationship between Wealth and Value and start developing theories from there.

    Quantification is the bane of life in general. We are drowning in a sea of data. However, we appear to understand less and less what all these figures actually mean - you only have to see the range of opinion above to see that!

  • Comment number 54.

    53 FDD, I couldn't agree more with your post. Politicians and economic commentators and unfortunately providers of capital since WW2 have become increasingly obsessed with short term data trends or supposed trends. This has stiffled our investment in what we should have been focussing on in the past sixty years, namely new energy sources and technologies to harness and make use of them.

    There is a story every week about the pound up against the dollar and then vice versa a week later. The same is true for so called economic pointers like employment and the most misused statistics of them all GDP and inflation. The 24 hour thirst for news even if there really isn't any has exacerbated our short term fous and preoccupation with fickle public opinion. Where are the much needed leaders in politics and industry who are sorely needed to stand up and say gonads to the short term figures this is what we're doing for the long term so shut up, get on with doing the best in your own job, and let us get on with doing ours.

  • Comment number 55.

    49. At 12:55pm 7th May 2011, BluesBerry wrote:

    I can almost feel it in my bones; something huge comes this way, and it's not pretty.

    ...............

    Too true. I have posts from months back saying something major will happen in the US in June. Since then we have had the perfect storm of happy news of a Royal Wedding here and the US nailing their most wanted man. It seems to good to be true and appears to be the calm before the storm.

    The Americans provide all the ingredients for conspiracy theories and their media handling of the OBL killing has played right into conspiracy theorists hands.

    No pictures of OBL, apparently too grisly but pictures of the other shot Muslims have been released,which are just as likely to inflame radical Muslims.

    No video of the raid, despite media reports Obama watched OBL shot live, the Pentagon now admit all video feeds suffered a 25 minute blackout so no option to release a few seconds of video before he was shot.

    Admitting the initial report was 'false' that he was armed and hid behind his wife. This mix up was due to the fog of war...hard to believe the fog of war story when he was unarmed and the only ones shooting were the Navy Seals.

    No body. Dumped in the Ocean within hours because they do not want his grave becoming a shrine. I don't understand that..surely the best way of keeping tabs on Al Qaeda would be to have a place on this planet that the US can point their satellite surveillance at to track anyone who visits.

    Shot dead instead of capturing what they now admit was an unarmed man, passing up the opportunity to gain the best intelligence they could ever have into Al Qaeda.

    And today, to try and convince the huge swell of doubters (some mainstream media included) they release videos that do not place him in the compound, a video without audio which the US say is about them, and a video of him watching himself on TV with a grey beard when the other video clearly shows a black beard.

    Now I know one thing for certain, OBL is dead so the conspiracy he is still alive is ridiculous. The US is not that stupid to hand Bin Laden the opportunity to release a video of himself holding up the New York Times stating he was dead.

    That leaves the option that lots of people have reported and Benazir Bhutto stated to David Frost on Sky TV before she was assassinated, that Bin Laden died years ago and the US were keeping him 'alive' to keep the war on terror alive. much like the fake WMD story to go into Iraq.

    So what does this have to do with economics and why did the US release this now. Well everyone knows the US debt is spiraling out of control and their largest expenditure is war, which is highly profitable for the elite but drains the pockets of the taxpaying public. So what better way to have a reason to pull out of Afghanistan, increase the Presidents popularity and save the US economy.

    But it could also be, this is the good news to soften up the population for the really bad news that is coming down the road. What that is, is anyones guess but you can bet your commodity speculation profits it will be bad news for everyone except the plutocracy.

  • Comment number 56.

    #20 & 21 armagediontimes

    Great posts as usual.

    I wish you would post more often!

  • Comment number 57.

    Commodities can be manipulated to make money, city traders can drive up prices by saying a commodity is going scarce and investors rush in to capitalize on the short supply.
    They can create fear by making a few choice statements, the reality is this they have deliberately driven prices up to boost flagging corporate profits by making us all pay more for things. So even in a slump situation they can gouge our pockets, prime example is gasoline, we all need fuel, food, energy to heat our homes so they drive these commodities up. Problem is the glut of oil in storage confirms manufacturing has not picked up at all. None of the western countries can afford to inject a further QE pro-gramme its just compounding the problem. If people carry on with this purchasing strike you will see companies dumping labor in huge numbers.

