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What Do You Think About The Climate Change Email’s?

Personally, I think that energy consumption is on the decline long term, and already we have seen a break from the predictions of the IPCC’s v4 report from 2007.  My friend Spiralman comments in a recent email exchange…

To the right, Here is the IPCC AYR4 scenario diagram. The most optimistic scenario, B1, has CO2 emissions growing and not declining below 2005 levels until ~2060. Global oil consumption, just one proxy for emissions admittedly, is already down from almost 88mbd down to 84+mbd, and the crisis has been blunted so far with massive government interventions of stimulus and more debt issuance, which is not financially sustainable, and will lead to major bankruptcies and currency collapses, mass unemployment, and quite likely to world war and civil wars.  So we will see energy consumption continue to shrink through this decade.

Demand for oil in the OECD will not recover until 2013, says Opec
http://www.independent.co.uk/news/business/news/demand-for-oil-in-the-oecd-will-not-recover-until-2013-says-opec-1738086.html

Aside from the world wars and civil wars generating a huge amount of carbon emissions in the form of soot from explosions and fires, and aerosols from incinerations of cities, the future industrial emissions are very likely to be considerably lower than even today.  I expect that as the capitalist overproduction crisis progresses over the next several years, industrial activity will shrink by 25% to 50% from peak activity.

Meanwhile solar (and wind) power will continue to cheapen along its exponential learning curve, making it ever more desirable and capable of fulfilling any need for growth of energy generation capacity, especially that which will enable the belligerents in the wars to be energy independent of international disruptions to fuel supply chains.

The same will occur with natural gas, now that the shale gas makes natural gas a local resource for US, Europe, China and India. And since natural gas can not only replace coal, but also be cheaply converted into gasoline, diesel and kerosene, we will see oil and coal consumption replaced by the lower emission natural gas.

And of course, there will be the huge milestone of affordable LED’s combined with the bans on incandescent bulbs taking effect starting from 2012-2014 which will lead to the rapid replacement with LEDs and the equally huge shrinkage of electricity consumption from lighting (and the extra energy consumption for the air conditioning necessary to deal with the waste heat from inefficient fluorescents in office buildings).  So sometime over 2013-2020 there will be the evaporation of ~20% of demand for OECD electricity.

This pattern of Spike, Crash, Streamline, and Replace is the identical dynamic to which occurred from 1930-1945, 1860-1878 and from 1789-1812. Like clockwork the world experiences generational financial and genocidal crisis eras every 65-80 years. I have tracked this cycle back to the 1420’s for Western Europe, India, China and Japan, and I suspect that if I researched it further the pattern continues even deeper into time”

Is the climate change industry perfect, should we trust the general “scientific” consensus and base our assumptions and economic policy on them?

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OIL GLUT: $20/barrel? Cheap Carbon Trading, China joins carbon tax protest & reaches 2020 Wind target 10yrs early + No Natural Gas Glut.

Comments (double indents), quotes (single indents), & links written and compiled by Spiralman


Glut of oil could push gasoline prices back down below $2 a gallon
Energy experts say oil supply is outstripping demand. Eventually suppliers will tire of paying to store all of the surplus oil and flood the market, they predict.
http://www.latimes.com/business/la-fi-oil4-2009jul04,0,311438.story

Iraq Fails to Award Most Oil Contracts in Bid Round
http://www.bloomberg.com/apps/news?pid=20601104&sid=aFn6A921Tw9s


More evidence that the world is a lot less desperate for oil than was thought several months ago. We will see many more examples like this over the next ten years with Depression-induced demand destruction, energy efficiency gains and solar/wind replacing hydrocarbons where hard fought wins in the resource wars turn out to be pyrrhic victories.

What does an oil/gas exporting country do when their main source of hard currency is less attractive to the rest of the world?

My guess is that one of their recourses is to go to war against other oil exporting countries to knock out their competing oil/gas production or transiting capacities possibly via funding and arming irregular armed forces in competitors’ countries fostering a ratcheting of “dirty wars” of sabotage, disappearances, death squads, false flag operations and ethnic/sectarian cleansing.

This is why I believe that those on the left who have argued that reducing American consumption of foreign oil will reduce the drive toward war are seriously mistaken.  Maybe it would reduce America’s drive for war, but it increases the rivalries between many other energy exporters.



China joins carbon tax protest
http://www.ft.com/cms/s/0/76f0e4b0-67fc-11de-848a-00144feabdc0.html?nclick_check=1

China joins carbon tax protest
By Alan Beattie in London and Kathrin Hille in Beijing
Published: July 3 2009 19:20 | Last updated: July 3 2009 19:20
Beijing on Friday joined a growing clamour of complaint about US plans for a carbon tax on imports from countries without their own emission caps, warning it could set off a global trade war.

The warning follows the passage of a cap-and-trade bill in the US House of Representatives last weekend, which contained tough provisions to impose carbon tariffs to ensure that American companies would not lose competitive advantage. A recent report by the World Trade Organisation and the UN said such taxes could in theory be crafted to be compatible with WTO law, but it would be hard to prove they were not an illegal disguised restriction on international trade.

“It has always been China’s position that the international society should fight climate change together, but the proposal of some developed countries to slap a carbon tariff on some imported products violates the WTO’s basic principles and is trade protectionism in the disguise of environmental protection,” said Yao Jian, spokesman for China’s ministry of commerce.

Earlier this week, Jairam Ramesh, the Indian environment minister, described carbon tariffs as “pernicious” and flatly rejected the idea of negotiating climate change at the WTO.

After the passage of the House bill by a narrow vote last week, President Barack Obama warned imposing carbon border taxes might send a protectionist signal. “I think there may be other ways of doing it than with a tariff approach,” he said. The bill now moves to the Senate, where it is likely to receive an even rougher ride from moderate Democrats concerned about imposing more costs on US businesses.

The Chinese government also said it believed the carbon tax proposal violated the principle set out in the Kyoto protocol that developed and developing countries should respond to climate change together but with different responsibilities. “[It] severely harms developing countries’ interests,” Mr Yao said.

The WTO report, which gave a cautious nod to carbon tariffs, was prepared by the organisation’s secretariat, which can advise and facilitate discussion among the WTO’s members but does not set the rules itself. If a government such as China’s challenged such taxes, the case would be decided by the WTO’s dispute settlement system – panels of independent trade experts and lawyers.

Some trade lawyers point out that past WTO decisions have permitted governments to restrict trade in order to protect natural resources. But others say the case law is patchy, and it is hard to prove that such measures are being applied in a fair and consistent manner – a necessary condition for meeting WTO rules.

Brendan McGivern, partner at the law firm White & Case in Geneva, said: “I don’t think previous rulings provide a particularly solid basis for moving ahead with carbon border taxes. If a case comes, which is likely at some point, the outcome is very uncertain.”

Beijing’s comments reflect the tough initial negotiating stance China has taken for the Copenhagen talks in December aimed at working out a follow-up deal to Kyoto. China has rejected any emission caps for developing countries. It also wants developed nations to cut emissions to 40 per cent below 1990 levels by 2020 and pay for clean technology in developing countries.


China is afraid of American Green protectionism/isolationism.

The double irony is that not only is China on its way toward incredibly rapid emissions growth slowdown because it is not in China’s best interests to be relying on foreign sources of energy and because China is one of the world’s leaders in solar and wind power equipment manufacturing, but that their demand that the US reduce to 40% below 1990 emission levels will easily be met via the Depression combined with the burgeoning American energy efficiency jihad.

As is usual in energy-related matters, everybody is yelling at each other about things that aren’t the main issue.
Those that don’t want to do anything exaggerate how much it will cost and how hard it will be, those that are freaked out about the environment also exaggerate how much it will cost and how hard it will be, but frame it as a need for more state mandates and as avoiding an Armageddon.  

Renewable energy/efficiency costs are relentlessly cheapening and within a decade won’t need any state mandates, it will make sense from both national security and financial perspectives.  Enviro Armageddon is easily avoidable by addressing the low-hanging fruit of black carbon in the Global South, and if thing are still going to be disastrous based on our past sins, we will have plenty of capabilities for adapting to it as the decades go by.

The real issues all really orbit the question of Equal Watts?

And for now, I side with China on the issue since they are among those who most desperately need affordable, geopolitically independent sources of energy, and shouldn’t be punished for getting energy for their impoverished people as cheaply as they can even if that means a continued increase in their emissions over the next decade while the price of solar continues to collapse to a price they can afford.

If the rich countries are really so worried about China’s emissions, it’s all the more reason for them to fund a South First strategy to get to Equal Watts.



Next year China will reach its 2020 Wind power target
http://www.nytimes.com/2009/07/03/business/energy-environment/03renew.html?_r=2&ref=business&pagewanted=all

……
HSBC predicts that China will invest more money in renewable energy and nuclear power between now and 2020 than in coal-fired and oil-fired electricity.
……
As recently as the start of last year, the Chinese government’s target was to have 5,000 megawatts of wind power installed by the end of next year, or the equivalent of eight big coal-fired power plants, a tiny proportion of China’s energy usage and a pittance at a time when China was building close to two coal-fired plants a week.

