How is MENA destabilization affecting global markets for oil, energy, etc.?

QUESTION: With continuing uncertainty in the Middle East – in places like Libya, Syria, and Yemen – how is this destabilization affecting global markets for oil, energy, and other goods and services? What do you think are the important issues that are not being covered in the media?

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1  Effects of instability in energy markets

There are two kinds of effects: The easily measurable ones, and the subjective, or irrational, ones.

The first are easy to see. If any of these countries of the table below [1] stop (partly or completely) their oil exports, the effects are, depending of disruption time, going to be more or less close to last column's values:





This is the table for gas [1]:




You can run your models to try to estimate how big will be the final effect in prices, and further run the models to try to ascertain the impact on growth, inflation, employment, etc., making use of the rational expectations principle.

Recent comments by Ms Jean Boivin, Deputy Governor of the Bank of Canada, at the Canadian Association for Business Economics this week [2] explains that rational expectations (in its stronger form) means that we assume that people is very sophisticated: individuals "fully understand how economies and markets work, take into account all the information available, fully appreciate the future consequences of their actions today, and make decisions that are fully consistent with this understanding."

Now, this is just a starting point, the dominant undercurrent of people's actions in economic tasks. Analysts pour over the tables above and other data to try to objectivize behaviors. But there are "perturbations" to the mathematical equations that introduce a distance between the ideal (rational expectations) and the real thing. Unfortunately, there is no easy way to introduce into the models the non-objective part.

So the summary is this: effects will gravitate around the values in the tables above, but there is a volatility in the final values that depends of how fearful are investors, and fear is non-computable.


2  Important issues not being covered in the media

Most issues not covered in the media are, IMHO, due to lack of familiarity with the MENA countries. There is not enough knowledge among investors, policymakers, and citizens of those societies: their culture, their history, who are powerful and why.

So most commentary on the risks of a jihadist takeover, or the lack of attention to countries like Mauritania, ignore basic data about those societies and the interactions in the area.


Data like this, which shows efforts (and their relative weight) to influence North Africa by countries outside the area [3], are not being discussed:

References

[1]  Michael Ratner & Neelesh Nerurkar: "Middle East and North Africa Unrest: Implications for Oil and Natural Gas Markets." Congressional Research Service, March 10, 2011.

[2]  Jean Boivin: How people think and how it matters. Remarks by Ms Jean Boivin, Deputy Governor of the Bank of Canada, presented to the Canadian Association for Business Economics, Kingston, Ontario, August 23, 2011.

[3]  The Moor Next Door, Oct 17, 2010, http://themoornextdoor.wordpress.com/2010/10/26/experiments-in-map-making > map in section 5 (http://themoornextdoor.files.wordpress.com/2010/10/screen-shot-2010-10-27-at-10-53-20-am.png?w=700&h=386)

Obama Is Too Good For Us

Obama Is Too Good For Us. By Charles Fried
http://www.thedailybeast.com/articles/2011/08/06/obama-is-too-good-for-us-charles-fried-on-the-debt-fiasco.html
The debt deal fiasco proved that any decent, honest politician like the president simply doesn’t stand a chance against the likes of Michele Bachmann. Charles Fried on how the Tea Party ruined America.The Daily Beast, Aug 6, 2011 1:02 AM EDT

Barack Obama is not a skillful strategist like Bill Clinton. He is not a gifted rhetorician like Ronald Reagan. Nor is he a bold and inspiring leader like Abraham Lincoln. And he can’t seem to shake himself loose from the strings that attach him to the trial lawyers, to big labor, and, surprisingly, to the standard banker-economists who got us into the mess we are in now. But he is an honest man. He is intelligent, analytical, and knowledgeable. And he tries hard to think through the dilemmas which confront us and to tell us clearly and straightforwardly what he wants to do and why he wants to do it.

But it doesn’t seem to work.

Contrast this to the politicians he is up against. When John Boehner at the height of the debt ceiling crisis answered him on the national media he simply did not tell the truth. He said that the president would not compromise, would not take yes for an answer, and wanted it all his own way. But he cannot have forgotten that he had negotiated Obama into far more cuts than Obama and his caucus had wanted, thought wise or even palatable in return for a modest increase in revenue to be achieved by closing egregious and unfair loopholes in personal and corporate taxes. This is the same compromise recommended by the “Gang of Six,” which included the extremely conservative and admirably patriotic Senator Tom Coburn, by the bipartisan Bowles-Simpson group, and by Republican economists like Martin Feldstein. It was the Speaker who, Arafat-like, walked away from that deal because he concluded he lacked the skill or the muscle or the spine to sell it to his own caucus. Let it be said that this compromise included recalculating the cost of living formula for social security—a change every responsible economist recommends—but the equally rigid Nancy Pelosi rejected.

