Monthly Archives: February 2009

Facing the facts (about banks)

“’It may be necessary to temporarily nationalise some banks in order to facilitate a swift and orderly restructuring,’ [Allan Greenspan] said. ‘I understand that once in a hundred years this is what you do.’” Extract from Financial Times

The most inconvenient fact is the questionable solvency of the banks, which has frozen credit markets.

Transparency as stimulus

Recovery.gov_tmb.jpg

This is a great idea that the Rudd government should adopt.

“…The ‘American Recovery and Reinvestment Act,’ better known as our national Hail Mary stimulus bill, … also contains a measure promoting a less-noted type of economic infrastructure: government data. In the name of transparency, all the Fed’s stimulus-spending data will be posted at a new government site, Recovery.gov”Extract from Wired Magazine

Lack of transparency (in financial markets) has turned a cyclical down-turn into a deep, world-wide, recession. Nothing better demonstrates the crucial role of transparency in markets. But transparency in government can stimulate growth, too.

Spring-time for state captialists

It’s much more than Rio and Oz Minerals. Now China is securing a 20-year supply from the stumbling Russian oil industry.

“The deal, the largest trade financing agreement between the two countries, alleviates the massive refinancing needs of Russia’s two state energy giants as they seek to weather the credit crisis with the country facing its first recession in 10 years. It will also provide China, the world’s number two oil importer, with an important new secured supply of oil to fuel economic growth.” Extract from Financial Times

China is on a shopping spree, taking advantage of an historical opportunity; its strong and strengthening external balances and the plunge in commodity prices. Yes, you read that right… while the rest of the world struggles to maintain it’s trade grip, China’s external reserves will likely grow during the recession.

The evidence on cap-and-trade

“The problem in Australia is not that the wrong policy won in the battle of ideas. The problem is that the battle never took place. We need to have this debate. If the Government is determined to introduce further climate change policy, there are plenty of reasons a carbon tax may be better than a trading system.” Op Ed by John Humpreys in The Australian

Exactly!

A coal quiz

Here’s a little quiz about coal. You probably know that there are two kinds; coking coal, which provides the carbon in carbon-steel and thermal coal that drives the power-stations and adds CO2 to the atmosphere. You might also know that Australia exports four times more coking coal than the #2 global supplier (Indonesia) and maybe you were aware that Australia is the #2 thermal coal exporter after…Indonesia, which exports more than twice the volumes that Australia exports.

Well, you know now, at any rate.

So here’s the quiz: First question: who is the biggest customer for our export coals (coking, thermal)? China? Europe? Japan? North America? Korea? India? If you know the answer, you can probably also answer the second question: Which relatively small customer for our coal sets the prices we can charge and how? The prize for knowing the correct answer to these questions is… a big headache.

Naive forecasts outperform IPCC

Mean and maximum errors in a naive forecast of temperature 1850-2008 [Green et. al.]

In a straightforward but important paper, Green, Armstrong and Soon demonstrate that there is no reason to develop elaborate ‘forecasts’ of temperature. The forecasts of the CGM models, they predict, will be no better over policy-relevant periods of 20, 50 or even 100 years than a naive forecast that assumes future temperatures will be the same as today’s.

“Global mean temperatures were found to be remarkably stable over policy-relevant horizons. The benchmark forecast is that the global mean temperature for each year for the rest of this century will be within 0.5°C of the 2008 figure.”

This conclusion accords with common-sense. You need only look at temperature records on a decadal or epochal scale to see that it goes down about as often as it goes up. The paper also reminds us of some important principles of policy forecasting, especially the importance of basing forecasts on the evidence, not on the speculation inherent in ‘scenarios’ and elaborate models.

Staticulation on rainfall from the BOM

Dr David Jones, head of the Bureau of Meteorology’s (BOM) National Climate Center, if accurately reported, relies on staticulation rather than evidence in remarks about drought and climate change:

“While climate scientists warn a single event such as Victoria’s deadly bushfires cannot be blamed on climate change alone, Dr Jones said the conditions were ‘totally typical of climate change at the most pessimistic end of the models'” Extract from The Age

It’s worrying to hear insinuations like this from senior government scientists on the eve of the planned bushfire Royal Commission. Dr Jones seems to be misusing the BOM’s own statistical reports to suggest an alarming conclusion that is not supported by the evidence.