Make no mistake, the ongoing purge in Saudi Arabia is not about corruption. If you believe that, well, leave your tooth under a pillow for the tooth fairy.The purge is about one thing, and one thing only - power. Specifically, for the power of Mohammed bin Salman. The only questions to be answered is why the power grab, and why now?
The reason why: Saudi Arabia is about to go to war with Iran. There is no doubt that Salman, or MBS as he is known, has been conducting an aggressive covert war against Iran for years now. And, when I say Iran, I mean the Shiite. It's a blood feud going back thousands of years, and both sides take it very seriously. However, until now, Saudi Arabia and Iran have been able to avoid direct war with each other by sponsoring mini-wars with client states - like Lebanon, Syria, and the like. Why is that changing now? The Saudis are losing.
Saudi Arabia's military intervention in tiny Yemen, along with its (and MBS's) staunch ally the United Arab Emirates (U.A.E.) has become a disaster. Not only have the Saudis failed to defeat the Houthis (Shia), but they have lost immense prestige and influence in the Arab world and elsewhere for the failure. What they have achieved is the starvation of hundreds of thousands in Yemen, vast swaps of destruction in Yemen cities, and a massive cholera epidemic affecting hundreds of thousands of Yemen's people. What they have not achieved is any decisive, or otherwise, defeat of the Houthis. Rather than withdraw from this situation, Saudi Arabia just implemented a land, air, sea blockade of the tiny country. By any standard, Saudi Arabia's action in Yemen have been not just a war crime, but a crime against humanity. Yet, you would never hear a peep about it in the western press, or in western houses of parliament.
In addition to the massive failure in Yemen, Saudi Arabia's covert war in Syria has literally blown up in its face. Depending on which organization you believe, hundreds of thousands have been killed and maimed in Syria during the last four or so years, but the result has been abstract failure. While much of Syria lays in ruins, particularly the larger cities outside Damascus, the Syrian government itself was saved by direct Russian military intervention. Saudi Arabia attempted to bribe the Russian government into staying out of Syria by promising to hold terrorists back from attacking the Sochi Olympics - at least that is what was presented in the Russian media. Having failed to convince Russia that way, the Saudis decided to conduct an oil war against Russia. Specifically, they flooded the oil market with product and then refused to freeze or cut back production bringing the price down as low as $30 US a barrel in an all-out effort to destroy Russia's resource based economy. It failed. Instead of crippling Russia financially, the Saudis blew their own legs off, consolidated the Russia-China oil relationship, and severely discredited themselves among oil producing nations.
The common theme to all of MBS's covert and overt actions has been failure. It has become quite obvious that the US and Israel, both the powers behind MBS's moves, have lost patience with the Saudi's attempts to reverse Iranian influence in the Middle East. I say "reverse" because Iran has been present in Hezbollah (Lebanon), Syria, and Yemen for years. Therefore, it's quite obvious that MBS is not responding to any "new" Iranian aggression or threat, but rather simply taking on Iran as a regional actor. In other words, MBS is the aggressor. And by relation so is the US and Israel. There is no better evidence of that relationship than the recent meeting Jared Kushner, son-in-law of US President Trump and well connected member of the Jewish establishment in the US, with MBS just prior to the current purge within Saudi Arabia. In case that doesn't satisfy you, then please refer to Trump's own Twitter remarks where he states MBS "knows what he's doing".
In the nutshell, MBS, with the overt backing of the US and covert backing of Israel, took almost complete reigns over the Saudi state for the purpose of going to war with Iran. MBS's statement most recent statement that Saudi Arabia was in a "state of war" with Lebanon is just the first step. It also jives perfectly with Israel's recent bombings of Lebanon and Syria, and matches the Israeli government's position on Hezbollah to a tee. Unfortunately it smells of desperation. With the war all but lost in Syria, and quagmire in Yemen, MBS is left with one option only - go after Iran itself. There are likely a few ways such a war can play out.
Before the US invaded Iraq, a Sunni-controlled buffer existed between Saudi Arabia and Iran. As I've often said, the only real result of the US invasion of Iraq was the ability of the Iraqi people to elect their own Ayatolla. Now Iraq is dominated by Shia, and thus Iranian, influence. So, bottom-line is this, if Saudi Arabia wants to get at Iran they'll have to do it through Iraq. Iraq and Iran are now strong allies - they're fought together to liberate Iraq from ISIS, and they'll keep fighting together to do the same in Syria - namely against the Kurds. Not to put too fine a point on it, but within the last month or so MBS has made it clear a war with Iran won't be fought on Saudi soil - so there's a process of elimination there.
So if you want to know why MBS has managed to clear the decks of all distractions in Saudi, the answer is that he is going to war with Iran directly and wants complete control of the apparatus of state to do so. If you wonder why now, the answer is he intends to go to war very soon. He has the complete backing of the US, and has given his own green light to Israel taking on Hezbollah in Lebanon - likely simultaneously. No question all of this smells like "Plan B", but we can all see what has happened to "Plan A".
What is key in all of this to remember is what aims all this serves. The world-wide economy is in a state of stagnation - essentially. Central banks have failed to create any real inflationary pressures that might allow them to raise interest rates. Oil is similarly stuck in the post-Saudi oil warfare blues. My feeling is there is a perception among those up high that a massive war in the Middle East will cause inflation to skyrocket world-wide. Saudi would theoretically benefit from a huge price increase in oil - as would the US. Russia's southern border, visa-via an Iranian defeat, would be massively exposed which of course is a major win for the US. Which brings me to a final point-Saudi's partial privatization of its huge state owned oil firm. Does MBS really want to stir Saudi Arabia on a post-oil course and diversify its economy? Or, is he raising a war chest to fight a to-the-death war with Iran? My bet is the latter. A full on war with Iran will likely triple the price of oil, so the Saudis will still get their much loved money, but they need cash to fight a big war, and their failed oil war has left them near a recession. Is it any wonder Trump encouraged Saudi Arabia via Twitter to conduct that initial offering on the New York Stock Exchange - hours before the purges started?
Showing posts with label Oil. Show all posts
Showing posts with label Oil. Show all posts
Tuesday, November 7, 2017
Sunday, March 12, 2017
Syria is for Syrians
You could be excused for thinking the world has taken a madness pill, and jumped off the deep end. Whether it is the schizophrenic American political scene, the deep and divisive European internal political battles, the Middle East in turmoil, or the fact that the stock markets continue on as if nothing is happening, the place has lost the plot. Speaking of lost the plot, this post focuses on the almost unbelievable actions of foreign nations in Syria, and what may well come next.
Let's start with the rules. The Laws of Wars encompassed within the Convention of the Hague, 1907, specifically defines how a war amongst nations must be declared:
"Article 1
The Contracting Powers recognize that hostilities between themselves must not commence without previous and explicit warning, in the form either of reasoned declaration of war or of an ultimatum with conditional declaration of war."
The United States and Turkey signed this Convention. Ironically, Syria did not. Now Syria is the victim of hostilities perpetuated upon it by two countries who have solemnly sworn not to do so. All the rest flows from this. When the Syrian "uprising" began it was people on the streets - unarmed people. They didn't have small arms, artillery, tanks, or anti-aircraft weapons. Where did all that come from? They didn't have bank accounts with hundreds of millions of dollars to fund a 4 year long conventional war against their own government. Where did that come from? It came from the United States, Turkey and Saudi Arabia - that's where.
Having abandoned the very basic convention of declaring a war on Syria, there was no reason to believe that the rest of the war would be any different. No rules. No holds barred. The law of the jungle where might is right seeped into the country of Syria. Hundreds of thousands have been slaughtered in the name of ... regime change. That's really what it boils down to. The Russians and Iranians want to keep a strategic ally in the region, and the Americans, Turks and Saudis want them gone. Let's not disgrace the name of democracy and liberty by suggesting the war in Syria has a thing to do with those tenants of freedom.
So where are we going from here in Syria? The map below will tell you where we are now:
As you can see, the blue area in the top to middle part of this picture is the area of Northern Syria controlled by Turkey after it invaded with armed militia supporters. The yellow areas are controlled by essentially the Kurds (backed with armed Americans). The green areas are controlled by the Syrian, Russian, and Iranian forces. Several things come to mind. Firstly, the Kurds are quite divided in the territories they hold. To the west they hold large parts of northern Aleppo. To the east they hold the areas around Manbij. In between them the Turks hold the area around Al-Bab. What makes things tricky for the Kurds is they cannot unite their territories in the east and west without engaging Turkish forces, which would give Turkish President Erdogan the excuse he needs to go full in with large military forces. So, realistically, the Kurds have no hope of holding the area of Northern Aleppo.
They also have no realistic hope of holding their territories on the eastern bank of the Euphrates River centered on Manbij. As I write this, Syrian and Russian forces are making big advances shown as pink on the map. (see operational map below) They are pushing to and reaching the Euphrates River to the southern flank of the Kurds Manjib beach head. It is now only a matter of time before the Kurds will have to withdraw from the Manbij area to the eastern bank of the Euphrates River. Here their position is far more defensible from the Syrian army, and to a lesser extent the Turkish Army.
That makes the Euphrates River the new dividing line in the battle for Syria - the divide between the Kurds/Americans and everyone else. There is, however, a weak link in that line of defence - Deir al- Zour. This city and nearby airbase is controlled by the Syrian army, and is located to the south of Al- Raqqa (the ISIS self declared capital on the Euphrates. This map gives you a good idea of the area and the cities involved:
Deir al- Zour bridges the Euphrates and leaves any Kurdish partition of North Eastern Syria highly vulnerable. In fact, it makes such a complete partition almost impossible to defend. Currently, the Kurds and Americans are concentrating their forces on the battle to retake Al-Raqqa. They have it surrounded on three sides with its back to the Euphrates. The US has just deployed 2200 soldiers from the 82nd Airborne Division, and 1000 reservists to Kuwait in preparation for the final battle of Al-Raqqa. They have also deployed air mobile artillery, and the 400 troops that go with it, directly to the Al-Raqqa front. As of this morning the Americans and Kurds were within 50 km of the northern gates to Al-Raqqa. It may be a grind, but ISIS has no hope of winning that battle. Al-Raqqa will be laid to waste by American artillery and air strikes.
What comes then? Well, if the American and Kurdish intention is to create a Kurdish territory out of North eastern Syria, which this writer considers a foregone conclusion, then a battle for Dier-al-Zour will be next. It is a strategic must to seal a gaping hole in the Euphrates River defence concept. That will involve the Americans and Kurds attacking the Syrian and Russian military located there. A dangerous proposition indeed.
It has always been the case, since the ISIS advance was halted on the door steps of Bagdad, that the real danger of foreign powers throwing international law to the wind would play itself out once their common menace had been eliminated. We are almost at that point now. Mosul is essentially finished for ISIS. Al-Raqqa is surrounded. It's like the final weeks of Nazi Germany for ISIS right now. What unfolded after Nazi Germany fell was the iron curtain, the Berlin Wall, and the Cold War. Will that happen in Syria? Will the Americans put the brakes on and hold the Kurds to the eastern banks of the Euphrates? Will the Syrians and Russians be prepared to allow that to happen while they turn their attention toward the areas around Damascus and Ibdib that still require action to rid them of Islamic and Turkmen militias? Would that be a fatal move for Syria? And what of Turkey? Would it be prepared to allow a new Kurdish region to be added to the autonomous Kurdish region in Northern Iraq? That would leave just the South Eastern area of Turkey for the Kurds to capture and form their treasured vision of a united Kurdistan - one that already has the implicit and military backing of the United States.
The most plausible scenario, given the pragmatic chess strategy of Russian President Putin, is that the Syrians take the western bank of the Euphrates, and the Kurds/Americans take the Eastern bank - for now. Then the Russians and Syrians will turn their focus to the pockets of resistance in North Western Syria, and isolated pockets around Damascus and their border with Lebanon (Hezbollah and Iran likely playing a predominant role there). It seems Putin is willing to forestall any one-on-one confrontation with the US until after his rearmament program is finished - around 2020. In the mean time he is in the defensive mode, as is clearly demonstrated in the conflict in Eastern Ukraine. The problem with his strategy, as can be quite clearly seen in the Ukraine conflict, is that it gives the Americans time to establish positions in the area, and reinforce/bolster the local military. Now, instead of Russia taking on an isolated Ukrainian military of 50,000 it faces an unofficially NATO aligned country with over 200,000 troops. The same scenario is almost certainly going to play out in the Kurdish territories. In some ways, if you're Putin, you're damned if you do and damned if you don't.
The real lesson in all of this is that abandoning the rules of order for expediency can never be sanctioned, and that to see it any other way is to invite chaos to the orderly conduct of societies around the world. It has to be said, because it is patently obvious, that the Americans hold the full responsibility for chaos that their cavalier actions have created in the world. They have changed the term "national interest" into the all encompassing "national right". They have claimed the world as their own with no right to do so. An unfortunate, but predictable consequence of the fall of the Soviet Union. A living case of power corrupts, but absolute power corrupts absolutely. They have perverted the "peace dividend" that was so greatly lauded when the Berlin Wall fell into a "we'll take what we want when we want dividend", and in doing so turned the world against them. It is the Americans who were not invited into Syria to help fight ISIS. Just as it was the Americans that fanned the flames of the civil unrest in Syria to begin with, and it was the Americans, in conjunction with the Saudis, that financed it.
The only solution for Syria is that Syrians decide what their country will be. To demand otherwise is to place yourself in a type of arrogance not befitting the average person. Always remember it is not righteous people who start wars, it is the self-righteous. The ones that place their beliefs above all others and enforce them over all others. Recent history has shown that the Americans will not allow the Syrians to decide the future of their country, and that is a terrible indictment upon them. It is also a terrible indictment against the rest of us that we allow this type of "God syndrome" to have a place in the civilized world we claim ours to be. In that way, Syria today is a reflection on all of us - our greed, our arrogance, our uncaring hypocrisy. The very same traits that have their roots in all our conflicts of the past. It shows that despite all our achievements as a species, when all that is stripped away, we continue to act as though we still carry clubs and dwell in caves. That's the really sad part of it all.
Let's start with the rules. The Laws of Wars encompassed within the Convention of the Hague, 1907, specifically defines how a war amongst nations must be declared:
"Article 1
The Contracting Powers recognize that hostilities between themselves must not commence without previous and explicit warning, in the form either of reasoned declaration of war or of an ultimatum with conditional declaration of war."
The United States and Turkey signed this Convention. Ironically, Syria did not. Now Syria is the victim of hostilities perpetuated upon it by two countries who have solemnly sworn not to do so. All the rest flows from this. When the Syrian "uprising" began it was people on the streets - unarmed people. They didn't have small arms, artillery, tanks, or anti-aircraft weapons. Where did all that come from? They didn't have bank accounts with hundreds of millions of dollars to fund a 4 year long conventional war against their own government. Where did that come from? It came from the United States, Turkey and Saudi Arabia - that's where.
Having abandoned the very basic convention of declaring a war on Syria, there was no reason to believe that the rest of the war would be any different. No rules. No holds barred. The law of the jungle where might is right seeped into the country of Syria. Hundreds of thousands have been slaughtered in the name of ... regime change. That's really what it boils down to. The Russians and Iranians want to keep a strategic ally in the region, and the Americans, Turks and Saudis want them gone. Let's not disgrace the name of democracy and liberty by suggesting the war in Syria has a thing to do with those tenants of freedom.
So where are we going from here in Syria? The map below will tell you where we are now:
As you can see, the blue area in the top to middle part of this picture is the area of Northern Syria controlled by Turkey after it invaded with armed militia supporters. The yellow areas are controlled by essentially the Kurds (backed with armed Americans). The green areas are controlled by the Syrian, Russian, and Iranian forces. Several things come to mind. Firstly, the Kurds are quite divided in the territories they hold. To the west they hold large parts of northern Aleppo. To the east they hold the areas around Manbij. In between them the Turks hold the area around Al-Bab. What makes things tricky for the Kurds is they cannot unite their territories in the east and west without engaging Turkish forces, which would give Turkish President Erdogan the excuse he needs to go full in with large military forces. So, realistically, the Kurds have no hope of holding the area of Northern Aleppo.
They also have no realistic hope of holding their territories on the eastern bank of the Euphrates River centered on Manbij. As I write this, Syrian and Russian forces are making big advances shown as pink on the map. (see operational map below) They are pushing to and reaching the Euphrates River to the southern flank of the Kurds Manjib beach head. It is now only a matter of time before the Kurds will have to withdraw from the Manbij area to the eastern bank of the Euphrates River. Here their position is far more defensible from the Syrian army, and to a lesser extent the Turkish Army.