But in March of last year, as power companies began accelerating construction of wind turbines, the government issued a forecast that 10,000 megawatts would actually be installed by the end of next year. And now, just 15 months later, with construction of coal-fired plants having slowed to one a week and still falling, it appears that China will have 30,000 megawatts of wind energy by the end of next year — which was previously the target for 2020, Mr. Li said.
………
Chinese companies must generate 8 percent of their power from renewable sources other than hydroelectric by the end of 2020.
…….
At the same time, the Ministry of Environmental Protection has temporarily banned three of the country’s five main power companies from building more coal-fired power plants, punishment for their failure to comply with environmental regulations at existing coal-fired plants. China’s renewable energy frenzy has been accelerating recently, especially in solar energy.
……
This is the pace with solar costing ~3X coal and wind costing 50% more than coal.

Imagine a decade from now when solar = wind = coal.



July/August 2009
Carbon Trading on the Cheap
If the United States wants to build a market-based approach to reducing carbon dioxide emissions, it should learn from Europe’s failures.
http://www.technologyreview.com/printer_friendly_article.aspx?id=22851&channel=energy&section

This article explains why the cap and trade scheme is likely to remain primarily just that, a scheme to benefit Wall St traders and the green NGOs rather than accomplish anything other than hurting the poor.
However it doesn’t address the fact that renewables already have such powerful momentum from both a national security standpoint for the hydrocarbon have-nots as well as exponential cost reduction, that the price for carbon offsets will inevitably be so low as to be meaningless.

For example, the US cap and trade objective is for a 17% reduction of emissions from 2005 levels by 2020.

The current extent of the depression has already reduced US oil demand by ~9% from 2005 levels, and is likely to drop it substantially more.
The principal energy consuming states eg. California, already are very aggressively pushing renewable energy.

California has a target for renewables of 20% by 2010 and 33% by 2020 irrespective of cap and trade.

New York 24% by 2013
New Jersey 22.5 by 2021
Illinois 25% by 2025
Pennsylvania 18% by 2020

As you can see below almost every major energy consuming state except Florida has more aggressive objectives than the 17% Federal cap and trade program.



In addition, major industrial powers like Germany and Japan have an objective of 30% from solar alone by 2020 and that’s not including Germany’s target for wind power, which is already at 7.5% and is expected to double by then.  The EU as a whole has a 2020 target of 20% renewables.  China’s objective is 15% from renewables by 2020.

These countries do not have sufficient oil and gas supplies, and therefore cannot have their renewable energy policies waylaid by the interests of hydrocarbon energy company executives or politicians representing potentially unemployed energy industry workers.

Since the manufacturing/R&D learning curve for solar power over several decades is > 20% price reduction per doubling of amount of panels manufactured, and since the worldwide pace of solar panel installation growth has averaged ~45% over the last decade, ie a doubling of installed panels every 2 years, and so a price reduction of 40% every 4 years, this translates roughly into the 3X price reduction every decade.

The demand from countries which are hellbent on reducing their hydrocarbon consumption due to strategic concerns is guaranteed to continue to drop the price dramatically, which will make it that much easier for a country like the US to convert even though it is one of the largest oil producers in the world, and naturally less enthusiastic about alternatives.

Bottom line:
Cap and trade schemes are unnecessary, inadequate and regressive wealth transfers to financial industry casino operators and the catastrophe pimps in the eco NGO world.
Worst of all Cap and Trade doesn’t focus on putting the panels in the countries suffering the most from energy poverty and primitiveness, whose miserably poor Campfire Ladies are spewing out the black carbon that is simultaneously raising sealevel the most through albedo on the icecaps and who are driving the deforestation that causes desertification, soil erosion, flooding, famine and local warming.

Cleaning up the Global South’s soot by giving every family a solar panel, an electric stove and a few LED lights would have an impact “within months” removing 50% of the driving force of Arctic melt, and it would cost peanuts.

I’m guesstimating $50B to $100B would provide enough families with the basics to completely eradicate the need for burning wood, charcoal and kerosene.

And since they are currently spending 25% of their monthly income on these primitive energy sources, they would have the disposable income to buy other things and would help fuel the world economic recovery.



Estimate Places [US] Natural Gas Reserves 35% Higher
http://www.nytimes.com/2009/06/18/business/energy-environment/18gas.html?ref=business

Gas Glut: Why the U.S. Boom Could Mean Cheaper Gas Everywhere
http://blogs.wsj.com/environmentalcapital/2009/06/18/gas-glut-why-the-us-boom-could-mean-cheaper-gas-everywhere/


…..
So what does that mean? First, the much greater supplies would seem to spell a period of cheaper natural gas, which fell much further than oil from last year’s high prices. All else being equal, that would tend to make natural gas the go-to fuel for electricity generation ahead of clean energy and even coal in many cases.

Second, it could actually make natural gas cheaper everywhere and help diversify natural gas supplies around the world. The rising amounts of natural gas identified by the Potential Gas Committee are the results of new production technologies. These technologies are just beginning to tried out overseas, which could lead to a boom in gas production elsewhere.

What’s more, with so much natural gas at home, it’s possible that less liquefied natural gas will be imported into the U.S. Right now, the U.S. is the “kitchen sink” for LNG, meaning that anything extra gets poured into the world’s only market that can readily absorb it.

But over time, this LNG could head to markets in Europe and Asia, as contracts are adjusted. That would give Europeans and Asians another source of natural gas without resorting to Russian gas exports, long a point of political friction in Europe.
…..
Fueling the potential for US energy isolationism.
Like the Alaskan ANWR battles, shale-based natural gas will also pit American environmentalists vs. energy isolationists, but natural gas is an easier sell to greens since it emits less carbon than coal or oil even though it could put more toxins in water tables.



Mining “Ice That Burns”
Newly discovered methane hydrate reserves deep in the ocean show promise for mining.
http://www.technologyreview.com/printer_friendly_article.aspx?id=22756&channel=energy&section=

[

The recent Japanese/Canadian/American breakthroughs on pulling up oceanic methane hydrates, the abundance of which is truly colossal (enough for 3,000 years!!!), should also change the equation for many countries when the technology is fully worked out.  Japan will start rolling it out by 2017.

The upshot of all of the above is that the longterm value of natural gas is plummeting, since it is apparently going to be more and more abundant as pipelines and LNG tankers crisscross the planet, and new technologies open up the huge amounts in shale and oceanic methane hydrates.

Natural gas directly substitutes for coal; and CNG can power vehicles instead of oil, but conversion is expensive.

“Peak Energy” still lives on in imagination as Malthusian phantasmagoria, but in the real world this particular demon of energy scarcity is being rapidly knifed from many different angles.

Whether impending depression demand contraction, LED lights, passive homes, grid parity of ubiquitous Solar, or the laughable cornucopia of Gas, the dynamics of this crisis as it progresses could be very different than expected as the breathing space for energy consumers becomes intolerably painful for energy supplier countries, reduced to the power of sugar, coffee and banana republics over the next 10 years.

And what happens to the two major powers who made their livings guarding the formerly precious resources?

Lots more whipsawing to come.
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Cure For Honey Bee Colony Collapse?

http://www.sciencedaily.com/releases/2009/04/090414084627.htm


For the first time, scientists have isolated the parasite Nosema ceranae (Microsporidia) from professional apiaries suffering from honey bee colony depopulation syndrome. They then went on to treat the infection with complete success.

In a study published in the new journal from the Society for Applied Microbiology: Environmental Microbiology Reports, scientists from Spain analysed two apiaries and found evidence of honey bee colony depopulation syndrome (also known as colony collapse disorder in the USA). They found no evidence of any other cause of the disease (such as the Varroa destructor, IAPV or pesticides), other than infection with Nosema ceranae. The researchers then treated the infected surviving under-populated colonies with the antibiotic drug, flumagillin and demonstrated complete recovery of all infected colonies.

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US Truck, Air, Rail freight all down 20% or more and still looking for bottom

by Spiralman

http://online.wsj.com/article/SB124044499853045733.html

……
The Air Transport Association of America last week said U.S. air-cargo volumes had dropped 21% in February compared with a year ago. That was the seventh consecutive month of year-to-year declines.
…..
For the first two weeks of April, the U.S. railroad industry’s car-load volumes were down more than 20%, compared with a 17.3% drop for the month of March and a 14.5% drop in February, according to the trade group Association of American Railroads.
……


http://fleetowner.com/management/trucking-industry-economic-conditions-0422/index1.html
…….

Truckload carriers have seen a 23.3% decline in freight, or “the largest six-month drop in tonnage since 1993,” he said. By segment, flatbed carriers saw tonnage decline 30% from a peak in June, 2008, while dry van and tank carriers recorded 25% and 27% drops respectively from peak levels. “And it’s affected all lengths of hauls – short, medium and long,” according to White.
…….

