Thursday, December 25, 2008

Merry Christmas

I have always thought of Christmas time, when it has come round, as a good time; a kind, forgiving, charitable time; the only time I know of, in the long calendar of the year, when men and women seem by one consent to open their shut-up hearts freely, and to think of people below them as if they really were fellow passengers to the grave, and not another race of creatures bound on other journeys.

Charles Dickens


Sunday, December 21, 2008

The Gods of the Copybook Headings

AS I PASS through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.

We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place,
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."

On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

-R. Kipling


Saturday, December 20, 2008

Bush Has Made Us Vulnerable

Here's a "pull no punches" look at where America stands at the end of the George W. Bush presidency. History may look back on him more favorably than now - since his low approval ratings are probably only surpassed by Gov. Blagojevich. I try to refrain from the Monday Morning Quarterbacking that is very prevalent - he faced huge decisions, and it is easy to criticize when the results of those decisions were not favorable. That being said, we are in trouble as a nation - and as its leader, he bears a large portion of responsibility.

The administrations of George W. Bush have virtually assured such a displacement by catastrophically throwing the country off balance, both politically and financially, while breaking the nation's sword in an inconclusive seven-year struggle against a ragtag enemy in two small bankrupt states.
The pity is that the war could have been successful and this equilibrium sustained had we struck immediately, preserving the link with September 11th; had we disciplined our objective to forcing upon regimes that nurture terrorism the choice of routing it out with their ruthless secret services or suffering the destruction of the means to power for which they live; had we husbanded our forces in the highly developed military areas of northern Saudi Arabia after deposing Saddam Hussein, where as a fleet in being they would suffer no casualties and remain at the ready to reach Baghdad, Damascus, or Riyadh in three days; and had we taken strong and effective measures for our domestic protection while striving to stay within constitutional limits and eloquently explaining the necessity -- as has always been the case in war -- for sometimes exceeding them. Today's progressives apologize to the world for America's treatment of terrorists (not a single one of whom has been executed). Franklin Roosevelt, when faced with German saboteurs (who had caused not a single casualty), had them electrocuted and buried in numbered graves next to a sewage plant.

The counterpart to Republican incompetence has been a Democratic opposition warped by sentiment. The deaths of thousands of Americans in attacks upon our embassies, warships, military barracks, civil aviation, capital, and largest city were not a criminal matter but an act of war made possible by governments and legions of enablers in the Arab world. Nothing short of war -- although not the war we have waged -- could have been sufficient in response. The opposition is embarrassed by patriotism and American self-interest, but above all it is blind to the gravity of the matter. Though scattered terrorists allied with militarily insignificant states are not, as some conservatives assert, closely analogous to Nazi Germany, the accessibility of nuclear, biological, and chemical weapons makes the destructive capacity of these antagonists unfortunately similar -- a fact, especially in regard to Iran, that is persistently whistled away by the Left.
Both failed. The country is exhausted, divided, and improperly protected, and will remain so if the new president and administration are merely another face of the same sterile duality. To avoid the costs of a stalled financial system, the two parties -- after an entire day of reflection -- committed to the expenditure of what with its trailing ends will probably be $1.5 trillion in this fiscal year alone.


Friday, December 19, 2008

Four Bad Bears

Here's a really cool financial website with tons of data to sift through: Shown here is a composite graph of the last 4 big bear markets, that they update daily:

The site has lots of interesting articles and charts...with a slant towards long term and retirement investing advice. It might be quite helpful in the quest to navigate today's crazy markets.


Thursday, December 18, 2008

What Are Alt-A Loans?

Some interesting factoids about Alternative A-Paper loans:

For lenders, Alt-A mortgages are considered riskier than "prime" loans, yet safer than "subprime"

They are defined by the following characteristics:

- Reduced borrower documentation (NINJA- No Income, No Job or Asset loans)
- High debt to income ratio
- High loan to value ratio

Most Alt-A mortgages are "non-comforming" and do not fall under Government Sponsored Enterprise (Frannie/Freddie) lending guidelines

Typically the borrowers are not credit risks, but the loan structure itself enhances the risk profile

The low amount of documentation allows for borrowers to take on more than they can afford

Alt-A loans are widely used for investment properties, raising the chances that they will go to foreclosure


Wednesday, December 17, 2008

Word of the Day

anthropogenic (nthr-p-jnk)

1. Caused or influenced by humans.
2. Pertaining to the effect of human beings on the natural world.


Tuesday, December 16, 2008

More Mortgage Woes

Here's your daily dose of pessimism...those of us who thought the housing market may turn around in late '09 or early '10 may be in for a rude awakening. As shown in this 60 Minutes piece, there are millions of exotic mortgages - called Alt-A and Option ARMs - still poised to reset in the coming years. These "resets" may see foreclosure rates as high as 50-70% as the monthly payments increase to realistic levels. Commercial real estate, car loans and credit cards are all expected to see increased defaults as well.

In a more positive note, the fed lending rate was slashed to near zero today. This may allow more people to qualify for real loans and/or refinance the crazy ones they are presently in.


Saturday, December 13, 2008

Debt Man Walking

This article
provides a concise and easy to understand explanation of the world economic state of affairs since World War II. Beginning with the formal agreement of Bretton Woods, an informal agreement between the major players emerged in the late 70s and early 80s. As this bargain has begun to unravel in the last few years - dangerously so in the last few months - global players are calling for a "New Bretton Woods". While most agree something has to be done, exact actions are harder to define.

For decades, the United States has relied on a tortuous financial arrangement that knits together its economy with those of China and Japan. This informal system has allowed Asian countries to run huge export surpluses with the United States, while allowing the United States to run huge budget deficits without having to raise interest rates or taxes, and to run huge trade deficits without abruptly depreciating its currency. I couldn't find a single instance of Obama discussing this issue, but it has been an obsession of bankers, international economists, and high officials like Federal Reserve Chairman Ben Bernanke. They think this informal system contributed to today's financial crisis. Worse, they fear that its breakdown could turn the looming downturn into something resembling the global depression of the 1930s.


Global Trends 2025: Final Thoughts

I will summarize the main points that I have covered from this report in this post, as well as feature an interesting glimpse of optimism.

"Relative Certainties"

- A global multipolar system is emerging with the rise of China, India, and others. The relative power of nonstate actors—businesses, tribes, religious organizations, and even criminal networks—also will increase.
- Continued economic growth—coupled with 1.2 billion more people by 2025— will put pressure on energy, food, andwater resources.


- Whether an energy transition away from oil and gas—supported by improved energy storage, biofuels, and clean coal—is completed during the 2025 time frame.
- Whether mercantilism stages a comeback and global markets recede.
- Whether Europe and Japan overcome economic and social challenges caused or compounded by demography.

Without a doubt, we live in very interesting times. If we can predict anything, it is that the future will be unpredictable. I'll finish up with a portion of text that exudes optimism. Will it come true? Only time will tell.

A Non-nuclear Korea?