That makes the Euphrates River the new dividing line in the battle for Syria - the divide between the Kurds/Americans and everyone else. There is, however, a weak link in that line of defence - Deir al- Zour. This city and nearby airbase is controlled by the Syrian army, and is located to the south of Al- Raqqa (the ISIS self declared capital on the Euphrates. This map gives you a good idea of the area and the cities involved:
Deir al- Zour bridges the Euphrates and leaves any Kurdish partition of North Eastern Syria highly vulnerable. In fact, it makes such a complete partition almost impossible to defend. Currently, the Kurds and Americans are concentrating their forces on the battle to retake Al-Raqqa. They have it surrounded on three sides with its back to the Euphrates. The US has just deployed 2200 soldiers from the 82nd Airborne Division, and 1000 reservists to Kuwait in preparation for the final battle of Al-Raqqa. They have also deployed air mobile artillery, and the 400 troops that go with it, directly to the Al-Raqqa front. As of this morning the Americans and Kurds were within 50 km of the northern gates to Al-Raqqa. It may be a grind, but ISIS has no hope of winning that battle. Al-Raqqa will be laid to waste by American artillery and air strikes.
What comes then? Well, if the American and Kurdish intention is to create a Kurdish territory out of North eastern Syria, which this writer considers a foregone conclusion, then a battle for Dier-al-Zour will be next. It is a strategic must to seal a gaping hole in the Euphrates River defence concept. That will involve the Americans and Kurds attacking the Syrian and Russian military located there. A dangerous proposition indeed.
It has always been the case, since the ISIS advance was halted on the door steps of Bagdad, that the real danger of foreign powers throwing international law to the wind would play itself out once their common menace had been eliminated. We are almost at that point now. Mosul is essentially finished for ISIS. Al-Raqqa is surrounded. It's like the final weeks of Nazi Germany for ISIS right now. What unfolded after Nazi Germany fell was the iron curtain, the Berlin Wall, and the Cold War. Will that happen in Syria? Will the Americans put the brakes on and hold the Kurds to the eastern banks of the Euphrates? Will the Syrians and Russians be prepared to allow that to happen while they turn their attention toward the areas around Damascus and Ibdib that still require action to rid them of Islamic and Turkmen militias? Would that be a fatal move for Syria? And what of Turkey? Would it be prepared to allow a new Kurdish region to be added to the autonomous Kurdish region in Northern Iraq? That would leave just the South Eastern area of Turkey for the Kurds to capture and form their treasured vision of a united Kurdistan - one that already has the implicit and military backing of the United States.
The most plausible scenario, given the pragmatic chess strategy of Russian President Putin, is that the Syrians take the western bank of the Euphrates, and the Kurds/Americans take the Eastern bank - for now. Then the Russians and Syrians will turn their focus to the pockets of resistance in North Western Syria, and isolated pockets around Damascus and their border with Lebanon (Hezbollah and Iran likely playing a predominant role there). It seems Putin is willing to forestall any one-on-one confrontation with the US until after his rearmament program is finished - around 2020. In the mean time he is in the defensive mode, as is clearly demonstrated in the conflict in Eastern Ukraine. The problem with his strategy, as can be quite clearly seen in the Ukraine conflict, is that it gives the Americans time to establish positions in the area, and reinforce/bolster the local military. Now, instead of Russia taking on an isolated Ukrainian military of 50,000 it faces an unofficially NATO aligned country with over 200,000 troops. The same scenario is almost certainly going to play out in the Kurdish territories. In some ways, if you're Putin, you're damned if you do and damned if you don't.
The real lesson in all of this is that abandoning the rules of order for expediency can never be sanctioned, and that to see it any other way is to invite chaos to the orderly conduct of societies around the world. It has to be said, because it is patently obvious, that the Americans hold the full responsibility for chaos that their cavalier actions have created in the world. They have changed the term "national interest" into the all encompassing "national right". They have claimed the world as their own with no right to do so. An unfortunate, but predictable consequence of the fall of the Soviet Union. A living case of power corrupts, but absolute power corrupts absolutely. They have perverted the "peace dividend" that was so greatly lauded when the Berlin Wall fell into a "we'll take what we want when we want dividend", and in doing so turned the world against them. It is the Americans who were not invited into Syria to help fight ISIS. Just as it was the Americans that fanned the flames of the civil unrest in Syria to begin with, and it was the Americans, in conjunction with the Saudis, that financed it.
The only solution for Syria is that Syrians decide what their country will be. To demand otherwise is to place yourself in a type of arrogance not befitting the average person. Always remember it is not righteous people who start wars, it is the self-righteous. The ones that place their beliefs above all others and enforce them over all others. Recent history has shown that the Americans will not allow the Syrians to decide the future of their country, and that is a terrible indictment upon them. It is also a terrible indictment against the rest of us that we allow this type of "God syndrome" to have a place in the civilized world we claim ours to be. In that way, Syria today is a reflection on all of us - our greed, our arrogance, our uncaring hypocrisy. The very same traits that have their roots in all our conflicts of the past. It shows that despite all our achievements as a species, when all that is stripped away, we continue to act as though we still carry clubs and dwell in caves. That's the really sad part of it all.
Tuesday, March 29, 2016
A Budget plan for NL 2016
In two weeks from now the provincial government will roll out its budget for fiscal 2016-17. In what can only be described as a political and economic nightmare, the government is facing a budget deficit of about $2.4 billion from last year, and likely higher for this year. Key factors in calling the deficit higher this year are: a continuing decline in oil prices well below even the Liberals preliminary projections for the year just months ago; recessionary pressures caused by global economic slowdown and localized economic implosion; increasing unemployment; and curtailing of discretionary spending in the economy as a whole. Not a pretty picture.
So how to tackle the budgetary crisis? Well, the first step is realizing that it is not a spending problem or a revenue problem - it is both. That means the budget solutions need to come in both areas. In effect, the government needs to go into a defensive shell in order to preserve what financial integrity is left of the province. To show how difficult and painful that will be I've drawn up a rather draconian plan, illustrated the dollars saved, and hopefully give a sense of just how radically we must transform ourselves in a very short period of time - just to survive.
The plan goes like this:
NEW REVENUE:
1) Drivers Licences - renewed annually at a rate of $50 per year - $19,000,000.00
2) Gas Tax - 20% increase in gas taxes - $37,150,000.00
3) Tobacco Tax - 20% increase in taxes - $31,415,000.00
4) Alcohol Tax - 20% (new tax) $31,575,000.00
5) HST - 2% increase $200,000,000.00
CUTS IN SPENDING:
1) 4 day work week for all government employees $192,800,000.00
2) 10% cut across all government operations (incl health care) $826,000,000.00
3) 20% cut in all professional service contracts $96,375,000.00
4) 20% cut in all purchased goods $63,501,000.00
5) 20% cut in all MHAs salaries $1,000,000.00
6) Dissolving meaningless government offices/bureaus $60,000,000.00
7) Suspending the Muskrat Falls project $600,000,000.00
TOTAL REALIZED $2,160,191,000.00
PROJECTED DEFICIT $2,400,000,000.00
DEFICIT AFTER THESE MEASURES $239,809,000.00
So, there it is. A very draconian set of measures that would deal with both the deficit and the bloated size of our government's operations. One is an immediate tool for an immediate crisis, and one is a tool for surgically re-sizing our government for the future. A budget such as this is bound to create a deeper recession for the short term, but we are heading into one in any case - if we aren't there already. As painful as it is, in this type of plan everyone suffers. The 70% who don't pay any income tax at all are forced to share the burden with those that do. That's key, because there are far too many people in the province sitting back in the weeds, and surviving on black market jobs, etc. These people need to pay their fair share - especially now. It also forces business to take a hit by reducing professional service and supply contracts as well as sustaining the effects of an increased HST and diminishing disposable income.
Now everyone will argue they can't take the hit, but the reality is that everyone must take the hit. There is no longer a choice. But, and it's a huge but, the government can't even think of implementing an austerity budget without suspending the Muskrat Falls project. To ask the people to suffer in this way while allowing the completely irresponsible expenditure of funds on Muskrat Falls is beyond the pale, and would likely result in large scale social unrest - as if we don't have enough problems as it is.
So how to tackle the budgetary crisis? Well, the first step is realizing that it is not a spending problem or a revenue problem - it is both. That means the budget solutions need to come in both areas. In effect, the government needs to go into a defensive shell in order to preserve what financial integrity is left of the province. To show how difficult and painful that will be I've drawn up a rather draconian plan, illustrated the dollars saved, and hopefully give a sense of just how radically we must transform ourselves in a very short period of time - just to survive.
The plan goes like this:
NEW REVENUE:
1) Drivers Licences - renewed annually at a rate of $50 per year - $19,000,000.00
2) Gas Tax - 20% increase in gas taxes - $37,150,000.00
3) Tobacco Tax - 20% increase in taxes - $31,415,000.00
4) Alcohol Tax - 20% (new tax) $31,575,000.00
5) HST - 2% increase $200,000,000.00
CUTS IN SPENDING:
1) 4 day work week for all government employees $192,800,000.00
2) 10% cut across all government operations (incl health care) $826,000,000.00
3) 20% cut in all professional service contracts $96,375,000.00
4) 20% cut in all purchased goods $63,501,000.00
5) 20% cut in all MHAs salaries $1,000,000.00
6) Dissolving meaningless government offices/bureaus $60,000,000.00
7) Suspending the Muskrat Falls project $600,000,000.00
TOTAL REALIZED $2,160,191,000.00
PROJECTED DEFICIT $2,400,000,000.00
DEFICIT AFTER THESE MEASURES $239,809,000.00
So, there it is. A very draconian set of measures that would deal with both the deficit and the bloated size of our government's operations. One is an immediate tool for an immediate crisis, and one is a tool for surgically re-sizing our government for the future. A budget such as this is bound to create a deeper recession for the short term, but we are heading into one in any case - if we aren't there already. As painful as it is, in this type of plan everyone suffers. The 70% who don't pay any income tax at all are forced to share the burden with those that do. That's key, because there are far too many people in the province sitting back in the weeds, and surviving on black market jobs, etc. These people need to pay their fair share - especially now. It also forces business to take a hit by reducing professional service and supply contracts as well as sustaining the effects of an increased HST and diminishing disposable income.
Now everyone will argue they can't take the hit, but the reality is that everyone must take the hit. There is no longer a choice. But, and it's a huge but, the government can't even think of implementing an austerity budget without suspending the Muskrat Falls project. To ask the people to suffer in this way while allowing the completely irresponsible expenditure of funds on Muskrat Falls is beyond the pale, and would likely result in large scale social unrest - as if we don't have enough problems as it is.
Saturday, February 13, 2016
Steps from Armageddon
Unfortunately, it now appears the world is heading to that long prophesized war in the Middle East that we have all feared - the battle of Armageddon. The Bible describes it as a massive war in the Middle East where millions of soldiers are consumed. It begins with Russia coming out of communism (Godlessness) and doing God's bidding by taking on the forces of the Eagle (the US). It predicts that Russia will defeat the combined might of the US at the battle of Armageddon, including the Israeli army, and then there will be a large earthquake which will consume the Russian forces there. Forgive me if the biblical interpretations aren't 100%, but you get the idea.
As a young fellow I used to wonder how the "Bear" (Russia) could possibly end up in the Middle East with massive armies. It didn't seem to make sense, However, today, we are mere moments from that exact circumstance. There is no denying it any further.
In my opinion the war in Syria and Ukraine and elsewhere around the globe has to do with one thing, and one thing only - the US dollar. Simplistic as that may sound, it has been obvious as the nose on your face that China and Russia have managed to undermine American world economic dominance. The replacing of the US dollar with the Chinese Yuan, or a Yuan backed world currency, has been an ongoing issue since at least 2010 when it was first publicly advocated at the Davos world economic forum in Switzerland. China's moves since then have shown a steady path toward that goal. The Eurasian economic, and in many ways military bloc, have developed to the strategic level. The Chinese and Russians are using their reserves of US dollars to purchase hard assets (ie: Chicago Stock Exchange, Canadian tar sands, etc), and more importantly to subsidize the economic consequences of their actions. For example, while the West applied massive sanctions against Russia for the Ukraine situation, Russia simply turned to China for financial backing. The Chinese used their US reserves for the purpose. And so it goes.
The truth of the matter is this: the West has lost the economic war. It's over. It has been for awhile. The West is simply "dog paddling". Signs of this are: negative interest rates by Western central banks; zero or near zero inflation rates and economic growth; and the inability of traditional stimuli to fire up economies. It's over. We simply sit on the very cusp of complete economic collapse. The same applies to the Eurasian economies, except they are far less indebted than we are (Russia's government debt to GDP ratio is 16%, Canada is 86.51 %, the US 102.98%) That part of the war is lost. The US/Saudi deal of the 1970's that allowed the US dollar to replace gold as the reserve currency is also undone. Saudi has been made redundant by technology for oil recovery, and by Russian and American production. In other words, the American cartel on oil has been irreversibly broken.
So all this leads us to today. One economically decaying super power facing the inevitable consequences of its own economic lack of discipline facing the rising contenders. The battlefield is switching to arms from dollars. The battlefields are the Middle East and the Pacific Rim. Turkey and Saudi Arabia, one a NATO ally, the other a US oil ally, are mere hours from starting the events that will lead to the battle that "consumes millions". A Turkish invasion of northern Syria is guaranteed. Today Saudi Arabia transferred fighter jets to Turkey to assist. That alliance also points to the almost certain invasion of southern Iraq by Saudi Arabia. That in turn will lead to the direct intervention of Iran against Saudi. If you ever watched Harry Potter, this is the real game of "Wizard's Chess". The Americans will come with their full military might to intervene (if you believe the Bible - which I do). Israel will for the most part stay pat and watch it unfold. However, even Israel will be turned on once the Americans have been defeated (if you believe the Bible - which I do).
The only question really left in my mind is: " Is this a bad thing, or is this simply God's will?". If it's God's will, and the Bible certainly says it is, then it's not a bad thing. Myself, I kind of hoped that humanity could rise above this kind of result, but that simply doesn't appear to be the case.
As a young fellow I used to wonder how the "Bear" (Russia) could possibly end up in the Middle East with massive armies. It didn't seem to make sense, However, today, we are mere moments from that exact circumstance. There is no denying it any further.
In my opinion the war in Syria and Ukraine and elsewhere around the globe has to do with one thing, and one thing only - the US dollar. Simplistic as that may sound, it has been obvious as the nose on your face that China and Russia have managed to undermine American world economic dominance. The replacing of the US dollar with the Chinese Yuan, or a Yuan backed world currency, has been an ongoing issue since at least 2010 when it was first publicly advocated at the Davos world economic forum in Switzerland. China's moves since then have shown a steady path toward that goal. The Eurasian economic, and in many ways military bloc, have developed to the strategic level. The Chinese and Russians are using their reserves of US dollars to purchase hard assets (ie: Chicago Stock Exchange, Canadian tar sands, etc), and more importantly to subsidize the economic consequences of their actions. For example, while the West applied massive sanctions against Russia for the Ukraine situation, Russia simply turned to China for financial backing. The Chinese used their US reserves for the purpose. And so it goes.
The truth of the matter is this: the West has lost the economic war. It's over. It has been for awhile. The West is simply "dog paddling". Signs of this are: negative interest rates by Western central banks; zero or near zero inflation rates and economic growth; and the inability of traditional stimuli to fire up economies. It's over. We simply sit on the very cusp of complete economic collapse. The same applies to the Eurasian economies, except they are far less indebted than we are (Russia's government debt to GDP ratio is 16%, Canada is 86.51 %, the US 102.98%) That part of the war is lost. The US/Saudi deal of the 1970's that allowed the US dollar to replace gold as the reserve currency is also undone. Saudi has been made redundant by technology for oil recovery, and by Russian and American production. In other words, the American cartel on oil has been irreversibly broken.
So all this leads us to today. One economically decaying super power facing the inevitable consequences of its own economic lack of discipline facing the rising contenders. The battlefield is switching to arms from dollars. The battlefields are the Middle East and the Pacific Rim. Turkey and Saudi Arabia, one a NATO ally, the other a US oil ally, are mere hours from starting the events that will lead to the battle that "consumes millions". A Turkish invasion of northern Syria is guaranteed. Today Saudi Arabia transferred fighter jets to Turkey to assist. That alliance also points to the almost certain invasion of southern Iraq by Saudi Arabia. That in turn will lead to the direct intervention of Iran against Saudi. If you ever watched Harry Potter, this is the real game of "Wizard's Chess". The Americans will come with their full military might to intervene (if you believe the Bible - which I do). Israel will for the most part stay pat and watch it unfold. However, even Israel will be turned on once the Americans have been defeated (if you believe the Bible - which I do).
The only question really left in my mind is: " Is this a bad thing, or is this simply God's will?". If it's God's will, and the Bible certainly says it is, then it's not a bad thing. Myself, I kind of hoped that humanity could rise above this kind of result, but that simply doesn't appear to be the case.
Monday, February 8, 2016
The Phoney War
We are living at a time of phoney war - at least that's my theory. A phoney war is a period where war-like moves are made, but the major powers of the day are not yet engaged in actual fighting. The most recent example of this was Hitler's moves in Europe before 1939 - like the Czech and Slovak Republics, etc. Acts that really ought to be considered acts of war, but for "pragmatic" reasons the world over looked them in hopes they would satisfy the aggressor. Those moves are happening today.
