Low Interest Rates in Canada are creating a Housing Bubble Similar to the one that led to the Great Recession

Posted by PITHOCRATES - February 5th, 2012

Week in Review

Easy credit created a housing bubble in the U.S.  And inflation.  When the Fed increased interest rates to stop that inflation they burst that housing bubble.  And caused the U.S. Subprime Mortgage Crisis.  Which caused the Great Recession. 

Easy credit.  The hallmark of Keynesian economics.  To maintain a small but ‘manageable’ permanent level of inflation.  To make recessions a thing of the past.  But this permanent inflation has only created bubbles.  Like housing bubbles.  Such as the one that led to the Great Recession.  Making it longer and far more painful than it would have been had they left interest rates to market forces.

Credit wasn’t as easy in Canada.  So they escaped much of the fallout from the Great Recession.  But they still practiced Keynesian economics.  Kept interest rates low these past few years to stimulate their economy.  And stimulated they did.  Perhaps a little too much (see Look out below posted 2/4/2012 on The Economist).

When the United States saw a vast housing bubble inflate and burst during the 2000s, many Canadians felt smug about the purported prudence of their financial and property markets. During the crash, Canadian house prices fell by just 8%, compared with more than 30% in America. They hit new record highs by 2010. “Canada was not a part of the problem,” Stephen Harper, the prime minister, boasted in 2010.

Today the consensus is growing on Bay Street, Toronto’s answer to Wall Street, that Mr Harper may have to eat his words. In response to America’s slow economic recovery and uncertainty in Europe, the Bank of Canada has kept interest rates at record lows. Five-year fixed-rate mortgages now charge interest of just 2.99%. In response, Canadians have sought ever-bigger loans for ever-costlier homes. The country’s house prices have doubled since 2002…

Bankers are becoming alarmed. Mark Carney, the governor of the central bank, has been warning for years that Canadians are consuming beyond their means. The bosses of banks with big mortgage businesses, including CIBC, Royal Bank of Canada and the Bank of Montreal, have all said the housing market is at or near its peak. Canada’s ratio of household debt to disposable income has risen by 40% in the past decade, recently surpassing America’s (see chart). And its ratio of house prices to income is now 30% above its historical average—less than, say, Ireland’s excesses (which reached 70%), but high enough to expect a drop. A recent report from Bank of America said Canada was “showing many of the signs of a classic bubble”…

However, the state has refused to use its most powerful tool. To protect business investment, the central bank has made clear that it plans to keep interest rates low. As long as money stays cheap, the balloon could get bigger—perhaps big enough to become a fully fledged bubble after all.

So, to further stimulate the economy (i.e., to protect business investment) they are keeping interest rates low.  When all the signs indicate that this economic growth is growing a rather large real estate bubble.  Normally a good time to start raising interest rates.  So housing prices don’t get so high that when they fall they hurt.  Like they did in the U.S.  Where they fell over 30%.  And are still falling in some areas.  And when they fall from that height it hurts.  It really hurts.  Just ask someone whose mortgage is underwater.  Where their mortgage is greater than the current price of their house.  You can ask just about any homeowner in the U.S.  Or, perhaps, any homeowner in Canada in the not so distant future.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , ,

China’s Ministry of Railways’ Inefficiencies and Bloated Bureaucracy represents State Capitalism at its Worse

Posted by PITHOCRATES - February 5th, 2012

Week in Review

Big Government liberals in the U.S. say state capitalism is the way to go.  And high-speed rail.  Just like the Chinese.  In fact, they can’t get enough of what the Chinese are doing.  Because they say the Chinese get capitalism right.  By putting ‘state’ in front of it.  Instead of what we normally see in front of it.  Free market.  But their big state funded rail system is far from perfect.  Far, far from perfect (see China’s push for rail reform could be dead in its tracks by Michael Martina posted 2/2/2012 on Reuters).

The ministry’s touted web-based ticket booking system was supposed to replace the antiquated ordeal of waiting in long queues. It didn’t. The system crashed minutes after its launch before the annual holiday migration of 200 million people by rail, and proved as frustrating as any line-up at a station…

The online fiasco — which spurred a barrage of criticism — was the latest in a litany of troubles for the ministry, which has been plagued by scandals and missteps. Some of those problems have been deadly, including a July crash of a new high-speed train that killed 40 people.

But for decades the Ministry of Railways has proven impervious to reform efforts, fending off attempts by leaders to merge it with other ministries or close a separate court system run by the 2.1 million-employee ministry…

The current reform drive could also stumble, said Zhao Jian, a rail expert at Beijing Jiaotong University who has criticized China’s expensive bullet train expansion. For one, the ministry’s $2.2 billion debt load could deter any splitting of its business and regulatory arms.