We see a unified Korea as likely by 2025—if not as a unitary state, then in some form of North-South confederation. While diplomacy working to end North Korea’s nuclear weapons program continues, the final disposition of the North’s nuclear infrastructure and capabilities at the time of reunification remain uncertain. A new, reunified Korea struggling with the large financial burden of reconstruction will, however, be more likely to find international acceptance and economic assistance by ensuring the denuclearization of the Peninsula, perhaps in a manner similar to what occurred in Ukraine post-1991. A loosely confederated Korea might complicate
denuclearization efforts. Other strategic consequences are likely to flow from Korean unification, including prospects for new levels of major power cooperation to manage new and enduring challenges, such as denuclearization, demilitarization, refugee flows, and financing reconstruction.

Other Global Trends Posts:
Global Trends 2025
Global Trends Update
Global Trends Update II
Globalization and the Crash of '08
Demographics of Discord
Timing is Everything
Winners and Losers in a Post-Petroleum World
Scarcity in the Midst of Plenty
Final Thoughts


Friday, December 12, 2008

Treasury Bills Trade at Negative Rates

In another sign of the craziness of the markets, earlier this week US Treasury Bills traded at negative interest rates for a short time. Essentially this means you had to pay for the courtesy of someone else holding onto your money.

The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

If you invested $1 million in three-month bills at today’s negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.


Thursday, December 11, 2008

Recession or Depression?

It was recently announced that we are officially in a recession. But what about the worst "ession" of them all - what exactly is the definition of economic recession and depression?

Here's an interesting look at just that...


Wednesday, December 10, 2008

Global Economic Prospects 2009: Commodities at a Crossroad

The World Bank released its latest Global Economic Prospects report for 2009. Since it deals nearly exclusively with commodities, I thought it might have some interesting nuggets to explore. Today I'll post the link to the pdf, the introduction, as well as some of its key findings - and hopefully break down some commentary in the coming days.

The release of this year’s Global Economic Prospects finds the world economy at a crossroads. Markets all over the world are engulfed in a global economic crisis, with stock markets sharply down and volatile, almost all currencies having depreciated substantially against the dollar, and risk premiums on a wide range of debt having increased by 600 or more basis points. Commodity markets too have turned a corner. Following several years of increase, prices have plummeted, and although well above their 1990s levels, they have given up most of the increases of the past 24 months.

Chapter 1 of this report examines the medium-term implications of this crisis for
developing-country growth, inflation, and world trade. Chapter 2 looks at longer-term supply and demand prospects in commodity markets. It takes into account the long-term growth prospects of developing countries and their rising share in world GDP (gross domestic product), the declining quality of new pools of resources, and the influence of technology on both demand and supply. Finally, chapter 3 reports on the poverty impacts of high commodity prices and examines
the effectiveness of policies in both producing and consuming countries in dealing with the challenges posed by periodic bouts of high commodity prices.

This report does not deal with water, fish, or timber, all commodities of critical importance to developing countries and the globe but which fall outside the scope of this report either because of their public-goods character or, in the case of timber, because of its treatment in a recent report (World Bank 2007).
Key Findings:
  1. The global financial crisis threatens short term prospects in developing countries
  2. Uncertainty continues to cloud the outlook
  3. The commodity market boom has come to an end
  4. Commodity prices are declining in response to slower GDP growth
  5. In the longer term, growth in the demand for commodities should ease
  6. Moderating demand for metals depends critically on increased efficiency in China
  7. Future energy demand depends onimproving automobile efficiency
  8. Over the next 20 years, supplies of extracted commodities are likely to remain ample
  9. Food demand will slow with lower population growth, but biofuels could expand crop demand very rapidly
  10. Strong productivity growth and unused crop land should ensure adequate food supply at the global level
  11. Commodity-producing countries are managing the revenue windfall better than they have in the past
  12. High commodity prices pose challenges for the poor, especially in consuming nations
Lots of interesting topics to cover...


Tuesday, December 9, 2008

Global Trends 2025: Scarcity in the Midst of Plenty

As highlighted in the previous two posts, Chapter Four deals with resources - and the possibility of conflict that could arise when these resources become scarce. Three main resources - the basics of life - have the highest potential for tension: food, water, and energy. While energy tends to dominate the headlines, food and water may loom just as large for certain populations.

Experts currently consider 21 countries with a combined population of about 600 million to be either cropland or freshwater scarce. Owing to continuing population growth, 36 countries, home to about 1.4 billion people, are projected to fall into this category by 2025.

The World Bank estimates that demand for food will rise by 50 percent by 2030, as a
result of growing world population, rising affluence, and shifts to Western dietary
preferences by a larger middle class. The global food sector has been highly responsive to market forces, but farm production probably will continue to be hampered by misguided agriculture policies that limit investment and distort critical price signals. Keeping food prices down to placate the urban poor and spur savings for industrial investment has distorted agricultural prices in the past. If political elites are more worried about urban instability than rural incomes—a safe bet in many countries—these policies are likely to persist, increasing the risk of tight supplies in the future. The demographic trend for increased urbanization—particularly in developing states—underscores the likelihood that failed policies will continue.

In addition to the currently projected scarcities of freshwater and cropland, the UK
Treasury-commissioned Stern Report estimates that by the middle of the century
200 million people may be permanently displaced “climate migrants”—representing a ten-fold increase over today’s entire documented refugee and internally displaced
populations. Although this is considered high by many experts, broad agreement exists about the risks of large scale migration and the need for better preparation. Most displaced persons traditionally relocate within their home countries, but in the future many are likely to find their home countries have diminishing capabilities to accommodate them. Thus the number of migrants seeking to move from disadvantaged into relatively privileged countries is likely to increase. The largest inflows will mirror many current migratory patterns—from North Africa and Western Asia into Europe, Latin America into the US, and Southeast Asia into Australia.
We in the U.S. may not think these resources are ever in danger, but in recent years there have been disputes over water rights in several Southern states. Not just in traditional desert states - in 2007 Georgia and the Carolinas had major water shortages. And water shortages could spell trouble for those who rely on irrigation to produce crops as well. The Ogallala Aquifer in the midwest is being rapidly depleted, per wikipedia:

The Ogallala Aquifer is being depleted at a rate of 12 cubic km (420,000 million ft3 or 9.7 million acre feet) per year, amounting to a total depletion to date of a volume equal to the annual flow of 18 Colorado Rivers. Some estimates say it will dry up in as little as 25 years. Many farmers in the Texas High Plains, which rely particularly on the underground source, are now turning away from irrigated agriculture as they become aware of the hazards of overpumping.
A comparable replacement for this water may simply not exist, and a large portion of the folks that rely on this water for drinking and employment may be forced to make very difficult choices. And the millions of people who rely on the food grown in these states will be competing for reduced global reserves.

Other Global Trends Posts:
Global Trends 2025
Global Trends Update
Global Trends Update II
Globalization and the Crash of '08
Demographics of Discord
Timing is Everything
Winners and Losers in a Post-Petroleum World
Scarcity in the Midst of Plenty
Final Thoughts


Monday, December 8, 2008

Global Trends 2025: Winners/Losers in Post-Petroleum World

We believe the most likely occurrence by 2025 is a technological breakthrough that will provide an alternative to oil and natural gas, but implementation will lag because of the necessary infrastructure costs and need for longer replacement time. However, whether the breakthrough occurs within the 2025 time frame or later, the geopolitical implications of a shift away from oil and natural gas will be immense.

