Wednesday, October 12, 2011

[Environmental Economics] Case Study - Australia: Carbon Tax vs Camel Fart Regulation



Notes:
Australia has the highest carbon emissions, slightly more than the States
Carbon tax will be around for a few years
Opposition pledges to repeal the tax


The opposition opposes the Carbon Tax (fortunately there are some years to test its effectiveness, which will provide valuable information for economists) - the political problem is probably similar to the states as I read somewhere that Rupert Murdoch owns a great deal of media there. Even the report above, from Sky News, is of a company where Rupert Murdoch's son is the CEO.

Anyways, applying a carbon tax, keeping the tax burden on the source that you want to regulate (i.e. reduce carbon emissions from) is basic economic theory. The idea is that the factories will invest in clean technology and even a societal shift in resources could occur leading to more clean energy generation. Possible problems include the tax being too low or the cost of the tax being shifted onto the middle class and poor consumers which would mean the level of carbon emitted by Australia's industries would remain the same.


I thought it was funny that this solution was actually offered...

Australia Considers Killing Camels to Tackle Climate Change

1. Eliminating Camel Farts to help the environment: A commercial company, Northwest Carbon, has proposed culling more than one million camels in the Australian Outback to eliminate that gas emissions, according to AFP.

2. Innovative solutions from an innovative nation: "We're a nation of innovators and we find innovative solutions to our challenges -- this is just a classic example," Northwest Carbon managing director Tim Moore told Australian Associated Press.

The motivations for such an action could be 1. laziness to shift resources, 2. don't want to lose even a dollar of profit in the short run, 3. hate animals or don't care about anything but themselves.


Here is why an effective carbon tax is important:

Following extracts are from "Why high-carbon investment could be the next sub-prime crisis"

"More money is flowing into clean technologies than ever before – a record £150bn of investment last year – but money is also still pouring into coal, oil, gas, mining and other high-carbon sectors at a pace that severely undermines our efforts to tackle climate change and other environmental challenges. "

The more money that is invested into a method that will choke us also sets up the next 'too big too fail' companies, since if we get too a point where we have to cut down on carbon release to survive then we have to bail out the companies or face another contraction [although effective government spending (stimulus) may be too difficult for the US, we may be better off letting them fail when we get to that point.]

Too big too fail?

"But the known fossil fuel reserves declared by energy and mining companies is equivalent to 2,795 gigatonnes of CO2. That means, if the world acts on its climate change pledges, 80% of those reserves can never be burned and are stranded assets. If you look specifically at the UK, five of the top 10 companies in the FTSE 100 are almost exclusively high-carbon and together account for a staggering 25% of the index's entire market capitalisation."

Looking to the future...

‎"National and international responses to systemic risks in our economy and financial systems only tend to occur after massive crises. But we cannot wait for our over exposure to high-carbon and polluting sectors to result in a global economic, as well as environmental, meltdown before we act. When markets wake up to the real value of high-carbon assets, the chaos wrought and value lost could be devastating. "Horizon scanners" in international financial institutions, central banks and financial regulators, together with policy makers and politicians, must take notice and act now to manage this bubble."


Environmental Problems in Australia - Extracts from = "Australia's carbon tax is a brave start by a government still gripped by fear":

‎1. "Australia's Black Saturday fires of February 2009 burned over a million acres of land and killed 173 people. It happened because of record high temperatures and a 20% drop in rainfall over the previous 12 years. It was what climate experts had been predicting for some years: the megafire. A megafire is hell come to earth.

The energy equivalent to 1,500 Hiroshima-sized atomic bombs was released in a fire storm that saw rivers of flame – sometimes rising 100 metres in the air – flowing through the countryside, generating winds of up to 120km an hour with new fires spotlighting 35km ahead of the main fire front."

‎2. "Black Saturday reminded many Australians of what they know only too well: that of all the advanced economies, Australia is perhaps the one most vulnerable to climate change. And yet support for action on climate change, which was a key factor in the ending of 11 years of conservative government in 2007, has now largely collapsed."


Australia has begun taking measures to protect itself, the opposite is happening in the States...



Plus there is real damage being done to the environment in mountain top coal mining...

Watch the full episode. See more Need To Know.


Interview: Author Daniel Yergin discusses hydrofracking, alternative energy sources and America's decreasing demand for oil.

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Sunday, October 9, 2011

Expectations, Market Volatility and the Emerging Gold Bubble

Markets today fluctuate at the drop of a hat. For example in the following video you see that "After Rupert Murdoch gets hit with a pie, News Corp.'s stocks spike"...


This shows that an incident that has nothing to do with business or the proceedings at hand can boost the prices in today's stock markets a great deal.

