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Several researchers told me that the current towel-snapping between Beijing and Tokyo over islands in the East China Sea is due less to nationalistic posturing than to nearby petroleum deposits.)

Today, a fifth of U.S. energy consumption is fueled by coal, mainly from Appalachia and the West, a long-term energy source that has provided jobs for millions, a century-old way of life

Roughly speaking, burning coal produces twice as much carbon dioxide as burning the equivalent amount of natural gas. Almost all domestic coal is used to generate electricity—it produces 38 percent of the U.S. power supply. Fracking is swiftly changing this: in 2011, utilities reported plans to shut down 57 of the nation’s 1,287 coal-fired generators the following year. Largely in consequence, U.S. energy-related carbon-dioxide emissions have dropped to figures last seen in 1995. Since 2006, they have fallen more than those from any other nation in the world.

In the sort of development that irresistibly attracts descriptors like ironic, Germany, often touted as an environmental model for its commitment to solar and wind power, has expanded its use of coal, and as a result is steadily increasing its carbon-dioxide output. Unlike Americans, Europeans can’t readily switch to natural gas; Continental nations, which import most of their natural gas, agreed to long-term contracts that tie its price to the price of oil, now quite high.

What is known, says Timothy Collett, the energy-research director for the USGS program, is that some of the gulf’s more than 3,500 oil and gas wells are in gas-hydrate areas.

In Dutch-disease scenarios, oil weakens all the pillars but one—the petroleum industry, which bloats steroidally.

Because the national petroleum company, with its gush of oil revenues, is the center of national economic power, “the ruler typically puts a loyalist in charge,” says Michael Ross, a UCLA political scientist and the author of The Oil Curse (2012). “The possibilities for corruption are endless.” Governments dip into the oil kitty to reward friends and buy off enemies. Sometimes the money goes to simple bribes; in the early 1990s, hundreds of millions of euros from France’s state oil company, Elf Aquitaine, lined the pockets of businessmen and politicians at home and abroad.

“How will the royal family contain both the mullahs and the unemployed youth without a slush fund?”

It seems fair to say that if autocrats in these places were toppled, most Americans would not mourn. But it seems equally fair to say that they would not necessarily be enthusiastic about their replacements.

But the college premium hasn’t risen for a while. What has happened, on the other hand, is a notable shift in income away from labor:

GDP continues to shrink,

Moreover, balkanization of economic activity, banking systems, and public-debt markets continues, as foreign investors flee the eurozone periphery and seek safety in the core.

Likewise, competitiveness losses have been partly reversed as wages have lagged productivity growth, thus reducing unit labor costs, and some structural reforms are ongoing.

Meanwhile, the share of coal – the dirtiest fuel – has been rising, not falling, in the rest of the world’s energy mix.

Put differently, if the world continues to build coal-fired power plants at the current rate, those plants will still be around in 2050, regardless of what other technologies become viable in the meantime.

Even a serious fracking mishap would be unlikely to cause as much damage as the Deepwater Horizon oil spill in 2010, the Fukushima nuclear catastrophe in 2011, or coal-mining tragedies that play out dramatically in frequent explosions and collapses (and more insidiously in the form of lung disease, water pollution, and soil erosion).

This form of government support amounts to a large implicit subsidy for big banks.

What other part of the corporate world has the ability to drive the global economy into recession, as banks did in the fall of 2008?

The logs are shipped to a mill in San Leandro, California.

The slats are waxed and kiln dried again.

The cedar logs are cut into small, pencil-length slats less than one-fourth of an inch in thickness. These are kiln dried and then tinted for the same reason women put rouge on their faces.

Don't overlook the ancestors present and distant who have a hand in transporting sixty carloads of slats across the nation.

Once in the pencil factory—$4,000,000 in machinery and building, all capital accumulated by thrifty and saving parents of mine—each slat is given eight grooves by a complex machine, after which another machine lays leads in every other slat, applies glue, and places another slat atop—a lead sandwich, so to speak. Seven brothers and I are mechanically carved from this "wood-clinched" sandwich.

The graphite is mined in Ceylon.

The graphite is mixed with clay from Mississippi in which ammonium hydroxide is used in the refining process. Then wetting agents are added such as sulfonated tallow—animal fats chemically reacted with sulfuric acid. After passing through numerous machines, the mixture finally appears as endless extrusions—as from a sausage grinder-cut to size, dried, and baked for several hours at 1,850 degrees Fahrenheit. To increase their strength and smoothness the leads are then treated with a hot mixture which includes candelilla wax from Mexico, paraffin wax, and hydrogenated natural fats.

My cedar receives six coats of lacquer. Do you know all the ingredients of lacquer? Who would think that the growers of castor beans and the refiners of castor oil are a part of it? They are.

Observe the labeling. That's a film formed by applying heat to carbon black mixed with resins. How do you make resins and what, pray, is carbon black?