  • Saudi Arabia will absorb the biggest shock, as its leaders will be forced to tighten up on the costs of the royal establishment. The regime could face new tensions with the Wahabi establishment as Riyadh seeks to promote a series of major economic reforms—including women’s full participation in the economy—and a new social contract with its public as it tries to institute a work ethic to accelerate development plans and diversify the economy.
  • In Iran, the drop in oil and gas prices will undermine any populist economic policies. Pressure for economic reform will increase, potentially putting pressure on the clerical governing elite to loosen its grip. Incentives to open up to the West in a bid for greater foreign investment, establishing or strengthening ties with Western partners—including with the US—will increase. Iranian leaders might be more willing to trade their nuclear policies for aid and trade.
For Iraq, emphasis on investing in non-oil sectors of its economy will increase. The smaller Gulf states, which have been making massive investments designed to transform themselves into global tourist and transport hubs, are likely to manage the transition well, bolstered by their robust sovereign wealth funds (SWFs). Across the Arab world, SWFs are being deployed to develop non-oil sectors of the economy in a race against oil as a diminishing asset.

Outside the Middle East, Russia will potentially be the biggest loser, particularly if its economy remains heavily tied to energy exports, and could be reduced to middle power status. Venezuela, Bolivia, and other petro-populist regimes could unravel completely, if that has not occurred beforehand because of already growing discontent and decreasing production. Absent support from Venezuela, Cuba might be forced to begin China-like market reforms.

Early oil decline states—those exporters which had peaked or were declining as is currently the case with Indonesia and Mexico—may be better prepared to shift the focus of their economic activities and diversify into non-energy sectors.

Other Global Trends Posts:
Global Trends 2025
Global Trends Update
Global Trends Update II
Globalization and the Crash of '08
Demographics of Discord
Timing is Everything
Winners and Losers in a Post-Petroleum World
Scarcity in the Midst of Plenty
Final Thoughts


Saturday, December 6, 2008

Global Trends 2025: Timing is Everything

Chapter Four of Global Trends 2025 covers one of my favorite topics - resources. I'll begin the discussion by highlighting a section concerning alternative energy and the challenges that we face.

Timing is Everything

All current technologies are inadequate for replacing traditional energy architectures on the scale needed, and new energy technologies probably will not be commercially viable and widespread by 2025 (see foldout). The present generation of biofuels is too expensive to grow, would further boost food prices, and their manufacture consumes essentially the same amount of energy they produce. Other ways of converting nonfood biomass resources to fuels and chemical products should be more promising, such as those based on high-growth algae or agricultural waste products, especially cellulosic biomass. Development of clean coal technologies and carbon capture and storage is gaining momentum and—if such technologies were cost-competitive by 2025—would enable coal to generate more electricity in a carbon-constrained regulatory environment. Long-lasting hydrogen fuel cells have potential, but they remain in their infancy and are at least a decade away from commercial production. Enormous infrastructure investment might be required to support a “hydrogen economy.” An Argonne National Laboratory study found that hydrogen, from well to tank, is likely to be at least twice as costly as gasoline.

Even with the favorable policy and funding environment that would be needed for biofuels, clean coal, or hydrogen, major technologies historically have had an “adoption lag.” A recent study found that in the energy sector, it takes an average of 25 years for a new production technology to become widely adopted. A major reason for this lag is the need for new infrastructure to handle major innovation. For energy in particular, massive and sustained infrastructure investments made for almost 150 years encompass production, transportation, refining, marketing, and retail activities. Adoption of natural gas, a fuel superior to oil in many respects, illustrates the difficulty of a transition to something new. Technologies to use natural gas have been widely available since at least the 1970s, yet natural gas still lags crude oil in the global market because the technical and investment requirements for producing and transporting it are greater than they are for oil-based fuels.

Simply meeting baseline energy demand over the next two decades is estimated to require more than $3 trillion of investment in traditional hydrocarbons by companies built up over more than a century and with market capitalizations in the hundreds of billions of dollars. Because a new form of energy is highly unlikely to use existing infrastructure without modifications, we expect any new form of energy to demand similarly massive investment.

Despite what are seen as long odds now, we cannot rule out the possibility of a transition by 2025 that would avoid the costs of an infrastructure overhaul. The greatest possibility for a relatively quick and inexpensive transition during that period comes from better renewable generation sources (photovoltaic and wind) and improvements in battery technology. With many of these technologies, the infrastructure cost hurdle for individual projects would be lower, enabling many small economic actors to develop their own energy transformation projects that directly serve their interests—e.g., stationary fuel cells powering homes and offices, recharging plug-in hybrid autos, and selling energy back to the grid. Also, energy conversion schemes—such as plans to generate hydrogen for automotive fuel cells from electricity in a homeowner’s garage—could avoid the need to develop complex hydrogen transportation infrastructure. Similarly, non-ethanol biofuels derived from genetically modified feed stocks may be able to leverage the considerable investment in liquid petroleum transport and distribution infrastructure.

- This highlights a need for increased research and development. Our current alternatives are not a realistic substitute to oil/coal/natural gas. America needs to lead in energy technology breakthroughs.

- We need to figure out which direction we are going in, and provide smart incentives to get there. I am a strong believer in the free market, but I think we have to have a plan with support from government and industry. Hopefully this can be rolled into (at least addressed) the Big 3's bailout/bankruptcy emergence.

- We should try to use technologies that use our current infrastructure as much as possible. More overlap means less adoption lag.

- Liquid fuels are going to continue to be key in the foreseeable future for large scale transport, agriculture and construction. We can leverage plug-in flex fuel hybrids for reducing light transport demand.

- The current global recession could have harmful effects on alternative energy development, or it could buy us desperately needed time. Perhaps a combination of both.

- Conservation efforts should be much easier with the current financial situation.

Other Global Trends Posts:
Global Trends 2025
Global Trends Update
Global Trends Update II
Globalization and the Crash of '08
Demographics of Discord
Timing is Everything
Winners and Losers in a Post-Petroleum World
Scarcity in the Midst of Plenty
Final Thoughts


Wednesday, December 3, 2008

How to Get Out of Debt

Let's say I want something, but I don't have any money...


Creepy Japanese Robot Man

Have we learned nothing about the dangers of life-like robots from movies?

I-Robot, 2001: A Space Odyssey, Terminator 1-3, Short Circuit, Robocop, Bicentennial Man... O.k. maybe not that one


Monday, December 1, 2008

Global Trends 2025: Demographics of Discord

The second chapter of the report focuses on a topic that I feel has large implications on societies - past, present and future - and in the coming years will have distinct effects. It has been said that "Demography is Everything", and I feel the report captures several interesting trends that will shape our world.

Two of these trends include:

  1. Urbanization
  2. Aging Populations in Developed Nations
If current trends persist, by 2025 about 57 percent of the world’s population will live in urban areas, up from about 50 percent today. By 2025, the world will add another eight megacities to the current list of 19—all except one of these eight will be in Asia and Sub-Saharan Africa. Most urban growth, however, will occur in smaller cities of these regions, which are expanding along highways and coalescing near crossroads and coastlines, often without formal sector job growth and without adequate services.
Increased urbanization will have implications in maintaining access to food and clean water. The ability for these megacites to absorb new citizens will also be key. Large groups of unemployed, hungry, and disaffected people are highly unstable and prone to revolt and/or terrorism. These groups could push more and more failing states over the edge.