So when Senator Bernie Sanders writes;

Why have oil prices spiked wildly? Some argue that the volatility is a result of supply-and-demand fundamentals. More and more observers, however, believe that excessive speculation in the oil futures market by investors is driving oil prices sky high.

A June 2 article in the Wall Street Journal said it all: “Wall Street is tapping a real gusher in 2011, as heightened volatility and higher prices of oil and other raw materials boost banks’ profits.” ExxonMobil Chairman Rex Tillerson, testifying before a Senate panel this year, said that excessive speculation may have increased oil prices by as much as 40 percent. Delta Air Lines general counsel Richard Hirst wrote to federal regulators in December that “the speculative bubble in oil prices has concrete detrimental consequences for the real economy.” An American Trucking Association vice president, Richard Moskowitz, said, “Excessive speculation has caused dramatic increases in the price of crude oil, which harms end-users like America’s trucking industry.”

This is a claim that should be taken seriously about the unreliability of some of these stock market reactions (afterall, with much of the wealth with a small number of people (i.e. income inequality), it doesn't take much to skew a market)

In fact, it has been shown that even 'rumors can move markets'.


The Emerging Gold Bubble

Gold price hits all-time high on US debt concerns

The price of gold has risen to a fresh all-time high of $1,594.16 an ounce, and the dollar has fallen, on concerns the US may default on its debts.

The moves came after ratings agency Moody's said it may cut the debt rating of the US, warning there was a "rising possibility" it will default.


Uncertainty and concerns (fears) about the future cause the markets (which are free floating) to fluctuate. Since the supply of Gold is limited it has great 'store of value' (one of the measures/definitions that economists use to define money)

As the article further explains...

Gold is seen as the number one haven purchase in times of economic uncertainty, but analysts said its rise was also caused by the fall in the dollar, which makes the precious metal more affordable for holders of other currencies.

Taking market variability into account and the promotions to buy gold to a large number of consumers (such as Rush Limbaugh promoting gold through this page), the following analysis about a possible gold bubble makes sense...




Fareed Zakria: This is bizarre. A lot of it is simply scaremongering. The truth is that for two and half decades, between 1980 and the mid 2000s - gold prices actually declined. Unlike many other commodities which actually have an end use - oil, minerals - gold is just a symbol, and as such its price rises have to do more with psychology and emotion than reason. So, when it falls out of fashion, the price could really collapse. The next time you watch Goldfinger or you hear of the antics of a Hugo Chavez or a Donald Trump, be a little wary.

Gold isn't a stock with real earnings. It isn't a bond with interest payments. It isn't oil. It won't help you drive a car; it won't help you light a fire. Yes, you can wear it, but you can't eat it. If doomsday really arrives, a can of baked beans might be worth a lot more than a brick of gold.

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Added October 28th 2011


Approx 4 mins - Stock volatility actually helps the traders. (This has to do with the variety of maneuvers at their disposal to make money on market fluctuations - Note: This does not include any big money players up to their own plans for better or worse).
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Friday, October 7, 2011

Corporations

There seems to be some misunderstanding of what Corporations are and what they have become as Mitt Romney illustrates with his "Corporations Are People" comment...



(Note: The Supreme Court ruled that restrictions on money that can flow to help/promote political campaigns is against the first amendment (i.e. money has free speech rights /first amendment protection)

The above statement made many people angry, including Stephen Colbert...



So the following are definitions and comparative examples to better understand the modern Corporate structure...

What is a Corporation?

Basic dictionary definition:
1
a : a group of merchants or traders united in a trade guild b : the municipal authorities of a town or city
2
: a body formed and authorized by law to act as a single person although constituted by one or more persons and legally endowed with various rights and duties including the capacity of succession
3
: an association of employers and employees in a basic industry or of members of a profession organized as an organ of political representation in a corporative state

Basic economic/business definition:

A legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.


The most important aspect of a corporation is limited liability. That is, shareholders have the right to participate in the profits, through dividends and/or the appreciation of stock, but are not held personally liable for the company's debts.


Corporations are often called "C Corporations".


Compare and Contrast:

Context to understand some of the strange rules Corporations are allowed (more than an average person/family for sureb)...


In other words, besides free speech rights for corporate money, there are ways for corporations to get out of paying taxes and a whole bunch of other nonsense that seems to be just part of the reason for the present financial chaos.


Compare and Contrast - Case Study:


A Shell Corporation: Switching fundraising approach by creating a company (approx 4 mins into video) - this new company is called a 501 (c)4 - Allows donations from unknown donors , notice the dramatic increase in donations! (the example used is Karl Rove's Super Pac and a new one he created to shield it);


To compete with Karl Rove, Stephen creates his own Shell Corporation (this approach allows corporate donations in secrecy as their shareholders or customers may object to their practices)...





The following video is the amusing result of the above two videos...