Consider Turkey for a moment. Turkey is at once fighting the Kurds on its own territory, and in northern Iraq, supporting ISIS and others against the Kurds in Syria. The problem in the geo-strategic sense is that Turkey is asserting its own perceived interest at the expense of world peace. It is breaking international law by fighting a "hybrid war" against Syria, and is on the verge of making that a very real conventional war in Syria - along with Saudi Arabia. Saudi Arabia is making similar moves in Yemen. In the Yemen case, Saudi has already invaded with conventional forces so there was not much pretense there of a phoney war.
In the big picture, however, today we are in a world scale phoney war. For some time I have thought on the reasoning the United States has "betrayed" its long time partner Saudi Arabia and allowed fracking to undermine the world price of oil. Purely examining today's events might leave you scratching your head. The US breaks its long time agreement with the Saudis, world control of oil for using US dollars in its purchase and sale. However, take a step outside the box, look at the many places of near war in the rest of the world, and a very real strategic move may be afoot.
My theory is this: the US is weaning itself off Saudi oil, and putting itself in a position of self-sufficiency, to insulate itself against a Middle east war that will see Saudi, Iraq and Iran lose the ability to export oil. Really its the only sensible conclusion to come to. The transition period was the last five years. Mass fracking in the US has resulted in over 4800 capped oil wells. Over production of oil has resulted in mass storage of oil reserves. Together, the result is a stockpile of strategic oil in the US, but also in Russia. The two big foes are insulating themselves against oil shortages at the same time in this phony war.
If that theory holds true, then I would expect a Middle East war to break out really at any time. Certainly the flash points are Iraq and Syria. Turkey, along with Saudi Arabia and some other minor allies will make a move on Sunni Iraq and northern Syria at the same time leaving rival Iran to address two fronts at once. Clearly that will bring in the Americans and Russians - although I would bank on the Russians being there in large numbers first. In any case, the damage to the oil fields of Iran, Iraq, Syria, and Saudi Arabia would be on a massive scale. Given the technology and weapons possessed by both sides, massive damage to oil infrastructure is only a logical result.
It's funny how today's phoney war eerily points toward the biblical prophecies of the Battle of Armageddon. It's something that nobody wants to think is possible, but the signs seem to be growing all the time. It's as if we have a little self-destruct mechanism and are programming ourselves toward this fate. Of course you could always argue it's the will of God as expressed in the Bible. We have a hard time seeing it from that point of view, because we can't believe God would wish that upon us. But, God is God for a reason. We have human minds which are but a spec in the big picture. That being said, I hope I'm wrong in my observations, and analysis. Nobody should want or thirst over a phoney war. They always lead to the bigger one.
Consider Turkey for a moment. Turkey is at once fighting the Kurds on its own territory, and in northern Iraq, supporting ISIS and others against the Kurds in Syria. The problem in the geo-strategic sense is that Turkey is asserting its own perceived interest at the expense of world peace. It is breaking international law by fighting a "hybrid war" against Syria, and is on the verge of making that a very real conventional war in Syria - along with Saudi Arabia. Saudi Arabia is making similar moves in Yemen. In the Yemen case, Saudi has already invaded with conventional forces so there was not much pretense there of a phoney war.
In the big picture, however, today we are in a world scale phoney war. For some time I have thought on the reasoning the United States has "betrayed" its long time partner Saudi Arabia and allowed fracking to undermine the world price of oil. Purely examining today's events might leave you scratching your head. The US breaks its long time agreement with the Saudis, world control of oil for using US dollars in its purchase and sale. However, take a step outside the box, look at the many places of near war in the rest of the world, and a very real strategic move may be afoot.
My theory is this: the US is weaning itself off Saudi oil, and putting itself in a position of self-sufficiency, to insulate itself against a Middle east war that will see Saudi, Iraq and Iran lose the ability to export oil. Really its the only sensible conclusion to come to. The transition period was the last five years. Mass fracking in the US has resulted in over 4800 capped oil wells. Over production of oil has resulted in mass storage of oil reserves. Together, the result is a stockpile of strategic oil in the US, but also in Russia. The two big foes are insulating themselves against oil shortages at the same time in this phony war.
If that theory holds true, then I would expect a Middle East war to break out really at any time. Certainly the flash points are Iraq and Syria. Turkey, along with Saudi Arabia and some other minor allies will make a move on Sunni Iraq and northern Syria at the same time leaving rival Iran to address two fronts at once. Clearly that will bring in the Americans and Russians - although I would bank on the Russians being there in large numbers first. In any case, the damage to the oil fields of Iran, Iraq, Syria, and Saudi Arabia would be on a massive scale. Given the technology and weapons possessed by both sides, massive damage to oil infrastructure is only a logical result.
It's funny how today's phoney war eerily points toward the biblical prophecies of the Battle of Armageddon. It's something that nobody wants to think is possible, but the signs seem to be growing all the time. It's as if we have a little self-destruct mechanism and are programming ourselves toward this fate. Of course you could always argue it's the will of God as expressed in the Bible. We have a hard time seeing it from that point of view, because we can't believe God would wish that upon us. But, God is God for a reason. We have human minds which are but a spec in the big picture. That being said, I hope I'm wrong in my observations, and analysis. Nobody should want or thirst over a phoney war. They always lead to the bigger one.
Sunday, January 17, 2016
The Reckoning
For every action there is a reaction. Nothing could better describe the times we live in. There has been plenty of evidence around us for at least two years, and for the more in tuned even decades, that our way of life is coming to an end. Not our life, but our "way" of life. Our actions have caught up with us. Now comes the inevitable reaction.
While technology can build civilizations, it will also eventually alter them beyond recognition. For example, the automobile transformed the world, but it also cursed it. The car required gasoline to operate. Gasoline required oil. Oil required exploration. Exploration required environmental damage and cash. Cash required borrowing. Borrowing required capital. And therein lies the curse - there was never enough capital to cover the borrowing. Action, reaction, and on it goes. Eventually there must be a day of reckoning. A day when a house built of cards can no longer sustain another card being placed upon it. That day is today.
Today, the perfect storm, or the day of reckoning, involves unsupported financial instruments smashing against bottomed out interest rates, monopolistic oil cartels crashing against technologically caused oil gluts, grossly over inflated stock markets imploding over falsely supported bottom lines, and the world dividing between Eurasia and the Rest. There are of course other factors like demographics, and environmental concerns which are just as, or even more important. The bottom line is that all those fantastical instruments used to drive our society forward were never really built on anything at all. Imaginary sums of wealth, supported by paper contracts, but nothing else. A lawyers dream and an accountants nightmare.
In the days ahead we can expect to witness: a world-wide stock market crash; a world-wide currency crash; a world-wide crash in all goods associated with production (including oil); and mass deflation in economic activity, but mass inflation in costs. The last one is a bit of a kicker - mass deflation causing mass inflation. How is that possible? A good example of this is post-world war II Germany. At the end of the war it took a wheel barrel full of German marks to by one loaf of bread. All economic activity had essentially come to a halt. The economy had deflated. There was nothing left to value the German mark against, so it became valueless. As it became valueless, the amount of marks needed to by one item increased. The more valueless it became, the more marks were needed to buy that item.
Essentially the world faces the same today. The economies of the world are deflating. If they were measured by a standard that didn't utilize essentially paper to back their value, then they would have been completely deflated decades ago. In essence, the world borrowed time to grow by dropping the discipline of the gold standard. That allowed growth, but it was always a "phony growth". It was always a bubble waiting to burst, or a margin waiting to be called. Now China and Russia are calling that margin. They are establishing a gold backed currency economy that will cause the rest of the world's economies to collapse. It will initially cause their's to collapse as well, but they are in a much stronger position to survive the collapse (or economic war if you like).
Russia's debt to GDP ratio is an astoundingly low 16%. China is at 55%. India is at 65%. The United States government debt to GDP ratio is 89%, while Japan's is 250%. The story then becomes not who can win an economic war, but rather who can survive an economic war. Clearly, Eurasia is far better positioned to "rise from the ashes". It is that rise that is all important. Initially, every economy in the world will collapse. However, the "New World Order" that arises from what's left will be determined by those in the best financial position when the collapse happens. That's a logical assumption given a purely gold standard to restart would not take into account that which had been previously expended, debts that been previously owed, and the fact that gold is not everywhere in the world - and this is a new world on a world scale.
Suffice it to say that Eurasia is pulling the trigger on the "Old World". It claims it isn't and that it's suffering as much as any other nation, but that's simply a mask. A mask that will provide it the legitimacy to rise to the fore front of the "New World Order", and claim its leadership. That you can be certain of. So while Eurasia gives us a friendly slap on the back, seeking a spot to put the knife into, we should remember the reason it can do so is us. We collectively built our civilization on false pretenses, and we knew it. They simply used our own gluttony against us. They simply allowed us, even facilitated in us, doing it. If you can't stop the end you might as well learn from it.
In this province the cries are loud: "What can we do?" In truth, as I said to any number of people who have asked me that same question privately, the only thing left to do is suffer. We had a ten year window to make maximum use of oil revenues to address chronic, systemic debt. Instead, the government of the day spent like a teenager with a new, unlimited credit card. It placed us in a position of no return. As a very few of us urged people not to be kids in the candy shop, the "credible experts" said there was no tomorrow. Now tomorrow is here. It is the day of reckoning for everyone. That means you.
While technology can build civilizations, it will also eventually alter them beyond recognition. For example, the automobile transformed the world, but it also cursed it. The car required gasoline to operate. Gasoline required oil. Oil required exploration. Exploration required environmental damage and cash. Cash required borrowing. Borrowing required capital. And therein lies the curse - there was never enough capital to cover the borrowing. Action, reaction, and on it goes. Eventually there must be a day of reckoning. A day when a house built of cards can no longer sustain another card being placed upon it. That day is today.
Today, the perfect storm, or the day of reckoning, involves unsupported financial instruments smashing against bottomed out interest rates, monopolistic oil cartels crashing against technologically caused oil gluts, grossly over inflated stock markets imploding over falsely supported bottom lines, and the world dividing between Eurasia and the Rest. There are of course other factors like demographics, and environmental concerns which are just as, or even more important. The bottom line is that all those fantastical instruments used to drive our society forward were never really built on anything at all. Imaginary sums of wealth, supported by paper contracts, but nothing else. A lawyers dream and an accountants nightmare.
In the days ahead we can expect to witness: a world-wide stock market crash; a world-wide currency crash; a world-wide crash in all goods associated with production (including oil); and mass deflation in economic activity, but mass inflation in costs. The last one is a bit of a kicker - mass deflation causing mass inflation. How is that possible? A good example of this is post-world war II Germany. At the end of the war it took a wheel barrel full of German marks to by one loaf of bread. All economic activity had essentially come to a halt. The economy had deflated. There was nothing left to value the German mark against, so it became valueless. As it became valueless, the amount of marks needed to by one item increased. The more valueless it became, the more marks were needed to buy that item.
Essentially the world faces the same today. The economies of the world are deflating. If they were measured by a standard that didn't utilize essentially paper to back their value, then they would have been completely deflated decades ago. In essence, the world borrowed time to grow by dropping the discipline of the gold standard. That allowed growth, but it was always a "phony growth". It was always a bubble waiting to burst, or a margin waiting to be called. Now China and Russia are calling that margin. They are establishing a gold backed currency economy that will cause the rest of the world's economies to collapse. It will initially cause their's to collapse as well, but they are in a much stronger position to survive the collapse (or economic war if you like).
Russia's debt to GDP ratio is an astoundingly low 16%. China is at 55%. India is at 65%. The United States government debt to GDP ratio is 89%, while Japan's is 250%. The story then becomes not who can win an economic war, but rather who can survive an economic war. Clearly, Eurasia is far better positioned to "rise from the ashes". It is that rise that is all important. Initially, every economy in the world will collapse. However, the "New World Order" that arises from what's left will be determined by those in the best financial position when the collapse happens. That's a logical assumption given a purely gold standard to restart would not take into account that which had been previously expended, debts that been previously owed, and the fact that gold is not everywhere in the world - and this is a new world on a world scale.
Suffice it to say that Eurasia is pulling the trigger on the "Old World". It claims it isn't and that it's suffering as much as any other nation, but that's simply a mask. A mask that will provide it the legitimacy to rise to the fore front of the "New World Order", and claim its leadership. That you can be certain of. So while Eurasia gives us a friendly slap on the back, seeking a spot to put the knife into, we should remember the reason it can do so is us. We collectively built our civilization on false pretenses, and we knew it. They simply used our own gluttony against us. They simply allowed us, even facilitated in us, doing it. If you can't stop the end you might as well learn from it.
In this province the cries are loud: "What can we do?" In truth, as I said to any number of people who have asked me that same question privately, the only thing left to do is suffer. We had a ten year window to make maximum use of oil revenues to address chronic, systemic debt. Instead, the government of the day spent like a teenager with a new, unlimited credit card. It placed us in a position of no return. As a very few of us urged people not to be kids in the candy shop, the "credible experts" said there was no tomorrow. Now tomorrow is here. It is the day of reckoning for everyone. That means you.
Sunday, December 13, 2015
How bad is Newfoundland's Budget Crisis?
Newfoundland and Labrador is in the "mother of all" budgetary crisis. It is not a pretty picture. For those that don't quite get all the government lingo: a deficit is the annual loss caused by spending more than you bring in a fiscal year; the debt is the accumulation of all the money borrowed to finance those accumulated deficits over the years; operating budget is the base cost of running government operations in a year; capital budget is the cost of building facilities in a given year; and gross debt is the amount of all debt the government owes and must pay back. That's a bit of a simplification, but it does the trick.
Back when the 2015-2016 budget was crafted, the government projected $6,659,952 (billion) in operating expenses and $1,143,743 (billion) in capital expenses, for a total of roughly $7.8 billion in expenditures. To fund those expenditures the government projected oil revenue to be $1,157,671 billion based on a base price of $62 (US) a barrel for Brent Crude. With oil at that level, the government predicted a $1 billion deficit. As a result of the recent election defeat of the government, a new deficit figure of $1.8 billion was released. In other words, the new Liberal government is saying the province has lost approximately $700 million in revenue.
The problem is things are much worse economically then they were at budget time. Oil has hovered at roughly $40-45 a barrel for most of the fiscal year, and has been trending downward (at $37.70 now). Yet, despite the collapse of the province's largest single contributor to revenues, the government has done...nothing. Here is a very illuminating example:
2013/2013 - oil revenue $2.25 billion Total government spending - $7.6 billion
2015-2016 - oil revenue $1.2 billion Total government spending- $7.8 billion
If that set of numbers shocks, well, it should. Now, that figure for oil revenue above was based on $62 a barrel. Just shaving off approximately 30% from that number for oil's actual prices, and we are down approximately $360 million - which leaves oil revenue for this fiscal year closer to $800 million. You have to travel back to the year 2007 to find a time when oil revenue was this low in recent history. In that year, oil was budgeted to bring in $996.5 million. The kicker is this: total budgeted spending for that year, including operating and capital, was $5.2 billion - $2.6 billion less than what is being spent today.
All of this takes on a pretty ugly picture when you consider that debt servicing charges (interest,etc on our debt) was budgeted to be $652 million this year alone. Furthermore, our combined capital and operational gross debt is now $13.9 billion. That is only $1 billion less than the perilous period of 1997-98.
So what can be done? Or, what has to be done? Both nothing and everything. The nothing portion is capital expenditures. The province can no longer afford any capital expenditures. Sound radical? Consider that capital expenditures have been in the $1.1 billion range for a few years now. That's no longer doable. That means: no new hospital for Corner Brook (or anywhere else); no new Waterford mental health facility; no new penitentiary; etc. In other words, any election promises that were related to these projects are out - they were never honest in the first place.
Raising taxes of all kinds and types will be the feature of the next budget. Sin taxes. Income taxes, Taxes on your taxes. You get the idea. However, even taxing all these areas, the government can only pray to come up with maybe $150 million, and that would mean huge personal income tax increases. After all, Ball just vetoed increasing the HST by 2%, which could have meant about $150 million for the provincial coffers. Still, that would have been a drop in the bucket for what's necessary to keep this government where its at. Cutting civil service jobs has been ruled out by the Liberals. Salaries and benefits of provincial employees accounted for about $905 million in this year's budget. The salaries in the health sector and education sector are administered by the respective authorities. The word is they account for about 75% of the $4 billion that the province issues in grants to the authorities to run their health/education organizations.
It has to be a tempting, if not an absolute necessity, to review these employee expenses. The civil service is way too large for a province this size. The Liberals claim they will reduce it by attrition - which is a fancy way of saying once people retire they will eliminate those positions from the province's structure. Sounds great in the ideal world, but the budget crisis needs immediate heart surgery, not rehab. It can't wait that long.