And Mitt Romney, supposedly a man experienced in business realities, in a parody of himself, has pronounced that he opposed the deal reached on the very eve of default—because it did not go far enough in the direction of what the Tea Party wanted.

Where can we find leadership that fits today’s circumstances, as Obama’s cool, rational approach and clear-headed rhetoric apparently do not?

I turn to the ancient Greek comic author, Aristophanes, speaking at what must have seemed a similar time. In his play The Knights two citizens are looking for a leader fit for the times. They come upon a sausage-seller and propose him as ideal for the job.

“Tell me,” asks the astonished man, “how a sausage-seller can become a great man.”

“You will be great,” they answer him, “precisely because you are a sad rascal without shame, no better than a common market rogue.”

The dialogue shifts to fit exactly the situation of Sarah Palin (remember the Katie Couric interview), the god-parent of the Tea Party. The sausage seller objects: “But I have not had the least education. I can only read, and that very badly.” And he is answered: “That is what may stand in your way, almost knowing how to read. A demagogue must be neither an educated nor an honest man; he has to be an ignoramus and a rogue. But do not, do not let go this gift, which the oracle promises. . . Politics these days is no occupation for an educated man, a man of character. Ignorance and total lousiness are better. Don’t jettison such god-given advantages.”

Look at the roster of leaders vying for my party’s nomination. At the top of the list stand Mitt Romney, who will say anything, and Michele Bachmann, who assured us that defaulting on the national debt is no big deal, while a sensible man like Jon Huntsman is in single digits.

Oh, I know: it’s not funny, but one must either laugh or weep.

CPSS-IOSCO releases report on requirements for OTC derivatives data reporting and aggregation

CPSS-IOSCO releases report on requirements for OTC derivatives data reporting and aggregation
http://www.bis.org/press/p110824.htm
August 24, 2011

The Committee on Payment and Settlement Systems and the Technical Committee of IOSCO have today released for comment a report on the OTC derivatives data that should be collected, stored and disseminated by trade repositories (TRs).

The committees support the view that TRs, by collecting such data centrally, would provide the authorities and the public with better and timely information. This would make markets more transparent, help to prevent market abuse, and promote financial stability.

The report addresses Recommendation 19 in the October 2010 report of the Financial Stability Board (FSB), Implementing OTC derivatives market reforms, which called on the CPSS and IOSCO to consult with the authorities and the OTC Derivatives Regulators Forum in developing:

1    minimum data reporting requirements and standardised formats, and
2    the methodology and mechanism for data aggregation on a global basis. A final report is due by the end of 2011.

The proposed requirements and data formats will apply to both market participants reporting to TRs and to TRs reporting to the public and to regulators. The report also finds that certain information currently not supported by TRs would be helpful in assessing systemic risk and financial stability, and discusses options for bridging these gaps.

Issues relating to data access for the authorities and reporting entities are discussed, including methods and tools that could provide the authorities with better access to data. Public dissemination of data, it is noted, promotes the understanding of OTC derivatives markets by all stakeholders, underpins investor protection, and facilitates the exercise of market discipline.

The report also covers the mechanisms and tools that the authorities will need to aggregate OTC derivatives data. It advocates a system of standard legal entity identifiers (LEIs) as an essential tool for aggregation of such data. It further recommends that TRs actively participate in the LEI's development and use the system once it becomes available. As the implementation of a universal LEI will require international cooperation, it is noted that further international consultation would be beneficial.

Finally, the report recommends that CPSS-IOSCO or the FSB make a public statement calling for timely industry-led development, in consultation with the authorities, of a standard classification system for OTC derivatives products.

Published along with the report is a cover note that sets out specific issues on which the committees seek comments during the public consultation period.

Comments on the report are invited from all interested parties and should be sent by 23 September 2011 (see note 1 below).

After the consultation period, the CPSS and IOSCO will review all comments received and publish a final report by the end of 2011.


Notes

1    Comments on the report should be sent by 23 September 2011 to both the CPSS secretariat (cpss@bis.org) and the IOSCO secretariat (OTC-Data-Report@iosco.org). The comments will be published on the websites of the BIS and IOSCO unless commentators have requested otherwise.
2     The CPSS serves as a forum for central banks to monitor and analyse developments in payment and settlement arrangements as well as in cross-border and multicurrency settlement schemes. The CPSS secretariat is hosted by the BIS. More information about the CPSS, and all its publications, can be found on the BIS website at www.bis.org/cpss.
3    IOSCO is an international policy forum for securities regulators. The Technical Committee, a specialised working group established by IOSCO's Executive Committee, is made up of 18 agencies that regulate some of the world's larger, more developed and internationalised markets. Its objective is to review major regulatory issues related to international securities and futures transactions and to coordinate practical responses to these concerns.
4    Both committees are recognised as international standard-setting bodies by the Financial Stability Board (www.financialstabilityboard.org)
5    The Task Force that carried out the work on behalf of the committees was chaired by Frédéric Hervo of the Bank of France, Sujit Prasad of the Securities and Exchange Board of India and David Van Wagner of the Commodity Futures Trading Commission.