[
These are leading indicators of the economy.  If things aren’t being trucked, trained, or flown around as much, then that means households and businesses aren’t buying as much, which then means workers will be furloughed, wage reduced, or laid off, which in turn means a lot less driving to work and shopping.

Obviously, these figures also imply a radical decline in oil consumption and therefore emissions.  Presumably, also by 20% or more.  And this will show up as the year progresses and the speculative contracts for the hoarding of oil on tanker ships, called contango, expire and the oil gets added to an already glutted market.

As I have noted before, the Peak Credit Overproduction Crisis process we are seeing is Spike, Crash, Streamline, Replace.

We saw the Spike up to $147/barrel oil.  This helped drive investments in Solar and Wind production capacity and innovations in manufacturing processes that are revealing themselves as radical reductions in the production price of solar panels.  The Peak Credit/Overproduction Oil Spike spiked the ball of Solar Power over the net of Grid Parity.  In addition, it Spiked over the net, electric hybrid cars and trucks.  The new Prius and the others from Honda, Ford, etc. will all cost $20K or less.

We are now witnessing the Crash of demand, driven by Debt Deflation.  I fully expected demand for energy to drop by 25% to 50% during this phase.  The shipping data above certainly indicates that the higher end of the collapse is now much more likely.

The Spike triggered a dramatic shift that will shape the post-Crash future.

The resulting Crash and Streamlining phases are irreversibly destroying demand for Coal, Oil, Nukes, and Gas.  
The rising insecurity of investors of those sectors will ensure that insufficient capital is allocated to CONG, so that not only will solar and wind be ready to carry everything forward after the crash, but the CONG will be unable to ramp up quickly and sufficiently since their investors have to assume more and more that the longterm prices under conditions of overproduction and debt deflation demand destruction will not justify the investment.

When even the most gas guzzling of all passenger vehicles, like GM’s Hummer will be getting 100mpg, when even the heaviest semi-trucks driven by the type of hard-edged working class folks who effete, Green, academic, latte-sipping snobs would least expect to be concerned about the environmental impacts are already deploying new drivetrains that cut diesel consumption by 30% to 50% so they can improve their profitability, when Walmart’s founder was the biggest investor in one of the biggest solar companies producing the cheapest solar panels (not to mention the fact that Walmart has already fielded hundreds of semi-trucks in collaboration with Peterbilt, Curtis and Eaton), it’s pretty clear that just about everything we read about climate change scientist’s projected impacts of Armageddon and the need for punitive, regressive Carbon taxes is completely irrelevant.  An echo of an already vanishing era.  Identical in form to the real estate houseflipping Ponzi or the stock Madoffs who still continue to claim that things will sharply rebound………always in the next 6 months.

The eco-neurotic’s relentless claims that runaway carbon emissions are just around the corner sound very similar to the refrain that prosperity is just around the corner.

Ironically, those proclaiming an eventual return to economic growth have vastly more truth behind them than the eco-neurotic, who is blind to the phase change in pricing of solar and hybrids that the Peak Credit/Overproduction crisis brought into being.

Humanity will one day consume tens, hundreds or thousands of times as many joules of energy as it did at the Peak Credit moment in Summer of 2008, but it will never again consume them at that level in the form of hydrocarbons.

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#1 Worst Idea Ever For Fighting Climate Change: Blocking the Sun

http://www.breitbart.com/article.php?id=D97ECHLG1&show_article=1

This idea would directly hurt the ability to utilize solar power, grow food, etc. Very reminiscent of Londoners killing their cats to protect themselves from Bubonic Plague in 1666. Smart enough to realize it was caused by animals, but too stupid [uninformed] to realize that killing their cats, enabled the rats to multiply ” — Spiralman

This reminds me of the first part of Who Shot Mr. Burns,  where Mr Burns developed a sun-blocking machine which prevented sunlight from reaching Springfield. With the town immersed in darkness, Mr. Burns’ Power Plant made even more money. - http://thesimpsons.com/recaps/season6/#episode25

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Could Renewables Supply 40 Percent of Global Power by 2050?

By SpiralMan

http://greeninc.blogs.nytimes.com/2009/03/11/could-renewables-supply-40-percent-of-global-power-by-2050/


The fact that this question is even being asked shows both how powerful the propaganda against solar and wind has been, but also how the reality of its unstoppable march toward cost lowering is breaking down the resistance.

And no force, neither Big Oil nor any government has been more of a problem for the advancement of solar and wind then alleged environmental campaigners who consistently understate the potential of solar.

The fact that every last one of the IPCC reports on Climate Change consistently broadcast CO2 emission scenarios that assume that there is minimal contribution from renewable energy is a testament to this campaign.

Every one of the alarmist articles about impending ecological catastrophe has accepted these IPCC assumptions of Little Solar

I have seen the same thing with Greenpeace’s annual collaborative report with the European Photoelectric Industrial Association where every year for almost 10 years they have failed to make an accurate prediction about how much solar would be installed in the years to come.  For a while, no matter if they increased the predicted rate of installation, reality beat their estimates by an ever larger margin.

I call this overall dynamic whereby alleged environmentalists talk of the need for solar and wind and urgent change, yet they almost always add in the claim that “renewables will likely only make a small contribution,” Damning Solar With Faint Praise.

I could easily insinuate ulterior motives, but I won’t waste my breath right now.

Instead I will just flatly state the following:

  1. Solar’s price drops at least Three-fold every decade, and has been doing so since 1970, ie. For 40 years!
  2. This year solar power reached parity with grid-delivered retail electricity to residential and commercial users if produced on large-scales, ie not just on your family’s roof, where it costs twice as much.
  3. By or before 2020, Solar will be as cheap as or cheaper than Coal, Oil, Nuclear, or natural Gas (King CONG), even at point of production utility grade wholesale electricity
  4. Solar’s worldwide growth rate of installation last year was 92%; it has consistently exceeded a 45% annual growth rate for a decade
  5. At that growth rate, and with the continuing plummeting of the price of solar panels, Solar power will produce < 400% of today’s Global Power by 2050


First Solar Has Produced 1,000 MW of Solar Panels
http://www.redherring.com/Home/25943

……
The company began commercial production in early 2002. It took six years to produce the first 500 MW and eight months to produce the second.
[How many weeks to produce the third?]
……

[1,000 MW = 1 Gigawatt = baseload electricity for 1,000,000 households or full load for 200,000 heavy usage North American households.
This company a few weeks ago announced that it hit production costs of ~ <$1/Watt of panel, ie. 10c/kWh.]

Even Thin Solar Can’t Weather Silicon Glut
http://seekingalpha.com/article/128375-even-thin-solar-can-t-weather-silicon-glut-barron-s

[First Solar is one of the many Thin Film solar companies that have arisen (eg Nanosolar) or retooled (eg Sharp Electronics) in response to a shortage of Silicon wafers.
For decades, solar panels were made from excess crystalline silicon from the computer chip industry.
Starting in 2001 or so, the demand for solar had grown large enough that the leftovers from the computer industry weren’t sufficient, so prices escalated for crystalline silicon.

Silicon is the second most abundant element of the crust of the Earth (exceeded only by Oxygen).  
1/4 of the Earth’s crust is Silicon.  
When you are looking at sand dunes, you are looking at Silicon.  So there is absolutely no shortage of Silicon.
But until just recently, there was a shortage of the processed Silicon necessary to make panels.

No longer!


The higher prices of crystalline silicon stimulated a lot of investment in new fabrication facilities, which are just coming on line this year.  Already there is a glut of Silicon.

The glut is far worse than most anyone expected, driving silicon prices from $450/kilo one year ago to about $100.

First Solar
panels convert 11% of the sun’s energy to electricity, vs. 20% for comparable non-thin panels [ie Silicon]. But the firm admits that its competitive advantage evaporates the closer silicon feedstock drops toward $50/kilo.

So, we can now see that there is a serious dogfight between these two different technologies, and will drive the retail price of solar panels much lower, closer and closer to the price of production, which we now know via First Solar’s announcement, and by inference that they are facing serious competition via the lowering of the price of silicon, is $1/W.

In the end, Silicon will win.

It is everywhere.

It’s made from sand.

Sand is in deserts.

Deserts are baked in intense, predictable, cloudless sunshine.

Deserts are perfect locations for solar-powered, Silicon fabrication plants to make solar panels which will be located in these same deserts.

Making panels takes very little labor, but it does require some energy.  Solar panels capture 20-30 times as much energy as it takes to make them right now, but energy capture efficiencies are growing while energy to produce them is dropping all the time.  (Thinner silicon wafers and concentrated solar using mirrors and lenses focused on smaller wafer squares, means even less silicon is used.)

Since the solar energy which powers these factories will effectively tend towards a cost of $0, solar panels will ultimately cost only a little bit more than the sand that they are made of.

