Leading Russian Economists: The Oil Age Is Over; Russia Needs Internal Reforms To Overcome Recession.

Leading Economists At Russia's Sixth Gaidar Forum: The Oil Age Is Over; Russia Needs Internal Reforms To Overcome Recession. (Memri).

This year the Forum hosted government officials, heads of leading Russian and foreign companies, and various experts, who discussed Russia's development in light of the current crisis, the technological revolution of the last decades, and recent political changes.

Addressing the forum, Russian Prime Minister Dmitry Medvedev said the Russian government needs to prepare for "the worst-case scenario."[1] 

This, in light of the deep difficulties the country is experiencing: The drop in oil prices, which have fallen by almost 70% in the last 18 months, has crippled the Russian economy, due to loss of income from energy exports as well as from taxes on oil and gas, which generate about half of the Russian government's revenue. The grim economic situation is worsened by Western sanctions that deny international credit to Russian banks. The crisis is reflected in the value of the ruble, which has plummeted from a high of 30 to the dollar to around 75.

Two other prominent speakers at the forum were Herman Gref, CEO of Sberbank, Russia's largest bank, who was economy minister during Vladimir Putin's two terms as president, and Alexey Kudrin, a former finance minister and the architect of Russia's financial system. Known as the "St Petersburg economists," Kudrin and Gref are considered the leading liberal reformers in Putin's administration in the early and mid-2000s, and the main figures responsible for crafting the economic policies of the Putin and Medvedev presidencies. At the conference both called for deep internal reforms to avoid further descent into recession.

The following are excerpts from statements made at the Gaidar Forum and concerning the issues discussed in it.

Addressing the forum, Sberbank CEO Herman Gref noted that the oil age is over, because there have been radical changes in consumption: "The era of hydrocarbons is in the past. Just like the Stone Age ended, and not because they ran out of stones, the oil age is also over."[2]

According to the Moscow Times, Gref complained that Russia has failed to adapt to economic and technological change and has "fallen into the ranks of 'downshifter' countries that will catastrophically lag behind their more advanced rivals. He added that Russia "must honestly admit" that has "lost to competitors."

Warning of "technological subjugation," he added that, in the new technology-driven world, the difference between leaders and losers would be "larger than during the industrial revolution."

Gref's warning came after the decline in oil prices has thrown Russia into its longest recession since the 1990s, demonstrating the country's reliance on energy exports.[3] As a solution, Gref called for radical reforms of state governance, reduced regulations, stricter measures by law enforcement agencies and by the courts, and a more extensive diversification into non-oil sectors.[4] "Reforms are badly needed, or we will end up far behind other countries," Gref stated.[5]

Gref elaborated that Russia should not only "change all government systems" but also reform the education system, to enable its citizens to join the "technological revolution." He stressed that "primarily education, from kindergartens to universities" should be reformed by "scrapping of the old Soviet educational system." "Welcome to the future!" Gref said.[6]

PM Dmitry Medvedev echoed Gref's demand for internal reforms. "Even though reforms are always painful, we need them today, during this period of crisis. […] Stagnation is the hot issue in the world. We can't afford to let ourselves be trapped in economic decline, as it will lead directly to recession."[7]   Read the full story here.

'CHANGE' - United States’ military posture is rated as “marginal” and is trending toward “weak.”

'CHANGE' - United States’ military posture is rated as “marginal” and is trending toward “weak.” HT: Heritage.

James Jay Carafano, America’s leading expert in national security and foreign policy challenges, has criticized the current state of the US military, calling it “not a bad grade for kindergarten,” but certainly “not much to show for a commander-in-chief after seven years of stewardship over America’s military.”

His comments on The Heritage Foundation website follow the assessments of the US military index, released by the Foundation in its “2016 Index of US Military Strength” report.

The report concluded that the US’ military posture is rated as “marginal” for its Navy, Air Force, Marine Corps and Nuclear power, trending toward “weak”, and is just plain “weak” for the Army.

The Status of U.S. Military Power

Finally, we assessed the military power of the United States in three areas: capability, capacity, and readiness. These three areas of assessment are central to the overarching questions of whether the U.S. has a sufficient quantity of appropriately modern military power and whether military units are able to conduct military operations on demand and effectively.

The common theme across the services and the United States’ nuclear enterprise is one of force degradation resulting from many years of underinvestment, poor execution of modernization programs, and the negative effects of budget sequestration (cuts in funding) on readiness and capacity. While the military has been heavily engaged in operations, primarily in the Middle East but elsewhere as well, since September 11, 2001, experience is both ephemeral and context-sensitive. Valuable combat experience is lost over time as the servicemembers who individually gained experience leave the force, and it maintains direct relevance only for future operations of a similar type. Thus, though the current Joint Force is experienced in some types of operations, it is still aged and shrinking in its capacity for operations.

The characterizations shown are not a reflection of the competence of individual service members or the professionalism of the services or Joint Force as a whole; nor do they speak to the U.S. military’s strength relative to other militaries around the world. Rather, they are assessments of the institutional, programmatic, and matériel health or viability of America’s hard military power.