My bit of metal—the ferrule—is brass. Think of all the persons who mine zinc and copper and those who have the skills to make shiny sheet brass from these products of nature. Those black rings on my ferrule are black nickel. What is black nickel and how is it applied? The complete story of why the center of my ferrule has no black nickel on it would take pages to explain. RP.18

An ingredient called "factice" is what does the erasing. It is a rubber-like product made by reacting rape-seed oil from the Dutch East Indies with sulfur chloride. Rubber, contrary to the common notion, is only for binding purposes. Then, too, there are numerous vulcanizing and accelerating agents. The pumice comes from Italy; and the pigment which gives "the plug" its color is cadmium sulfide

Actually, millions of human beings have had a hand in my creation, no one of whom even knows more than a very few of the others.

There isn't a single person in all these millions, including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of know-how.

Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the machine that does the knurling on my bit of metal nor the president of the company performs his singular task because he wants me.

There is a fact still more astounding: the absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found.

For, if one is aware that these know-hows will naturally, yes, automatically, arrange themselves into creative and productive patterns in response to human necessity and demand—that is, in the absence of governmental or any other coercive masterminding—then one will possess an absolutely essential ingredient for freedom: a faith in free people. Freedom is impossible without this faith.

Bank of France Governor Christian Noyer told journalists in Paris last week that “whatever happens in Greece” won’t place any French financial institution in difficulty.

What’s changed is that banks in the so-called core EU countries of Germany, France and the U.K. used funds from the ECB in December and February to insulate their southern European units against losses should one or more country exit the euro. “If you’re a U.K. lender and you’ve lent 10 billion euros to your Spanish subsidiary and Spain exits, you’re suddenly only going to get paid back in 50 percent devalued pesetas and you’re on the hook for 5 billion euros,” said Philippe Bodereau, London-based head of European credit research at Pacific Investment Management Co., the world’s largest bond investor.

One way multinational banking groups are mitigating that risk is by replacing their own funding lines to subsidiaries in the region with ECB loans. Deutsche Bank, Europe’s biggest bank by assets, tapped “a small amount” of ECB cash to help fund corporate and retail business in continental Europe, where it has sizeable operations in Italy and Spain. BNP Paribas, Europe’s third-biggest bank, used the programs to help fund its Italian unit as it reduces intergroup backing.

European banks also have cut their sovereign-debt holdings and exposures to Ireland, Italy, Spain and Portugal.

ermany, France and the U.K. reduced exposure to Greece by more than half in the two years through the end of 2011 to $68.2 billion, BIS data show.

The Maastricht Treaty took it for granted that only the public sector can produce chronic deficits. It assumed that financial markets would always correct their own excesses

For instance, they treated the euro crisis as if it were a purely fiscal, i.e., budgetary, problem. But only Greece qualified as a genuine fiscal crisis. The rest of Europe suffered largely from banking problems and a divergence in competitiveness, which gave rise to balance of payments problems.

Most delicate will be whether the Spanish banks receiving the largest cash injections, like the nationalized mortgage giant Bankia, will be forced to impose losses on holders of their subordinated bonds. Those are the investors whose bonds are not backed by collateral and are thus considered more risky.

In Spain, though, the problem is that 62 percent of the holders of Bankia’s subordinated debt are Spanish individual investors, not overseas hedge funds and investment banks. It is not likely that Madrid will be willing to hit those citizens with a 65 percent loss — the loans are currently priced at about 35 cents on the dollar — at a time of 25 percent unemployment in the country.

“There are compelling reasons for the euro zone to insist on losses for subordinated and even senior bondholders, the least of which is a reduction in moral hazard,” said Adam Lerrick, an expert on banking and sovereign debt at the American Enterprise Institute. “Losses for bondholders is now euro zone policy, so Europe’s credibility is also at stake.”

The authors come up with a variety of numbers, including one that has received a lot of attention: potential G.D.P.—broadly speaking, the level of G.D.P. consistent with stable inflation—“is currently about 7 percent below the trajectory it appeared to be on prior to 2007.” According to the latest figures from the Commerce Department, the G.D.P. is now close to seventeen trillion dollars, and seven per cent of that figure is $1.2 trillion. This is a lot of money to have gone missing, especially if it will never be recovered. Hence Krugman’s dire conclusion: “By tolerating high unemployment we have inflicted huge damage on our long-run prospects …. What passes these days for sound policy is in fact a form of economic self-mutilation, which will cripple America for many years to come.”

As well as figuring out the current level of potential G.D.P., the authors estimate its growth rate. This is the more important figure, because it’s what determines living standards over the long term

In the nineteen-eighties, Larry Summers and Olivier Blanchard, who is now the chief economist of the I.M.F., resurrected the idea and gave it a new name, which they borrowed from engineering: hysteresis. Blanchard and Summers examined hysteresis in Europe, where high rates of unemployment have long been a problem.

The good news is that things aren’t quite as bad as the figures in the Fed paper might suggest. If we can get policy right and sharply increase the level of over-all demand in the economy, most of the damage done in the past five years is reversible.