Cost per 1W of solar panels
1970    $100.00
1980      $28.50
1990        $8.50
2000        $3.00
2010        $1.00  (equivalent to CONG retail electricity)

2020        $0.30  (cheaper than CONG wholesale electricity; these version 2.0 technologies are already visible)
2030        $0.10
2040        $0.03
2050        $0.01

Looking at that price cheapening trajectory, it is quite obvious that solar power replaces every other energy source on the planet, and enables every single human on the planet by 2050 (10B – 12B) to be affordably energized to the same level as today’s Americans.

400% of Today’s Global Power will come from Solar by 2050

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Has Russia got it’s groove back?

Rising oil prices, soaring shares - and socialites out in force. Adrian Blomfield in Moscow studies the signs of recovery


http://www.telegraph.co.uk/news/5024779/Has-Russia-got-its-groove-back.html


Analysis by Spiralman


Russia still has a lot further to fall, but it may end up somewhat better off than its European neighbors who have loads of net debt.  (Russian companies have lots of debt, but the Russian government surplus is even bigger and slightly more than cancels it out; so the Russian government will probably take back the companies that were privatized during the Yeltsin era.

However……
1)  if world economic activity slows as much as I anticipate – somewhere between –25% and –50% compared to peak activity – then oil and gas consumption will fall significantly as well.
2)  since almost every G20 country is aggressively pursuing anti-hydrocarbon policies, it seems very likely that oil/gas consumption per unit of GDP will fall by at last 30% (as it did during the late 70’s-early 80’s oil spike/crash), meaning that any recovery will use disproportionately less oil per % of growth.
3) since solar best practice technology is already as cheap as King CONG, and will be on average as as cheap KONG by 2012, and
4) since batteries for large scale energy storage will be online by then
5) since high voltage direct current (HVDC) electric grids are being rolled out
6) since hybrid vehicles are dramatically improving and reducing their prices
7) since even non-hybrid cars, like Tata’s $2,000 Nano, are radically more energy efficient

Any global economic recovery will be starting from a much reduced global oil consumption base similar to the 1970’s (ie ~50% lower than the peak of oil consumption in Summer 2008) and primarily be based on a new energy infrastructure…….

Countries dependent upon their energy exports for their economies are likely to be in a world of pain.

Basically, all these “energy independence” moves (cloaked in Green terms regarding the environment to get leftie buy-in) amounts to an Economic World War waged by energy importing countries against energy exporting countries.

It does not take a super genius to recognize that this Hydrocarbon Import Boycott, ahem Energy Independence, Fighting Climate Change, is likely to result in very real wars in response.

When oil was very cheap in the 1990’s, the US saw Al Qaeda’s major upsurge in terrorism

  • 1993 WTC Part 1; 1998 Bombings of US embassies in East African; 2000 USS Cole; 2001 WTC Part 2 


When oil became expensive, the terror attacks subsided.

Not really a surprise.  When folks have enough money to go around, people are less pissed off.

Reality seems to contradict of the fantasies of both the neocons and liberals like Thomas Friedman who think that strangling MidEast oil production through ‘energy independence’ will result in less conflict and modernization/reform.

If anything the high oil prices since 911 enabled the meteroic rise of Dubai and major expansion of secondary and college education of women in Saudi Arabia and the rest of the GCC.  In fact, Saudi Arabia’s budget swelled dramatically as a result of their educational reforms, and now they will face challenges will lower oil prices.

Moscow’s rhetoric has become much more bellicose since US-client Georgia provoked them, Bush II announced the missile shield on their border, and then oil prices started to fall.

The Middle Eastern countries are very well positioned, possibly the best positioned in the world with their enormous cloudless deserts and proximity to Europe, Africa and Asia, to transition to being the Saudi Arabia of a Eurasian Solar Economy.

Russia is not.

Decades of humiliation and suffering after the collapse of the USSR and the failure of Bush I, Clinton I, Bush II, and Obama to facilitate renovation investment of the Russian economy, the continuing attempts at geopolitical encirclement through expanding NATO to the Russian borders, the missile shield, and now the Energy Boycott, could easily drive them to launch desperate, rapid surprise attacks to regain their regional sphere of influence, and reactivate support throughout the Global South.

text

Climate Change Discussion on FB

For those of you not connected to every where maybememe.com content appears, I want to highlight a discussion on FB, between a commentator and myself regarding my post - “Why Global Warming Doesn’t Matter Anymore

The first comment to follow was a result of the headline being picked up in my FB status via MaybeMeme.com linking to twitter, and then my FB status.

FB Commentator:

Is that a joke or just delusion?

The following ensued late last night/early morning…

Bryan Berndt comments:

I could have it wrong… and since you seem to think I do, could you please inform me as to how, so that I may upgrade ideas & improve?

Or maybe you haven’t read any of it yet and made the ad hominem attack unconsciously? Habitual responses occur far to often and people fail to adapt to changing circumstances (ie falling demand for energy, peak credit, export demand drops, etc being left out of climate change models completly!

We usually call people like that “conservative” - as they do not want “established” beliefs to be challenged.

Robert Anton Wilson noted long ago that… “it takes only as little as 20 years for a liberal to become a conservative without changing a single idea”

Balls in your court sport.


Commentator on Facebook:

Well then…

Let’s begin with the term “global warming.” The issue at hand is climate change—and I don’t make that point merely to split hairs. The effects of pumping CO2, among other toxins, into our atmosphere and environment won’t merely result in the mere warming that your term would suggest. As such, if I were you, and trying dismiss a given scientific phenomenon I would seek to tackle the issue at hand, and not merely attempt to refute a political buzzword.

What your cursory examination has done is cherry pick a handful of news articles on recent developments and claimed that, from this moment, from this particular vantage point, you have the ability to dismiss essentially two decades, if not more, worth of scientific and social data. You have literally taken individual monthly figures, all more or less a result of the recent credit crunch, and claimed that this statistical anomaly essentially is indicative of a trend. Preposterous to say the least.

Furthermore, you make a series of entirely unsupported claims—the supposed “collapsing energy consumption.” I’ve yet to hear a single major of any sort conclude that our future will one of less energy consumption. But, hey, by all means, I may have missed something.

You then use the Great Depression and the Oil Crisis as evidence of the fact that crises result in a reduction of consumption—somehow failing to mention that the global capitalist economy recovered from both and began to pump more CO2 and create more waste than ever before! That’s hardly the rock solid point you make it out to be, my friend. In fact, it’s ridiculously one sided. Now, unless you have some really convincing evidence that the current credit crisis is the end of capitalism as we know it, and that in a few years time consumption and waste production won’t return to previous levels, if not worse, I’m really not sure why anyone would even take this point remotely seriously.

Lastly, your entire thesis seems to operate under the assumption that the financial crisis, resulting in massive layoffs, will likewise spell the end of rampant consumption. What you fail to address is, as I mentioned above, the likely rebound of the economy and, moreover, the general belief in the population that their previous’ lifestyles were something to be desired. That is to say, even if the crisis results in a drop in carbon production, the political climate will be such that people will want to return to the previous scenario—because, hey, who cares about tomorrow, I need a job today!

Your citing of the opinion poll is quite indicative of this problem, actually. It is, unfortunately, also indicative of the fact that you seem to believe that opinion polls = objective reality. Need I really cite the polls relating to Americans’ perceptions of 9/11 and Iraq to make my case here?

If you’re going to call “BS” on essentially the entirety of the scientific establishment, you’re going to need to do a bit better than a round up of yesterday’s GoogleNews hits…sport.

Bryan Berndt Comments:

I agree, climate change = a more apt description. As a general term, it could describe hot or cold and anything in-between and still make the news. The term “climate change” indicates more accurately the limits of humanities understanding of such complex systems.

For instance - Over 300m yrs ago, when carbon levels were supposed to be their highest, the super-continent known as Pangea shows evidence of glaciers along it’s equatorial line, not exactly what the original model indicated.
http://dsc.discovery.com/news/2008/07/28/pangea-climate-geology.html


I am glad you brought up the warming label, as I said, it no longer has relevance.

Further, I am not attempting to throw the baby out with the bathwater, merely to evolve ideas.

Yes, the economy will probably “recover”, though we haven’t hit bottom yet. When things do begin to recover, the average price of solar power will be cost competitive/cheaper than coal. The lowest price of solar is already beating coal in cost.

See: http://www.maybememe.com/post/43591629/solar-now-cheaper-than-coal

Your post @ 12:59am where you state that the effects of peak credit on energy consumption not being a trend = flat out wrong. You don’t mean to say that the economy will “recover” anytime soon do you?

I didn’t add the opinion poll, SpiralMan added it as a quick anecdote, or point of interest. Of course, most people believing something doesn’t automatically make it true. For instance, just because most scientists agree on something, doesn’t mean their models have no flaws or gaps. For instance the flaw of leaving out the trend in the economy, and solar power.