  • Comment number 58.

    I see several mentions amongst these comments of the falsehood of finite resources, that is absolute nonsense -we have infinite resources that technology and science can and will be bringing to our awareness at an ever increasing paced rate of change.

    Much chaos is going to continue throughout this year into 2012 and you should be thankful for any of the brief spells and periods that any false sense of normalisation gives you.

  • Comment number 59.

    To co. 51 foredeckdave:
    Germany decides to go out of nuclear power in a few years, so the demand for energy has to be filled up by other energy solutions.
    I don´t understand what is "dangerous" about Russian gas, inparticular "strategically". Moreover, the Russian gas will be only about a quarter of the energetical demand. There is therefore no dependence on Russian gas.
    In general, gas produces by far a less carbon footprint than oil does, so there are ecological aspects that speak for gas.
    You apparently don´t care about the risks of nuclear power, it causes as a product radiating rubbish.
    I do see that the US causes a lot of emissions responsible for climate change, from the 1950 on there have been problems to run the nuclear power plants of Sellafield properly, who does care where to store all that high radiating garbage.
    So what about ecology in the US and the UK? Just on about business and big banks?
    The costs for energy will increase, no doubt, in a long-term perspective, the US and the UK could be a bit more open for solutions that consider ecological aspects.
    The ecological standards in the US and UK leave much room to be improved in comparison to other European countries.

  • Comment number 60.

    #59 new_germany. You may not see any strategic issues with Russian gas, but that is not a view shared by the German government. Hence they have just stumped up $11 billion to build a direct sub sea connection to Russia (Vyborg to Greifswald). Ask yourself whether it is cheaper to build transmission lines over land or under the sea. Ask whether Poland and the Ukraine see any issues with this deal, and if so what their concerns could possibly be.

  • Comment number 61.

    I know Poland has been against the gas pipeline, but I do also know the German government offered Poland to take part in this pipeline. It seems there are old irrational political ties said to be behind this deal which is absolute nonsense. In this time there are often political overreactions caused by a more nationalist Polish party that are recently not part of the Polish government.
    This is only about economy and nothing else. -
    In the UK a half of the drinking water consumption is wasted because of leaks in the underground water lines system. The similar situation can be encountered in Spain. This is not the case in Germany.
    During the last easter weekend there has been smog above London, the air is thick and the BBC reported the mortality because of air pollution is high.
    These striking examples stand for the fact that environmental issues have not been dealt with appropiatly. Just national economic interests are in the focus in the UK.

  • Comment number 62.

    #59 new_germany,

    Thanks for your further thoughts. To my mind, you are failing to see the real strategic issues with Russian gas. All you have to do is look at the experience of the Russian use of the gas key as both a political and economic tool. Just think about the effects of Russia turning off the supply at the coldest part of the Winter. Don't say the Russians are contracted not to do so.

    So now you want to talk about carbon footprints. Please tell me just how Geramny is any better placed to reduce their oil-fuelled polution. I see no signs that Germany is making any significant reuction is their demand for oil. They are not alone as the same holds true for all of the European countries.

    As for nuclear fuel. Yes it does have some major disadvantages. However, as a base load provider it is almost unmatched. The risk/cost has to be viewed objectively and not distorted by the dislike of the eco-warriors. In strategic terms I cannot understand how we can simply ignore the major fuel source that we have under our own control - coal! To merely dismiss it as a dirty fuel is illogical. The technologies for dealing with the emissions can be further developed if there is the right level of political will put behind it. BTW, the same option is still open for Germany too - just in case you think I'm being a Little-Englander.

    Can you please be more specific regarding your assertion that the UK "leave much room to be improved in comparison to other European countries." Which countries and in what way?

  • Comment number 63.

    Co. 62:
    Germany is the country in the world that makes most use of solar energy, closely connected with solar business. It is still the number one worldwide in producing solar energy.
    In 2004, Germany produced environmental as well as goods to protect the climate for 55 billion EUR. There is a high demand for these goods at international markets, for air pollution cleaners, wind and solar energy.
    Nearly 20% of all environmental technique on the wolrd market is being held by German companies. Germany is therefore ahead of the US and Japan.
    Germany introduced by law a scheme for new and old buildings to reduce the energy consumption by building specific walls and windows.
    Germany is futhermore the country in Europe with the most efficient recycling systems. There is no other country that manages to recycle more than Germany.
    Alongside other points I have mentioned in co. nr. 61 the differences to the UK are evident.