Muskrat Falls is another one that must be looked at. The government has spent its part on the project already (not including over runs), so that $3 billion is gone from general revenues. However, Nalcor is holding $5 billion in investment accounts that it borrowed under the Federal Loan Guarantee. As far as I know that $5 billion hasn't been accessed yet. The province could cancel the Muskrat Falls project, work a deal with their new buddies in Ottawa to return the funds while avoiding default, and the gross debt of the province would shrink to about $8.8 billion. Such a move would dramatically improve the province's long term economic health, and perhaps forestall the otherwise inevitable credit downgrades coming our way. In addition, should Nalcor lose the current Quebec court case (now waiting for the Judge's decision as it was heard in October) Muskrat Falls annual revenue generation will drop by approximately 80% require a tripling of power bills to allow the project to break even year after year. All in all, Muskrat Falls needs to be the first victim of the financial sanity axe.
In summary, Dwight Ball is on the record as not wanting to harm the economy by instigating drastic tax hikes or mass layoffs. He's on the record as not wanting to shut down the Muskrat Falls project (he wants to "manage it better"). He's on the record for assisting iron ore companies to buy out other iron ore companies in Labrador. All these things are just pure fantasy. Complete non-sense. The truth is, bonding agencies will force the government to cut its spending - drastically. Banks will likely do the same. Newfoundland and Labrador was completely mismanaged during the years when oil revenues to the province numbered in the billions. Now, that luxury, as stupid as it was, is no longer available to politicians. Now the chickens have come home to roost. It's simple math. How bad is Newfoundland's budget crisis? It's systemic and it's catastrophic. That's how bad it is.
Back when the 2015-2016 budget was crafted, the government projected $6,659,952 (billion) in operating expenses and $1,143,743 (billion) in capital expenses, for a total of roughly $7.8 billion in expenditures. To fund those expenditures the government projected oil revenue to be $1,157,671 billion based on a base price of $62 (US) a barrel for Brent Crude. With oil at that level, the government predicted a $1 billion deficit. As a result of the recent election defeat of the government, a new deficit figure of $1.8 billion was released. In other words, the new Liberal government is saying the province has lost approximately $700 million in revenue.
The problem is things are much worse economically then they were at budget time. Oil has hovered at roughly $40-45 a barrel for most of the fiscal year, and has been trending downward (at $37.70 now). Yet, despite the collapse of the province's largest single contributor to revenues, the government has done...nothing. Here is a very illuminating example:
2013/2013 - oil revenue $2.25 billion Total government spending - $7.6 billion
2015-2016 - oil revenue $1.2 billion Total government spending- $7.8 billion
If that set of numbers shocks, well, it should. Now, that figure for oil revenue above was based on $62 a barrel. Just shaving off approximately 30% from that number for oil's actual prices, and we are down approximately $360 million - which leaves oil revenue for this fiscal year closer to $800 million. You have to travel back to the year 2007 to find a time when oil revenue was this low in recent history. In that year, oil was budgeted to bring in $996.5 million. The kicker is this: total budgeted spending for that year, including operating and capital, was $5.2 billion - $2.6 billion less than what is being spent today.
All of this takes on a pretty ugly picture when you consider that debt servicing charges (interest,etc on our debt) was budgeted to be $652 million this year alone. Furthermore, our combined capital and operational gross debt is now $13.9 billion. That is only $1 billion less than the perilous period of 1997-98.
So what can be done? Or, what has to be done? Both nothing and everything. The nothing portion is capital expenditures. The province can no longer afford any capital expenditures. Sound radical? Consider that capital expenditures have been in the $1.1 billion range for a few years now. That's no longer doable. That means: no new hospital for Corner Brook (or anywhere else); no new Waterford mental health facility; no new penitentiary; etc. In other words, any election promises that were related to these projects are out - they were never honest in the first place.
Raising taxes of all kinds and types will be the feature of the next budget. Sin taxes. Income taxes, Taxes on your taxes. You get the idea. However, even taxing all these areas, the government can only pray to come up with maybe $150 million, and that would mean huge personal income tax increases. After all, Ball just vetoed increasing the HST by 2%, which could have meant about $150 million for the provincial coffers. Still, that would have been a drop in the bucket for what's necessary to keep this government where its at. Cutting civil service jobs has been ruled out by the Liberals. Salaries and benefits of provincial employees accounted for about $905 million in this year's budget. The salaries in the health sector and education sector are administered by the respective authorities. The word is they account for about 75% of the $4 billion that the province issues in grants to the authorities to run their health/education organizations.
It has to be a tempting, if not an absolute necessity, to review these employee expenses. The civil service is way too large for a province this size. The Liberals claim they will reduce it by attrition - which is a fancy way of saying once people retire they will eliminate those positions from the province's structure. Sounds great in the ideal world, but the budget crisis needs immediate heart surgery, not rehab. It can't wait that long.
Muskrat Falls is another one that must be looked at. The government has spent its part on the project already (not including over runs), so that $3 billion is gone from general revenues. However, Nalcor is holding $5 billion in investment accounts that it borrowed under the Federal Loan Guarantee. As far as I know that $5 billion hasn't been accessed yet. The province could cancel the Muskrat Falls project, work a deal with their new buddies in Ottawa to return the funds while avoiding default, and the gross debt of the province would shrink to about $8.8 billion. Such a move would dramatically improve the province's long term economic health, and perhaps forestall the otherwise inevitable credit downgrades coming our way. In addition, should Nalcor lose the current Quebec court case (now waiting for the Judge's decision as it was heard in October) Muskrat Falls annual revenue generation will drop by approximately 80% require a tripling of power bills to allow the project to break even year after year. All in all, Muskrat Falls needs to be the first victim of the financial sanity axe.
In summary, Dwight Ball is on the record as not wanting to harm the economy by instigating drastic tax hikes or mass layoffs. He's on the record as not wanting to shut down the Muskrat Falls project (he wants to "manage it better"). He's on the record for assisting iron ore companies to buy out other iron ore companies in Labrador. All these things are just pure fantasy. Complete non-sense. The truth is, bonding agencies will force the government to cut its spending - drastically. Banks will likely do the same. Newfoundland and Labrador was completely mismanaged during the years when oil revenues to the province numbered in the billions. Now, that luxury, as stupid as it was, is no longer available to politicians. Now the chickens have come home to roost. It's simple math. How bad is Newfoundland's budget crisis? It's systemic and it's catastrophic. That's how bad it is.
Tuesday, December 8, 2015
The Newfoundland Nightmare
Newfoundland's economic problems are all structural, and now those problems are all coming home to roost. The structural part is not new. In fact, they trace back to the "merchant" days here - which in many ways have not changed. A small group of select families have controlled everything from insurance to resources, and everything in between for centuries here. Looking through that prism it is easy to see "modern" Newfoundland and Labrador's key structural problems.
Everything that is worth anything is controlled privately. Now, pure economists or extreme capitalists will argue that isn't a structural problem, but rather the way it ought to be. However, a province with such a small population must have a revenue stream greater than more populated provinces in order to adequately support its operations. In Newfoundland's case, successive governments have sold that revenue generating capacity away. The province is at the point where its major streams of Crown corporation revenue, other than oil royalties, rests really in liquor and gaming, and to some extent Nalcor Energy/NL Hydro.
It is quite easy to see why NL Hydro and Nalcor are still in government hands. Firstly, NL Hydro is not a money maker. Its primary function is to generate power - not retail it (where the money is). In other words, taxpayers pay for the generation of power, and NL Power (Fortis Corp) sell the power at retail prices while avoiding the costly problem of infrastructure to produce it. It's a win-win for NL Power, and a lose-lose for the average citizen.
Another industry which should be nationalized, or never privatized as it was, includes the insurance industry. The provincial government sees almost nothing of the car insurance, house insurance industry revenues that regenerate annually.
Telecommunications is another example. There is no provincial phone/cable company that could generate annualized revenue for provincial coffers.
Now all this may sound a little socialist in its undertones, but the bottom line is all the worth while wealth of the province has been transferred from the public's hands. That means there is not sufficient cash flow returning to the provincial coffers to adequately fund a modern quality of life. This becomes glaringly obvious when the one gravy train,oil, falls on its face. That is exactly where we are at today, and where we keep finding ourselves in the future. Structurally there can be no other result.
However, it isn't just the "little" people that get hurt in this cannibalistic economy. Small and medium sized businesses, municipal governments, non-governmental actors, and even the provincial government suffer as well. Eventually the loss of revenue from the local economy results in: less consumption of goods and services; higher government taxes; and uneven business cycles. That makes economic activity and necessary governmental wealth unstable and inadequate. And all that combined puts Newfoundland and Labrador's economic and social existence on thin ice - which in turn results in out migration, which in turn makes the core problems even worse.
Eventually all this must come to a head and fail. I believe we are almost at this point now. With an accumulated deficit now reaching almost 9 billion dollars, and structural budget deficits of at least a billion dollars a year for the foreseeable future, there is no answer for this province's nightmare. Raising taxes further will kill whatever consumption economy is left here, while failing to do so will kill governmental activity. Cutting civil service jobs may make governmental activity somewhat more efficient, but it will also severely damage the one "stable" economic driver for consumption. In short, the economic elites in the province have managed to paint all of us into the proverbial corner. There are no immediate solutions left. Nationalization of key industries like power, cable and insurance would provide some long term stability, but would require putting out money now that the province doesn't have. All in all it's a nightmare - a Newfoundland nightmare to be sure.
Everything that is worth anything is controlled privately. Now, pure economists or extreme capitalists will argue that isn't a structural problem, but rather the way it ought to be. However, a province with such a small population must have a revenue stream greater than more populated provinces in order to adequately support its operations. In Newfoundland's case, successive governments have sold that revenue generating capacity away. The province is at the point where its major streams of Crown corporation revenue, other than oil royalties, rests really in liquor and gaming, and to some extent Nalcor Energy/NL Hydro.
It is quite easy to see why NL Hydro and Nalcor are still in government hands. Firstly, NL Hydro is not a money maker. Its primary function is to generate power - not retail it (where the money is). In other words, taxpayers pay for the generation of power, and NL Power (Fortis Corp) sell the power at retail prices while avoiding the costly problem of infrastructure to produce it. It's a win-win for NL Power, and a lose-lose for the average citizen.
Another industry which should be nationalized, or never privatized as it was, includes the insurance industry. The provincial government sees almost nothing of the car insurance, house insurance industry revenues that regenerate annually.
Telecommunications is another example. There is no provincial phone/cable company that could generate annualized revenue for provincial coffers.
Now all this may sound a little socialist in its undertones, but the bottom line is all the worth while wealth of the province has been transferred from the public's hands. That means there is not sufficient cash flow returning to the provincial coffers to adequately fund a modern quality of life. This becomes glaringly obvious when the one gravy train,oil, falls on its face. That is exactly where we are at today, and where we keep finding ourselves in the future. Structurally there can be no other result.
However, it isn't just the "little" people that get hurt in this cannibalistic economy. Small and medium sized businesses, municipal governments, non-governmental actors, and even the provincial government suffer as well. Eventually the loss of revenue from the local economy results in: less consumption of goods and services; higher government taxes; and uneven business cycles. That makes economic activity and necessary governmental wealth unstable and inadequate. And all that combined puts Newfoundland and Labrador's economic and social existence on thin ice - which in turn results in out migration, which in turn makes the core problems even worse.
Eventually all this must come to a head and fail. I believe we are almost at this point now. With an accumulated deficit now reaching almost 9 billion dollars, and structural budget deficits of at least a billion dollars a year for the foreseeable future, there is no answer for this province's nightmare. Raising taxes further will kill whatever consumption economy is left here, while failing to do so will kill governmental activity. Cutting civil service jobs may make governmental activity somewhat more efficient, but it will also severely damage the one "stable" economic driver for consumption. In short, the economic elites in the province have managed to paint all of us into the proverbial corner. There are no immediate solutions left. Nationalization of key industries like power, cable and insurance would provide some long term stability, but would require putting out money now that the province doesn't have. All in all it's a nightmare - a Newfoundland nightmare to be sure.
Monday, November 16, 2015
The Tyranny of the Majority
It seems that Newfoundlanders and Labradorians are on the verge of breaking the old rule : "Insanity: doing the same thing over and over again and expecting different results - Albert Einstein". Over and over again people vote en mass for one party, get royally betrayed and disillusioned, swap colours, and do it all over again for the other side. Each time huge majorities are given to the winning side, while the opposing side sits with a rump of 3-5 MHAs. The old saying is that power corrupts, and absolute power corrupts absolutely. Yet, here we go again.
According to all the polls the Liberals have between 70-80% of the decided vote. What that means is 40 seats for the Liberals, 0 seats for the NDP and ditto for the PCs. When that happens the Liberals must pick, from among their members, MHAs to sit as Opposition. Imagine that. We are just coming out of one of the darkest periods in oppressive government here, and yet we are prepared to set ourselves up for another.
Some of my fellow bloggers have railed against the NDP for bringing this matter to the public attention as an issue to consider when voting. Terms such as "fear mongering" are being thrown out there. Yet, isn't it just plain common sense? Of course it is. It's also good political strategy. Many people here say we want an effective opposition - just not from my District. That's another hang over issue from the political culture of "road politics" that still pervades the province's mentality.
The truth is the NDP are really the only party well suited for Opposition today. Firstly, and most importantly, they aren't the PCs. PC party politicians have been responsible for fiascoes ranging from massive overspending that's left the treasury bust, to unresolved questions over the killing of injured worker (and injured worker advocate) Don Dunphy in his home on Easter Sunday at the hands of Premier Paul Davis's good friend and bodyguard Sgt Joe Smyth of the RNC. They brought us Bill 29. They disallowed any meaningful public scrutiny of Nalcor. They created a financial albatross on Muskrat Falls. Just this year they committed to borrowing $2 billion to have a budgetary deficit of $1 Billion. Yet, as we all know, those figures were based on $63 barrel for oil. It's now $20 less than that. The list goes on and on and on.
Strangely, perhaps, it was the PCs own unbelievable arrogance that finally brought them down. It blinded them from seeing what they were doing was wrong. It led to an assault on the government by a few bloggers, and some local activists on radio shows and social media. A switch in the national political scene brought the death nail as Trudeau's arrival as Liberal leader 2 years ago marked the moment the decline began in a hurry. There is a lesson in that for Dwight Ball. It wasn't anything he did that brought an end to the Tory Tyranny. It was a combination of a hearts and minds war conducted by a few on the ground, and a final coup de grace with a switch in national fortunes. He would do well to commit that to the forefront of his memory.
With the PCs ruled out as Opposition, by any measure of common sense, the NDP ought to be the default go to party. They are in some ways ideally suited given their roots in social activism and claim to represent the "working man". The next many years, let's just say the foreseeable future, this province is going to see public service cuts, spending cuts, and unemployment that it has not seen in decades - at the least. Given the way the PCs spent, and committed future funds, there is no realistic alternative. It will be a blood bath. A social voice is needed in those circumstances in any case. So, the need for an effective Opposition and an effective social voice should cause the people of the Province to elect at least a rump of an NDP Opposition - although somewhere around 10 or so seats would be better. The odds of this happening are in the hands of the NDP, and to some extent the Liberals. Ball ought to be cautioning people against a 40 seat landslide. I know that sounds politically iffy, but it also sounds statesmanlike and mature. The NDP ought to be selling the need for an effective Opposition, and one that is not responsible for the financial disaster unfolding in the Province. It's a no-brainer, right? I guess we will see if Newfoundlanders and Labradorians have learned much from the last 10 years, or whether they enjoy the tyranny of the majority - the absolute majority.
According to all the polls the Liberals have between 70-80% of the decided vote. What that means is 40 seats for the Liberals, 0 seats for the NDP and ditto for the PCs. When that happens the Liberals must pick, from among their members, MHAs to sit as Opposition. Imagine that. We are just coming out of one of the darkest periods in oppressive government here, and yet we are prepared to set ourselves up for another.
Some of my fellow bloggers have railed against the NDP for bringing this matter to the public attention as an issue to consider when voting. Terms such as "fear mongering" are being thrown out there. Yet, isn't it just plain common sense? Of course it is. It's also good political strategy. Many people here say we want an effective opposition - just not from my District. That's another hang over issue from the political culture of "road politics" that still pervades the province's mentality.
The truth is the NDP are really the only party well suited for Opposition today. Firstly, and most importantly, they aren't the PCs. PC party politicians have been responsible for fiascoes ranging from massive overspending that's left the treasury bust, to unresolved questions over the killing of injured worker (and injured worker advocate) Don Dunphy in his home on Easter Sunday at the hands of Premier Paul Davis's good friend and bodyguard Sgt Joe Smyth of the RNC. They brought us Bill 29. They disallowed any meaningful public scrutiny of Nalcor. They created a financial albatross on Muskrat Falls. Just this year they committed to borrowing $2 billion to have a budgetary deficit of $1 Billion. Yet, as we all know, those figures were based on $63 barrel for oil. It's now $20 less than that. The list goes on and on and on.
