Musharraf to quit army
For a couple of years now, one of the big questions in Pakistan has been whether Musharraf will doff his uniform before seeking re-election as President. It now looks like the uniform will indeed be doffed…
Meanwhile, back in the real economy…
The FT notes that:
- Oil touched an all-time high at the end of last week, reaching $80.36 at one point, as traders reacted to last week’s OPEC decision to raise crude output by 500,000 barrels a day from November as “too little, too late”;
- Wheat hit a record last week as well, making it to $9.11¼ a bushel on Wednesday after the US Department of Agriculture warned that global stockpiles would shrink to a 30 year low;
- Corn prices were still going up last week even after USDA forecast a record US crop, thanks to the global explosion in corn consumption – for biofuels as well as food; and
- Gold touched $717 a troy ounce, a 17 month high, on Friday – driven by investors going for safety and a predicted further weakening in the dollar.
Most media commentary over the last week has suggested that US, eurozone and UK interest rates will decline as central banks seek to inject liquidity to the markets. But if real world scarcity trends in agriculture and energy keep pushing raw material prices upwards, then that could make for a painful countervailing force on interest rates – putting central bankers between a rock and a hard place on growth versus inflation. Stagflation, anyone?
The state he’s in
Given the obvious risk of self-fulfilling prophecy when terms like ‘bank run’ start being bandied about in the midst of a low level consumer panic, sensible commentators try to err away from being too lurid in what they say to the mainstream media during a crisis.
A pity, then, that Will Hutton just couldn’t resist when the opportunity for some publicity came knocking. Yesterday, he was in the Observer, arguing that:
This is a full-blown run on a bank, something we have not seen on such a scale since the 19th century, and a measure of the depth of mismanagement, non-regulation and structural dysfunctionality of today’s financial system.
By this morning, he clearly felt that he hadn’t gone far enough, so he decided to go on the Today programme (RealPlayer stream; fast forward to 10.30) and announce to the nation that unless the government improved the depositors’ insurance scheme, got the interbank loan market moving “at all costs”, was willing to “stand behind structured investment vehicles” and “re-regulate the markets”, and was prepared to nationalise Northern Rock if push really came to shove, then
“…there is a really serious risk that there could be a bank run that spreads beyond Northern Rock.”
This is not to deny that a serious problem is underway; we published posts on both 22 August and 7 September quoting experts who were arguing that the situation was considerably worse than generally understood by generalist policymakers or the mainstream media. But Hutton’s shrill polemic is both uninformative and unhelpful, especially as it ignores the two key counter-arguments to his plan for a mega-bailout: moral hazard and the question of who picks up the tab.
If the Bank of England says it will prop up any bank or building society at risk of failure now that we’ve hit the first really serious bout of financial market turbulence since the turn of the decade, what kind of signal does that send? And his call for the government to “get the interbank market moving at all costs” seems similarly bizarre: given that the reason it has dried up in the first place is because banks don’t know who’s been left holding the bad loans now that the music’s stopped, is his suggestion that the Bank of England should pick up the tab for all of them?
Both of these issues have been widely – and soberly – debated in the press over the last few days. But by ignoring the nuances at the same time as upping the rhetoric, the risk that Hutton runs is of worsening perceptions of the problem without contributing to a consensus on solutions. There are serious structural issues of financial market regulation that clearly need to be addressed, yes. But there’s plenty of scope for a frank discussion of symptoms, causes and policy without tearing on to the Today programme to tell the nation about “financial tsunamis” and suggesting implicitly that perhaps we should all withdraw our cash from wherever it’s saved, convert it into gold sovereigns and stash it under the mattress.
Michael Chertoff’s blog
As we wait for David Miliband’s promised return to the blogosphere, the news arrives that none other than Michael Chertoff, the US Secretary for Homeland Security, has started one. Is it about the drought in the south eastern US? Hurricane resilience? Current counter-terrorism campaigns? Er, no: so far, it’s limited to raking over the coals of 9/11…
A global climate control OS
Discussing climate change with a group of campaigners and activists yesterday, I was struck by the fact that, despite all the recent attention for the issue, we still lack a common language for talking about possible solutions.
With Bali fast approaching, it seems clear to me that, without this language, negotiators will largely be talking past each other – a confusion that the media will happily amplify.
Any strategy for checking climate change has to start with a global stabilisation target which places a ceiling on atmospheric carbon dioxide levels.
The need for a stabilisation target is absolutely fundamental. It’s a concept that, by now, should be as deeply embedded in public discourse as key economic indicators such as the inflation rate.
Leave aside for a moment, the dwindling number of people who utterly reject the existence of man made climate change, and imagine that the others can be divided into two groups:
- climate control hawks, who believe that we face impending disaster and must act immediately; and
- climate control doves, who expect temperatures to rise gradually and believe we have many years to switch to a low carbon economy.
Whether unconsciously or not, both groups share the assumption that the concentration of greenhouse gases can only be allowed to rise to a certain level. Like interest rate hawks and doves, they disagree on how high we can afford that level to be.
As my co-editor Alex Evans puts it, the principle of a stabilisation target acts as a core element of an operating system for global climate control.
My opinion is that the existence of a stabilisation target is paramount, but it matters much less what initial level for that target is agreed.
The European Commission talks about 450-550 parts per million (this figure expresses all greenhouse gases as carbon dioxide equivalents). The upper end of this range (or even higher!) would be fine by me.
Just set a stabilisation target. And do it now.
Next ask scientists to review the latest evidence every so often and offer advice on whether the target is too high, or too low. Governments can then choose to respond to this advice or explain to the world why they are ignoring it.
The equivalent would be a central bank that did not set the interest rate itself, but gave its finance minister an independent opinion on what the rate should be.
Why is this so important? Three reasons.
First, it will be much easier to set the first stabilisation target if climate control hawks are prepared to allow the doves a little latitude. The US, for example, is never going to agree to a super-stringent stabilisation target based on its current interpretation of the science. Fine, we should say. But what target could you live with?
Second, it allows both hawks and doves to hedge their bets a little. Doves can await scientific evidence that will show that we’ve all got a little carried away with the doomsday scenario. Hawks will grimly expect our understanding of the consequences of climate change to steadily worsen. In practice, real world climate events – or the absence of them – are likely to force our hand.
Third, it provides a chance that some pace will get injected into the negotiation process. Nowadays, it is fashionable to dismiss Kyoto, but at least that accord showed that agreement was possible.
We badly need a new climate control framework and we need it quickly. We also want that framework to have a permanency, even if its provisions are periodically made more or less stringent.
A global climate control operating system should be negotiated once and once only. From then on, we will merely be tweaking its variables.
(More on sharing out emissions later…)