“If you separate the government function from the business function, the transportation enterprise must take on the debt. But if the debt is so great that the enterprise will immediately become bankrupt, then who will take it on?” Zhao said.

The problems of state capitalism are plain to see.  You have a 2.1 million public sector bureaucracy.  Who speak with a loud and unified voice and could play havoc with the system if they don’t get their way.  And public spending so great that nothing in the private sector can manage the accompanying debt.  No amount of ticket revenue can fund current operations and service this debt.  It’s just impossible.  Which means it can’t be spun off from the government.  Because only government funding (taxes, borrowing and the printing press) can support this behemoth.  Because large-scale rail like this is just not a viable economic model.  Which means it will never be reformed.  And it will always remain a fiasco.  Until it and the state finally collapse.  Sort of like in Greece.  Only without anyone large enough to bail them out.

And this is exactly what the Big Government liberals in the U.S. want.  Of course, when they start running things everything will be perfect.  So they won’t make the same mistakes the Chinese have made.  Or the Greeks have, for that matter.  Even though they can’t point to a single success story in the history of Big Government liberalism.  For sharing the wealth and growing government has never increased economic activity.  But only led to growing bureaucracies and out of control spending.  Like the Chinese.  Only without their booming manufacturing sector powered by cheap labor to help pay for some of these costs.

No, China’s state capitalism is not the economic model to follow.  If you want robust economic activity you need to get the state out of the economy.  And let free market capitalism do its magic.  Like it did for the British during the Industrial Revolution in the 19th century.  And like it did for the Americans in the late 19th century and early 20th century.  Before the growth of government in both countries grew.  And sucked the life out of their economies.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , ,

The More the Government Interferes in the Economy the more they Push the Economy Underground

Posted by PITHOCRATES - February 5th, 2012

Week in Review

Is the cost of government too much?  Are the taxes, licensing, regulations, legislation, etc., proving so costly that it’s pushing the economy underground?  Yes (see World Black Market Booms by Christiane Amanpour, Matthew Drake & David Miller posted 2/1/2012 on Yahoo! News).

We all know black market goods are available all over the world, but what you may not know is that if you add up all revenue generated from un-taxed business it would equal the second largest economy of the world, behind only the United States.

Free market capitalism favors people over the state.  It allows people to come together and make mutually beneficial economic exchanges.  That they enter into voluntarily.  And when the state becomes to invasive in our lives, we apparently take our economic exchanges underground.  To escape confiscatory taxes.  And punishing regulations.  If that isn’t an indictment of the failure of Big Government I don’t know what is.  For when people are left to their own devices, they want to engage in economic exchanges without the heavy hand of government raising prices and/or influencing their decisions.  The prefer the liberty of the free market.  Not the coercion of the state.

www.PITHOCRATES.com

Share

Tags: , , , , , , , ,

The Japanese and the Chinese have more Powerful Computers than the U.S.

Posted by PITHOCRATES - February 5th, 2012

Week in Review

This is rather sad.  The country that developed computers into the powerful tools they are today is no longer dominating the field.  Sad.  For when we passed on the torch of manufacturing giant to others we still were the brains behind the things being manufactured.  Research and development.  Invention and innovation.  Engineering and the entrepreneurial spirit.  That great human capital that made the United States the lone superpower today has always continued to excel in America.  Could it be that the fundamental structure of the United States has changed so much that we have diminished this shining light of human capital?   Perhaps (see Ten million billion and counting posted 1/31/2012 on The Economist).

Every November and June, an independent organisation re-evaluates the 500 most powerful known machines in the world and ranks them at Top500.org. In recent years China and Japan nabbed most of the top five spots in a field where America once hogged the top ten…

This year, however, America is limbering up for a comeback. Three of its national labs are being spruced up. Argonne National Laboratory’s IBM Blue Gene/Q supercomputer, christened Mira, will go online at Dr Papka’s outfit sometime in the second half of 2012…

Much of the crunching will be scientific in nature. Mira’s processing muscle will enable researchers to model exploding stars, turbulent airflow over aircraft wings and wind-turbine blades, or new materials to make better batteries, among others.

Interestingly, among the scientific uses of Mira listed one is conspicuous by its absence.  Climate modeling.  To better understand global warming.  And to understand whether the sun has a greater effect on climate (as most real scientists believe).  Or if man is the dominate driving factor (as all global warming ‘scientists’ funded by governments with a vested interest in proving that man is the driving factor so they can regulate and tax emissions and fill government coffers with more money they can spend believe).  Was this excluded because they have already settled this ‘science’ as government wanted it settled?  Or is this ‘science’ not worthy of time on such a valuable computing resource?  Or is the whole field so inconsequential that it just didn’t occur to the author to include it in a list?