Finally, I use google reader, and aggregate over 100 different feeds from many diverse sources and scientific publications, not to be confused with google news :)

Others can read the post and discover the info on solar you neglected to tack onto your — the “recovery” will be to old norms argument.

FB Commentator Rejoins:


Yes, they are complex systems but I’m not exactly sure what that fact has to do with our discussion. I take it we both agree that man-made climate change is real, and it poses a significant risk to our continued existence on this Earth? New data is going to emerge, some old predictions may in time come to be revised—that is taking place as we speak. However, your original post wasn’t really about that—you claim not to be throwing out the baby with the bathwater, but I’m pretty sure proclaiming that “global warming doesn’t matter anymore” is precisely that. Go back to bed folks, problem solved!

As for the claim that solar energy will come to replace coal power—perhaps, one can certainly hope. But according to the figures I’ve seen, solar power accounts for about 1% of the current energy supply of the US. And renewable energy, as a whole, contributes less than 10% by most counts. But even if renewable energy comes, at a later date, to replace our current energy sources we still have the problem of 1) the damage that will have been done until then, which may very well be permanent and 2) the toxins being released into the atmosphere through the production process. That is to say, even if solar power is providing the energy for our factories, that isn’t much of a victory if we’re still pumping mercury into the soil and the water, and God knows what else into the air. The idea that CO2 is the only issue at hand is simply a fallacy.

As for the question of “recovery”—yes, I do think it’s far more likely that we will return to previous production outputs, as we have seen happen every previous times, than it is likely that this current crisis will be both the death knell of capitalism and of climate change and environmental damage as we know it.

Likewise, the word you are struggling with in regards to the Oil Crisis and the Great Depression is not “trend”, which would imply long-term, consistent correlation. What we are dealing with is two periods, moments really, both which were followed by massive rise in both industrial output and waste production.

What I understand you suggestion to be is that if we sit back, capitalism, presumably by virtue of its own internal contradictions, will through its own collapse solve the problem of climate change and environmental destruction that it has largely sown. Unfortunately, for you, me, and a slew of other would be radicals throughout history—many a good soul has died waiting for the impending and “natural” death of capitalism.

The reality is change is made through social action and mobilization—I see none of that in anything you are prescribing. In fact, all I’m seeing is that through a combination of orthodox Marxist doom-saying about the future of capitalism and liberal-capitalist entrepreneurial grit, we’re going see all our problems solved. You, in the same breath, essentially imply the end of capitalism, and then point to data that suggests that even if, say, coal may, at some later date, be phased out, new forms of energy will replaced said coal. You don’t think maybe that the boom you’re envisioning in solar energy may in some way tie into the recovery of the global capitalist economy?

The commentator also posted these two charts to look at.


http://www.energymasters.com/wp-content/blog_images/energy_pie_chart.gif

http://1.bp.blogspot.com/_qyVxlnMXAT8/R_bd1pReMRI/AAAAAAAAAmc/HwW1dQ6iSlQ/s1600-h/pecss_diagram.jpg

Bryan Berndt Comments:

Where did I state the end of “capitalism”?


Yes, the boom in solar/renewable, oled lighting, vertical growing etc will tie into the recovery of state-capitalist economies, and from there provide everyone with the same/more electricity than you currently use to research your graphs and charts. If others too can begin to advance their knowledge and aquire the technology and resources that you and I have, then yes maybe they might be able to stay up until 2am debating and enhance their ability to express themselves individually and collectively.

Those graphs by the way frame things linearally. Solar/ renewables = exponential in growth.

http://maybememe.newsvine.com/_news/2008/09/29/1929165-eat-the-light-the-fourth-age-of-solar-commences-


I’m not throwing the baby out with the bathwater, because climate change appears to be happening, and have happened in the past, however we can not be guaranteed the source.

I guess the title could have more aptly read:

“We need not worry about investing in time & effort in trying to reduce “green house gasses” because pangea has glacial evidence on the equatorial line and carbon levels were at there highest since today - Maybe c02 caused by humans isn’t a contributing factor to climate change and if it is who cares because c02 levels trend for major reduction. Solar power will be here when it’s over so we really only need worry about the possibility of something else silently creeping upon our climate from behind the scenes and spotlight.”


I was lazy, I admit - I spent only 1 min on a headline when I could have spent 5 or 10, or maybe just titled it “climate model plot holes” or “deflating cO2”.

You want global warming to be real, because it confirms your absolute bias against capitalism. I can see the benefits and detriments of many different economic models when I view them in the context from which they arose: parecon(anarcho-communism), state-capitalism, libertarian style anarcho-capitalism, Marxism etc.

Because I acknowledge the good and the bad in each value set/economy, I am more free of bias against acknowledging flaws in the climate model and doom saying about pollution from solar panels(the alternative being global energy wars and conflicts, malnourishment/starvation, essentially all of the things climate change enthusiasts are afraid of, will happen anyway if it were not for solar power, recent advancements in energy storage, super efficient oled lights, etc.

The credible and proven strategies to the major global problems are being shadowed by climate change fear and hysteria. Fear can slow down action, and cripple the mind from solutions to our problems.

Electrifying the Global South with solar, wind, wave, geothermal, and shit gas is the single most important thing that environmentalists should be focusing on

Adding a wind power plant in North America or EU to retire even their relatively clean coal plant contributes a lot less to global social or environmental improvement compared to ending the burning of Southern forests and cow dung.

And even if the choice is between retiring a dirty coal plant in NorAm or EU vs adding electricity to China or India via any means, the best choice is to add gigawatts to the South, and conserve power in the North.

If you are truly concerned about the people of the Global South being impacted from global warming far in the future, then you might care even more about the current misery from the lack of electricity right now.


And let’s be very clear:

Electricity = clean water
Electricity = refrigerated medicine
Electricity = food security through refrigerated warehouses and food processing
Electricity = Irrigation = better crop yields = higher incomes and less malnutrition
Electricity = sanitation = dignity & less infectious disease
Electricity = industrial jobs = income = dignity
Electricity = ending deforestation = stopping soil erosion and flooding
Electricity = lighting = night time studying = Education
Electricity = internet access and telephones = communication = community = knowledge = safety and security


There is nothing more important socially or environmentally than adding electrical capacity to the Global South.

And Renewable Power is Independent Power.
independent of geopolitical/military calculation, independent of the necessity to earn USDs, Pounds, Euros, or Yen, through growing luxury cash crops for the rich instead of food for the poor.


Capitalism will not do this alone, we will need social action to make it happen. We need a global minimum wage to increase global demand, globalization of the banking systems, and end to nationalist protection measures such as farm subsidies for rich countries against poor countries, etc etc.

I can’t spell everything out in one post, nor do I have all of the answers, though I am accumulating more of them all the time!

Technology has had 14b yrs+ of non yielding exponential efficiency gains, and we are just starting to pick up speed. If coal appears dominant, your missing the hidden variable - accelerating returns.
http://www.kurzweilai.net/articles/art0134.html?printable=1

http://www.maybememe.com/post/85802744/liquid-battery-breakthrough-for-large-scale-storage-of

Conclusion & Data Addendumn by SpiralMan

It is hard for people to shift philosophical/world view gears on a 6 month basis.
And since so many people took the Peak Credit dynamics as Truth for almost 30 years, they are having a very difficult time processing the implications of its sharp reversal.  They are in effect having trouble accepting that it was Peak Credit that was aberrant, and that the Depression will be a Reversion to the Mean Dynamic that overshoots/overcompensates for the prior period of asset inflation, and that the major lasting impact of Peak Credit and Peak Oil Demand was that it provided a final goose to renewable energy investment which put its price points over the top, beating out CONG, so that the next wave of economic expansion will be base on solar and wind.

I know I have shocked many people with this forecast; of course, I started making the CONG demand collapse forecast back in 2004 as a corollary of my overall financial collapse forecast, so I’ve had time to think about it longer, and I was ridiculed sharply for a long time.
Now that the data finally is backing up my forecast, I am intellectually vindicated and somewhat impatient that others aren’t connecting the dots, but I shouldn’t complain, since that’s my job.

I should also have provided data demonstrating that when the recovery from 70’s/80’s spike/crash came, it came with a dramatically reduce rate of energy consumption growth, both in absolute annual % demand growth and in % relative to GDP. Ie Energy units per GDP, or said differently, both the growth rate of energy consumption and ‘Energy Intensity of the world economy,’ were dramatically reduced.


It’s a nice time series to ponder on energy intensity on international scales, energy types & industrial sectors.


Interesting to see that developing countries are more energy intensive than rich countries and that households and transport have been improving, if at all, less rapidly than industry and agriculture.








Figure: Index of final energy intensity and energy intensity by sector, EU-25

Note:
Final energy intensities between sectors, and also the total final energy intensity, are not comparable, because the normalising variables are not the same. The indicator serves to highlight the evolution in energy intensity within each sector. The denominators for the total, household, transport, industry (excl. construction) and services (incl. agriculture) sector energy intensities are, respectively; GDP, population, GDP, Gross Value added in industry (excl. construction), and Gross Value Added in Services (incl. agriculture).