  • Comment number 64.

    #61 new_germany. Yeah I guess irrationality is the order of the day, although how much of that emanates from Poland is not clear.

    Why would Poland want to participate in a project specifically designed to benefit only Germany and Russia? Why would Poland want to meet any part of the excess costs in building sub sea pipelines compared to overland pipelines. Why would Germany want to meet these excess costs absent a calculation that the benefits of excluding Poland and the Ukraine more than offsets these costs?

    Sure the UK is a basket case but that has nothing to do with the de facto German sequestration of Russian gas.

  • Comment number 65.

    The Polish minister for foreign affairs compared the pipeline with the Hitler-Stalin-treaty in 2006.
    In my opinion this is an irrational comparison. The Chancellor of Germany is not a dictator. This is offensive.
    Sorry, off the point and no sense.
    Another theme that should be discussed under WWII.
    A time for Poland to recognize that Germany is no longer a dictatorship.

    The companies claim the costs are cheaper because there are no costs for transit to pay to Poland. There is a freedom of treaty in economics. The pipeline is on legal ground and stands not against international law.

    Maybe Poland has success in going to international courts. I doubt they will win.

  • Comment number 66.

    @64 on 08 May 2011 - 13:11pm - 'armagediontimes'. Fascinating comment that almost fooled silly old me, as a UK citizen living in a UK 'basket case' as you say.

    You omitted to mention numerous other EU countries who have yet, undeclared energy sources to the public, but certain companies are quietly buying. Germany and Russia de facto sequestration - 'armagediontimes' - you are so out of date. Energy companies across the world are so far ahead - it would make your brain spin if you had one?

  • Comment number 67.

    I am as suspicious of anyone who talks of recovery. What recovery?

    There is a lot of hope, wishful thinking and speculation in cheap money. Looks like yet a further bubble to me.

    When is someone going to get a grip?

  • Comment number 68.

    Not the most stimulating sublect for a blog perhaps, but at least it's not been "twitterised" yet, and more to the point is...open.

    Still, the recent commodities bubble, now burst along with that of property, increasingly reveals the policies of right-wing governments (temporary and emergency measures excepted) for what they usually are in the long term: deflationary, unsurprisingly.





  • Comment number 69.

    #63 new_germany,

    Now you are moving even further away from your original points!

    There is nowhere in Europe that produces solar energy on a truly economic basis. if the subsidy is removed from German production then the 'industry' becomes a fraud as its efficiency is far below that of its competitiors and its costs are higher. The fact that Germany choses to subsidise its production does not make it truly viable. You also have to consider the environmental effects of the production of solar panels.

    As for your claims regarding "20% of all environmental technique on the wolrd market is being held by German companies. " a source for this claim would be appreciated.

    Germany does have a longer history of recycling. It may well achieve a higher percentage of waste recycling than other EU countries. However, here again we have to look at the cost of all of this effort. Again if the subsidy is removed I believe that you will find that efficiency in volume terms is not matched with cost-effectiveness.

    When you wish to make environmental arguments on an economic blog then you really must be far more specific about the nature of your claims.

  • Comment number 70.

    As I have commented on this blog before any type of financial transaction or activity where there is a time difference between entering (i.e buying) and exiting (selling) is to a greater or lesser extent speculative depending upon the exit price uncertainty and the risk to the money that has been subscribed. When economies and markets are changing relatively slowly this is not much of a problem and the speculations help the economy by providing capital for capital intensive activities (ie mining, oil exploration and extraction) and some long term price certainty for those that depend on these commodoties.

    I think what were are seeing at present is a situation where almost everything is speculative because almost everything is uncertain. Volatility results because of the herd instinct of investors and the very rapid changes that can happen when everyone chooses to change of direction at the same time - just like a flock of starlings on an autumn evening.

    I dont think the speculators are causing the inherent turbulence - although in some cases they are certainly magnifying the instability. Equally I dont believe speculative activity can drive up price in the medium term although of course it can in the short term.