Scott Belsky Says Managers Need to Avoid Distractions and Take Time to Focus on Their Long-Term Aims

How to Make Your Dream Project Happen. By Javier Espinosa
http://online.wsj.com/article/SB10001424053111903327904576524253193112770.html
Author Scott Belsky Says Managers Need to Avoid Distractions and Take Time to Focus on Their Long-Term Aims WSJ, Aug 24, 2011

Even the most successful managers sometimes struggle to turn their ideas into reality. But some authors, creative teams or companies manage to be more productive than most. So, what distinguishes them from the rest, and what can we learn from them?

Over the past 5½ years, Scott Belsky, author of "Making Ideas Happen," met with hundreds of individuals and teams at companies such as Google and Apple to find out how they go about executing their projects. He is the founder and chief executive of Behance, a self-described New-York based "creative professional platform." whose main aim is to help creative thinkers see their ideas develop into actual results.

"We spend too much time focused on innovation and creativity and not enough time on the execution side. Ideas don't happen because they are great or by accident. They happen because there are other forces at play," he says.

In an interview with The Wall Street Journal in London, Mr. Belsky shared some of his tips for turning ideas into concrete outcomes. The interview has been edited.

Embrace 'micro action'

A lot of the creative teams [I met with] will find micro actions to push ideas forward, rather than always sitting back and waiting for the perfect time. We are often are told to "think before you act" but I found it's never the right time to do something new. In fact, it's always the wrong time because you always find a reason why you should wait.

Escape the 'reactionary' workflow

Everyone is struggling right now with the same thing. We have entered the era of reactionary workflow. We are constantly connected, have our devices with us at all times. Right now you are probably receiving emails, voice mails, text messages, Facebook messages…all of this stuff is coming to you. You could live a life of simply reacting to what's coming in rather than being proactive in what matters most to you. You can slip into reactionary workflow the minute you get up in the morning with your phone and everything else. You can never have an impact on your long-term stuff. We will never push an idea forward unless we find ways to manage it.

Book time to think about the longer term

Executives I work with preserve what I call windows of nonstimulation in their day. They book themselves two- or three-hour chunks and they don't focus on their to-do list or their email. Instead, they are focusing on two or three things that important to them over the long term. They are revisiting their business plan during this enforced period of [thinking] time.

How to avoid the 'project plateau'

If you have an idea to write a novel, your energy and excitement will be extremely high. You are willing to stay up until three in the morning writing that first chapter. But then four days later your energy is going to start going down. You will realize that you are behind on your other deadlines and you are going to find a million reasons to get back to what's urgent. You then enter the "project plateau" where most ideas die.

The one thing that's really important to keep yourself engaged with a project even though it's no longer new is to kill off [subsequent] new ideas. The whole premise of the project plateau is that there is a lot of energy and excitement when a new idea comes but it's really important to work with people who are doers. If we spread our energy too thinly the main project suffers.

'Insecurity work' is bad for you

Five or 10 years ago, when you wanted to know how things were doing you waited for the data to get to you. You got a weekly report, or a quarterly report. Today, executives walk around with applications that allow them to see to the minute the number of visits to their website.

The problem with this is that there is a new type of work that we are starting to do. I call it insecurity work. It's stuff that we do repeatedly throughout the day: searching Twitter for a keyword. When you are leading a bold creative pursuit you always want to know that it's OK. We should really delegate this work to somebody else. If your job is to lead a creative project, you shouldn't be filling your day with this stuff. I

The power of accountability

The power of accountability was a big theme that I saw in everyone that I met. They all had stories of having an idea within a company but not sharing it. And then suddenly for some reason putting it out there and being held liable for it. That was always a good turning point for them. Chris Anderson, author and editor-in-chief of Wired magazine, says every time he has an idea he puts it out on his blog. People ask, first of all, aren't you afraid somebody is going to steal your idea and, second of all, aren't you worried that you are sharing it prematurely? The answer: the more I share the idea, the more likely people are to hold me accountable and help me refine it.

—"Making Ideas Happen: Overcoming the Obstacles Between Vision and Reality" is published by Penguin.