Strangely, perhaps, it was the PCs own unbelievable arrogance that finally brought them down. It blinded them from seeing what they were doing was wrong. It led to an assault on the government by a few bloggers, and some local activists on radio shows and social media. A switch in the national political scene brought the death nail as Trudeau's arrival as Liberal leader 2 years ago marked the moment the decline began in a hurry. There is a lesson in that for Dwight Ball. It wasn't anything he did that brought an end to the Tory Tyranny. It was a combination of a hearts and minds war conducted by a few on the ground, and a final coup de grace with a switch in national fortunes. He would do well to commit that to the forefront of his memory.
With the PCs ruled out as Opposition, by any measure of common sense, the NDP ought to be the default go to party. They are in some ways ideally suited given their roots in social activism and claim to represent the "working man". The next many years, let's just say the foreseeable future, this province is going to see public service cuts, spending cuts, and unemployment that it has not seen in decades - at the least. Given the way the PCs spent, and committed future funds, there is no realistic alternative. It will be a blood bath. A social voice is needed in those circumstances in any case. So, the need for an effective Opposition and an effective social voice should cause the people of the Province to elect at least a rump of an NDP Opposition - although somewhere around 10 or so seats would be better. The odds of this happening are in the hands of the NDP, and to some extent the Liberals. Ball ought to be cautioning people against a 40 seat landslide. I know that sounds politically iffy, but it also sounds statesmanlike and mature. The NDP ought to be selling the need for an effective Opposition, and one that is not responsible for the financial disaster unfolding in the Province. It's a no-brainer, right? I guess we will see if Newfoundlanders and Labradorians have learned much from the last 10 years, or whether they enjoy the tyranny of the majority - the absolute majority.
Thursday, October 22, 2015
The King is Dead. Long Live the King
The oil world as we have known it is dead.
As the established market price setter, OPEC has reigned supreme internationally since 1960. In that year Saudi Arabia, Iran, Iraq, Venezuela and Kuwait founded the organization - known as the "Founding Members". In 1973, US President Richard Nixon signed an agreement with Saudi Arabia that in exchange for US protection, and arms, the Saudis would accept only US dollars in oil transactions. The other OPEC members then followed suit. All was well in the Kingdom.
Things have changed for three primary reasons. Firstly, China has risen to the point where it is now the second largest consumer of oil in the world. Secondly, the US with its fracking policies has now become the largest producer of oil in the world. Thirdly, Russia has grown to challenge Saudi Arabia's production levels. Three monumental shifts. Essentially the shifts have on the one hand structurally reduced the value of oil, and on the other hand have changed the demand cycle for oil.
Between 1973 and 1980, the US produced roughly an equal amount of oil as that of Saudi Arabia. However, from 1980 to 2009 US production dropped dramatically until the fracking revolution again placed it near Saudi production. At the same time Russia dramatically grew its production of oil just after the collapse of the Soviet Union in the 1990's, to the point that Russia shares top spot with the US, and Saudi.
Then there were wars. The US and Saudi Arabia covertly and overtly attempted to either control or destroy the oil capabilities of Iran, Iraq and Venezuela (three of OPEC's founding members) by way of military force or revolution. For the most part these actions were successful to one degree or another. However, now all three have gravitated toward Russia and China for their economic well being. In a sense, this is another monumental shift to add to the three above.
That brings us to today. Russia and China have moved to eliminate the US as the controller of world-wide oil wealth. They have created a Eurasian trading community that speaks to the production of oil, and perhaps more importantly the consumption of oil.
In 2015, Russia and China began signing oil supply and purchase agreements that required transactions to be conducted in local currencies - not US dollars. That had the effect of increasing oil production and trading among the Eurasian bloc of countries. It excluded the US, but also Saudi Arabia, from oil market influence. For example, Russia signed agreements with Venezuela to swap Venezuelan oil for Russian consumer goods - not much different than the old Soviet model of international trading. China signed oil supply agreements with Iran. And so it goes.
That left the old King of OPEC, Saudi Arabia, out in the cold. In an attempt to restore its position Saudi Arabia increased production, along with the Americans, The resulting massive price per barrel decline had the effect of driving many countries into recession and/or hyperinflation (Venezuela). But, and it's a big but, the move failed in its objective. The Eurasian community, and its allies, simply turned inward and compensated each other by trading in their own currencies and products.
Hence the recent visits by Saudi royalty to Russia. On the face of it, Saudi is looking for Russian cooperation in Syria - ie: a departure of Russia from the Syria conflict. However, the real reason for the sudden Saudi diplomacy toward Russia is peace overtures in an oil war they have lost. Saudi is now a lonely supplier of oil running out of markets. Worse for them, the US now no longer needs them for supply and or control of OPEC. The new OPEC is in Eurasia. Specifically Russia.
What all this means for the world of oil is that the cartel days are over. The US stands alone as an oil force. Eurasia and allies stand alone as an oil force. Saudi stands alone with Kuwait and Qatar. It means that world oil prices will now be permanently depressed - likely well below where they rest today. It means an end to the boom of the expensive oil exploration and trade that fueled petro economies around the world - my own included. It's a new reality. Oil is no longer King, and it is no longer exclusive. So, while OPEC is dead, a new oil King has been anointed. That King without any doubt whatsoever is Eurasia.
As the established market price setter, OPEC has reigned supreme internationally since 1960. In that year Saudi Arabia, Iran, Iraq, Venezuela and Kuwait founded the organization - known as the "Founding Members". In 1973, US President Richard Nixon signed an agreement with Saudi Arabia that in exchange for US protection, and arms, the Saudis would accept only US dollars in oil transactions. The other OPEC members then followed suit. All was well in the Kingdom.
Things have changed for three primary reasons. Firstly, China has risen to the point where it is now the second largest consumer of oil in the world. Secondly, the US with its fracking policies has now become the largest producer of oil in the world. Thirdly, Russia has grown to challenge Saudi Arabia's production levels. Three monumental shifts. Essentially the shifts have on the one hand structurally reduced the value of oil, and on the other hand have changed the demand cycle for oil.
Between 1973 and 1980, the US produced roughly an equal amount of oil as that of Saudi Arabia. However, from 1980 to 2009 US production dropped dramatically until the fracking revolution again placed it near Saudi production. At the same time Russia dramatically grew its production of oil just after the collapse of the Soviet Union in the 1990's, to the point that Russia shares top spot with the US, and Saudi.
Then there were wars. The US and Saudi Arabia covertly and overtly attempted to either control or destroy the oil capabilities of Iran, Iraq and Venezuela (three of OPEC's founding members) by way of military force or revolution. For the most part these actions were successful to one degree or another. However, now all three have gravitated toward Russia and China for their economic well being. In a sense, this is another monumental shift to add to the three above.
That brings us to today. Russia and China have moved to eliminate the US as the controller of world-wide oil wealth. They have created a Eurasian trading community that speaks to the production of oil, and perhaps more importantly the consumption of oil.
In 2015, Russia and China began signing oil supply and purchase agreements that required transactions to be conducted in local currencies - not US dollars. That had the effect of increasing oil production and trading among the Eurasian bloc of countries. It excluded the US, but also Saudi Arabia, from oil market influence. For example, Russia signed agreements with Venezuela to swap Venezuelan oil for Russian consumer goods - not much different than the old Soviet model of international trading. China signed oil supply agreements with Iran. And so it goes.
That left the old King of OPEC, Saudi Arabia, out in the cold. In an attempt to restore its position Saudi Arabia increased production, along with the Americans, The resulting massive price per barrel decline had the effect of driving many countries into recession and/or hyperinflation (Venezuela). But, and it's a big but, the move failed in its objective. The Eurasian community, and its allies, simply turned inward and compensated each other by trading in their own currencies and products.
Hence the recent visits by Saudi royalty to Russia. On the face of it, Saudi is looking for Russian cooperation in Syria - ie: a departure of Russia from the Syria conflict. However, the real reason for the sudden Saudi diplomacy toward Russia is peace overtures in an oil war they have lost. Saudi is now a lonely supplier of oil running out of markets. Worse for them, the US now no longer needs them for supply and or control of OPEC. The new OPEC is in Eurasia. Specifically Russia.
What all this means for the world of oil is that the cartel days are over. The US stands alone as an oil force. Eurasia and allies stand alone as an oil force. Saudi stands alone with Kuwait and Qatar. It means that world oil prices will now be permanently depressed - likely well below where they rest today. It means an end to the boom of the expensive oil exploration and trade that fueled petro economies around the world - my own included. It's a new reality. Oil is no longer King, and it is no longer exclusive. So, while OPEC is dead, a new oil King has been anointed. That King without any doubt whatsoever is Eurasia.
Monday, May 18, 2015
ISIS - Frankenstein or Bait?
ISIS, the Sunni Islamic militant force, is the birth child of a marriage between Saudi Arabia's regional ambition and the United States' geo-strategic interests. It's really that simple. It's ramifications are not quite so simple.
The Americans have always been aware that having Sunnis in charge of a country keeps the lid on things - to their benefit. It's been an ongoing theme now for almost 80 years. Saudi Arabia is the "world headquarters" for the Sunni sect. It has the strategic alliance with the US. It has the money because of that alliance, and it uses the money to arm itself and its Sunni allies. The same is true for Iran - with the exception of who is in charge since the Shah of Iran was overthrown in the late 1990's. There is a common thread throughout this history. It cannot seriously be denied. It's obvious. The United States lies behind Saudi Arabia, and American controlled Sunni governments are kept in power to preserve that alliance.
In recent times, there are two classic examples of Sunni leaders that were brought down by US military power at the behest of Saudi Arabia - Muammar Gaddafi and Saddam Hussein. Both challenged Saudi Arabia's control of the Middle East, and both were overthrown with the decisive assistance, or actual military intervention of the US. Each publicly stated the US would never overthrow them, because to do so would mean Al Qaeda would take over. Both were wrong. It begs the question, why were both so convinced that the US would not overthrow them and let Al Qaeda, a Sunni militant movement, take over?
The answer lies in US "strategic interests", not just in the Middle East, but beyond. ISIS, the new version of Al Qaeda, is challenging for control of Iraq, Syria, and Yemen. In Yemen, ISIS is fighting the Shia Houthi, who have overthrown the Saudi-supported Sunni leader there. In Iraq and Syria, ISIS is aiming for full control of both countries, and the overthrow of their Shia leadership. ISIS is even attempting to destabilize Hezbollah (Shia) in Lebanon, and challenge Sunni Hamas over control in the Gaza strip. In effect and reality, ISIS is the foreign legion of Saudi Arabia and therefore the US.
Now, people will say that ISIS is a threat to the West. That simply is not true. ISIS is a threat to Shia governments in the Middle East, and too-moderate Sunni governments, but has no chance of harming Western civilization. Some will sight the deaths in Canada and Europe at the hands of ISIS as proof that our civilization is under threat, and draconian laws are necessary to stop them. That simply is not true. In fact, all ISIS did was activate two people, in the case of France three, to conduct targeted hits in Western countries that caused fury - but no national damage. It was not there, then it was there, and now it is not. A bogey man so too speak. Enough of a scare that people would get behind their military intervening in Syria, Iraq and Yemen. Not enough to do any sort of damage whatsoever to the security of these Western countries. A slight of hand if you will.
It challenges the mind to think that the combined air might of Western countries could not reduce ISIS in Syria and Iraq into dust within a few weeks at most. It did so when ISIS went rogue and tried to take Iraqi Kurdistan in Iraq's north. ISIS was almost immediately stopped dead in its tracks. Of course, the Kurdish lands in northern Iraq have become almost a US protectorate - and US oil company haven. But, in the rest of Iraq, it seems the air campaign has almost no effect on ISIS operations.
Now, just yesterday the major Iraqi city of Ramadi has fallen to ISIS. And, today, thousands of Shia militia men are gathering to try and take it back. Ramadi is important for several reasons. Firstly, it is very close to Baghdad and provides a major base of operations for ISIS to attack Baghdad itself. Secondly, it is a major psychological blow to Iraq's Shia government and its people. Thirdly, and perhaps most importantly, it is a direct threat to Iran. It is a threat that Iran will no longer be able to ignore. Hence, Iran's Minister of Defence arrived in Baghdad today for "talks". Iran's allies in Yemen, Lebanon, Syria, and now Iraq are being seriously threatened by ISIS, on behalf of Saudi Arabia, on behalf of the US. Its back is now close to being up against the wall. If it fails to militarily intervene in Iraq decisively, and early enough, it risks having the ISIS hordes on its own border. If it does intervene now it risks a counter military intervention by Saudi Arabia in Iraq. It's all in the calculation. Unfortunately for the world, it appears now the calculations are pointing toward war with Iraq being the primary battleground.
So, is ISIS a Frankenstein created by Saudi Arabia, out of control, and allowed by the US, or is it bait to lure Iran into a decisive war and its ultimate defeat. One thing is certain, it's not both. ISIS is not a Frankenstein that once created has left the control of its master, and is rampaging across the Middle East out of control. No. ISIS is a tool to undermine Shia influence in the Middle East. To destroy it. To establish once and for all that Sunnis are to dominate power over all the Middle East, and especially the Shia. It's an ancient battle of the two Islamic sects. Each considers the other heretics. Each believes heretics must die. ISIS is a weapon. A weapon of mass destruction. An invitation to much greater mass destruction on a regional level, and then perhaps a global level. ISIS is bait to lure Iran into war, and then presumably Russia, China, India, etc. ISIS is also a weapon to lure the US into a war against Iran in the "defence" of Saudi Arabia. It's a playbook if you will for a world war. ISIS is a weapon in the hands of men that don't want peace or stability in the world. In that way, ISIS is a menace to all of us.
The Americans have always been aware that having Sunnis in charge of a country keeps the lid on things - to their benefit. It's been an ongoing theme now for almost 80 years. Saudi Arabia is the "world headquarters" for the Sunni sect. It has the strategic alliance with the US. It has the money because of that alliance, and it uses the money to arm itself and its Sunni allies. The same is true for Iran - with the exception of who is in charge since the Shah of Iran was overthrown in the late 1990's. There is a common thread throughout this history. It cannot seriously be denied. It's obvious. The United States lies behind Saudi Arabia, and American controlled Sunni governments are kept in power to preserve that alliance.
In recent times, there are two classic examples of Sunni leaders that were brought down by US military power at the behest of Saudi Arabia - Muammar Gaddafi and Saddam Hussein. Both challenged Saudi Arabia's control of the Middle East, and both were overthrown with the decisive assistance, or actual military intervention of the US. Each publicly stated the US would never overthrow them, because to do so would mean Al Qaeda would take over. Both were wrong. It begs the question, why were both so convinced that the US would not overthrow them and let Al Qaeda, a Sunni militant movement, take over?
The answer lies in US "strategic interests", not just in the Middle East, but beyond. ISIS, the new version of Al Qaeda, is challenging for control of Iraq, Syria, and Yemen. In Yemen, ISIS is fighting the Shia Houthi, who have overthrown the Saudi-supported Sunni leader there. In Iraq and Syria, ISIS is aiming for full control of both countries, and the overthrow of their Shia leadership. ISIS is even attempting to destabilize Hezbollah (Shia) in Lebanon, and challenge Sunni Hamas over control in the Gaza strip. In effect and reality, ISIS is the foreign legion of Saudi Arabia and therefore the US.
Now, people will say that ISIS is a threat to the West. That simply is not true. ISIS is a threat to Shia governments in the Middle East, and too-moderate Sunni governments, but has no chance of harming Western civilization. Some will sight the deaths in Canada and Europe at the hands of ISIS as proof that our civilization is under threat, and draconian laws are necessary to stop them. That simply is not true. In fact, all ISIS did was activate two people, in the case of France three, to conduct targeted hits in Western countries that caused fury - but no national damage. It was not there, then it was there, and now it is not. A bogey man so too speak. Enough of a scare that people would get behind their military intervening in Syria, Iraq and Yemen. Not enough to do any sort of damage whatsoever to the security of these Western countries. A slight of hand if you will.
It challenges the mind to think that the combined air might of Western countries could not reduce ISIS in Syria and Iraq into dust within a few weeks at most. It did so when ISIS went rogue and tried to take Iraqi Kurdistan in Iraq's north. ISIS was almost immediately stopped dead in its tracks. Of course, the Kurdish lands in northern Iraq have become almost a US protectorate - and US oil company haven. But, in the rest of Iraq, it seems the air campaign has almost no effect on ISIS operations.
Now, just yesterday the major Iraqi city of Ramadi has fallen to ISIS. And, today, thousands of Shia militia men are gathering to try and take it back. Ramadi is important for several reasons. Firstly, it is very close to Baghdad and provides a major base of operations for ISIS to attack Baghdad itself. Secondly, it is a major psychological blow to Iraq's Shia government and its people. Thirdly, and perhaps most importantly, it is a direct threat to Iran. It is a threat that Iran will no longer be able to ignore. Hence, Iran's Minister of Defence arrived in Baghdad today for "talks". Iran's allies in Yemen, Lebanon, Syria, and now Iraq are being seriously threatened by ISIS, on behalf of Saudi Arabia, on behalf of the US. Its back is now close to being up against the wall. If it fails to militarily intervene in Iraq decisively, and early enough, it risks having the ISIS hordes on its own border. If it does intervene now it risks a counter military intervention by Saudi Arabia in Iraq. It's all in the calculation. Unfortunately for the world, it appears now the calculations are pointing toward war with Iraq being the primary battleground.