    I think that whats actually going on is that the currents and instability of the financial tsunami that broke are still very much swirling about - and contain considerable remaining unspent energy. Some actions taken by governments have magnified these effects and some to the effects and 'stored' energy has yet to be released and importantly no-one is able to predict with any degree of certainty what might happen next.

    Predicting what is going on or offer good policy solutions is hard enough to do when economic changes are gradual and almost impossible when we have the level of turbulence that exists at present.

    So whilst I would agree with ms Nolan that the end of the commodities bull market is probably a good thing - we will only know that we are moving towards more manageable economic times when the volatility of these markets begins to reduce, because that will be an indication that things are once more moving slowly and predictably enough for the speculations that anyone who is engaged in a financial transaction must do - move closer to criteria required of investments (ie lower risk and a more certain (lower) return).

    In the meantime do not believe anyone who tells you that they understand what is going on and that this or that policy will solve it - except at a helicopter level so high that even mo

  • Comment number 71.

    Nr. 69
    The numbers for "environmental technologies" (google this term in German at the following site) can easily found on government online by google, I found it in German: www.bundesregierung.de - official website of the German government.
    I therefore think my claims can easily be proofed, so it is not necessary for me that I do have to be "more specific about the nature of my claims."

  • Comment number 72.

    #71 new-germany

    Sorry to be pedantic. Alas the site you quote has no clear definition of exactly what it means by environmental technologies and therefore the claim is still ambiguous. After all the production of wheelie bins would be included as an environmental technology. But then you can never trust anything a politician says.

  • Comment number 73.

    58 David S Perkins,

    I fear you make the same mistake as many in thinking energy and commodity shortage issues can be solved by technology. Energy can only make for better utilisation by technology so that we require less to achieve a specific task. However, when it comes to doing work it takes a given amount of energy to perform this task and we are well behind the curve in finding suitable energy substitutes and providing the infra structure required for such substitutes in time for the reduction of oil supplies. Coupled with the perfect storm of aspirational population growth in the BRIC's and OPEC the evidence is clear for any to see that commodity prices will escalate drastically this decade.

    Please provide some evidence and data for your questioning and dismissal of the fact that resources are finite.

  • Comment number 74.

    FDD and New_Germany,

    Of course it may well be that solar energy is currently not economic compared to coal and nuclear but when and if due to scarce resources, climate change mitigation costs, and issues of decommisioning costs and accidents and terrorist incidents the price of coal and nuclear generation go up then the equation of cost effectiveness changes. With all fossil fuels being finite and having a carbon footprint, and nuclear also being finite and having major environmental radioactive poisoning issues we do have to employ as much clean renewable energy generation technology as possible and invest in research to raise it's efficiency and lower it's cost.
    It is actually a fact FDD that Germany is the leading worldwide manufacturer of solar panels in quality and is number two in quantity behind China.

    Personally I can't understand why we are not making more use of geothermal energy for power and heating. That is effectively infinite and requires much less maintenance than wind turbines and solar installations. Upfront capital cost is the Achilles heal and whilst we are wedded to short term returns it will continue to be over-looked.

  • Comment number 75.

    72. At 21:19pm 8th May 2011, foredeckdave wrote:

    #71 new-germany

    Sorry to be pedantic. Alas the site you quote has no clear definition of exactly what it means by environmental technologies and therefore the claim is still ambiguous. After all the production of wheelie bins would be included as an environmental technology. But then you can never trust anything a politician says.

    ==========================================================

    If I may be allowed to join this spat.

    1. Germany has a bigger technology sector, a higher R&D spend, higher levels of investment. Therefore a basis for 'green iniatives'.

    2. Germany has a virile car industry plus components sector; therefore well placed to incorporate 'green technology'. In addition they have no choice as an EU directive demands substantially lower emissions by 2020.

    3. Green politicians are more prominent in government in Germany and green policies are promoted with greater vigour.

    4. As the leading high technology exporter the pressure exists on Germany to develop green solutions. Necessity is the mother of invention.

    The trouble with the UK it entering another fire fighting phase (severe deficit reduction, etc) where nice to have policies (green) get kicked into the long grass. It has always been so.

    To be more succint green iniatives are predicated in part by economic success.