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Bretton Woods 2: R.I.P - More Retailers Liquidating ~ Financial Crisis Rocks China: Factories Go Kaput, Credit Goes Plastic.

Cortesy of SpiralMan

http://www.nakedcapitalism.com/2008/10/bretton-woods-2-rip.html

[Lots of really good stuff in here from Brad Setser and Yves Smith
Interesting to see that in some respects many Americans and Chinese [and other countries that play the BW2 dollar recycling role] are in a similar situation, they each are losing their life savings.  

And if I understand all this correctly,
they both need the value of the Chinese currency rise against the USD,
but that can’t happen unless China quits loaning money to America by buying US Treasuries,
which then means…………….
No more bailouts……….
which could mean either ……
………SPLAT for America…….
or
China [Japan, Korea, Arab, Russians] is/are allowed to buy up American companies and homes in the Great American Firesale.

Otherwise China, etal will swallow their US Treasury bill losses and the impact that will have in crashing the dollar and invest locally or regionally…….
Which brings us back to SPLAT…………..

And it has to be said that even the Great American Firesale to Foreigners will be insufficient to prevent some SPLAT, but it seems the best scenario Americans could hope for.]

……
to put it more succinctly, Bretton Woods 2, as it evolved, hinged both on the willingness of foreign central banks to take the currency risk associated with lending to the US at low rates in dollars despite the United States large current account deficit AND the willingness of private financial intermediaries to take the credit risk associated with lending at low rates to highly-indebted US households.

The second leg of the chain collapsed before the first. And it collapse looks set to deliver a nasty shock to everyone – including the countries that supply the US with vendor financing.

In some sense, the vendor finance analogy never really worked. The “vendor” financers didn’t actually lend directly to the US households that were buying their goods. The big emerging market central banks were willing to take on currency risk associated with lending to the US but not the credit risk associated with lending to US households.

That didn’t matter so long as US financial institutions were willing to take the credit risk.

But now US financial institutions are neither willing nor able to take on the risk of lending even more to US households….

In retrospect, the fact that (reported) bank profits didn’t fall as the Fed raised rates should have been a clue that risks were building. An inverted yield curve isn’t good for institutions that borrow short and lend long – but it initially didn’t seem to have an impact on financial sector profitability. It is now clear how the financial sector kept profits up: it took on more risk…

Many have highlighted the role that loose US monetary policy played in supporting the housing boom. And there is no doubt much truth in this story: pushing rates down to help “clean” up the bursting of the .com bubble and holding them down for several years certainly helped induce the rise in home prices and the housing boom. At the same time, this story leaves out what to me is a crucial part of the story: the housing boom didn’t end when the Fed reversed course and raised long-term rates. The really risky loans were made in late 2005, 2006 and early 2007 – after policy rates had increased.
I hope that the process of adjustment now underway isn’t as sharp as I fear. The US economy gradually can shift from producing MBS for sale to US investors flush with cash from the sale of safe securities to China and Saudi Arabia to producing goods and services for export – but it cannot shift from churning out complex debt securities to producing goods and services overnight. Indeed, in a slowing US and global economy, improvements in the US deficit will likely come from faster falls in US imports than in US exports – not from ongoing growth in US exports….

US taxpayers are going to be hit with a large tab for the credit risk taken on by undercapitalized financial intermediaries. Chinese taxpayers may get hit with a similar tab for the losses their central bank incurred by overpaying for US and European assets as part of its policy of holding its exchange rate down. The TARP is around 5% of US GDP.  There are plausible estimates that China’s currency losses will prove to be of comparable magnitude. Charles Dumas puts the cost at above 5% of GDP:
Charles Dumas of Lombard Street Research estimates that China makes 1-2 per cent on its (largely) dollar reserves. It then loses up to 10 per cent on the exchange rate and suffers a Chinese inflation rate of 6 per cent for a total real return in renminbi of about minus 15 per cent. That is a loss of $270bn a year, or a stunning 7-8 per cent of gross domestic product.

I have estimated that the annual cost of adding $600b (15% of China’s GDP) of unneeded reserves to China’s stockpile is roughly 5% of China’s GDP — though the exact loss depends on the size of the RMB’s eventual appreciation. Others have calculated large losses to Chinese households on the basis of the very low rates China has maintained on domestic deposits to support the RMB.

Yves here. Note that Chinese households have taken huge losses indirectly as a result of the very low rates on Chinese bank accounts. With inflation at over 7% and bank deposits paying only 0.5%, it was rational to pile into the stock market. Many households put funds which were really savings rather than investment (as in, it included the reserves they needed for bad times) into shares and many have taken sizable losses.

[But the reality is that the Chinese themselves are having a huge battle internally presented as Finance Ministry vs. Central Bank over what to do about America:]

“China’s Central Bank is Short of Capital”
http://www.nakedcapitalism.com/2008/09/chinas-central-bank-is-short-of-capital.html

Final sale: More retailers liquidating
Credit crunch, revenue drop yield bankruptcy filings
http://www.chicagotribune.com/business/chi-wed-retailers-liquidators-oct22,0,1001861.story

Economy rocks China factories
http://www.usatoday.com/money/world/2008-10-21-red-dragon-china-factories-economy_N.htm?loc=interstitialskip

The Great Crash of China
http://www.feer.com/economics/2008/october/The-Great-Crash-of-China


[China’s non-involvement in bailing out the world reflecting a weakening position; and the second article below indicates that they are scrambling to enable rural capital formation through market induced consolidation of agricultural land tenure; but no mention whether there are policies to gear farm output to national vs international export needs.]

…….
At first glance the statistics look promising. Consumer spending is up 22%, inflationary pressures are receding as food prices drop, and strong foreign exchange reserves continue to accrue ($1.8 trillion as of July). Fixed asset investment is rising as well (up 27% in the first eight months of 2008) and China’s sovereign debt rating is improving (S&P has raised long term ratings to A+.)

On closer examination, however, a vastly different story emerges. By the end of 2007 almost half of China’s GDP growth was attributed to exports and government consumption, a dramatic reversal from 2003 when growth was dominated by investment and private consumption.

While savings rates have been traditionally high, immense wealth has been invested in the stock market and real estate. The Shanghai index lost two-thirds of its value since its peak in mid-October 2007 and the Hang Seng is down over 50% from its peak a year ago.

While fixed asset investment may be rising, one-third is continuing to pour into the real-estate sector (up 29% year-on-year) despite vacant commercial floor space in China rising by 6.1% at the end of July (the latest month for available statistics). Real estate prices are experiencing their slowest growth in 18 months and new home prices in Guangzhou and Shenzhen have actually declined. Meanwhile growth in new car sales, while still robust, is slowing.

Not surprisingly, consumer confidence, according to official Chinese statistics, is drifting downwards and Western ratings on Chinese commercial banks, the holders of unused commercial real estate, are being lowered. Those on the cusp of entering the middle class are faring poorly as tens of thousands of small and medium sized enterprises go bankrupt.
…….
Laid-off factory employees, along with millions of migrant construction workers likely to be left jobless as construction slows, will return to a countryside largely unchanged from when they left years before. It should come as no surprise then that demonstrations against local officials in smaller cities quickly escalate into “mass incidents.” Fixed investment in education, health, and social programs accounted for a paltry 2.3% of the total through July.

Unless current expansionary monetary and fiscal policies are directed at skills development, an expanded intellectual property rights enforcement bureaucracy and research and development capacity, China may be running headlong into a great economic brick wall. Rising middle class expectations, shrinking manufacturing jobs, and a lack of qualified workers are more of a threat to continued economic growth than the People’s Bank of China’s exposure to U.S. Treasury bonds.
……

China charges into credit cards
http://www.latimes.com/business/la-fi-chinacredit22-2008oct22,0,6799700.story

China’s reforming land rights
http://www.timesonline.co.uk/tol/comment/columnists/rosemary_righter/article4974315.ece

………
Throughout Chinese history, land, hunger and peasant grievances have swayed the fates of dynasties. The mood in China’s downtrodden countryside has again turned ugly, with peasant farmers angrily demanding secure land rights - an issue that has pitted Chinese reformers against ideologues and corrupt local bosses. With the announcement yesterday of the Communist Party’s decision to “transform the entire rural policy”, the reform camp won a victory of enormous significance.

Farmers will not own their land outright - in China, every inch of land belongs to “the people”. But they will have rights, similar to those granted last year to city dwellers, to rent out or sell the plots they lease from local “collectives” under “household responsibility contracts”.

That will free them to link up with other farmers in modern commercial agribusiness co-operatives or to invest the proceeds of land transfers in new businesses. The effect will be to revolutionise Chinese farming and non-farm rural employment, as a market in agricultural land opens up for the first time.
…….