Aging Populations

Rapidly aging populations will have profound impacts on society. As retirees have fewer and fewer workers for support, a shift will have to occur. Either the society will increase fertility (much easier said than done), import workers through immigration, or benefits and support for the elderly will have to be reduced commensurately. Each of the options have implications on the stability of the nation or region.
In almost every developed country, the period of most rapid growth in the ratio of seniors (age 65 and older) to the working-age population will occur during the 2010s and 2020s, boosting the fiscal burden of old-age benefit programs. By 2010, there will be about one senior for every four working-age people in the developed world. By 2025, this ratio will have climbed to one to three, and possibly higher.

Large and sustained increases in the fertility rate, even if they began now, would not reverse the aging trend for decades in Europe and Japan. If fertility rose immediately to the replacement level in Western Europe, the ratio of seniors to people in their working years would continue to rise steadily through the late 2030s. In Japan, it would continue to rise through the late 2040s.

The annual level of net immigration would have to double or triple to keep working-age populations from shrinking in Western Europe. By 2025, non-European minority populations could reach significant proportions—15 percent or more—in nearly all Western European countries and will have a substantially younger age structure than the native population (see page 20). Given growing discontent with current levels of immigrants among native Europeans, such steep increases are likely to heighten tensions.

The aging of societies will have economic consequences. Even with productivity increases, slower employment growth from a shrinking work force probably will reduce Europe’s already tepid GDP growth by 1 percent. By the 2030s, Japan’s GDP growth is projected to drop to near zero according to some models. The cost of trying to maintain pensions and health coverage will squeeze out expenditures on other priorities, such as defense.
As I examined here, the U.S. will be (perhaps already are?) facing a serious economic crossroads with regards to our social entitlement programs. It will take strong leadership, clear vision, and the ability for all parties to compromise in order to solve these complex problems. Many in my cohort are assuming Social Security will not be around for retirement and are planning accordingly. This is probably a good idea, but what about the many millions who are not?

Other Global Trends Posts:
Global Trends 2025
Global Trends Update
Global Trends Update II
Globalization and the Crash of '08
Demographics of Discord
Timing is Everything
Winners and Losers in a Post-Petroleum World
Scarcity in the Midst of Plenty
Final Thoughts


Thursday, November 27, 2008

Happy Thanksgiving

How often we fail to realize our good fortune in living in a country where happiness is more than a lack of tragedy. - Paul Sweeney

I give thanks today for my family and friends, good food and good fortune. I wish the best for everyone in these uncertain times.


Tuesday, November 25, 2008

Crash of '08: Bailout Stats

Here are some staggering statistics about how much money has been pledged on behalf of the U.S. taxpayer...and it may be worse than you realized. This graphical application from Bloomberg delineates the expenditures and promises (save for the latest guarantee to Citigroup). According to this article; each man, woman and child is on the hook for a cool $24k.

The U.S. government is prepared to provide more than $7.76 trillion on behalf of American taxpayers after guaranteeing $306 billion of Citigroup Inc. debt yesterday. The pledges, amounting to half the value of everything produced in the nation last year, are intended to rescue the financial system after the credit markets seized up 15 months ago.

When Congress approved the TARP on Oct. 3, Fed Chairman Ben S. Bernanke and
Treasury Secretary Henry Paulson acknowledged the need for transparency and
oversight. Now, as regulators commit far more money while refusing to disclose loan recipients or reveal the collateral they are taking in return, some Congress members are calling for the Fed to be reined in.

Bernanke’s Fed is responsible for $4.74 trillion of pledges, or 61 percent of the total commitment of $7.76 trillion, based on data compiled by Bloomberg concerning U.S. bailout steps started a year ago.

“Too often the public is focused on the wrong piece of that number, the $700 billion that Congress approved,” said J.D. Foster, a former staff member of the Council of Economic Advisers who is now a senior fellow at the Heritage Foundation in Washington. “The other areas are quite a bit larger.”

It should be noted that all of this money has not been distributed yet, and much is in the form of loans that theoretically should be paid back. However, I doubt we are anywhere near the end of the road on this, and there are plenty of new promises on the horizon.


Monday, November 24, 2008

Global Trends 2025: Globalization and the Crash of '08

Here is the next installment of my review of Global Trends 2025. This excerpt examines how the 2008 financial crisis may affect world relations.

Globalization at Risk with the 2008 Financial Crisis?

As with most of the trends discussed in this report, the impacts from the financial crisis will depend heavily on government leadership. Proactive fiscal and monetary policies probably will ensure the current panic and likely deep national recessions will not turn into an extended depression, although reduced economic growth could slow globalization’s pace, increasing protectionist pressures and financial fragmentation.

The crisis is accelerating the global economic rebalancing. Developing countries have been hurt; several, such as Pakistan with its large current account deficit, are at considerable risk. Even those with cash reserves—such as South Korea and Russia—have been severely buffeted; steep rises in unemployment and inflation could trigger widespread political instability and throw emerging powers off course. However, if China, Russia, and Mideast oil exporters can avoid internal crises, they will be in a position to leverage their likely still sizeable reserves, buying foreign assets and providing direct financial assistance to still-struggling countries for political favors or to seed new regional initiatives. In the West, the biggest change — not anticipated before the crisis — is the increase in state power. Western governments now own large swaths of their financial sectors and must manage them, potentially politicizing markets.

The crisis has increased calls for a new “Bretton Woods” to better regulate the global economy. World leaders, however, will be challenged to renovate the IMF and devise a globally transparent and effective set of rules that apply to differing capitalisms and levels of financial institutional development. Failure to construct a new all-embracing architecture could lead countries to seek security through competitive monetary policies and new investment barriers, increasing the potential for market segmentation.

- This report is highly optimistic that these "proactive" measures will have a lasting positive effect on the world economic system. From my layman's viewpoint, the measures seem anything but proactive and coordinated, and very well could do more harm than good.

- I agree that there will certainly be calls for more protectionism and isolationism here in the US in the near term.

- A big question is how low commodity prices will drop, and how long they will stay there. (See deflation) Big energy producers will have fewer options with declining oil and gas prices. This could exacerbate internal strife in these nations.

- The nationalization of financial institutions certainly concerns me as well, and it is not clear that the financial sector is where these intrusions will end.

Other Global Trends Posts:
Global Trends 2025
Global Trends Update
Global Trends Update II
Globalization and the Crash of '08
Demographics of Discord
Timing is Everything
Winners and Losers in a Post-Petroleum World
Scarcity in the Midst of Plenty
Final Thoughts


Thursday, November 20, 2008

Global Trends 2025: Update

The National Intelligence Council (NIC) has released its final version of the report Global Trends 2025: A Transformed World. (pdf here) Here are some initial assessments:

  • The whole international system—as constructed following WWII—will be revolutionized. Not only will new players—Brazil, Russia, India and China— have a seat at the international high table, they will bring new stakes and rules of the game.
  • The unprecedented transfer of wealth roughly from West to East now under way will continue for the foreseeable future.
  • Unprecedented economic growth, coupled with 1.5 billion more people, will put pressure on resources—particularly energy, food, and water—raising the specter of scarcities emerging as demand outstrips supply.
  • The potential for conflict will increase owing partly to political turbulence in parts of the greater Middle East.
I will be dividing my commentary into several posts over the coming days. I will begin by highlighting two sections that set the stage for the rest of the report. First, the report is compared to its predecessor, Mapping the Global Future: Report of the Intelligence Council’s 2020 Project.