    The UK is no slouch when it comes to scientific ideas but unfortunately they lose the plot when it comes to investment and planning. The UK car industry was not supported; had it been the UK would still have a components sector. No joined up thinking.

    The world market in green technology is worth some Euro 1.7 trillion and expected to grow three-fold by 2020 and Germany's market share in 'green' power generation is some 30%, as an example.

    Finally a quote from McKinsey.."In energy-saving fixes for cars with traditional engines, such as lightweight materials and stop-start brakes, “Germany is worldwide absolutely in front”".

    Not sure whether there is such a thing as 'green banking'. Perhaps that is where the UK's future lies : )


  • Comment number 76.

  • Comment number 77.

    #6>>If high prices cause another recession (particualrly in China) then there may be a temporary (six month max) downward movement in oil price but on average it will continue to rise until we are financially forced to substantially alter our lifestyle and reduce our population to live with less oil and less energy and consumption of valueable commodities in general.

    The Chinese problem is not one of recession but rather the opposite, that of imported inflation !! They have hinted (they never announce anything unless it's a done deal or near done deal) that the Yuan will rise more rapidly that before in order to combat inflation. Considering that the Yuan had risen more than 30% against the US$ since 2005, any rapid rise in the Yuan, coupled with their insatiable appetite for oil and the price of oil (in US$) will rocket past $150/barrel !! However, this does not mean that the price of oil will rise that rapidly; it just means the US $ will fall even as the oil price rises. Those who hang on to the US$s coat-tail will suffer.

    As for the reduction in consumption, this is a mantra best preached to the Western nations because they are the greatest consumers of resources simply for consumption's sake !! This attitude of "a right to consume regardless" must be broken or the consequences will be very painful and may even be deadly !!

    Meanwhile, back to topic, I believe that the fall(s) were probably triggered by the belief that the US has reached the end of their "spend, spend" road and can spend no more unless they are *allowed* to borrow from somewhere. All that hoopla about bin Laden sounds more and more like American propaganda to divert the world's attention from America's woes than actual fact !! Still, it had succeeded in it's aim of pumping more optimism into the speculators and they brought the prices back up !! Notice that the price of gold, the one major reliable indicator, did *NOT* fall !!

  • Comment number 78.

    I wish Stephanie would try to understand the Resource Based Economy proposed by the Zeitgeist movement....she wouldn't be interested in monetary system economics any more if she did. The ONLY hope there is for the future of us all, is a Resource Based Economy. Don't fool yourself that things will eventually 'get better' if the monetary system continues. Take a look around you at what's happening in the world..the problems around the world are just going to keep on building up until we finally enter into world war three and there is no way of avoiding it if people keep on supporting this monetary system. Everybody needs to wake up and look at the bigger picture. The Resource Based Economy offers the only way out of a terrible future.

  • Comment number 79.

    #75/6 the coming storm,

    Let's be very clear at the outset that the debate with new_germany is not a comparative one between the UK and Germany. If that is your desire then you can continue such an argument on your own.

    Firstly, I was responding to the strategic implications that could ensue from the decision to move out of nuclear production and to increase the level of import of gas from Russia. That new_germany appears unable to understand the strategic problems associated with such a move is his/her problem.

    Secondly, I was responding to his/her comments regarding environmental and in particular recycling comments. In those comments i took pains to make clear that if you removed subsidy then the efficiency becomes debateable. As for the particular concentration upon solar power then I will leave the debate upon the green credentials of the production of solar panels to those with more knowledge.

    Thirdly, when I asked for confirmation of fact, I was refered to a site that was ambiguous in its definition. Given the source quoted I was attempting to kindly point out that you could not always trust political statements.

  • Comment number 80.

    #74 Sage_of_Cromerarrh,

    I did not deny the level of German solar production. My argument is that it is not a viable production form without very high levels of subsidy.

    There will always be strong arguments both for and against nuclear production. However, we are being very foolish to turn our backs upon coal. The last estimates that I saw suggested that we had nearly 70 years supply under our feet. Now i accept that coal does have problems in terms of pollution but with a greater degree of will I feel sure that they can be seriously reduced even if they cannot be completely overcome. If you don't go for the nuclear option then coal does offer a viable base load option. Sure, it is a fossil fuel and therefore not renewable but then neither is geo-thermal. But even if coal only lasts 50 years then it does give us a window of opportunity in which we can develop other options.