Our analysis concluded with these assessments:

• Army as “Weak.” The Army’s score dropped from “marginal” last year to “weak” this year, a development that can be attributed primarily to a drop in capacity, as the Army has fewer BCTs ready for deployment abroad. The Army’s capability and readiness scores remained static over the past year as the service continued to struggle with recouping readiness levels after years of budget cuts.

• Navy as “Marginal.” The Navy again scored strong in readiness, but at a cost to future capability. Deferred maintenance has kept ships at sea, but this is beginning to affect the Navy’s ability to deploy. With scores of “weak” in capability (due largely to old platforms and troubled modernization programs) and “marginal” in capacity, the Navy is currently just able to meet operational requirements. Moving forward, the fleet will be further strained to meet operational demands, especially as Reagan-era platforms increasingly near the end of their service lives.

• Air Force as “Marginal.” In 2015, the Air Force flew sorties in support of many named operations, resulting in a higher than anticipated operational tempo. The USAF scored “very strong” in capacity. Capability scored as “marginal,” remaining static since last year’s assessment, while “readiness” dropped from “strong” to “marginal.” Although difficult to categorize, the readiness decline is best attributed to reports that under half of the service’s combat air forces meet full-spectrum readiness requirements. The aggregate score of “marginal” is a decline from the 2015 Index score of “strong”, driven primarily by degradation in capability and readiness.

• Marine Corps as “Marginal.” As with last year, the Corps’ strongest suit was in readiness, but even here there are problems as stated by the Corps itself. While the fighting competence of the service is superb, it is hampered by aging equipment; troubled replacement programs for its key ground vehicles (particularly its amphibious personnel carriers); and a shrinking force. The progress the Corps has made in replacing its rotary-wing aircraft has been a notable bright spot in its otherwise uninspiring modernization portfolio.

• Nuclear Capabilities as “Marginal.” Modernization, testing, and investment in the intellectual/talent underpinnings of this sector are the chief problems facing America’s nuclear enterprise. Delivery platforms are good, but the force depends on a very limited set of weapons (in number of designs) and models that are quite old, in stark contrast to the aggressive programs of competitor states. Following developments abroad in regions of national interest and increased uncertainty globally, there is now a greater need to modernize U.S. nuclear capabilities, particularly with regard to aging delivery systems. Continued reliance on legacy systems such as the B-52 will eventually diminish the effectiveness of the nuclear triad and lead to the degradation of our nation’s strategic deterrence. Overall

In aggregate, the United States’ military posture is rated as “marginal” and is trending toward “weak.”

Overall, the Index concludes that the current U.S. military force is capable of meeting the demands of a single major regional conflict while also attending to various presence and engagement activities but that it would be very hard-pressed to do more and certainly would be ill-equipped to handle two nearly simultaneous major regional contingencies.

The consistent decline in funding and the consequent shrinking of the force have placed it under significant pressure. Essential maintenance continues to be deferred; fewer units (mostly the Navy’s platforms and the Special Operations Forces community) are being cycled through operational deployments more often and for longer periods; and old equipment is being extended while programmed replacements are problematic.

The shift (since last year’s Index) in two services—the Army and Air Force—to a lower category in the course of a single year is surprising and should be seen as evidence of the rapidly accumulating effects of inadequate funding during a time of higher operational demand and policies that have traded long-term health for near-term readiness.

The cumulative effect of these factors has resulted in a U.S. military that is marginally able to meet the demands of defending America’s vital national interests. Read and download the full report here.

Video - "CHANGE" - Sen. Bernie Sanders: 'Millions of U.S. Seniors Go Hungry'

Can the American Energy Revolution Survive a Deal with Iran?

Can the American Energy Revolution Survive a Deal with Iran? by Gal Luft

Downstream Today.

There is no lack of voices warning against the dangerous implications of the nuclear agreement the Obama Administration is advancing with Iran. 

The opposition has mostly focused on the destabilizing geopolitical impact of a nuclear Iran and what it means for the security of the U.S. and its allies. But there is one less obvious casualty – the North American oil and gas industry.

Undoubtedly in the event of lifting of the sanctions, cash-starved Iran would do all in its power to quickly ramp up its oil exports to make up for lost revenues, and the oil market could face an injection of 500,000-800,000 barrels/day of Iranian crude.

At a time when U.S. crude oil supplies are already at their highest level in more than 80 years and storage facilities are reaching their maximum capacity, an influx of Iranian oil could easily slice current oil prices by half. This would be a crippling blow to America's oil and gas industry, effectively marking the end of the North American energy renaissance.

Even before Iran opens the floodgate the industry finds itself in a precarious situation. To cover their capital investment and operational costs, North American oil drillers have collectively borrowed in recent years about half a trillion dollars. 

This debt was secured from financial institutions on the premise that the oil would be sold for $100 a barrel or so. But at $50 a barrel the revenues are out of tune with expectations. To avoid bankruptcy, oil companies are forced to pump as much oil as they can to generate sufficient cash flow in order to service their debt. But such Red Queen practice cannot go on for much longer.