So, is ISIS a Frankenstein created by Saudi Arabia, out of control, and allowed by the US, or is it bait to lure Iran into a decisive war and its ultimate defeat. One thing is certain, it's not both. ISIS is not a Frankenstein that once created has left the control of its master, and is rampaging across the Middle East out of control. No. ISIS is a tool to undermine Shia influence in the Middle East. To destroy it. To establish once and for all that Sunnis are to dominate power over all the Middle East, and especially the Shia. It's an ancient battle of the two Islamic sects. Each considers the other heretics. Each believes heretics must die. ISIS is a weapon. A weapon of mass destruction. An invitation to much greater mass destruction on a regional level, and then perhaps a global level. ISIS is bait to lure Iran into war, and then presumably Russia, China, India, etc. ISIS is also a weapon to lure the US into a war against Iran in the "defence" of Saudi Arabia. It's a playbook if you will for a world war. ISIS is a weapon in the hands of men that don't want peace or stability in the world. In that way, ISIS is a menace to all of us.
Thursday, April 30, 2015
NL Budget 2015 - Practiced at the Art of Deception
There are two words that come to mind after reading budgetary estimates for 2015 in this province: election; and deception. Actually there is a third - tragic. For starters, the biggest bomb of all is that our actual budget deficit for 2015 is $2,092,867 billion. Not the $900 plus million that's being thrown about in the media. Here's how it breaks down:
Total revenue for 2015 is projected to be: $ 5,757,328 billion
Current Account Expenditures for 2015: - $ 6,659,952 billion
Capital Account Expenditures for 2015: - $ 1,143,743 billion
Need to borrow for 2015: $ 2,092,867 billion
Now the politicians are saying that capital spending is not a part of the deficit, but the fact is that it is. The University of Calgary just issued its report stating they saw the deficit coming in at $1.8 billion, so they were actually a little light. The government here likes to deceive people by saying this or that isn't included. Like, for instance former premier and finance minister Marshall's statement that the money allocated to Natural Resources, and then reallocated to Nalcor each year for the last three years does not contribute to the deficit. Yet, his estimates each year clearly show the transfer from the General Revenue Fund to the Department of Natural Resources. That number factors into the expenditures of the department. That is how it's accounted for.
The truth, according to the government's own budget estimates is that fiscal 2014 saw a cash shortfall of $ 1,051,798 billion. In other words, the total amount needed to borrow for last year, and this year is approximately $3.2 billion - which will go directly to our gross debt.
Speaking of gross debt, that is the total money we owe and are making debt payments on, 2015 will see it rise to $13, 889 billion. In 2003, before the oil money really started rolling in, that number was $8,932 billion. This year we will pay just over $770 million in interest charges/debt expenses. In 2003 that number was $520 million. Revenue this year is projected to be $5.7 billion. In 2003 it was $3.7 billion. The total budget expenses in 2015 is projected to be $8.2 billion. In 2003 it was 3.6 billion. So, in other words, after 12 years of oil, and over $20 billion of oil revenue brought in, we are spending over 200% more annually to run the affairs of the province,with revenue that has only increased 65%. That's shocking. That's catastrophic financially. It's called structural deficits with huge debt accumulations.
It's no wonder that Standard and Poors warned the provincial government last year to shed the weight of the public pension plans or face a credit downgrade. They knew the government was heading into massive deficit, therefore added debt, and in order to keep that rating we had to cut the pensions loose. Still, you can expect a credit downgrade imminently at this rate.
Now to the politics. The utter sleazy politics of deceiving your own people to further your political hopes. The PCs have scheduled an HST increase of 2% effective January 1, 2016, or about two months after the next election. They've pledged not to replace 20% of the public service as it retires over the next 5 years... the next five years. They've committed to an all day kindergarten starting in 2016..2016. In other words, none of the big hits or programs start until AFTER the next election. That way, the PCs are serving a budget up they hope won't immediately affect the pocket books of voters - ie: re-election. The horrific truth is that no matter what government is elected in November, 2015, a financial disaster never seen in modern time Newfoundland and Labrador awaits. The Liberals have already said they will cancel the increase on election, but can they?
2016 will not be much better, and likely much worse for the province's finances and economy. We are on the cusp of a provincial recession as it is. Almost 30% of all employees in the province work for the provincial government. They likely compromise about 80% of the higher incomes here. Keep in mind that 30% of residents here are too poor to pay any income tax. The PC's have said the government will have to borrow $5 billion over the next 5 years. That's just an outright lie. Just for starters, the federal loan guarantee is only now starting to kick in for Muskrat Falls. That loan requirement is at least $5 billion, and many experts suggest it could reach $8 billion in additional borrowing beyond the $2.6 billion the province has invested in cash. In fact, the federal loan guarantee won't kick in until at least 35% of the total project cost is paid in cash by the province. That $5-* billion has to be paid within 2 years for the 2017 first power date to be met. Then there is the minimum $750 million investment in Hebron which must be paid upfront. And so it goes. Considering the government is spending $1 billion a year more than it brings in just to operate government - not including fancy projects like Muskrat Falls and Hebron - the next government is looking at massive cuts. A 2% increase in the HST will only bring in about $300 million at the most - if the economy remains at the level it is.
Unfortunately, the economy won't be remaining where its at now. Construction and real estate are falling rapidly. Oil companies are scratching development projects as the international trade war with Eurasia begins to heat up. It's worth noting that Russia is the number one exporter of oil and natural gas in the world, not Saudi Arabia, and they can hit us hard. Expect that to happen as the BRIC countries solidify their oil for food and the like trade deals with Russia and China. None of this is being explained in any way to the people of the Province. The real truth is we had a window, a ten year window, to reap as much as we could from our oil. We didn't. We squandered it in a money-mad drunk fest. Now the party is over. Was Danny Williams the best premier this province has ever had? No. He was the worst premier this province ever had. His actions have caused irreparable harm to the place and the people. That is the truth. The numbers speak for themselves. Don't believe the deception spun by the entrails of the Williams government. Realize that as a people we have been deceived in an almost unimaginable way.
Total revenue for 2015 is projected to be: $ 5,757,328 billion
Current Account Expenditures for 2015: - $ 6,659,952 billion
Capital Account Expenditures for 2015: - $ 1,143,743 billion
Need to borrow for 2015: $ 2,092,867 billion
Now the politicians are saying that capital spending is not a part of the deficit, but the fact is that it is. The University of Calgary just issued its report stating they saw the deficit coming in at $1.8 billion, so they were actually a little light. The government here likes to deceive people by saying this or that isn't included. Like, for instance former premier and finance minister Marshall's statement that the money allocated to Natural Resources, and then reallocated to Nalcor each year for the last three years does not contribute to the deficit. Yet, his estimates each year clearly show the transfer from the General Revenue Fund to the Department of Natural Resources. That number factors into the expenditures of the department. That is how it's accounted for.
The truth, according to the government's own budget estimates is that fiscal 2014 saw a cash shortfall of $ 1,051,798 billion. In other words, the total amount needed to borrow for last year, and this year is approximately $3.2 billion - which will go directly to our gross debt.
Speaking of gross debt, that is the total money we owe and are making debt payments on, 2015 will see it rise to $13, 889 billion. In 2003, before the oil money really started rolling in, that number was $8,932 billion. This year we will pay just over $770 million in interest charges/debt expenses. In 2003 that number was $520 million. Revenue this year is projected to be $5.7 billion. In 2003 it was $3.7 billion. The total budget expenses in 2015 is projected to be $8.2 billion. In 2003 it was 3.6 billion. So, in other words, after 12 years of oil, and over $20 billion of oil revenue brought in, we are spending over 200% more annually to run the affairs of the province,with revenue that has only increased 65%. That's shocking. That's catastrophic financially. It's called structural deficits with huge debt accumulations.
It's no wonder that Standard and Poors warned the provincial government last year to shed the weight of the public pension plans or face a credit downgrade. They knew the government was heading into massive deficit, therefore added debt, and in order to keep that rating we had to cut the pensions loose. Still, you can expect a credit downgrade imminently at this rate.
Now to the politics. The utter sleazy politics of deceiving your own people to further your political hopes. The PCs have scheduled an HST increase of 2% effective January 1, 2016, or about two months after the next election. They've pledged not to replace 20% of the public service as it retires over the next 5 years... the next five years. They've committed to an all day kindergarten starting in 2016..2016. In other words, none of the big hits or programs start until AFTER the next election. That way, the PCs are serving a budget up they hope won't immediately affect the pocket books of voters - ie: re-election. The horrific truth is that no matter what government is elected in November, 2015, a financial disaster never seen in modern time Newfoundland and Labrador awaits. The Liberals have already said they will cancel the increase on election, but can they?
2016 will not be much better, and likely much worse for the province's finances and economy. We are on the cusp of a provincial recession as it is. Almost 30% of all employees in the province work for the provincial government. They likely compromise about 80% of the higher incomes here. Keep in mind that 30% of residents here are too poor to pay any income tax. The PC's have said the government will have to borrow $5 billion over the next 5 years. That's just an outright lie. Just for starters, the federal loan guarantee is only now starting to kick in for Muskrat Falls. That loan requirement is at least $5 billion, and many experts suggest it could reach $8 billion in additional borrowing beyond the $2.6 billion the province has invested in cash. In fact, the federal loan guarantee won't kick in until at least 35% of the total project cost is paid in cash by the province. That $5-* billion has to be paid within 2 years for the 2017 first power date to be met. Then there is the minimum $750 million investment in Hebron which must be paid upfront. And so it goes. Considering the government is spending $1 billion a year more than it brings in just to operate government - not including fancy projects like Muskrat Falls and Hebron - the next government is looking at massive cuts. A 2% increase in the HST will only bring in about $300 million at the most - if the economy remains at the level it is.
Unfortunately, the economy won't be remaining where its at now. Construction and real estate are falling rapidly. Oil companies are scratching development projects as the international trade war with Eurasia begins to heat up. It's worth noting that Russia is the number one exporter of oil and natural gas in the world, not Saudi Arabia, and they can hit us hard. Expect that to happen as the BRIC countries solidify their oil for food and the like trade deals with Russia and China. None of this is being explained in any way to the people of the Province. The real truth is we had a window, a ten year window, to reap as much as we could from our oil. We didn't. We squandered it in a money-mad drunk fest. Now the party is over. Was Danny Williams the best premier this province has ever had? No. He was the worst premier this province ever had. His actions have caused irreparable harm to the place and the people. That is the truth. The numbers speak for themselves. Don't believe the deception spun by the entrails of the Williams government. Realize that as a people we have been deceived in an almost unimaginable way.
Wednesday, December 31, 2014
Predictions for 2015 - Not a Pretty Picture
Last year my New Years predictions were for a "tumultuous, history making year". So this year I thought: "Well b'y, better be more specific."
For Newfoundland:
1. Halt of the Muskrat Falls project in the Courts.
2. Resignations of Ed Martin and Gilbert Bennet, and a large scale purging at Nalcor.
3. A Liberal government so large that it has to appoint its own members as Opposition ala Frank McKenna.
4. Large scale cuts to the civil service, and project spending.
5. A huge downturn in the economy reflected in high unemployment numbers and falling real estate prices.
6. A serious downturn in Labrador's mining, exploration, and economy as a whole.
7. Wide spread anger throughout the land.
For Canada:
1. A new Liberal dominated minority government, caused by drops of support in Ontario and BC for the Conservatives, and the NDP maintaining a strong hold in Quebec. Canadians won't trust that Trudeau is ready to run the show without the strong hand of Mulcair to keep him in check.
2. Declines of oil markets in Saskatchewan, Alberta, and here are too large to offset export gains in Ontario and Quebec, and the country enters recession.
3. Northern sovereignty is challenged by Russia, and to a lesser extent others.
4. Aboriginal rights and militancy increase dramatically over living conditions and resources.
5. Political unrest and economic decline make Canada a very unstable place to be, but then the world mirrors it.
For the World:
1. Russia and China escalate the stakes in their economic war with the US. They create formal international structures, based on the Chinese Yuan, to reduce US influence in the developing world.
2. Turkey leaves the NATO/ US sphere of influence and moves toward the Eurasian Alliance - fueled by disgust over Israeli treatment of the Palestinians and greater economic prospects with Russia and China.
3. The war in Ukraine escalates and Russia intervenes militarily. The Ukrainian government falls.
4. Europe enters a period of deflation and recession, that evolves into depression.
5. Argentina attempts to retake the Falkland Islands.
6. The United Kingdom begins the process of leaving the EU.
7. Investors in the US stock market panic over events in Europe and loss of trade markets, sell off, and cause the largest single crash of the the stock market since the 1920's.
All in all, not a very happy or positive outlook on the year 2015. Sorry for that. It's probably just as well that none of us have a crystal ball and can see the future, but, for what it's worth, this is my attempt. Seems to me that we can't avoid the economic realities that continue to unfold around us. The best we can do is try and protect our own. On the upside, every collision of history has always resulted in a better result down the line, so keep that in mind as we weather the storm that will be 2015.
For Newfoundland:
1. Halt of the Muskrat Falls project in the Courts.
2. Resignations of Ed Martin and Gilbert Bennet, and a large scale purging at Nalcor.
3. A Liberal government so large that it has to appoint its own members as Opposition ala Frank McKenna.
4. Large scale cuts to the civil service, and project spending.
5. A huge downturn in the economy reflected in high unemployment numbers and falling real estate prices.
6. A serious downturn in Labrador's mining, exploration, and economy as a whole.
7. Wide spread anger throughout the land.
For Canada:
1. A new Liberal dominated minority government, caused by drops of support in Ontario and BC for the Conservatives, and the NDP maintaining a strong hold in Quebec. Canadians won't trust that Trudeau is ready to run the show without the strong hand of Mulcair to keep him in check.
2. Declines of oil markets in Saskatchewan, Alberta, and here are too large to offset export gains in Ontario and Quebec, and the country enters recession.
3. Northern sovereignty is challenged by Russia, and to a lesser extent others.
4. Aboriginal rights and militancy increase dramatically over living conditions and resources.
5. Political unrest and economic decline make Canada a very unstable place to be, but then the world mirrors it.
For the World:
1. Russia and China escalate the stakes in their economic war with the US. They create formal international structures, based on the Chinese Yuan, to reduce US influence in the developing world.
2. Turkey leaves the NATO/ US sphere of influence and moves toward the Eurasian Alliance - fueled by disgust over Israeli treatment of the Palestinians and greater economic prospects with Russia and China.
3. The war in Ukraine escalates and Russia intervenes militarily. The Ukrainian government falls.
4. Europe enters a period of deflation and recession, that evolves into depression.
5. Argentina attempts to retake the Falkland Islands.
6. The United Kingdom begins the process of leaving the EU.
7. Investors in the US stock market panic over events in Europe and loss of trade markets, sell off, and cause the largest single crash of the the stock market since the 1920's.
All in all, not a very happy or positive outlook on the year 2015. Sorry for that. It's probably just as well that none of us have a crystal ball and can see the future, but, for what it's worth, this is my attempt. Seems to me that we can't avoid the economic realities that continue to unfold around us. The best we can do is try and protect our own. On the upside, every collision of history has always resulted in a better result down the line, so keep that in mind as we weather the storm that will be 2015.
Thursday, December 18, 2014
Putin Plays the West
It's early days in the battle I often refer to as the "Gold War". Russia and China, having announced their intention to form a new Eurasian economic order, inclusive of India and other BRIC nations, are now fending off blows from the West. The Russian ruble, currently pegged to the US dollar, has been taking a hammering as the US and more specifically its ally Saudi Arabia, glut the world oil market forcing a massive decline in the price per barrel. One has to assume it's part of the "price" Obama said Russia would pay for its intervention to materially support Eastern Ukraine (Novorossyia) separatist forces. That's just on the face of it though.
Consider and remember that China is the bank and Russia is the sword of the new Eurasian alliance. The goal of that alliance is not to do well under the US dollar, but to replace the US dollar as the world's reserve currency with either a new currency or the Chinese yuan. That is important. Both China and Russia have large reserves of foreign currency - in Russia's case nearly $500 billion.
Then consider Russian President Putin. He rose through Russia's power ranks as an intelligence officer. That is one of three important pieces of the pie. That means: he uses deception and part truths to achieve an end; he is disciplined and demands the same of others in his circle; he is ruthless and flexible in achieving his goals; and he will never crack. Secondly, he is a judo master. That means he uses movement and blocking to defend against blows, but most importantly he uses the energy of his enemy as his own to defeat an attack. That part is critically important to remember. Finally, he is Russian. Russians have a proud place in world history due to the massive and brutal sacrifices they have made along the way. The most recent of which was the 25 million Russians who died during World War Two while ensnaring most of Hitler's armies, and giving the other allies time to organize and become engaged. Russians are used to sacrifice, and are super sensitive about the "Motherland" being prosecuted by foreigners.