The most dramatic difference between Mapping the Global Future: Report of the Intelligence Council’s 2020 Project and Global Trends 2025: A Transformed World is the latter’s assumptions of a multipolar future, and therefore dramatic changes in the international system. The 2025 report describes a world in which the US plays a prominent role in global events, but the US is one among many global actors who manage problems. In contrast, the 2020 report projects continued US dominance, positing that most major powers have forsaken the idea of balancing the US.

The two documents also differ in their treatment of energy supply, demand, and new alternative sources. In 2020, energy supplies “in the ground” are considered "sufficient to meet global demand.” What is uncertain, according to the earlier report, is whether political instability in producer countries, supply disruptions, or competition for resources might deleteriously affect international oil markets. Though 2020 mentions the global increase in energy consumption, it emphasizes the domination of fossil fuels. In contrast, 2025 sees the world in the midst of a transition to cleaner fuels. New technologies are projected to provide the capability for fossil
fuel substitutes and solutions to water and food scarcity. The 2020 report acknowledges that energy demands will influence superpower relations, but the 2025 report considers energy scarcity as a driving factor in geopolitics.

Both reports project probable strong global economic growth—fueled by the rise of Brazil, Russia, India, and China, absent major shocks. The 2025 report, however, assesses the likelihood of major discontinuities to be high, emphasizing that “no single outcome seems preordained” and that the next 20 years of transition toward a new international system are fraught with risks, such as a nuclear arms race in the Middle East and possible interstate conflicts over resources.

The scenarios in both reports address the future of globalization, the future structure of the international system, and the dividing lines among groups that will cause conflict or convergence. In both reports, globalization is seen as a driver so pervasive that it will reorder current divisions based on geography, ethnicity, and religious and socio-economic status.
Next, the hazards and pitfalls of attempting to foretell the future are examined. Predictions such as these are notoriously inaccurate, so a grain of salt is in order.
In the 20th century, experts forecasting the next 20 years—roughly the time frame of this study—often missed major geopolitical events, basing their predictions largely on linear projections without exploring possibilities that could cause discontinuities. Before WW I, while tensions between European “great powers” were on the rise, few had an inkling of major changes in the offing, from the extent of mutual slaughter to the downfall of age-old empires. In the early 1920s, few envisioned the lethal situation about to unfold, ushered in by the Great Depression, Stalin’s gulags, and an even more bloody world war encompassing multiple genocides. The postwar period saw the establishment of a new international system—many of whose institutions—the UN and Bretton Woods—remain with us. Although the bipolar and nuclear age did not lack war and conflict, it did provide a stable framework until the collapse of the Soviet Union. The development of a globalized economy in which China and India play major roles has opened a new era without clear outcomes.

Lessons from the last century, however, appear to suggest:

- Leaders and their ideas matter. No history of the past hundred years can be told without delving into the roles and thinking of such leaders as Vladimir Lenin, Josef Stalin, Adolf Hitler or Mao Zedong. The actions of dominating leaders are the hardest element to anticipate. At several junctures in the 20th century, Western experts thought liberal and market ideas had triumphed. As demonstrated by the impacts of Churchill, Roosevelt, and Truman, leadership is key even in societies where institutions are strong and the maneuvering room for wielding personal power is more constrained.

- Economic volatility introduces a major risk factor. Historians and social scientists have discovered a strong correlation between rapid economic change—both positive and negative—and political instability. The massive dislocation and economic volatility introduced by the end of the “first” globalization in 1914-1918 and the rise of protectionist barriers in the 1920s and 1930s, combined with the lingering resentments over the Versailles peace settlement, laid the groundwork for WW II. The collapse of multinational and ethnic empires—begun after WW I and continuing with the end of the colonial empires in the post-WW II period—also unleashed a long series of national and ethnic conflicts that reverberates today. Today’s globalization also has spurred the movement of people, disrupting traditional social and geographic boundaries.

- Geopolitical rivalries trigger discontinuities more than does technological change.
Many stress the role of technology in bringing about radical change and there is no question it has been a major driver. We—as others—have oftentimes underestimated its impact. However, over the past century, geopolitical rivalries and their consequences have been more significant causes of the multiple wars, collapse of empires, and rise of new powers than technology alone.

Other Global Trends Posts:
Global Trends 2025
Global Trends Update
Global Trends Update II
Globalization and the Crash of '08
Demographics of Discord
Timing is Everything
Winners and Losers in a Post-Petroleum World
Scarcity in the Midst of Plenty
Final Thoughts


Wednesday, November 19, 2008

Mitt Romney on Detroit

From Mitt Romney's Op-Ed in the NYTimes:

First, their huge disadvantage in costs relative to foreign brands must be eliminated. That means new labor agreements to align pay and benefits to match those of workers at competitors like BMW, Honda, Nissan and Toyota. Furthermore, retiree benefits must be reduced so that the total burden per auto for domestic makers is not higher than that of foreign producers.

That extra burden is estimated to be more than $2,000 per car. Think what that means: Ford, for example, needs to cut $2,000 worth of features and quality out of its Taurus to compete with Toyota’s Avalon. Of course the Avalon feels like a better product — it has $2,000 more put into it. Considering this disadvantage, Detroit has done a remarkable job of designing and engineering its cars. But if this cost penalty persists, any bailout will only delay the inevitable.


Tuesday, November 18, 2008

Where Do We Draw the Line?

Interesting look
at the potential for a Detroit bailout from George Will...

The answer? Do nothing that will delay bankrupt companies from filing for bankruptcy protection, so that improvident labor contracts can be unraveled, allowing the companies to try to devise plausible business models. Instead, advocates of a "rescue" propose extending to Detroit the government's business model for the nation -- redistributing wealth from the successful to the failed, an implausible formula for prosperity.

Some opponents of bankruptcy stress that it might terminate health-care coverage enjoyed by UAW retirees who are too young for Medicare. Think about that. If people want to retire before 65, or 35 for that matter, that is their business. But there is no public interest in protecting the luxury of retirement in the prime of life just because in palmy days a private contract between a union and a corporation established it as an entitlement for all seasons.


Monday, November 17, 2008

Who is Getting the Bank Bailout Money?