At the moment, sadly, there is no prospect of any more fiscal stimulus, let alone a war-sized one, and the onus is falling on the Fed to gee up the economy.

It has also delayed new energy investments and is planning to close almost a quarter of its fossil fuel power plants,

European energy companies, struggling to respond to weak demand in a flatlining economy, say they need guaranteed pricing to keep open unprofitable plants or to invest in new ones.

Their revenue is being hit by dwindling demand for electricity and by new wind and solar projects that undercut the price of the energy produced from many fossil fuel plants.

At the same time, record-low prices on carbon emissions trading markets, which were introduced to encourage clean and efficient energy production and use, have perversely become a disincentive to investment.

Many of the Continent’s aging power stations, particularly those that burn highly polluting coal, are earmarked for closure by 2020 to meet stringent local environment regulations.

Without these investments, industrial companies in Europe may face higher energy prices when local economies eventually recover,

“Energy utilities are facing a perfect storm,”

In a bid to generate 20 percent of the European Union’s electricity from renewable sources by 2020, Germany, Spain and other E.U. countries have provided hefty subsidies to wind and solar farms, which now constitute a sizable minority of daily electricity generation, often surpassing the 20 percent target.

Policy makers are debating a system of support payments to keep uneconomic power plants open,

“Without long-term signals of energy prices, investment won’t happen.”

Some analysts also expect domestic regulators to eventually create financial incentives for companies

The move in Europe to monetary union for weaker countries was a credibility enhancing mechanism that would lower borrowing costs. For countries that had strong creditor positions, the attractions of monetary union lay in the depoliticizing of the adjustment process (James 2012). The Eurozone worked quite well as a disciplining mechanism before it entered into effect, but much less well afterwards.

Banking expanded after the establishment of the euro (Shin 2012). No adequate provision on a European basis existed for banking supervision and regulation, which like fiscal policy, was left to rather diverse national authorities. An explosion of banking activity occurred simultaneously with the transition to monetary union and may well have been stimulated by the new single money.

Opinion poll data shows a major increase in hostility to the EU in peripheral countries, but with no corresponding unpopularity of the common currency.

It should have been obvious that the debtor countries could get into payment difficulties as they were piling up debt made possible by the loans of German banks.

If there is a breakup of the Eurozone, Germany will face the risk that some debtor countries default on their debt. But again this risk is not affected by the size of the TARGET2 claims of Germany.

These current account surpluses did not lead to TARGET2 claims during the bubble years because the counterpart of these surpluses were increasing claims held by (mainly) German banks against the other Eurozone countries.

The main reason why German TARGET2 claims have increased so much since 2010 is capital flows. The flows have taken two forms.

The first one came about when German banks unloaded their loans made to peripheral countries into the balance sheet of the Bundesbank.

Thus in the scenario of a breakup, with or without TARGET2 claims, the risk of large losses for the German taxpayer is very similar.

the Bundesbank can eliminate the risk of such last minute accumulations of TARGET2 balances by converting euros into new German marks only for German residents.

For years, Gazprom offered successive Ukrainian governments what it called discounts on the fuel, only to continue charging Naftogaz more than other European utilities.

Even with the rent for the Sevastopol naval base deducted from the price of gas, Gazprom had charged Naftogaz $395 to $410 for every 1,000 cubic meters of natural gas, for most of 2013. By comparison, Gazprom’s average price in Western Europe for the first nine months of last year was $380 for the same volume.

A new energy corridor has just been sanctioned that will bring Caspian gas being developed by a BP-led consortium into the heart of Europe.

And countries such as the UK are moving ahead with developing their substantial reserves of shale gas.

There are 20 operational LNG regasification plants in the EU, with a combined import capacity of about 198 bcm of gas per year. A further 30 bcm/y are under construction. But Europe’s terminals are conspicuously underused. Imports of LNG have fallen sharply, partly because of the 2011 Fukushima nuclear disaster, which prompted Japan to switch to gas-fired generation and diverted LNG cargoes from Europe.

The question is: are European customers prepared to pay Japanese prices for LNG?” says one Brussels-based European gas industry official.

Arguably a more urgent task is to improve energy security by unifying the EU market – in particular, linking up the countries of eastern Europe.

If Europe is serious about reducing its dependence on Russian gas, it will have to take radical measures. Bernstein’s Mr Clint lists some: switching from gas to diesel power, closing gas-intensive industries such as oil refining, reducing gas consumption in heating and adding more coal-fired generation – which would inevitably increase carbon emissions.

Europe accounts for half of Gazprom’s gas revenues, according to the company, and 71 per cent of Russia’s crude oil exports, according to the International Energy Agency.

A growing share of oil, largely from Rosneft, is flowing directly to China by pipeline. Lukoil last week started commercial production at its enormous West Qurna field in Iraq – much of whose production is likely to be sold in Asian markets, analysts say. And Novatek, together with CNPC of China, is building an LNG terminal that will help shift gas exports towards Asia.