Category Archives: Economic

Economic, Financial Markets, Government, Politics, Society, United States

Surprise at the Fed’s decision to maintain an economic stimulatory programme…

ECONOMIC RECOVERY

…The Federal Reserve maintains its quantitative easing programme, but the implications of a taper were felt around the world

The spectacle and irony of the world’s financial markets shooting upwards in response to reports that the global economy is in less than rude health than had been thought appears paradoxical.

The surprise decision this week by the Federal Reserve to maintain its monthly $85 billion quantitative easing programme – the process by which money is artificially printed – indicates that U.S. monetary policymakers are far from convinced by the incipient American recovery. Whilst Washington has reported a much improved unemployment rate of 7.3 per cent, that is still considered to be too high, and more needs to be done before the recovery can be deemed sustainable. The uncertainty of rate-setters on the Fed’s Open Market Committee is undeniable as evidenced through their downgraded growth forecasts up until the end of 2014. Yet, from baulking at the downbeat assessment, investors from Tokyo to London have remained in bullish mood.

Their relief is perhaps not entirely irrational. The implications of Ben Bernanke’s suggestion in June that the Federal Reserve would start ‘tapering’ its Q.E. programme and stimulatory bond-buying some time before the end of the year were felt around the world. Emerging economies, for instance, particularly in Asia, saw their currencies plummet as money was pulled out in favour of newly rising, and much safer, US markets. Nor was the developed world any more insulated. Even though the Fed has not yet done anything, just the prospect of a U.S. taper has sharply sent long-term interest rates upwards in anticipation.

There are two lessons to be taken here. First, for all the new-found economic optimism, whatever green shoots there are (either here or elsewhere in the world), remain about as fragile as they can be. And secondly, the route from where we are now back to (unstimulated) pre-crisis normality will be an uneven and bumpy journey.

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Economic, Financial Markets, Government, Politics, Russia

G20 warns that the global economic crisis is not yet over…

WORLD ECONOMY

At the end of the G20 last week, the leading group of nations said that the crisis in the global economy is far from over and more needs to be done to stimulate growth and create jobs around the world.

In a statement issued at the end of their summit in St Petersburg, Russia, G20 leaders welcomed a recovery in the developed world but warned of risks facing emerging markets.

The communique said:

… Despite our actions, the recovery is too weak, and risks remain tilted to the downside.

It listed ‘the main challenges’ facing the global economy, including ‘persistently high unemployment’ particularly among the young, financial stress in Europe and high levels of government debt.

The G20 also called for the withdrawal of emergency stimulus measures in countries such as the United States to be ‘carefully calibrated and clearly communicated’ to minimise volatility on the financial markets.

Speculation that the U.S. Federal Reserve is about to start reducing the level of support for the U.S. economy has plunged a number of emerging economies into turmoil.

The G20 is made up of developed countries and emerging markets accounting for 90 per cent of global output and two-thirds of the world’s population.

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Britain, Economic, Energy, Environment, Government, Politics, Society, Technology

Fracking and drilling for shale gas…

SHALE TRAIL

Will the UK Government’s latest ‘dash for gas’ with fracking be a golden repeat of the North Sea oil boom or become a serious risk to public health and safety?

Opinion is divided between green opponents of attempts to cash in on the controversial resource and those proponents who argue vast deposits of gas below much of the country will dig Britain out of its energy crisis.

The debate has been stoked following claims in June by the British Geological Society that there could be more than 1,300 trillion cubic feet of shale gas under the North of England alone.

At current predictions, around 10 per cent of this should be recoverable – enough to fuel the nation for about 40 years, according to supporters.

And last month Chancellor George Osborne unveiled some of the most generous tax breaks in the world to kick-start this energy revolution in Britain.

The Treasury says that taxation on shale gas will be cut from 62 per cent to just 30 per cent, which the Chancellor reckons could boost investment in the industry to £14 billion a year.

It won’t just be companies that will gain. Local communities in those areas where extraction takes place will scoop 1 per cent of production revenues, as well as £100,000 per fracking well.

The United States has already benefited from its own shale gas boom, relying far less on oil imports now and providing energy consumers with a much cheaper alternative. According to the ratings agency Moody’s, the shale gas boom in America has generated more than 1 million US jobs.

For investors, too, the potential is huge.

If fracking’s potential is as good as we’re being told it could be, there will soon be a surge in profitability, rising share prices and attractive returns on offer for shareholders of those firms leading the charge. While there remains a long road to travel yet in terms of legislation and testing, the excitement building in the City of London is tangible.

Companies with licences for British shale areas have understandably welcomed the tax break announcements by the Chancellor. Those set to benefit include Aim-listed IGas and Dart Energy, equipment-maker John Wood Group and British Gas-owner Centrica – which acquired 25 per cent of Cuadrilla Resources in June.

Of course, the environmental concerns have to be weighed against the commercial benefits. But even the most ardent green lobbyist must recognise that Britain is facing a crisis of epic proportions when it comes to security of energy supply.

The UK is already a net importer of gas. Any interruption in supplies risks hiking up domestic and business energy bills or even seeing some customers cut off. Our coal-fired plants are closing or already shuttered.

Meanwhile, nuclear energy is in disarray with no new plants likely for at least another decade. There is still no sign of agreement on the crucial strike price – the guaranteed minimum EDF would get for power generated at a new plant.

Green technologies like wind are as yet incapable of fulfilling all our everyday energy needs.

The introduction of a tax regime that levels the playing field for shale gas with small offshore oil and gas fields must surely be a welcome step in the right direction.

But the industry will need to be tightly regulated to minimise the chances of something going wrong. Lobbyists have legitimate concerns over the chemicals used in the fracking process contaminating local water supplies, and the anecdotal evidence elsewhere that drilling for shale gas can increase the risk of earthquakes.

Drilling and fracturing must be strictly controlled. Three government agencies, plus the local authority, will have to sign-off on every project. Environmental impact assessments will be necessary along with permits to be agreed before fracking begins.

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