Here's a list of the banks that have received funds so far:

10/28/2008 Wells Fargo & Co. San Francisco Calif. $25,000,000,000
10/28/2008 JPMorgan Chase & Co. New York N.Y. $25,000,000,000
10/28/2008 Citigroup Inc. New York N.Y. $25,000,000,000
10/28/2008 Bank of America Corp. Charlotte N.C. $15,000,000,000
10/28/2008 Merrill Lynch & Co. Inc. New York N.Y. $10,000,000,000
10/28/2008 Morgan Stanley New York N.Y. $10,000,000,000
10/28/2008 Goldman Sachs Group Inc. New York N.Y. $10,000,000,000
11/17/2008 U.S. Bancorp Minneapolis Minn. $6,599,000,000
11/17/2008 Capital One Financial Corp. McLean Va. $3,555,199,000
11/17/2008 Regions Financial Corp. Birmingham Ala. $3,500,000,000
11/17/2008 SunTrust Banks Inc. Atlanta Ga. $3,500,000,000
11/17/2008 BB&T Corp. Winston-Salem N.C. $3,133,640,000
10/28/2008 Bank of New York Mellon Corp. New York N.Y. $3,000,000,000
11/17/2008 KeyCorp Cleveland Ohio $2,500,000,000
11/17/2008 Comerica Inc. Dallas Texas $2,250,000,000
10/28/2008 State Street Corp. Boston Mass. $2,000,000,000
11/17/2008 Marshall & Ilsley Corp. Milwaukee Wis. $1,715,000,000
11/17/2008 Northern Trust Corp. Chicago Ill. $1,576,000,000
11/17/2008 Zions Bancorporation Salt Lake City Utah $1,400,000,000
11/17/2008 Huntington Bancshares Columbus Ohio $1,398,071,000
11/17/2008 First Horizon National Corp. Memphis Tenn. $866,540,000
11/17/2008 TCF Financial Corp. Wayzata Minn. $361,172,000
11/17/2008 Valley National Bancorp Wayne N.J. $300,000,000
11/17/2008 UCBH Holdings Inc. San Francisco Calif. $298,737,000
11/17/2008 Umpqua Holdings Corp. Portland Ore. $214,181,000
11/17/2008 Washington Federal Inc. Seattle Wash. $200,000,000
11/17/2008 Provident Bancshares Corp. Baltimore Md. $151,500,000
11/17/2008 Bank of Commerce Holdings Redding Calif. $17,000,000
11/17/2008 1st FS Corp. Hendersonville N.C. $16,369,000
11/17/2008 Broadway Financial Corp. Los Angeles Calif. $9,000,000

Total: $158,561,409,000


Saturday, November 15, 2008

Sugar and the Environment

High Fructose Corn Syrup has a bad reputation for many reasons; both its health and environmental effects have been derided quite a bit in the last few years. As I examined in this post, some of these have more merit than others. Before one decides to switch from HFCS to sugar for environmental reasons, however, the ecological effects of sugar cane should be examined. My inspiration for this post was a segment of Bill Nye's "Stuff Happens" on Planet Green. He pointed out that sugar production is killing the Great Barrier reef and the Everglades, so I thought I'd dig around a bit to see what others had to say.

Digression: Am I the only one who finds a lot of Planet Green's programming to be really annoying? I can only take so much of Hollywood-types telling me how much money they "save" by installing PV solar cells on their roofs of their 10,000 sq.ft. palatial estates. Sure you have a smaller power bill...but how much did you spend upfront to install them? Have your accountant run the real numbers and get back to me. Don't go patting yourself on the back to hard, you might strain something. Anyway, back on track...

According to this report, Sugar and the Environment, produced by the World Wildlife Fund, cane sugar has some major effects on the environment. The report is very detailed, but I will include some highlights here.

The cultivation and processing of sugar produce environmental impacts through the
loss of natural habitats, intensive use of water, heavy use of agro-chemicals, discharge and runoff of polluted effluent and air pollution. This leads to the degradation of wildlife, soil, air and water where sugar is produced and of downstream ecosystems.

Although many of the environmental impacts of cane and beet cultivation are generic to agriculture, some impacts are distinct, particularly in their severity. Impacts relating to irrigation of sugar cane and pollution runoff are of particular concern.
Environmental Impacts
Sugar cultivation and processing impacts on biodiversity and ecosystem services at the field, farm and wider landscape levels.
Field Level: Soil erosion, compaction, salinisation and acidification

Farm Level:
The suite of micro-organisms associated with a crop is often overlooked, although it
plays such a critical role in ecosystem function, for example in the turnover of soil
organic matter. Most intensively cultivated agro-ecosystems are relatively lacking in
Landscape Level:
Impacts of sugar cultivation on downstream ecosystems: Agriculture is arguably the
predominant influence on the Earth’s land surface and undoubtedly represents the
main cause of wetland habitat loss. This occurs through the runoff of polluted effluent
into water courses, due to the heavy abstraction of freshwater resources upstream
of wetlands habitats, or by altering the natural flow regime.

The impacts felt downstream are the cumulative result of a complex set of land
and water use decisions in a river basin. Within this context, cane or beet can play
an important role in some sugar producing countries.

The sugar industry in Australia has been a significant player in major infrastructural projects, including damming of the Burdekin, Tully and Barron Rivers, which has altered the pattern of freshwater flow into the Great Barrier Reef lagoon.
Cane growing has shown to increase sediment and nutrient loads, particularly following heavy rainfall, which can carry these materials into the sea, reducing water quality and impacting on inshore reefs. The sediment export rate in the lower South Johnstone River has been estimated at 180,000 tonnes of fine sediment/year, with sugar cane farming contributing to these sediment loads.

Phosphorus-rich runoff from sugar cane fields in Florida is held largely responsible for the decline of the Everglades. The Everglades is a naturally nutrient-poor wetland where sawgrass thrived because naturally low levels of phosphorous inhibited the growth of more aggressive species, such as cattails. However, the common practice of spreading phosphorus on the cane fields in the Everglades first caused the sawgrass to grow abnormally large before dying back to give way to cattails, which have now spread across more than 50,000ha of conservation areas, crowding out willow and bay and excluding fish.
Causes of Impacts

Habitat Clearance
Half of the world’s wetlands have been lost to drainage and conversion to agriculture
(70-90 percent in Europe and USA), and even protected wetland areas are subject
to agricultural impacts. Low-lying and alluvial areas in particular have typically been
reclaimed and drained for sugar cane cultivation, as they often support the richest
soils and enjoy a good natural water supply.
Overuse of Water
Although sugar cane is an efficient converter of biomass from water, it still needs about 1500-2000mm/ha/year and ranks among a group of crops noted for their significant water consumption (along with rice and cotton). It is a deep-rooted crop, which remains in the soil all year round and is able to extract soil water to depths well below one metre. In areas where sugar cane growth relies on rainfall, the crop can influence river flows as it intercepts run-off from the catchment into rivers and taps into ground water resources.
Intensive Use of Chemicals
Intensive agricultural food production in general uses high levels of pesticides
(herbicides, insecticides, fungicides, nematicides, rodenticides, plant regulators,
defoliants or desiccants), with herbicides representing about 50 percent of pesticides
used in many countries. A wide variety of pesticides are used in the cultivation of sugar crops. Herbicide use in sugar beet is among the highest compared to other crops.
Discharge of Processing Mill Effluents
Perhaps the most significant impact from cane and beet processing is related to
polluted effluent. In some countries with weak environmental laws, when sugar mills
are annually cleaned, a tremendous amount of matter is released, which is usually
discharged straight into streams. Cane mill effluents tend to be relatively rich in organic matter compared to other sources, and the decomposition of this matter reduces the oxygen levels in the water, affecting natural biochemical processes and the species inhabiting those freshwater systems. Potential pollutants in these effluents include heavy metals, oil, grease and cleaning agents.
Pre-Harvest Cane Burning
In many sugar producing countries, the cane fields are burnt immediately before harvesting
for easier cutting, post harvest cultivation and pest control.
While it has benefits, it also causes air pollution, soil degradation and a reduction in sugar yield.

Another thing to keep in mind is the distance sugar takes to get to your plate. Since it is primarly grown in tropical climates, it may have been shipped thousands of miles. This would no doubt increase the "carbon footprint". Luckily, we produce a lot domestically in Florida, but this is not without environmental consequences.