  • Comment number 81.

    FDD, Geothermal is renewable in that it will last for millions indeed billions of years. Coal should definitely play a part in our short term future but will be expensive due to the need to store the carbon and scrub the sulphur dioxide out of the emissions from it. Renewables such as wind, solar, tidal need to be developed and invested in for improvement. The whole point of this particular string for me is to emphasise the continued short term outlook that we have developed in the UK. Economic reporters and politicians are fatally wedded to the 24/7 need to make news headlines, hence the it's up this week down the next conversations.
    The main advantage that Germany has economically over the UK appears to me to be that they do not think so short-term and plan and invest in a long term strategy. When you get this right the short term takes care of itself.

  • Comment number 82.

    It may be that the commodity price instability is exactly what you say nut in the UK isn't the latest news about PPI claims being granted going to have a much more dramatic local effect as something like £5bn is likely to be transferred from banks into the hands of individuals. This will tighten money for the banks, but potentially increase spending. Both might suggest there will be upward pressure on interest rates, to inhibit spending (restrain inflation) & encourage saving of the money refunded. Surely this could be a major destabilizing event in the UK over the next few months equal to the effects of commodity price changes.

  • Comment number 83.

    82. At 08:20am 9th May 2011, malcolmmcgr wrote:

    "...Surely this could be a major destabilizing event in the UK over the next few months equal to the effects of commodity price changes..."

    +++++++++++++++++++++++++++++++++++++

    What's your point? That the victory for justice re PPI is Pyrrhic? That it would have been better for the law to have crumpled?

    I think you greatly exaggerate in any case, indeed if there's a case at all. Perhaps it's a case of grapes being those nasty, sour little things...

  • Comment number 84.

    You get me wrong - I think the PPI victory is great - but it doesn't mean that there isn't a downside - if you think that's sour grapes then so be it.

  • Comment number 85.

    #81 SoC,

    Now I'll freely admit that I'm no geologist but from what I've heared and read the heat contained within rocks in the UK is limited both in geographically and in quantity. If you believe that we have to take a wider perspective a la the covering the Sahara with solar panels then I think that you are ignoring the political downside.

    I agree with you that alternative technoloigies need to be invested in and developed. However, in the mid term we need to be able to satisfy our power needs and coal and/or nuclear appear to be the only technogies presently on offer.

  • Comment number 86.

    84.

    Thanks for the clarification: sorry I suggested as I did.

  • Comment number 87.

    The hope is that the past few days show the global economy moving further away from crisis and the emergency policies that it produced - NOT a premonition of another downward lurch. But we're all learning that nothing about this global recovery can be taken for granted.

    ...........
    Lots of rose tinted googles. Gold is back above $1500 a troy oz again. The constant money printing by the US is yet to stop, and considering the very soft US GDP data many believe that QE3 is only around the corner. Of course if you strip out the effect that the QE is having in inflating the GDP figures it becomes clear that the US is nothing more than a basket case standing on the edge of a cliff. What we have in the US is nothing more than a fake recovery caused by printing money, and whenever that has been tried in the past, it never works, think 1920s Germany.

  • Comment number 88.

    79. At 00:35am 9th May 2011, foredeckdave wrote:
    #75/6 the coming storm,

    In those comments i took pains to make clear that if you removed subsidy then the efficiency becomes debateable.

    ==========================================================

    Depends much on how you define 'efficiency' in the context of the 'environment'. I would tend to keep accountants away from the argument.

    Surely one of the best measures is net reduction in fossil based energy. As an example, if production and transportation of solar panels results in a net increase in fossil fuel that would be a negative, but then again you would need to look at time-scale - production/transporation are one off hits but the solar panel might be in use for years.

    Look at energy inputs / outputs - not money.

    It would appear that German and other EU countries use of subsidy is a lot more creative and judicious than that of the UK, but that illustrates the need for strategy and planning.

    I accept your other points, though I did supply an interesting link re China / Germany on green technology.

    It is a given, I would have thought, that the two biggest exporters would be heavily into looking at evolving and this dictates attention to green technology.