Putin is using all three of these elements. He is using the Motherland as the force behind him, that will hold him upright in battle. He is using judo to block, move, and use the energy of his foes. He remains disciplined to his cause while apparently allowing his foe to walk into, no run into, his trap.
Why did Putin move into Crimea, and then support (with deniability) Eastern Ukraine separatists? What purpose does a "frozen conflict", as some call it, serve? Well, it's simply a means to an end. On the one hand it's defensive as the US took over influence of Ukraine, on Russia's border. On the other hand it's reason to invite economic conflict with the US. Putin had to know the US would not go to physical war with Russia over Ukraine - especially the quasi occupation of just a part of Ukraine. So the natural deduction would be financial sanctions to try and remove Russia from the US's new ally's territory. The territory of Ukraine being it's only real strategic value. However, its real value to Putin is to not let the US and to a lesser extent Europe escape from a financial battle.
When Obama rushed in to "make Russia pay" for its actions in Ukraine, Putin must have been smiling. Every sanction the US placed against Russia was matched by Western Europe. Western Europe is dependent on Russia for economic survival. The US can't replace the European loss of market in Russia, so anything other than a very short sanction period means severe financial harm for Europe - especially Germany. As Europe slides into recession and worst, Russia can now sit by and watch as Europeans blame US sanctions for destroying their markets. While the US projects strength in Europe with sanctions and military posturing, Europeans suffer the effects. Not dissimilar to the US of Europe as battlegrounds of past wars.
With every new economic sanction waged against Russia, Putin can turn to his own people and make the case that "Western partners" are too unstable and immature to have trading relations with. All the more need for an Eurasian alliance of like-minded, stable countries who want peace and brotherly love. The more the US pushes the faster it loses. Like quick sand.
Today Putin announced that Russia has $500 billion in foreign currency. Enough, according to him, to defend the ruble for two years. However, this is the intelligence officer's half truth. While it may be true that the reserves will defend the ruble, is the purpose to defend the ruble, or is the purpose to use up the foreign currency before Russia and China switch to a gold based currency standard, thus making the US dollar irrelevant as the world reserve currency. I suggest they're using up what they have while it still has a value to them. It gives them 2 years, as Putin partially said, to transform their monetary systems to gold based. After that, they don't care.
Lastly, the US and Saudi flooding of the oil market is also working for Putin and China. China gets to stock its strategic oil reserves on the cheap. Saudi and other major oil producers are losing massive revenue that they can't replace, and they are not meant to transition into the new Eurasian/BRIC alliance - meaning they won't have anywhere of significance to sell their oil in 2 years, and will be infighting with the US and other partners for market share. Meanwhile, in the Eurasian/BRIC alliance Russia, Iran and Venezuela will be selling their oil to China, South America and Africa in a stable market which has no competitors, and controls three quarters of the world's population.
So, the best way to view the events of today is to remember that the intelligence officer's mantra is "kill at least two birds with one stone". Cheap oil hurts Russia in the interim, but it solidifies the need for a stable market place in people's minds. Russian peoples minds. Chinese peoples minds. Etc. Where is the stable market? Well obviously not the US as they "ride like cowboys into the China shop", or US allies that let them. As the US proverbially throws a punch at it, Russia proverbially uses that energy to reach its final goal. For the rest of us, it means be prepared to be the collateral damage. Protect yourself, and your investments as best you can, because when big powers fight the little guy is not on the radar.
Consider and remember that China is the bank and Russia is the sword of the new Eurasian alliance. The goal of that alliance is not to do well under the US dollar, but to replace the US dollar as the world's reserve currency with either a new currency or the Chinese yuan. That is important. Both China and Russia have large reserves of foreign currency - in Russia's case nearly $500 billion.
Then consider Russian President Putin. He rose through Russia's power ranks as an intelligence officer. That is one of three important pieces of the pie. That means: he uses deception and part truths to achieve an end; he is disciplined and demands the same of others in his circle; he is ruthless and flexible in achieving his goals; and he will never crack. Secondly, he is a judo master. That means he uses movement and blocking to defend against blows, but most importantly he uses the energy of his enemy as his own to defeat an attack. That part is critically important to remember. Finally, he is Russian. Russians have a proud place in world history due to the massive and brutal sacrifices they have made along the way. The most recent of which was the 25 million Russians who died during World War Two while ensnaring most of Hitler's armies, and giving the other allies time to organize and become engaged. Russians are used to sacrifice, and are super sensitive about the "Motherland" being prosecuted by foreigners.
Putin is using all three of these elements. He is using the Motherland as the force behind him, that will hold him upright in battle. He is using judo to block, move, and use the energy of his foes. He remains disciplined to his cause while apparently allowing his foe to walk into, no run into, his trap.
Why did Putin move into Crimea, and then support (with deniability) Eastern Ukraine separatists? What purpose does a "frozen conflict", as some call it, serve? Well, it's simply a means to an end. On the one hand it's defensive as the US took over influence of Ukraine, on Russia's border. On the other hand it's reason to invite economic conflict with the US. Putin had to know the US would not go to physical war with Russia over Ukraine - especially the quasi occupation of just a part of Ukraine. So the natural deduction would be financial sanctions to try and remove Russia from the US's new ally's territory. The territory of Ukraine being it's only real strategic value. However, its real value to Putin is to not let the US and to a lesser extent Europe escape from a financial battle.
When Obama rushed in to "make Russia pay" for its actions in Ukraine, Putin must have been smiling. Every sanction the US placed against Russia was matched by Western Europe. Western Europe is dependent on Russia for economic survival. The US can't replace the European loss of market in Russia, so anything other than a very short sanction period means severe financial harm for Europe - especially Germany. As Europe slides into recession and worst, Russia can now sit by and watch as Europeans blame US sanctions for destroying their markets. While the US projects strength in Europe with sanctions and military posturing, Europeans suffer the effects. Not dissimilar to the US of Europe as battlegrounds of past wars.
With every new economic sanction waged against Russia, Putin can turn to his own people and make the case that "Western partners" are too unstable and immature to have trading relations with. All the more need for an Eurasian alliance of like-minded, stable countries who want peace and brotherly love. The more the US pushes the faster it loses. Like quick sand.
Today Putin announced that Russia has $500 billion in foreign currency. Enough, according to him, to defend the ruble for two years. However, this is the intelligence officer's half truth. While it may be true that the reserves will defend the ruble, is the purpose to defend the ruble, or is the purpose to use up the foreign currency before Russia and China switch to a gold based currency standard, thus making the US dollar irrelevant as the world reserve currency. I suggest they're using up what they have while it still has a value to them. It gives them 2 years, as Putin partially said, to transform their monetary systems to gold based. After that, they don't care.
Lastly, the US and Saudi flooding of the oil market is also working for Putin and China. China gets to stock its strategic oil reserves on the cheap. Saudi and other major oil producers are losing massive revenue that they can't replace, and they are not meant to transition into the new Eurasian/BRIC alliance - meaning they won't have anywhere of significance to sell their oil in 2 years, and will be infighting with the US and other partners for market share. Meanwhile, in the Eurasian/BRIC alliance Russia, Iran and Venezuela will be selling their oil to China, South America and Africa in a stable market which has no competitors, and controls three quarters of the world's population.
So, the best way to view the events of today is to remember that the intelligence officer's mantra is "kill at least two birds with one stone". Cheap oil hurts Russia in the interim, but it solidifies the need for a stable market place in people's minds. Russian peoples minds. Chinese peoples minds. Etc. Where is the stable market? Well obviously not the US as they "ride like cowboys into the China shop", or US allies that let them. As the US proverbially throws a punch at it, Russia proverbially uses that energy to reach its final goal. For the rest of us, it means be prepared to be the collateral damage. Protect yourself, and your investments as best you can, because when big powers fight the little guy is not on the radar.
Monday, December 8, 2014
In NL the Budget Man Cometh
Danny Williams ' big spin was Newfoundland and Labrador would become Master of its own house. Remember that? He created Nalcor for that purpose. His government acted as if this was somehow possible. It wasn't then, and it isn't now.
There is no better modern example of how every economy in the world is dependent on each other than the world-wide economic war happening right now. It's a war the US thinks it's winning, yet it's a war the US has already lost. Hand-in-hand with Saudi Arabia, the US is flooding the market with oil to devastate economies that depend on its revenue. Russia just happens to be the number one oil producer in the world. The aim is of course to drain Russia, Iran and Venezuela of budget revenue, and ultimately ruin the new Eurasian/BRIC alliance while in its infancy.
The problem with the strategy is the intended victims, Russia and China, have historically proven they can withstand any adversity. The 25 million Russians killed while bleeding the German army white during WW II is one example. Ditto for Napoleon. Etc. The Chinese sent 250 million people back to their villages without jobs or income after the last big world economic collapse in 2008. Not even a bead of sweat creased their brow. These are tough populations, used to adversity, and determined. Our side not so much. In a game of mutually assured economic destruction, as is being played out now world-wide, the only sure bet is the populations of Europe and North America are far less willing or able to withstand economic hardship than our fellow human beings on the other side.
Where its all leading for oil is fairly predictable. Putin hinted as much when he recently commented that ISIS was surviving by selling oil on the international black market for $30 a barrel. I take that comment, in the context it was made, as a direct challenge to the Western powers attempting to empty his coffers: "Russia is prepared to see oil fall as low as $30 a barrel in an international game of chicken". Let's say that's true, what are the ramifications of that strategy for us?
Oil accounts for 33% of all revenue in our provincial budget each year. We are now fully dependent on oil revenue for our standard of living - government and the population. We have borrowed. We are in debt to our eyeballs. An oil recession in this province would be far more dangerous here than most places. The government has spent every cent of oil revenue in the last 9 years, except the $2 billion or so that is needed for the Muskrat Falls down payment required by the federal loan guarantee. They borrowed a billion dollars last year on top of that to pay bills. This year the deficit looks to be about $600 million or so. That will have to be borrowed as well. That means our gross debt, the money we actually owe, is almost $1.5 billion higher than when Williams was elected , and the oil money started coming in.
But what will it mean going forward? If oil settles at $60 a barrel, as many economists are predicting, our annual budget will lose about $1.25 billion. That is catastrophic for the provincial economy. That is recession. The reason is that this province relies heavily on government spending to drive the economy. Some examples are Muskrat Falls, hospitals, etc. Without that expenditure, the private companies that relied on it die on the vine. Have no illusion, they will die on the vine. That means much higher unemployment numbers, serious drops in real estate values, and all that spirals from that as usual.
It means massive cuts in government spending on programs and people. It means recession. Now, if Russia carries out its implied intention to ride the oil wave down to $30 a barrel, the consequences are much different. A $30 per barrel drop means Newfoundland and Labrador loses over $2 billion in oil revenue per year. That means depression. That means default on large loans - like the federal loan guarantee on Muskrat Falls. That means Hebron is cancelled. It means an end to all oil exploration, and the end for the many local companies living off servicing the oil industry. It means massive unemployment in the private sector and the public sector. At least in the range of 25%.
Now, you might think this is an exaggeration, but remember that the provincial GDP increases of the last decade have been almost solely based on oil revenue. The economy and society have inflated along with the boom. Personal debt has increased with the expressed idea that oil would keep going up. Government debt ditto. Therefore, the dramatic shock of oil deflation has even more severe consequences than would normally be expected. If you want a really good example, look to the oil bust in Alberta in the 1980's. That was Alberta's first big bust. They were like us. They spent like it would never end. It ended, and when it did people walked away from their houses... Alberta was devastated, and it had a government savings account - the Heritage Fund. We don't have one of those.
At $30 a barrel the refinery at Come-by-Chance is almost certain to close. Ditto for the Hebron development. Those two projects alone would have a massive financial effect in central Newfoundland. Muskrat Falls also comes into focus. Selling power at a loss for the sake of it may be trumped by common financial sense, and that project may be abandoned. As bad as its financial are now, financial arrangements still have not been made with the Nunatukavut or Nunatsiavut governments, which can be expected to be at least $1 billion extra. Then there is the prospect of Hydro-Quebec winning its lawsuit over the water management agreement. That one you can take to the bank. In 2010, the provincial department of Natural Resources estimated such a loss in court would result in billions of dollars in damages being awarded by the courts. It also stated that CF(L)Co would be bankrupted. These are the facts.
There is no bright side to the economic war being waged by the big powers in the world. Not even for them. It's the kind of "battle to the last man" that by necessity means no one else survives. We are and will remain casualties of the "greater good". We are also casualties of a foolish and irresponsible spending policy of the Williams' regime. We are also casualties of our own acquiescence to the Williams' vision. The problem, and it's a very serious problem, is Newfoundlanders and Labradorians are not being informed of the reasons for it all. It's put down to "lower oil prices" and that's about the extent of the explanation by government. They say only two things are certain: death; and taxes. Add a third: ignorance is no excuse.
There is no better modern example of how every economy in the world is dependent on each other than the world-wide economic war happening right now. It's a war the US thinks it's winning, yet it's a war the US has already lost. Hand-in-hand with Saudi Arabia, the US is flooding the market with oil to devastate economies that depend on its revenue. Russia just happens to be the number one oil producer in the world. The aim is of course to drain Russia, Iran and Venezuela of budget revenue, and ultimately ruin the new Eurasian/BRIC alliance while in its infancy.
The problem with the strategy is the intended victims, Russia and China, have historically proven they can withstand any adversity. The 25 million Russians killed while bleeding the German army white during WW II is one example. Ditto for Napoleon. Etc. The Chinese sent 250 million people back to their villages without jobs or income after the last big world economic collapse in 2008. Not even a bead of sweat creased their brow. These are tough populations, used to adversity, and determined. Our side not so much. In a game of mutually assured economic destruction, as is being played out now world-wide, the only sure bet is the populations of Europe and North America are far less willing or able to withstand economic hardship than our fellow human beings on the other side.
Where its all leading for oil is fairly predictable. Putin hinted as much when he recently commented that ISIS was surviving by selling oil on the international black market for $30 a barrel. I take that comment, in the context it was made, as a direct challenge to the Western powers attempting to empty his coffers: "Russia is prepared to see oil fall as low as $30 a barrel in an international game of chicken". Let's say that's true, what are the ramifications of that strategy for us?
Oil accounts for 33% of all revenue in our provincial budget each year. We are now fully dependent on oil revenue for our standard of living - government and the population. We have borrowed. We are in debt to our eyeballs. An oil recession in this province would be far more dangerous here than most places. The government has spent every cent of oil revenue in the last 9 years, except the $2 billion or so that is needed for the Muskrat Falls down payment required by the federal loan guarantee. They borrowed a billion dollars last year on top of that to pay bills. This year the deficit looks to be about $600 million or so. That will have to be borrowed as well. That means our gross debt, the money we actually owe, is almost $1.5 billion higher than when Williams was elected , and the oil money started coming in.
But what will it mean going forward? If oil settles at $60 a barrel, as many economists are predicting, our annual budget will lose about $1.25 billion. That is catastrophic for the provincial economy. That is recession. The reason is that this province relies heavily on government spending to drive the economy. Some examples are Muskrat Falls, hospitals, etc. Without that expenditure, the private companies that relied on it die on the vine. Have no illusion, they will die on the vine. That means much higher unemployment numbers, serious drops in real estate values, and all that spirals from that as usual.
It means massive cuts in government spending on programs and people. It means recession. Now, if Russia carries out its implied intention to ride the oil wave down to $30 a barrel, the consequences are much different. A $30 per barrel drop means Newfoundland and Labrador loses over $2 billion in oil revenue per year. That means depression. That means default on large loans - like the federal loan guarantee on Muskrat Falls. That means Hebron is cancelled. It means an end to all oil exploration, and the end for the many local companies living off servicing the oil industry. It means massive unemployment in the private sector and the public sector. At least in the range of 25%.
Now, you might think this is an exaggeration, but remember that the provincial GDP increases of the last decade have been almost solely based on oil revenue. The economy and society have inflated along with the boom. Personal debt has increased with the expressed idea that oil would keep going up. Government debt ditto. Therefore, the dramatic shock of oil deflation has even more severe consequences than would normally be expected. If you want a really good example, look to the oil bust in Alberta in the 1980's. That was Alberta's first big bust. They were like us. They spent like it would never end. It ended, and when it did people walked away from their houses... Alberta was devastated, and it had a government savings account - the Heritage Fund. We don't have one of those.
At $30 a barrel the refinery at Come-by-Chance is almost certain to close. Ditto for the Hebron development. Those two projects alone would have a massive financial effect in central Newfoundland. Muskrat Falls also comes into focus. Selling power at a loss for the sake of it may be trumped by common financial sense, and that project may be abandoned. As bad as its financial are now, financial arrangements still have not been made with the Nunatukavut or Nunatsiavut governments, which can be expected to be at least $1 billion extra. Then there is the prospect of Hydro-Quebec winning its lawsuit over the water management agreement. That one you can take to the bank. In 2010, the provincial department of Natural Resources estimated such a loss in court would result in billions of dollars in damages being awarded by the courts. It also stated that CF(L)Co would be bankrupted. These are the facts.