As this report (and Bill Nye) points out, even the most unassuming and ubiquitous products can have large, and perhaps unrealized, environmental impacts.

Other Sugar posts:
Evaporated Cane Juice: Part I
Evaporated Cane Juice: Part II
High Fructose Corn Syrup
Caramel Apples
Alternative Sugar Names
A Look at Agave


Thursday, November 13, 2008

T. Boone Pickens on The Daily Show

"In America, we're gonna walk because we want to walk, not because we have to walk."

Mr. Pickens provides some inspirational words on The Daily Show. While it will not be easy, and I'm unsure of the accuracy of some of his statistics, I think his plan has merit.

More T. Boone here and here.


Wednesday, November 12, 2008


FARM! from Anthony-Masterson on Vimeo.

Here's a short documentary about young, sustainable farmers in Georgia.


Tuesday, November 11, 2008

The Dark Side of Lower Prices

I am certainly enjoying the plummeting price of oil and gasoline. However, as with anything, there may be a catch. As I noted here, it is not just oil that is dropping, but many other commodities and goods. While this sounds great from a consumer perspective, this article examines why most economists think - if it continues - it is not good at all.

"When prices start to fall because of lack of demand, they can go well below the cost it takes to produce products," said Bernard Baumohl, executive director of the Economic Outlook Group. "Companies have no alternative than to cut back production and lay off a lot of workers. That cuts demand more. You get this vicious downward spiral in prices."

Most economists point out that the current economic conditions do not yet suggest that deflation is present, or even imminent.


Sunday, November 9, 2008

Pictoral of Zimbabwe Hyperinflation

Zimbabwe has been experiencing unbelievable inflation for some time, but recently it has been calculated at 231 million percent. I really can't even wrap my mind around that, so here are some pictures that show day-to-day financial transactions. Quite amazing.


Saturday, November 8, 2008

The Downfall

"I'm going to miss those granite countertops..."


Friday, November 7, 2008

Cause for Depression

I found a very good resource that delves deeper into the financial meltdown. I have not finished reading through it completely as there is quite a lot of information.

Take a look: Cause for Depression

The world financial system is undergoing a kind of seizure, with assets crashing more wildly than they have done since the Great Depression. At the core of the crisis is the mayhem in the credit markets, where interest rates are going up sharply. The popping of the housing bubble has brought to dramatic pitch the unsustainable levels of US debt across wide sectors (not just housing). The extreme leverage on dodgy assets characteristic of US and European financial institutions has made many of them insolvent if their assets are judged on a “mark-to-market” basis. Various signs point to a deep recession, at a minimum, possibly much worse.

The financial crisis will have extraordinary implications for just about everything. It marks the birth of a new era quite as much as 9/11 did. We need to reflect about the lessons, nearly all of which are rather grim, and start asking in earnest about the political and economic consequences.

I give US authorities very low marks in their response to the financial crisis. Paulson and Bernanke have mistakenly characterized the crisis as a liquidity rather than solvency issue. They have also failed to introduce any coherent limit on the government’s acquisition of toxic private debt. The Paulson Plan is especially wrong-headed, as being neither equitable to the taxpayer nor efficacious in its stated aim (getting banks to lend again). The commitment of public funds to insolvent institutions must have shareholder wipeouts and debt-to equity conversions as a basic feature. The real bill of the US government’s strategy has been minimized in a kind of shell game, but the opportunity costs will likely prove tremendous. There is much cause for depression in both the terrifying implications of an economic collapse and in the response of US authorities to the crisis.
Two of my favorite posts: The Ten Steps & The Ten Commandments


Wednesday, November 5, 2008

World Energy Outlook 2008

Just when we're getting used to falling oil prices, the Financial Times says the International Energy Agency (IEA) gives a decidedly pessimistic view in a preview of its World Energy Outlook 2008.

Output from the world's oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows.

Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.

The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term de-mand. The effort will become even more acute as prices fall and investment decisions are delayed.

The IEA, the oil watchdog, forecasts that China, India and other developing countries' demand will require investments of $360bn (£230bn) each year until 2030. The agency says even with investment, the annual rate of output decline is 6.4 per cent.

The decline will not necessarily be felt in the next few years because demand is slowing down, but with the expected slowdown in investment the eventual effect will be magnified, oil executives say.
However, the IEA came out with a statement rebutting the early report:

The WEO is due to be published next month. The IEA said the FT article "appeared to be based on an early version of a draft from several months ago that was subsequently revised and updated."

It added: "The numbers in the article can be misleading and should not be quoted or considered to be official IEA results," the IEA said.

I guess we will have to wait for the full final report to make our own conclusions. The World Energy Outlook 2008 is due out on November 12, but the Table of Contents can be currently found here.


Thursday, October 30, 2008

Farmer in Chief

Here is the counterpoint to yesterday's post, Nutrients for Life. "Farmer in Chief" is an open letter to our next President, written by Michael Pollan, the author of In Defense of Food. He outlines his vision for modifying American agricultural policy to positively influence three of our most pressing issues. No doubt you have heard the presidential candidates debate over how to solve our dependence on foreign energy, our health care system and the specter of global climate change. Since agriculture is such a cornerstone of our society, the author asserts that changes could provide positive results in all three of these issues.

Whenever farmers clear land for crops and till the soil, large quantities of carbon are released into the air. But the 20th-century industrialization of agriculture has increased the amount of greenhouse gases emitted by the food system by an order of magnitude; chemical fertilizers (made from natural gas), pesticides (made from petroleum), farm machinery, modern food processing and packaging and transportation have together transformed a system that in 1940 produced 2.3 calories of food energy for every calorie of fossil-fuel energy it used into one that now takes 10 calories of fossil-fuel energy to produce a single calorie of modern supermarket food. Put another way, when we eat from the industrial-food system, we are eating oil and spewing greenhouse gases. This state of affairs appears all the more absurd when you recall that every calorie we eat is ultimately the product of photosynthesis — a process based on making food energy from sunshine. There is hope and possibility in that simple fact.
The author outlines his ideas for improvement, which all involve major shifts in agriculture policy. I've included excerpts here, but please read the entire article.

Step 1, Resolarizing the American Farm:
What happens in the field influences every other link of the food chain on up to our meals — if we grow monocultures of corn and soy, we will find the products of processed corn and soy on our plates. Fortunately for your initiative, the federal government has enormous leverage in determining exactly what happens on the 830 million acres of American crop and pasture land.

Your challenge is to take control of this vast federal machinery and use it to drive a transition to a new solar-food economy, starting on the farm. Right now, the government actively discourages the farmers it subsidizes from growing healthful, fresh food: farmers receiving crop subsidies are prohibited from growing “specialty crops” — farm-bill speak for fruits and vegetables. (This rule was the price exacted by California and Florida produce growers in exchange for going along with subsidies for commodity crops.) Commodity farmers should instead be encouraged to grow as many different crops — including animals — as possible. Why? Because the greater the diversity of crops on a farm, the less the need for both fertilizers and pesticides.

It will be argued that sun-food agriculture will generally yield less food than fossil-fuel agriculture. This is debatable. The key question you must be prepared to answer is simply this: Can the sort of sustainable agriculture you’re proposing feed the world?

