The developing credit crunch is looking less contained by the day, despite the recent bounce in the equity markets. The interconnectedness of global markets really becomes apparent when contagion threatens to spread.

Following on from the Montebello SPP summit, Naomi Klein brings us an interesting twist on the right of protestors to be heard - surveillance as the new participatory democracy.

More commentators are weighing in on the question of Newfoundland oil royalties, while a pipeline capacity shortage looms in Alberta and potential conflict brews in BC over coal bed methane.

Top 25 Quotes on the Credit Crisis of 'O7

The U.S. economy, once the envy of the world, is now viewed across the globe with suspicion. America has become shackled by an immovable mountain of debt that endangers its prosperity and threatens to bring the rest of the world economy crashing down with it. The ongoing sub-prime mortgage crisis, a result of irresponsible lending policies designed to generate commissions for unscrupulous brokers, presages far deeper problems in a U.S. economy that is beginning to resemble a giant smoke-and-mirrors Ponzi scheme. And this has not been lost on the rest of the world. - Hamid Varzi, International Tribune

Nope, That’s Not Money

Prudent Bear’s Doug Noland has for years been pointing out that one of the drivers of the credit bubble has been the ever-broadening definition of money. As the global economy expanded without a hic-up, more and more instruments came to be used as a store of value or medium of exchange or even a standard against which to value other things—in other words, as money.

Thus mortgage-backed bonds and even more exotic things came to be seen as nearly risk-free and infinitely liquid. In Noland’s terms, credit gained “moneyness,” which sent the effective global money supply through the roof. This in turn allowed the U.S. and its trading partners to keep adding jobs and appearing to grow, despite debt levels that were rising into the stratosphere. For a while there, borrowing actually made the world richer, because both the cash received and the debt created functioned as money.

With a few months of hindsight, it’s now clear that debt-as-money was not one of humanity’s better ideas. When the U.S. housing market—the source of all that mortgage-backed pseudo money—began to tank, hedge funds found out that an asset-backed bond wasn’t exactly the same thing as a stack of hundred dollar bills. The global economy then started taking inventory of what it was using as money. And it began crossing things off the list. Subprime ABS? Nope, that’s not money. BBB corporate bonds? Nope. High-grade corporates? Alas, no. Credit default swaps? Are you kidding me?

No longer able to function as money, these instruments are being “repriced” (a slick little euphemism for “dumped for whatever anyone will pay”), which is causing a cascade failure of the many business models that depend on infinite liquidity. The effective global money supply is contracting at a double-digit rate, reversing out much of the past decade’s growth.

Yesterday's financial convulsion is arguably the beginning of the end for a credit expansion of epic proportions that has underlain the economic boom of the last 25 years. It had its roots in the corruption of fractional reserve banking, as directly overseen and facilitated by the Federal Reserve. For those who look to the Fed now for a solution, perhaps it would be advisable to look instead at how the Fed created the current mess.

Fractional reserve banking was designed to provide a controlled credit expansion. However, in the early 1990s, the Fed began to find its rules too restrictve and acted to lower reserve ratios on some deposits and eliminate them for others. In addition, creative accounting implicitly condoned by the Fed allowed banks to circumvent even the limited remaining need to hold reserves. According to the Fed itself (PDF warning, see page 44), by using overnight retail sweep accounts, banks can transfer a proportion of deposits out of the category for which they must hold funds at the Fed (checking deposits), and use them to invest in interest-earning assets.

The lowering of reserve ratios and the acceptance of sweeps by the Fed over a period of many years demonstrates its attitude towards the need for reserves in the first place. How can the Fed claim to be concerned about the unsustainable expansion of the money supply (ie inflation), via the creation of essentially limitless amounts of credit, when it has been fully aware of the corruption of US fractional reserve banking all along? And how can the Fed be unaware of the eventual consequence of uncontrolled credit expansion - a debt crunch - when it has played out many times before?

Massive Surge in Sweeps

Logic? Who cares about logic? Banks are allowed to lend out checking account deposits even though they pay no interest on those accounts. Customers assume the risk and banks literally sweep up the profit. This is a sweet deal for the banks and is accomplished ironically enough via sweeps.

Sweeps are a mechanism by which "excess capital" is swept from some accounts into other buckets based on patterns of expected behavior (not all customers are going to demand all of their money all at once).

Money in the accounts where the money was swept is allowed to be lent out. In essence, the money sitting in your checking account right now is not really sitting there at all. It's lent out all over the place (in theory overnight but in practice for god knows how long or for what)....

....The study does not say it explicitly but I will. There are essentially no bank reserves. Wait a second, I take that back. The combination of fractional reserve lending and sweeps really means there are negative reserves. Far more money has been lent out than really exists.

_{Source: Board of Governors of the Federal Reserve System.}

Ontario has nuclear ambitions, the first of which is being thwarted by a lack of transmission capacity. If the power can't be transmitted once the deadline arrives, Ontario will have to pay for it anyway under the terms of their agreement with Bruce Power. Meanwhile, Quebec has difficulties with transport infrastructure, Alberta is losing it's skilled workforce in the oilpatch to early retirement, and Danny Williams may (or may not) be talking to the oil companies in Newfoundland.

CIBC, pondering its exposure to the subprime mess south of the border, is concerned about the prospect of $100 oil, and that risk may be becoming a four-letter word. The M&A juggernaut may be coming to an end, as Canada worries about the knock-on effect of a US recession. The subprime nosedive gets dramatically worse, with some investors threatening to sue Bear Stearns over a total loss. Desperate optimism continues, despite the subprime problems being "safely contained to all 15 ABX indexes". Meanwhile the Mortgage Lender Implode-O-Meter reaches 100.

Water quantity is a problem for both California and London, England, whereas water quality is the issue in Alberta, Ottawa, China and the Gulf of Mexico. China in particular is paying the price for being "filthy rich".

Landowners worry about bulldozed rights

Hundreds of Ontario landowners have begun banding together in an effort to ensure their rights aren't bulldozed along with their homes and properties as part of a $635-million plan to get new nuclear and green power to the Toronto area....

....Under an agreement with Bruce Power, the province has contracted to buy 1,500 megawatts of electricity produced by the nuclear plant at the lake's edge near Kincardine, Ont., when two reactors come back on line in 2009 and the plant gets up to full strength by 2012....

....Provincial rate payers will be on the hook for up to $460 million a year for each "stranded" nuclear unit that cannot get power to the grid because of transmission issues, government documents show.

Also, the province has committed to at least 700 megawatts of wind power from the Bruce County area as part of its strategy to mothball its coal-fired power plants.

In March, the Ontario Power Authority, which administers power contracts in the province, urged Hydro One to get cracking on building a new 500-kilovolt transmission line to ensure the power can flow to energy-hungry southern Ontario.