Views on the balanced budget amendment

1  In favor: Considering a Balanced Budget Amendment: Lessons from History, by E Istook, http://www.heritage.org/Research/Reports/2011/07/Considering-a-Balanced-Budget-Amendment-Lessons-from-History (Spanish: http://www.libertad.org/lecciones-de-la-historia-sobre-la-enmienda-del-presupuesto-balanceado)

Abstract: Attempts at passing a balanced budget amendment (BBA) date back to the 1930s, and all have been unsuccessful. Both parties carry some of the blame: The GOP too often has been neglectful of the issue, and the Democratic Left, recognizing a threat to big government, has stalled and obfuscated, attempting to water down any proposals to mandate balanced budgets. On the occasion of the July 2011 vote on a new proposed BBA, former Representative from Oklahoma Ernest Istook presents lessons from history.


2  Against from a conservative or libertarian viewpoint: The Balanced Budget Amendment's Fatal Flaw. By PETER H. SCHUCK
http://online.wsj.com/article/SB10001424053111903554904576459902841916850.html
Nothing would give judges more policy-making power.
WSJ, Jul 22, 2011

A balanced budget amendment (BBA), a hardy perennial in Congress, is once again in the headlines. This is entirely understandable. The public trusts neither the president nor Congress, regardless of the party in control, to strike and maintain an economically healthy, sustainable balance between federal spending and revenues. Thus, the idea of tying them to the constitutional mast, Ulysses-like, so that they cannot succumb to the inevitable temptation to spend more and tax less is itself tempting to many reformers and voters.

Nevertheless, many sound objections to a BBA exist, which the current version—indeed, any version—cannot adequately address. Many of these objections, such as the need for deficit spending in a recession, are hoary Keynesian pieties and will resonate only with liberals and moderates. But one objection, largely absent from the debate so far, should convince even the most hidebound conservative to strongly oppose the BBA.

I can think of no other law that would empower judges to exercise more political and policy-making discretion than a balanced budget amendment. It would quickly realize every conservative's fears of an "imperial judiciary" that "legislates from the bench"—even if the courts simply did their job and did not grasp for that power.

First, the courts would be swamped with challenges to every governmental decision with significant budgetary implications, which means almost all important decisions. As federal Judge Ralph Winter pointed out long ago, the judges would have to decide who, if anyone, would have standing to sue and who the proper defendant would be. If they ruled that no one had standing, then the amendment would be legally unenforceable, a dead letter. If the judges found standing, however, a host of exceptionally controversial legal-interpretation issues would arise.

Perhaps the most fundamental questions have been posed by Rudy Penner, who was Congressional Budget Office director in the Reagan years: What is a "budget," and which budgets are covered by the amendment? This is pivotal because the amendment would create an irresistible incentive for politicians to expand "off-budget" programs or establish new ones.

Social Security, Fannie Mae, Freddie Mac, the Postal Service and the new Consumer Financial Protection Bureau are all off-budget and constitute a huge share of federal fiscal commitments. The BBA does not even mention this multitrillion-pound gorilla, nor does it deal with the creation of new off-budget spending programs which would certainly proliferate in its wake, so a judge would have to decide whether they are included. (The state and local equivalent dodge of balanced budget rules is the "special district"—some 40,000 nationwide—which often has taxing power. )

The BBA also uses the basic term "tax" as if it were self-defining, but of course it isn't. Indeed, one of the key issues in the legal challenge to ObamaCare is whether the spending mandates in the legislation constitute a tax (as the administration argues) or a penalty (as its opponents claim). Only the courts can decide—and so far they have split on the issue. This is political power of a high order, given the importance of the legislation.

Then there are the classic ploys that governments use to evade budgetary restrictions, about which the BBA is also silent. Does the amendment's term "outlay" apply to long-term capital investments such as infrastructure spending, of which the Obama administration is so fond? If not, we can anticipate lots more spending being called capital investment. The judges will have to decide whether the amendment applies or not.

Does "outlay" cover government loan guarantees—a form of subsidy used promiscuously by government to avoid budgetary constraints? Does "revenue" include so-called "offsetting receipts" such as the large amounts that Medicare beneficiaries pay for their physician and drug benefits? If so, we can expect Congress to use more of them. Again, the courts will have to decide.

It does seem clear that the amendment would not cover private expenditures mandated by government regulation of individuals and firms. After all, regulations affect private budgets, not governmental ones; that is part of their political appeal. If the BBA passes, then look for the politicians to transfer much of their spending desires into a burst of new regulations. For conservatives, this should be a nightmare.

The political pundits report that there is no chance that the balanced budget amendment will pass. This should be cause for conservative celebration, not disappointment.


Mr. Schuck is a professor at Yale Law School and the co-editor, with James Q. Wilson, of "Understanding America: The Anatomy of an Exceptional Nation" (PublicAffairs, 2008).