There are a couple of ways to answer this question. The simplest and most honest answer is that we don’t know, because we haven’t tried. But in the same way we now need to learn how to run an industrial economy without cheap fossil fuel, we have no choice but to find out whether sustainable agriculture can produce enough food.

The second point to bear in mind is that yield isn’t everything — and growing high-yield commodities is not quite the same thing as growing food. Much of what we’re growing today is not directly eaten as food but processed into low-quality calories of fat and sugar. As the world epidemic of diet-related chronic disease has demonstrated, the sheer quantity of calories that a food system produces improves health only up to a point, but after that, quality and diversity are probably more important. We can expect that a food system that produces somewhat less food but of a higher quality will produce healthier populations.
Step 2, Regionalizing the Food System:

For your sun-food agenda to succeed, it will have to do a lot more than alter what happens on the farm. The government could help seed a thousand new polyculture farmers in every county in Iowa, but they would promptly fail if the grain elevator remained the only buyer in town and corn and beans were the only crops it would take. Resolarizing the food system means building the infrastructure for a regional food economy — one that can support diversified farming and, by shortening the food chain, reduce the amount of fossil fuel in the American diet.

A decentralized food system offers a great many other benefits as well. Food eaten closer to where it is grown will be fresher and require less processing, making it more nutritious. Whatever may be lost in efficiency by localizing food production is gained in resilience: regional food systems can better withstand all kinds of shocks. When a single factory is grinding 20 million hamburger patties in a week or washing 25 million servings of salad, a single terrorist armed with a canister of toxins can, at a stroke, poison millions. Such a system is equally susceptible to accidental contamination: the bigger and more global the trade in food, the more vulnerable the system is to catastrophe. The best way to protect our food system against such threats is obvious: decentralize it.
Step 3, Rebuilding America's Food Culture:
In the end, shifting the American diet from a foundation of imported fossil fuel to local sunshine will require changes in our daily lives, which by now are deeply implicated in the economy and culture of fast, cheap and easy food. Making available more healthful and more sustainable food does not guarantee it will be eaten, much less appreciated or enjoyed. We need to use all the tools at our disposal — not just federal policy and public education but the president’s bully pulpit and the example of the first family’s own dinner table — to promote a new culture of food that can undergird your sun-food agenda.

Changing the food culture must begin with our children, and it must begin in the schools. Nearly a half-century ago, President Kennedy announced a national initiative to improve the physical fitness of American children. He did it by elevating the importance of physical education, pressing states to make it a requirement in public schools. We need to bring the same commitment to “edible education” — in Alice Waters’s phrase — by making lunch, in all its dimensions, a mandatory part of the curriculum. On the premise that eating well is a critically important life skill, we need to teach all primary-school students the basics of growing and cooking food and then enjoying it at shared meals.

The president should throw his support behind a new Victory Garden movement, this one seeking “victory” over three critical challenges we face today: high food prices, poor diets and a sedentary population. Eating from this, the shortest food chain of all, offers anyone with a patch of land a way to reduce their fossil-fuel consumption and help fight climate change. (We should offer grants to cities to build allotment gardens for people without access to land.) Just as important, Victory Gardens offer a way to enlist Americans, in body as well as mind, in the work of feeding themselves and changing the food system — something more ennobling, surely, than merely asking them to shop a little differently.

I don’t need to tell you that ripping out even a section of the White House lawn will be controversial: Americans love their lawns, and the South Lawn is one of the most beautiful in the country. But imagine all the energy, water and petrochemicals it takes to make it that way. (Even for the purposes of this memo, the White House would not disclose its lawn-care regimen.) Yet as deeply as Americans feel about their lawns, the agrarian ideal runs deeper still, and making this particular plot of American land productive, especially if the First Family gets out there and pulls weeds now and again, will provide an image even more stirring than that of a pretty lawn: the image of stewardship of the land, of self-reliance and of making the most of local sunlight to feed one’s family and community. The fact that surplus produce from the South Lawn Victory Garden (and there will be literally tons of it) will be offered to regional food banks will make its own eloquent statement.
Pollan is a good author, and makes his views seem quite easy to implement. I can see some major hurdles to these policy changes, however, and some minor quibbles with several of his points.

1. Economic troubles.

As money gets tight, food price increases will be hard to politically justify. It does not matter that food prices are at historic lows...perhaps the cheapest of any civilization, ever. People already started bitching about food increases this past is an American right, cheap food and fuel.

Large scale unemployment, however, may provide a large base of manpower for more labor-intensive agriculture. Perhaps many people get a first-hand look at what jobs migrant workers are currently "stealing" from the American public.

2. Farmers as "drivers".
Farming without fossil fuels — performing complex rotations of plants and animals and managing pests without petrochemicals — is labor intensive and takes more skill than merely “driving and spraying,” which is how corn-belt farmers describe what they do for a living.
I find this to be quite patronizing. I know no farmer who would honestly describe himself in such a way. I suspect the author did not pick up on the humility and self-deprication of his subject. Organic farming is more labor intensive, that point is well recieved. Adding more human capital to the agricultural system will be a challenge of its own. But to say it takes no skill to run a modern farm is ludicrous. It takes a decidedly different set of skills, and new organic skills will need to be learned and disemminated. As the average age of the American farmer increases, this will be more and more difficult. It will take a youth movement, and few people (young or old) today are interested in the arduous and capricious way of life found in agriculture.

3. Energy Calorie per Food Calorie.
...a system that in 1940 produced 2.3 calories of food energy for every calorie of fossil-fuel energy it used into one that now takes 10 calories of fossil-fuel energy to produce a single calorie of modern supermarket food...
Much of this certainly can be explained by the long distances that food now travels. The other factor is that millions of farmers have left the business and there are simply much less human calories at work. This has been supplanted by fossil fuels.

4. Supermarket for the World

Some opponents of organic agriculture point to the fact that we might not be able to maintain the huge outputs of food that we once did. I tend to subscribe to the notion that it is not our duty to feed the entire world. Many of his suggested policies may lower the amount of available food. For years, our subsidized grain has driven world prices down, not allowing indigenous people to economically farm. Now will be their chance. I also feel grain prices are a great geopolitical lever that we control. China has become quite reliant on us, importing more and more in the last few years. We must not neglect this as a bargaining tool.

5. A Matter of Taste

The rise of the industrial food system was helped along by policies, but it rests on the simple fact that all people like to eat cheap, tasty, sweet, fatty and salty foods. This small, sticky fact will not go away, it is hard-wired in our DNA. It will be very hard to convince people to pay more for food that they do not prefer. However, the author brings up the pertinent point - this cheap, unhealthy food is being subsidized. Not only by farm subsidies for grain, but by our increasing health insurance premiums. If we remove these incentives and force people to pay the true cost, the decision calculus may begin to swing in a more healthy direction. The huge amount of political capital and will to do this may be simply unattainable, however.

All in all, there are some very interesting ideas contained in his letter. I believe that less reliance on huge agribusiness and heavier reliance on local small agriculture has many benefits. Whether we can make such a transition remains to be seen. The individual consumer now has more of a choice than ever; buy fresh, organic, local food and provide a market for these products. Don't eat fast food and prepackaged meals. Grow a garden. Small steps by large amounts of people can have huge impacts.

Read: Farmer in Chief