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Added December 28 2011: Useful Information About Modern Corporations...



Documentary website

Watch full the documentary in 23 parts here.
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Wednesday, October 5, 2011

An Overview of "Short Selling"

Short selling involves 'selling' something you don't own expecting the price to go down in the future. In extreme cases this technique can destroy an economy like an old fashioned, panic induced, bank run.

Definition of Short Selling:

What Does Short Selling Mean?

The selling of a security that the seller does not own, or any sale that is completed by the delivery of a security borrowed by the seller. Short sellers assume that they will be able to buy the stock at a lower amount than the price at which they sold short.

Investopedia explains Short Selling

Selling short is the opposite of going long. That is, short sellers make money if the stock goes down in price.

This is an advanced trading strategy with many unique risks and pitfalls. Novice investors are advised to avoid short sales.


The markets rise after some EU countries ban short-selling but will it have a lasting effect?

Click Here to Watch Video


Notes on above video:

1. 20 secs - Rumors can move markets

For example; "Every day cold hard facts are the fuel that drives the markets: News about a company or country, favorable or not. But markets are living organisms, made up of Alpha type men and women desperate to take advantage of situations real or perceived. So in the absence of facts, they will listen to rumors and try and judge whether those rumors are likely to be true; then buy or sell on the back of them.".

‎2. 1min 36 secs - 'professional investors would look at this with allot of misgiving... cause of suppression being forced in the market place... by agencies, typically market authorities or governments, which shouldn't be stopping natural market appetites and that will spook the professional investor' - note: if this 'professional investor' deals in rumors to spook markets to sell stuff they don't have in hope of making money... then maybe you have your priorities messed up?

3. Clear cut regulations with explanations are needed in areas where market manipulation is dangerous to an economy.


4. Video explanation of short selling.

Some historical perspectives:

‎"The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.

As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.

The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.

“We had another word for this in Brooklyn,” said Harvey Pitt, a former SEC chairman. “The word was ‘fraud.’”


Arguments For and Against Short Selling:

Against

"The argument for restricting short-selling runs as follows: betting that catastrophe will befall a bank can become a self-fulfilling prophecy; if a bank's shares or bonds can be forced down to distressed levels, its cost of funding will increase as counterparties lose faith in its solidity; in this way real damage is done to the bank; thus the odds are skewed unfairly in favour of the short-seller."

For

"The trouble is, this argument is a little too unworldly. Short-sellers may not be the most cuddly creatures in the financial jungle, but they do contribute to biodiversity. Even the Committee of European Securities Regulators, the predecessor to the new EU regulator, acknowledged last year that legitimate short-selling helps markets run efficiently. It can help to prevent bubbles – miserable Eeyores are a useful check on excitable Tiggers."

Samantha from The Daily Show Illustrates Short Selling (with a bias towards fairness)

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Sunday, October 2, 2011

Social Safety Nets

Social safety nets are used for stabilization of a section of society.

Definition of a safety net (For this post we are only concerned with the second definition):

safety net

1. a net used in a circus to catch high-wire and trapeze artistes if they fall
2. any means of protection from hardship or loss, such as insurance

Social Safety Net Example 1

For many, summer means vacation, sports, camping or just time off to relax, but not for millions of kids living in poverty in the United States. There are few camps or beach trips for them, and sometimes not even three meals a day.

During the school year, public schools provide breakfast and lunch to millions of students in the United States. But when summer arrives, parents struggling to feed their children can no longer rely on those meals.

More than 21 million children receive free or reduced-price lunches at school. But in the summer, the number of kids participating in food programs drops to fewer than 3 million, despite efforts to raise awareness and increase community support, the U.S. Department of Agriculture said.


Social Safety Net Example 2

People living in poverty and hunger are extremely vulnerable to crises.
Social safety nets have traditionally been used to help people through
short-term stress and calamities. They can also contribute to long-range
development. Targeted programmes such as food-for-work, school feeding,
microcredit and insurance coverage can help alleviate long-term food and
financial insecurity, contributing to a more self-reliant, economically
viable population.


Social Safety Net Example 3 

An example of a few people surviving on low budget social safety nets such as a church:

"These people have been reduced to living on handouts from the local church and friendly restaurants and the community is a sad look at troubles caused as the world's most powerful country struggles with its finances."

[Other examples of social safety nets include medicare and social security]

A social safety net with grassroots development:
An initiative that brings struggling families together to help each other out of poverty is providing a new model for social welfare.

What FII does is create a structure for families that encourages the sense of control, desire for self-determination, and mutual support that have characterized the collective rise out of poverty for countless communities in American history."

Possibility of this strategy: Social safety net plus an actual plan to help grass root economic development. [Solution has a hold and develop strategy which has promise as people working together in groups can help social development and therefore business development as well. ]
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