Hence, many projects have been shelved or streamlined; U.S. rig count, a key barometer of drilling activity, has been declining for the past six months; oil services companies have announced 40,000 layoffs to cope with lower oil prices; and independent oil and gas companies, particularly those with high production costs, are facing defaults and bankruptcies.

The slide in oil prices also impacts the natural gas market. The North American shale revolution has unleashed huge amounts of natural gas but, due to lack of infrastructure to export the gas to international markets, America's gas is under-demanded and oil companies holding large amounts of gas in their portfolios are losing their shirts on this commodity as well. 

So far, the industry has put its faith on the construction of several multi-billion dollar LNG terminals from where the gas could be shipped to Europe and Asia. And indeed five such projects have been approved for construction by the Federal Energy Regulatory Commission (FERC).

But a few of these projects could be derailed if the Iranian oil tsunami occurs. LNG prices in Asia are indexed to oil. This means that low oil prices drag down LNG prices - the spot price of LNG in Japan is at its lowest level in five years despite the fact that the country's fifty nuclear reactors are still idle - making America's LNG less competitive in the Asian market compared to Australian or Qatari gas.

Developers of LNG liquefaction facilities in the U.S. who for years struggled to obtain export permits will soon realize that their revenue projections and debt structure may no longer be viable under the low price scenario.

If there is any salvation for the industry, it is in the creation of a new market for its product. This can be done in the sector in which it already has a big stake – transportation. Indeed this is the only sector that can gobble an amount of domestic natural gas significant enough to recover the depressed natural gas market.

But to generate demand for natural gas in transportation, cars, trucks and ships must be opened to fuels derived from the commodity, like methanol, ethanol, compressed natural gas and electricity. 

For this to happen automakers should be offered an option to reduce their fuel economy obligation – an unachievable 54.5 miles per gallon by 2025, twice the current efficiency level – if they open most of their cars to some sort of fuel competition, whether through flex fuel engines, electric motors, natural gas engines, fuel cells etc.

The abundance of choice enabling vehicles would give rise to greater demand for natural gas and this would pad the balance sheets of America's energy companies and keep them viable until the oil market rebalances itself.

It will also provide consumers with lasting protection against future oil price hikes.A barrel of oil has roughly six times the energy content of a million Btu of natural gas. At current oil prices, gas is almost three times cheaper than oil on an energy equivalent basis. This means there is enough room for oil prices to come down without crowding out gas from the transportation fuel market. Hmmm......Just another link in the chain grinding America down. Read the full story here.

Why America compared to others is losing the health race.

Why America compared to others is losing the health race.HT: CROFT.

Via The New Yorker, a must-read: Why America Is Losing the Health Race. Excerpt:

Many Americans are aware that the United States spends much more on health care than any other country in the world. But fewer people know that the health of Americans—by many different measures—is actually worse than the health of citizens in other wealthy countries. 

Two major reports, both released last year, provide further elaboration of this apparent paradox. The first, “The State of US Health, 1990-2010,” documented trends in mortality and morbidity across the thirty-four member countries of the Organization for Economic Cooperation and Development (O.E.C.D.). The study, published in The Journal of the American Medical Association (to which I am a contributing writer), showed that both life expectancy and healthy-life expectancy improved in the United States over two decades. 

But the pace of those improvements was considerably slower in the United States: in 1990, the U.S. ranked twentieth among O.E.C.D. countries for life expectancy, and fourteenth for healthy-life expectancy; by 2010, it had fallen to twenty-seventh and twenty-sixth, respectively. The other charts and tables in the report—about heart, lung, and kidney disease; diabetes; injuries and homicides; depression; and drug abuse—all show Americans suffering poorer health.

The second report, commissioned by the National Institutes of Health, and conducted by the National Research Council (NRC) and the Institute of Medicine (IOM), convened a panel of experts to examine health indicators in seventeen high-income countries. It found the United States in a similarly poor position: American men had the lowest life expectancy, and American women the second-lowest. 

In some ways, these reports were not news. As early as the nineteen-seventies, a group of leading health analysts had noted the discrepancy between American health spending and outcomes in a book called “Doing Better and Feeling Worse: Health in the United States.” From this perspective, the U.S. has been doing something wrong for a long time. 

But, as the first of these two reports shows, the gap is widening; despite spending more than any other country, America ranks very poorly in international comparisons of health. The second report may provide an answer—supporting the intuition long held by researchers that social circumstances, especially income, have a significant effect on health outcomes. 

Americans’ health disadvantage actually begins at birth: the U.S. has the highest rates of infant mortality among high-income countries, and ranks poorly on other indicators such as low birth weight. In fact, children born in the United States have a lower chance of surviving to the age of five than children born in any other wealthy nation—a fact that will almost certainly come as a shock to most Americans. 

But what causes such poor health outcomes among American children, and how can those outcomes be improved? Public-health experts focus on the “social determinants of health”—factors that shape people’s health beyond their lifestyle choices and medical treatments. These include education, income, job security, working conditions, early-childhood development, food insecurity, housing, and the social safety net.