There is no bright side to the economic war being waged by the big powers in the world. Not even for them. It's the kind of "battle to the last man" that by necessity means no one else survives. We are and will remain casualties of the "greater good". We are also casualties of a foolish and irresponsible spending policy of the Williams' regime. We are also casualties of our own acquiescence to the Williams' vision. The problem, and it's a very serious problem, is Newfoundlanders and Labradorians are not being informed of the reasons for it all. It's put down to "lower oil prices" and that's about the extent of the explanation by government. They say only two things are certain: death; and taxes. Add a third: ignorance is no excuse.
Saturday, October 11, 2014
Newfoundland and Labrador's Revolution
This piece is my opinion, but may be shared by many.
It's been four and a half years since I returned to my ancestral home in Newfoundland and Labrador. A stranger in a strange land to be sure. The haunting, almost pre-historic beauty of the land and sea spoke directly to my soul: "this is where you're meant to be-this is home". However, as I was to find out, not all was well in Newfoundland and Labrador.
Awash in oil revenue, the likes of which it had never seen, and led by a "messiah"-like figure in Danny Williams, the Province was in full blown party mode. Drunk on promises of never ending fortune and neo-nationalist calls by Williams to be "Masters in our own House" people were unwilling or unable to see, or didn't want to hear, that Williams was leading them into financial ruin. For those that don't know, this place has always looked to a "strong man" for leadership - likely dating to its Irish roots. Williams fit the bill. Local son done well, with gold in his pocket and a silver tongue firmly placed in cheek. "Danny" could do no wrong.
Williams cherished the role. Known for having an ego a mile wide and a mile long, Williams stoked the people's passion for a better place. A place where they were in absolute control of their destiny. The oil revenues that never existed before 2003 became 33% of a provincial budget suddenly and massively expanded. The economy roared to life and Newfoundlanders and Labradorians jumped on for the ride. New homes sprang up like grass in the spring. Every imaginable man-toy you can imagine popped up in every yard and driveway through the land. Businesses became enriched by government and personal debt-driven spending, and as long as that money kept coming from the provincial government the party would go on.
Unfortunately, Newfoundland and Labrador had never experienced a boom, and therefore never experienced a bust. It's the inevitable result of a resource dependent economy that exports to far away lands. Like any business, the far away lands are the customers, and when things go bad for the customers things also go bad for the suppliers - us. That was already happening back in 2010 when I first came home. China and Russia were pushing for a new world currency at the Davos International Forum on economy. They were already engaged in a financial, low-grade economic war with the US. Along with them were the BRIC countries - most notably India, Iran and Brazil. Also back in 2010 the US was massively expanding fracking to release natural gas and oil reserves which would put them in a position of energy independence. All these major, and very obvious foreign forces were already at play then, the result of which is starting to be seriously felt now. Yet, nobody in the government of Newfoundland and Labrador twigged on?
Despite all the external factors, Williams continued to sell people that somehow this Province could be "Masters of our own House". He knew better. In the world of global economies, no country is a master of itself. Not the United States, not Europe, not Asia - nobody. Williams knew this all too well being a businessman with international holdings. Yet, like the Pied Piper of Newfoundland, he led the people in a trance down a very murky road. One that was to his liking and his benefit.
He bragged of the investments in healthcare, but chose to have his heart-saving surgery done in the US. He railed against giveaways of provincial resources, but happily bought Crown Land (enough to build a small city) at a well under man-dated price of just over $300 an acre. He sold his offshore oil service companies to Quebec firm SNC Lavalin while they did work for the government on the Lower Churchill development - despite chastising the previous Liberal government for conflicts of interest. He appointed his former employees, supporters and friends to places throughout the hierarchy of the government, despite lambasting the Liberals for doing the same. In short, Williams behaved as Premier as if the rules of modern politics and economy did not apply to him. Unfortunately, it was ours, not his, money and destiny at stake. That was apparently lost on him.
And if you dared to stand up against him, well, there was a special place in hell for you. The best way I can describe this treatment for dissenters of Williams' will are the words now Finance Minister Ross Wiseman's Executive Assistant, Chick Cholock, leveled at me, in my home, and in front of my wife, with the kids playing upstairs. I had announced that I was considering running for the leadership of the Party, suddenly available after Williams' quick exit. The words were this:
" If you try and run for the leadership we will destroy you. We will destroy you financially. We will destroy you personally. We will destroy your name."
Then, just as he left my home, he turned at the door, and said:
" I am with the backroom, and we hope you make the right decision."
It's a personal story for me, but it's useful. In the Williams' era to dissent or deviate from the "backroom" was to invite ruin upon yourself any your family. Newfoundlanders of course already knew this. The idea that opposing meant losing everything did not appeal to many. In the nut shell, this was how Williams enforced his will. Reward is great, but so is punishment.
Four years later things have changed. The people are changing. Their expectations are changing. They are seeking answers to the questions that are now becoming obvious to them. Why are the roads still so bad after $16 billion in oil revenue has come into the coffers? Why are people still leaving? Why are the much vaulted iron ore projects in Labrador evaporating? Why are civil service jobs being cut? Is Muskrat Falls really the project we've been sold? What will happen to us as oil prices continue to fall? Why can't I sell my home?
Williams and, most recently new premier Paul Davis, continue to try and suppress dissent by filing lawsuits like confetti at dissenters. A desperate bid to keep control in a place spinning out of their control. Dissent is now loud. Dissent is unstoppable. Not just for the government in place now, but for the one to come next year. The political culture in Newfoundland and Labrador has under gone a massive and sudden change brought about by a sense of betrayal. A realization that somehow the all knowing Williams has lead them afar. Reality is crushing fantasy, and people are beginning to realize the cost to them personally may well be enormous. A moment in history, of a place 500 years old, has been squandered. That one of their own, a man they trusted and revered, may have betrayed them. Danny Williams often referred to people who refused to see the value of his actions as "traitors". Now, the same words may well be used against him. Such is the Newfoundland and Labrador revolution well under way.
It's been four and a half years since I returned to my ancestral home in Newfoundland and Labrador. A stranger in a strange land to be sure. The haunting, almost pre-historic beauty of the land and sea spoke directly to my soul: "this is where you're meant to be-this is home". However, as I was to find out, not all was well in Newfoundland and Labrador.
Awash in oil revenue, the likes of which it had never seen, and led by a "messiah"-like figure in Danny Williams, the Province was in full blown party mode. Drunk on promises of never ending fortune and neo-nationalist calls by Williams to be "Masters in our own House" people were unwilling or unable to see, or didn't want to hear, that Williams was leading them into financial ruin. For those that don't know, this place has always looked to a "strong man" for leadership - likely dating to its Irish roots. Williams fit the bill. Local son done well, with gold in his pocket and a silver tongue firmly placed in cheek. "Danny" could do no wrong.
Williams cherished the role. Known for having an ego a mile wide and a mile long, Williams stoked the people's passion for a better place. A place where they were in absolute control of their destiny. The oil revenues that never existed before 2003 became 33% of a provincial budget suddenly and massively expanded. The economy roared to life and Newfoundlanders and Labradorians jumped on for the ride. New homes sprang up like grass in the spring. Every imaginable man-toy you can imagine popped up in every yard and driveway through the land. Businesses became enriched by government and personal debt-driven spending, and as long as that money kept coming from the provincial government the party would go on.
Unfortunately, Newfoundland and Labrador had never experienced a boom, and therefore never experienced a bust. It's the inevitable result of a resource dependent economy that exports to far away lands. Like any business, the far away lands are the customers, and when things go bad for the customers things also go bad for the suppliers - us. That was already happening back in 2010 when I first came home. China and Russia were pushing for a new world currency at the Davos International Forum on economy. They were already engaged in a financial, low-grade economic war with the US. Along with them were the BRIC countries - most notably India, Iran and Brazil. Also back in 2010 the US was massively expanding fracking to release natural gas and oil reserves which would put them in a position of energy independence. All these major, and very obvious foreign forces were already at play then, the result of which is starting to be seriously felt now. Yet, nobody in the government of Newfoundland and Labrador twigged on?
Despite all the external factors, Williams continued to sell people that somehow this Province could be "Masters of our own House". He knew better. In the world of global economies, no country is a master of itself. Not the United States, not Europe, not Asia - nobody. Williams knew this all too well being a businessman with international holdings. Yet, like the Pied Piper of Newfoundland, he led the people in a trance down a very murky road. One that was to his liking and his benefit.
He bragged of the investments in healthcare, but chose to have his heart-saving surgery done in the US. He railed against giveaways of provincial resources, but happily bought Crown Land (enough to build a small city) at a well under man-dated price of just over $300 an acre. He sold his offshore oil service companies to Quebec firm SNC Lavalin while they did work for the government on the Lower Churchill development - despite chastising the previous Liberal government for conflicts of interest. He appointed his former employees, supporters and friends to places throughout the hierarchy of the government, despite lambasting the Liberals for doing the same. In short, Williams behaved as Premier as if the rules of modern politics and economy did not apply to him. Unfortunately, it was ours, not his, money and destiny at stake. That was apparently lost on him.
And if you dared to stand up against him, well, there was a special place in hell for you. The best way I can describe this treatment for dissenters of Williams' will are the words now Finance Minister Ross Wiseman's Executive Assistant, Chick Cholock, leveled at me, in my home, and in front of my wife, with the kids playing upstairs. I had announced that I was considering running for the leadership of the Party, suddenly available after Williams' quick exit. The words were this:
" If you try and run for the leadership we will destroy you. We will destroy you financially. We will destroy you personally. We will destroy your name."
Then, just as he left my home, he turned at the door, and said:
" I am with the backroom, and we hope you make the right decision."
It's a personal story for me, but it's useful. In the Williams' era to dissent or deviate from the "backroom" was to invite ruin upon yourself any your family. Newfoundlanders of course already knew this. The idea that opposing meant losing everything did not appeal to many. In the nut shell, this was how Williams enforced his will. Reward is great, but so is punishment.
Four years later things have changed. The people are changing. Their expectations are changing. They are seeking answers to the questions that are now becoming obvious to them. Why are the roads still so bad after $16 billion in oil revenue has come into the coffers? Why are people still leaving? Why are the much vaulted iron ore projects in Labrador evaporating? Why are civil service jobs being cut? Is Muskrat Falls really the project we've been sold? What will happen to us as oil prices continue to fall? Why can't I sell my home?
Williams and, most recently new premier Paul Davis, continue to try and suppress dissent by filing lawsuits like confetti at dissenters. A desperate bid to keep control in a place spinning out of their control. Dissent is now loud. Dissent is unstoppable. Not just for the government in place now, but for the one to come next year. The political culture in Newfoundland and Labrador has under gone a massive and sudden change brought about by a sense of betrayal. A realization that somehow the all knowing Williams has lead them afar. Reality is crushing fantasy, and people are beginning to realize the cost to them personally may well be enormous. A moment in history, of a place 500 years old, has been squandered. That one of their own, a man they trusted and revered, may have betrayed them. Danny Williams often referred to people who refused to see the value of his actions as "traitors". Now, the same words may well be used against him. Such is the Newfoundland and Labrador revolution well under way.
Thursday, July 18, 2013
Back Stabbing the People of Newfoundland and Labrador
Financial crunch, requiring deep cuts and discipline, is the state of our provincial government's finances according to our PC government. On the radio waves, on the tv, all we hear is the necessity for cuts and lay-offs, but is it true? Well, frankly no, it isn't.
Despite all the foreboding of impending doom, oil revenues for 2012, $ 2.8 billion, were the highest ever. The province recorded a whopping $883 million budget surplus for the year. Just another in a line of offshore oil fuelled surpluses. It is strangely odd then that the province would lay-off 1200 employees, affecting all those families as well, and cancel numerous programs - including the West Coast Training Centre today. The mantra is austerity. The tool is responsible care taking of the treasury, but is that real? No, not even close.
Consider this: between 2005 and 2012 the province received $12.25 billion in offshore oil revenue - that's an average of $1.3 billion a year since 2005. Now consider this: the gross debt of the province is actually larger today than it was back in 2003, before oil income bloated the coffers. Specifically, the gross debt in 2003 when the PCs took over was $12.8 billion. Today, as of March 31, 2012, our gross debt $13.4 billion. In other words, despite bringing in over a $12 billion in oil revenue since 2003, the province is over a billion dollars further in debt. How can that be possible? It's called poor decision making.
The gross debt is made up of primarily three things: borrowings; unfunded pension liabilities; and group health and life insurance retirement benefits for public employee and politicians. In 2003 net borrowing was $6.5 billion, unfunded pension liabilities stood at $3.56 billion, and group health and life was $1.05 billion. Nine years later, and $12.25 billion richer in oil money, the same categories looked like this: unfunded pension liability $3.09 billion; and group health and life $2.09 billion.
So, if all that oil money came in over the last while where did it go? Clearly the oil profits were not used to really reduce these retirement liabilities. Back in 2003, the provincial government had a total of cash saved and invested of $441,855 million. Today, that same bank account is almost $2.5 billion ($2,442,963,000 as of March 31, 2012 to be exact).
The revenue went way up. The spending went way up. The bills of the future went unpaid, and the difference was left in the bank. It begs the question: Why the austerity program with so much money squirrelled away? There is only one answer to that: Muskrat Falls. Before you roll your eyes and say here we go, take a moment. The memorandum of understanding regarding the federal loan guarantee for Muskrat Falls requires the province to have a down payment of 35% down before it will guarantee any loans.
The province's estimate of its share of the project is about $6.5 billion. Projects this size never come in on budget, and normally have a contingency fund of 25%. Given that, the province is looking at raising at least $8.25 billion. That means the federal loan guarantee would require them to raise about $2.9 billion for their down payment. They had $2.4 billion in the bank as of March 31, 2012.
Bottom line, the province is laying people off, cancelling programs, not expending department budgets in a desperate effort to bank their down payment for Muskrat Falls. Simple as that. We are expendable in the name of a dam. Ask the people who lost their jobs, or the groups that lost their funding or their schools. Ask those desperately waiting for the construction of hospitals, or road paving, or a number of any other services. It's a real point of curiosity that the issue of the funds in the bank is not a bone of contention in our media or for our opposition groups for that matter. It seems that the knife never stops striking the people of this province in the back.
Despite all the foreboding of impending doom, oil revenues for 2012, $ 2.8 billion, were the highest ever. The province recorded a whopping $883 million budget surplus for the year. Just another in a line of offshore oil fuelled surpluses. It is strangely odd then that the province would lay-off 1200 employees, affecting all those families as well, and cancel numerous programs - including the West Coast Training Centre today. The mantra is austerity. The tool is responsible care taking of the treasury, but is that real? No, not even close.
Consider this: between 2005 and 2012 the province received $12.25 billion in offshore oil revenue - that's an average of $1.3 billion a year since 2005. Now consider this: the gross debt of the province is actually larger today than it was back in 2003, before oil income bloated the coffers. Specifically, the gross debt in 2003 when the PCs took over was $12.8 billion. Today, as of March 31, 2012, our gross debt $13.4 billion. In other words, despite bringing in over a $12 billion in oil revenue since 2003, the province is over a billion dollars further in debt. How can that be possible? It's called poor decision making.
The gross debt is made up of primarily three things: borrowings; unfunded pension liabilities; and group health and life insurance retirement benefits for public employee and politicians. In 2003 net borrowing was $6.5 billion, unfunded pension liabilities stood at $3.56 billion, and group health and life was $1.05 billion. Nine years later, and $12.25 billion richer in oil money, the same categories looked like this: unfunded pension liability $3.09 billion; and group health and life $2.09 billion.
So, if all that oil money came in over the last while where did it go? Clearly the oil profits were not used to really reduce these retirement liabilities. Back in 2003, the provincial government had a total of cash saved and invested of $441,855 million. Today, that same bank account is almost $2.5 billion ($2,442,963,000 as of March 31, 2012 to be exact).
The revenue went way up. The spending went way up. The bills of the future went unpaid, and the difference was left in the bank. It begs the question: Why the austerity program with so much money squirrelled away? There is only one answer to that: Muskrat Falls. Before you roll your eyes and say here we go, take a moment. The memorandum of understanding regarding the federal loan guarantee for Muskrat Falls requires the province to have a down payment of 35% down before it will guarantee any loans.
The province's estimate of its share of the project is about $6.5 billion. Projects this size never come in on budget, and normally have a contingency fund of 25%. Given that, the province is looking at raising at least $8.25 billion. That means the federal loan guarantee would require them to raise about $2.9 billion for their down payment. They had $2.4 billion in the bank as of March 31, 2012.
Bottom line, the province is laying people off, cancelling programs, not expending department budgets in a desperate effort to bank their down payment for Muskrat Falls. Simple as that. We are expendable in the name of a dam. Ask the people who lost their jobs, or the groups that lost their funding or their schools. Ask those desperately waiting for the construction of hospitals, or road paving, or a number of any other services. It's a real point of curiosity that the issue of the funds in the bank is not a bone of contention in our media or for our opposition groups for that matter. It seems that the knife never stops striking the people of this province in the back.
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