    I own two Leica cameras, one made in 1938 (and a work of art) and handed down and the other bought recently. The more recent one is made under licence by Panasonic but the design and most importantly the lense are still German. Leica today are a very profitable company. The point here is that this illustrates the ability to evolve and adapt. What a shame all the great UK engineering companies of yester-year failed to do so. What went wrong.

  • Comment number 89.

    81. At 07:30am 9th May 2011, Sage_of_Cromerarrh wrote:
    FDD, Geothermal is renewable in that it will last for millions indeed billions of years. Coal should definitely play a part in our short term future but will be expensive due to the need to store the carbon and scrub the sulphur dioxide out of the emissions from it. Renewables such as wind, solar, tidal need to be developed and invested in for improvement. The whole point of this particular string for me is to emphasise the continued short term outlook that we have developed in the UK. Economic reporters and politicians are fatally wedded to the 24/7 need to make news headlines, hence the it's up this week down the next conversations.
    The main advantage that Germany has economically over the UK appears to me to be that they do not think so short-term and plan and invest in a long term strategy. When you get this right the short term takes care of itself.

    ===================

    Excellent summing up.

    But why is the UK so short termist ?

    A lot to do with the political framework. Coalitions prevent pendulum politics. German politics is boring (politics should be boring). They decided their strategy in the early 1950's and have stuck to it - this does not mean it doesn't evolve, it does.

    The modern world is far too complicated to be left to the markets. You need planning, rules, subsidies. Properly done it does not stifle enterprise or over-protect failing industries.

  • Comment number 90.

    #89 The Coming Storm,

    "The point here is that this illustrates the ability to evolve and adapt. What a shame all the great UK engineering companies of yester-year failed to do so. What went wrong."

    The answer to that question is both long and complicated - far too long and too complicated for this article. However whilst this response does not do justice to the topic I feel that it has a lot to do with the Empire, the Industrial Revolution and what we may in future refer to as the Social Revolution.

    Empire because like all empires it was doomed to ultimate collapse. I believe that thereare parallels that can be drawn between Britain's present situation and that of say Rome, Greece and Turkey (Ottoman). The toll and the aftermath of Empire is both high and long. It is arguable that whilst the US did not have a geographical empire part of its problems stem from the psycho;ogical exhaustion of being the Number One.

    The Industrial Revolution. As trail-blazzers for industrialisation we created the template for others to follow. Their cost of entry to an industrialised economy was not as high and they could learn from our mistakes whereas we were left with the consequences.

    The Social revolution. Whilst other countries have been able to develop a truer version of meritocracy we have found it too hard to shake-off the shackles of our social class ridden history. Perhaps such considerations may also dog India in its efforts to become a major economic power.

    All of the above I believe has helped constrain our actions and thinking to such a degree that it has become almost impossible for the UK to generate the necessary common will to radically change matters.

  • Comment number 91.

    Interestingly about a month ago Chris Martenson wrote an article entitled "the Coming Rout" where he predicted that the end of QE2 would, in all probability, cause the prices of stocks, shares and commodities to tank. looks like we have reached that point. He did also comment that he felt gold would hold up, as it tends to be a safe haven in troubled times, and so far that seems to be the case.

  • Comment number 92.

    90. At 15:52pm 9th May 2011, foredeckdave wrote:
    #89 The Coming Storm,

    "The point here is that this illustrates the ability to evolve and adapt. What a shame all the great UK engineering companies of yester-year failed to do so. What went wrong."

    The answer to that question is both long and complicated - far too long and too complicated for this article.

    =========================================================

    Excellent summary as to how we got to where we are. I agree with all your points especially the social angle.

    I would add another factor and that is that the UK's decline is almost imperceptible to most ( a true slow motion car crash) and therefore the dynamic for re-birth is lacking. No Phoenix without the Ashes.

  • Comment number 93.

    So, Market Makers making Markets.

    Where do the Buyers and Sellers come into to it ?

    Indeed are Buyers and Sellers necessary in todays world of high finance.

    I wonder who's selling something they don't own today ?

  • Comment number 94.

    13: More and better Regulation. Stronger Contract Law. Limits on so called trading of contracts etc.
    Lots could be done.
    Don't buy their Shares for a start.
    Oh wait, your Pension Fund probably has.
    Big Payoffs all round (I mean Bonuses !)

 

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