[Despite the article’s strong anti-Mao spin devoid of international historical context of sanctions and breakdown of trade relations with USSR in the late 50’s, nor addressing the Great Leap Forward seems to have prevented China having the famines that wracked the country for centuries, it really looks like China is now ending a pre-capitalist form of tenure and taxation - serfdom.]

…..
The big difference now is the urgency of increasing domestic consumption to counter the loss of foreign customers, as recession deepens. How hard China is being hit by global economic turbulence is hard to assess, because owners are more likely simply to padlock factory gates than to go through bureaucratic bankruptcy proceedings; but evidence points to 67,000 companies closed, some 20 million manufacturing jobs lost, a simultaneous sag in real estate prices and the construction industry - and worse certain to come.

Urban woes have concentrated minds on the need to release pent-up demand in the countryside, where 740 million Chinese subsist on around £1 a day. With larger farms, access to credit and mechanisation, China could rapidly increase farm output and rural incomes, boosting rural demand for urban manufactures. That has become China’s No1 economic and political challenge.
……

text

Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs

Source:

[“Roubini is allowing full access to his site for free for awhile if you register.
Of note: his major paper back in February this year which laid out 12 Steps to the collapse has already had all of its steps be reached, way ahead of schedule.
So, he doesn’t even know what happens next, as even Dr. Doom had on rose colored glasses and couldn’t envision full global meltdown and the potential for complete nationalization of the financial system and the resulting G7 governmental defaults on their collective – personal, corporate and gov’t - debts or hyperinflation”
.] — SpiralMan


Financial and Corporate System is in Cardiac Arrest: The Risk of the Mother of All Bank Runs

Nouriel Roubini | Oct 3, 2008

It is now clear that the US financial system - and now even the system of financing of the corporate sector - is now in cardiac arrest and at a risk of a systemic financial meltdown. I don’t use these words lightly but at this point we have reached the final 12th step of my February paper on “The Risk of a Systemic Financial Meltdown: 12 Steps to a Financial Disaster” (Step 9 or the collapse of the major broker dealers has already widely occurred).

Yesterday Thursday a senior market practitioner in a major financial institution wrote to me the following:

Situation Report: So far as I can tell by working the telephones this morning:

* LIBOR bid only, no offer.
* Commercial paper market shut down, little trading and no issuance.
* Corporations have no access to long or short term credit markets — hence they face massive rollover problems.
* Brokers are increasingly not dealing with each other.
* Even the inter-bank market is ceasing up.

This cannot continue for more than a few days. This is the economic equivalent to cardiac arrest. Then we debated what is necessary to restart the system.

I believe that the government will do another Hail Mary pass, with massive guarantees to the short-term commercial credit system and wide open short-term lending by the Fed (2 or 3 times expansion of the Fed balance sheet). If done on a sufficient scale this action will probably work for a while. But none of these financial measures affects the accelerating recession — which will in turn place more pressure on the financial sector.

Another senior professional in a major global financial institution wrote to me:

Today, in our trading room, I could see the manifestations of a lending freeze, and the funding hiatus for banks and companies, with libor bid only, the commercial paper market closed in effect, and a scramble for cash - really really scary.

Do you think this is treatable without a) a massive coordinated liquidity boost and easing of monetary policy and b) widespread nationalisation of some banks, gtess to others AND a good bank/bad bank policy where some get wiped along with their investors? The Treasury Tarp plan is an irrelevance if we are at a major funding crisis.

And to confirm the near systemic collapse of the system of financing of both financial firms and corporate firms Warren Buffett declared yesterday, as reported by Bloomberg:

the U.S. economy is “flat on the floor” after a cardiac arrest as companies struggle to secure funding and unemployment increases.

“In my adult lifetime I don’t think I’ve ever seen people as fearful, economically, as they are now,” Buffett said today in an interview with Charlie Rose to be broadcast tonight on PBS. “The economy is going to be getting worse for a while.’ …The credit freeze is “sucking blood” from the U.S. economy, Buffett said.

We are indeed at the cardiac arrest stage and at risk of the mother of all bank and non-ban runs as:

- The run on the shadow banking system is accelerating as: even the surviving major broker dealers (Morgan Stanley and Goldman Sachs) are under severe pressure (Morgan losing over a third of its hedge funds clients); the run on hedge funds is accelerating via massive redemptions and a roll-off of their overnight repo lines; the money market funds are experiencing further withdrawals in spite of government blanket guarantee.

- A silent run on the commercial banks is underway. In Q2 of 2008 the FDIC reported $4462bn insured domestic deposits out of $7036bn total domestic deposits; thus, only 63% of domestic deposits are insured. Thus $ 2574bn of deposits were not insured. Given the risk that many banks – small, regional and national – may go bust (as even large ones such as WaMu and Wachovia went recently bust) there is now a silent run on parts of the banking system. Deposit insurance formally covers only deposits up to $100000. Thus any individual, small or large business and/or foreign investor or financial institution with more than $100000 in a FDIC insured bank is now legitimately concerned about the safety of its deposits. Even if as likely the deposit insurance limit will be temporarily raised to $250000 by Congress there will still be a whopping $1.9 trillion of uninsured deposits (or 73% of total deposits); thus, a huge mass of uninsured deposits will remain at risk as even small businesses have usually more than $250K of cash while medium sized and large firms as well as any domestic and foreign financial institution or investor with exposure to US banks has average exposure in the millions of dollars. Particularly at risk are the cross border mostly short term interbank lines of US banks with their foreign counterparties that are estimated to be close to $800 billion.

- A run on the short term liabilities of the corporate sector is also underway as the commercial paper market has effectively shut down with little trading and no issuance or rollover of such debt while corporations have no access to long or short term credit markets and they are therefore facing massive rollover problems (over $500 billion of rollover of maturing debts in the next 12 months). Indeed, the market for commercial paper plummeted $94.9 billion to $1.6 trillion for the week ended Oct. 1 (and down over $200 billion in the last three weeks). Especially banks and insurers were unable to find buyers for the short-term debt: financial paper accounted for most of the decline, plunging $64.9 billion, or 8.7 percent in the last week; but now even non-financial corporations are also experiencing a severe roll-off in the CP market. Discount rates for investment-grade non-financial commercial paper spiked to 599bp for 60 day maturities. More companies are borrowing against or tapping their revolving credit lines. This is largely due to the dislocation caused in the money markets by the failure of Lehman and the subsequent withdrawals from money market funds, which are some of the biggest providers of liquidity in the short term funding/commercial paper. Even the largest corporations are at severe stress: AT&T last week was forced to rely on overnight funding for its treasury operations, as lenders were unwilling to provide more long term financing due to fears in money market funds over investor redemption. The CEO said “It’s loosened up a bit, but it’s day-to-day right now. I mean literally it’s day-to-day in terms of what our access to the capital markets looks like,’’ Things are much worse for non-investment grade corporations and for small and medium sized businesses. As reported today by Bloomberg: Almost 100 U.S. corporate treasurers gathered for an emergency conference call yesterday to warn each other that banks are using any excuse to charge more to renew lines of credit. “Capital is fleeing to safety,” said Edward E. Liebert, treasurer of Rohm & Haas Co., who took part in the 90-minute call organized by the National Association of Corporate Treasurers. “Interbank lending is not free-flowing any more,” said Liebert, 56, chairman of the Reston, Virginia-based trade group. One bank charged a participant in the call 80 basis points to renew a routine $25 million credit line, according to Liebert, who wouldn’t identify the speaker or the company. Rohm & Haas, based in Philadelphia and rated BBB by Standard & Poor’s, is paying 8 basis points for a $750 million revolving line of credit provided by 13 banks, the treasurer said. A basis point is 0.01 percentage point. As the U.S. House of Representatives prepares to vote on a $700 billion bailout bill passed by the Senate, global credit markets are being squeezed by banks afraid to lend to each other and to even some investment-grade corporate clients. Treasurers are struggling to keep credit lines open so they can pay employees, fund pension benefits and purchase raw materials. “The banks are really starting to play hardball,” said Jeff Wallace, managing partner at Greenwich Treasury Advisors, a financial consultant in Boulder, Colorado. “They don’t want to give out any more money to people because they don’t have enough capital”. Banks are demanding renegotiation of interest charges or lending terms when “routine” amendments are requested on lines of credit, said Thomas C. Deas Jr., treasurer of Philadelphia- based FMC Corp. and an association board member.

- The money markets and interbank markets have shut down as - despite the Senate passing the bail-out bill - yesterday USD Overnight Libor was still at 268bp after reaching an all-time high of 6.88%; the USD 3m Libor-OIS spread widened to record 270 basis points; EUR 3m LIBOR-OIS spread is at record 130bp; the TED spread is at record 360bps (TED was 11bps one month ago); Money and credit markets are dysfunctional also in emerging markets ; and agency bond spreads are also at highs again.

So we are now facing:

- a silent run on the huge mass of uninsured deposits of the banking system and even a run on some insured deposits are small depositors are scared;

- a run on most of the shadow banking system: over 300 non bank mortgage lenders are now bust; the SIVs and conduits are now all bust; the five major brokers dealers are now bust (Bear and Lehman) or still under severe stress even after they have been converted into banks (Merrill, Morgan, Goldman); a run on money market funds restrained only by a blanket government guarantee; a serious run on hedge funds; a looming refinancing crisis for private equity firms and LBOs);

- a run on the short term liabilities of the corporate sector as the commercial paper market has totally frozen (and experiencing a roll-off) while access to medium terms and long term financings for corporations is frozen at a time when hundreds of billions of dollars of maturing debts need to be rolled over;

- a total seizure of the interbank and money markets.

This is indeed a cardiac arrest for the shadow and non-shadow banking system and for the system of financing of the corporate sector. The shutdown of financing for the corporate system is particularly scary: solvent but illiquid corporations that cannot roll over their maturing debt may now face massive defaults due to this illiquidity. And if the financing of the corporate sectors shuts down and remains shut down the risk of an economic collapse similar to the Great Depression becomes highly likely.

So what needs to be done? Even several hundreds of billion dollars in emergency liquidity support to the financial system by the Fed and other central banks in the last week alone have not been enough to stop the seizure of liquidity in interbank markets and the shut down of financing for the corporate sector as counterparty risk is now extreme (no one trusts any more in this crisis of confidence even the most reputable and trustworthy financial and corporate counterparties).

Thus, emergency times where we are at risk of a systemic meltdown require emergency measures. These include the following six ideas:

- A temporary six-month blanket guarantee on all US deposits (not just those below $250k) combined with a rapid triage between insolvent banks that should be quickly closed and distressed but solvent – conditional on liquidity and capital injections – banks that should be rescued. To stop the silent run on the banking system you do need now such blanket guarantee on all (insured and uninsured) deposit regardless of their size. To minimize lender moral hazard from such action the blanket guarantee needs to be followed by a very rapid triage and shut-down of insolvent institutions to prevent such institutions from gambling for redemption, i.e. acquiring more deposits and making even more risky loans. To limit such moral hazard distortions one can also limit the extended guarantee only to current deposits: i.e. any new deposit above a $100k limit will not be insured. Of course all the currently uninsured deposits of such insolvent institutions will need to be made whole once such banks are shut down (otherwise the run on uninsured deposits would continue and accelerate). Once the rotten apples (insolvent banks) that are infecting the good apples (the solvent banks) are eliminated the blanket guarantee will be lifted as the uninsured depositors of surviving banks can be assured that the remaining banks (the good apples) will not go bust. Currently the silent run is triggered by investors and depositors not knowing which banks will go bust and which will survive as the bad apples are mixed in the same dark basket together with the good apples. The extra fiscal cost of bailing out the uninsured depositors of failed banks can be addressed with FDIC recapitalization or an increase in deposit insurance premia or by whacking further unsecured creditors of failed banks (as the government should have first claim on the remaining assets of failed banks if uninsured depositors are made whole in such banks). Anything short of this blanket guarantee cum triage will not be enough as the silent run on the banks will soon become a roaring tsunami of an open run. Solution a la Korea 1997 - where the cross border interbank run was solved via a bail-in rather than a bailout of the foreign cross border interbank creditors of Korean banks via an effectively forced conversion of short term interbank lines into one to three years claims guaranteed by the Korean government – would be too risky as such effective capital controls and coercive stretching of maturities of cross border interbank lines would dramatically scare foreign investors placing funds in US banks.

- Extension of the emergency liquidity support of the Fed (both TSLF and PDCF) to a broader range of institutions in the shadow banking system, especially those directly providing credit to the corporate sector. The TSLF and PDCF are already available to some non banks (the broker dealers that are primary dealers of the Fed). But two of such broker dealers are gone (Bear and Lehman) and the other three are under stress. Goldman Sachs, Morgan Stanley, the other primary dealers and the banks that have access to the TSLF and PDCF (and discount window) have massively used these facilities in the last few weeks; but they are hoarding such liquidity and not relending it to other banks, to the thousands of the other members of the shadow banking system and to the corporate sector as they need such liquidity and don’t trust any counterparty. Thus the transmission mechanism of credit policy (the non-traditional Fed liquidity lines) is completely shut down now. Thus, on an emergency basis the TSLF and PDCF need to be extended to other non-bank financial institutions, especially those directly providing credit to the corporate sector such as non-bank finance companies and leasing companies. To ensure that this liquidity support is effective the Fed may require the borrowing institutions to maintain their level of exposure to the corporate sector (avoid the roll off of commercial paper, of short term credits to corporate and alike). A similar requirement may need to be imposed on all other financial institutions (banks and non bank primary dealers) that are now shutting down or rolling off their exposure to the corporate sector. Of course a crucial triage of the corporate sector is also necessary: those firms that would have ended up into Chapter 11 or 7 even under less extreme financial conditions should not be rescued and thus allowed to go into bankruptcy court.

- Some members of the shadow banking system will not receive such liquidity support of the Fed (hedge funds and private equity funds) as – fairly or unfairly - there is no political sympathy for such institutions. This means that the demise of hundreds – and possibly thousands – of hedge funds will occur as redemptions and roll off of overnight repo financing for leveraged investments will cause a massive liquidity – and thus solvency – crisis for such institutions. If hundreds of smaller hedge funds collapse the systemic consequences would be limited (even if in the aggregate hedge funds provide significant financing to the corporate sector). If larger and systemically important hedge funds were at risk of failing the Fed will have to engineer a massive private sector bail-in of such hedge funds (a larger scale rescue a la LTCM) where the prime brokers of such funds are forced to maintain repo exposure to such funds rather than be allowed to shut off such exposure. This is a radical suggestion but the alternative of a Fed liquidity bailout of systemically important hedge fund is not politically feasible given the little sympathy that such funds enjoy in Congress. The refinancing crisis of private equity firms and their LBOs is a longer fuse run as covenant-lite clause and PIK toggles will postpone such financing crisis but make the harder the fall as zombie corporations that postpone restructuring will have a bigger collapse once the financing crisis eventually occurs. But since many of these LBOs should have never occurred in the first place any financing crisis for such buy-outs should be dealt with in bankruptcy court; no public funds should be used to rescue such LBOs and the reckless private equity firms that designed such schemes.

- Direct lending to the business sector from the Fed via extension of the PDCF and TSLF to the non financial corporate sector. This could include Fed purchases of commercial paper from corporations and other forms of financing of the short term liabilities of the Administration to small businesses secured in appropriate ways. Given the collapse of the corporate CP market and the banking system reluctance to provide loans to the corporate sector (credits lines are being shut down) the only alternative to the Fed becoming directly the biggest emergency bank for the corporate sector would be to force the banking system to maintain its exposure to the corporate sector, possibly in exchange for further Fed provision of liquidity to the banking system. The former option may be better than the latter to deal with the looming illiquidity of the corporate sector.

- Have a coordinated 100bps reduction in policy rates by all major advanced economies central bank and, possibly, even some emerging market economies central banks. While this policy rates may not directly resolve the insolvency issues in financial markets and in the corporate sector it may ease liquidity pressures and it would signal that global policy makers are serious about addressing together this most extreme liquidity and financial crisis. Also, some of the radical policy actions that have been suggested here for the US will most likely need to be undertaken also by European policy makers as the liquidity and credit crisis is now becoming global.

- Radically redesign the Treasury TARP rescue plan – possibly after its necessary approval today - to make it effective, efficient and fair. This implies that in addition to a more limited government purchase of toxic assets, you need: a) an emergency triage between insolvent and illiquid and undercapitalized but solvent banks should be made; b) a sharp reduction of the mortgage debt burden of the insolvent household sector; c) and a recapitalization of solvent banks to be done via public injection of preferred shares and matching contributions by current shareholders of the banks. Financial markets have already voted no to this plan (that is flawed in its current form) yesterday when after its passage in the Senate US and global equity markets plunged another 4% while money markets and credit markets seized up even further.

The suggested policy actions are extreme and radical but the times and conditions in financial markets and the corporate sector are also extreme. Thus, to avoid another Great Depression radical and unorthodox policy action needs to be taken now both in the US and in other advanced economies as the credit crisis and liquidity crisis is now becoming virulent even in Europe and other advanced economies. This credit crisis is both a crisis of confidence and illiquidity and a crisis of credit and solvency. But while the insolvent institutions should go bust we have now reached a point where many financial institutions and now non financial firms may become insolvent because of pure illiquidity; and this would lead to an extremely severe economic contraction similar to an economic depression rather than a mild recession. At this point the US, the advanced economies (and now likely even some emerging market economies) will experience an ugly recession and an ugly financial and banking crisis regardless of what we do from now on. What radical policy action can only do is preventing what will now be an ugly and nasty two-year recession and financial crisis from turning into a systemic meltdown and a decade long economic depression. The financial and economic conditions are extreme; thus extreme policy action is needed now to save the global economy from an ugly depression.



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