Interesting because we do all of those other things already.  This more powerful computer will only let us do those things better.  And as complex as climate is you’d think they’d want to model that better.  Unless they’re worried about what better modeling would tell them.  That the earth is an incredible self-correcting ecosystem regardless of what happens on it.  Whether it be volcanoes spewing so much ash into the atmosphere that it lowers global temperatures.  Or the powerful effects of solar activity that have advanced and receded the glaciers long before man made any carbon on the planet.  Glaciers that have moved farther than they did at any time since man began spewing carbon into the atmosphere.

Perhaps this growth of government ever deeper into our economy, taxing and regulating technological achievement, has stifled our human capital.  As governments pours funding and resources into pseudoscience to combat something that doesn’t even exist.  Man-made global warming.  Perhaps this is the reason that the U.S. doesn’t dominate the top ten of the most powerful machines anymore.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , ,

The Swiss install a Solar-Powered Ski Lift in Tenna to use During the Short Gray Days of Winter

Posted by PITHOCRATES - February 5th, 2012

Week in Review

A tiny little town in Switzerland, Tenna, has a small ski resort with one T-bar ski lift.  The kind where they pull you uphill while you stand on your skis.  With the lift between your legs and the ‘T’ behind your upper thighs where they join the buttocks.  It’s not the most comfortable way to the top.  But it sure beats cross-country skiing uphill to alpine-ski downhill.  Or the dreaded tow rope.  Where you pull your weight uphill by holding on to the rope as it pulls you uphill.

This ski lift was wearing out.  And it was the only one in the valley.  But what is winter in a Swiss valley without skiing?  Long, cold and gray.  So the people of Terra saved that T-bar lift.  To make those short gray days more bearable (see Tiny Swiss town builds the world’s first solar-powered ski lift by Adventure Journal posted 2/2/2012 on GrindTV).

The Tenna lift generates 90,000 kilowatt hours a year, or three times the juice needed to run the lift, and the extra power goes back into the grid, which makes money for the town, which can pay residents back…

At $1.5 million, the project wasn’t cheap, but considering the cost of a new or updated lift anyway, plus the open skies above most ski lift pathways, it’s a no-brainer to use that area to offset the energy use. Other resorts might not gain 300 percent efficiency as in Tenna…

If you follow the link you’ll see a sunny picture of the lift.  With a lot of clouds in the sky.  On a sunny day.  So it’s just not night time that’s a problem with solar power.  It’s the clouds, too.  That’s why solar power has such a low capacity factor.  The labeled output for those solar panels may be 90,000 kilowatt hours a year.  But after you apply a 25% capacity factor to account for when the sun doesn’t shine, that’s only 22,500 kilowatt hours a year.  Which means there’s a good chance that there will be times when skiers won’t reach the top of the mountain.  Luckily for them, though, it’s a T-bar lift.  Where their feet will always be touching the ground on the ride up.  So they can always ski back to their car when the lift stops working.  And start up their good old reliable internal combustion engine to drive back home.

Seems like a lot of money to spend for a part-time ski lift.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , ,

Competing against China in Solar Panel Manufacturing will only Create more Solyndras and won’t help Save the Planet

Posted by PITHOCRATES - February 5th, 2012

Week in Review

The cheaper solar power equipment is the more people will buy it and hire people to install it.  Because labor is labor.  There’s nothing you can do about that.  But manufacturing can reach economies of scale that can reduce manufacturing costs.  And selling prices.  Much like everything else in the world.  The first televisions were expensive.  Now they’re cheap.  The first VCRs were expensive.  Then they got cheap.  The first personal computers were expensive.  Then they got cheap. 

So all that we need is for someone to make solar power equipment cheap by employing economies of scale and we can ‘save the planet’ by replacing fossil-fueled generated power with clean solar-generated power.   And that’s the whole point of clean solar power, isn’t it?  Saving the planet?  Well, as it turns out, no (see The Coming U.S.-China Solar War by Bryan Walsh posted 1/31/2012 on Time).

Demand for solar power rose eightfold between 2006 and 2011 — from 200 MW to 1,600 MW…

Despite those rosy numbers, many U.S. solar companies — especially those that manufacture solar panels and modules — are struggling to survive. Most notably, the solar start-up Solyndra went under in 2011, taking with it over $500 million in government loan guarantees. The Bloomberg Large Solar Energy Index of 17 top solar companies lost more than two-thirds of its value in 2011.

That’s because solar power is getting much cheaper — prices for modules have dropped 40% over the past five years. According to some U.S. solar-panel manufacturers, that drop in price is due largely to low-cost imports from Chinese panelmakers. It’s not that their manufacturing methods are necessarily better than ours. It’s that government support from Beijing and low-cost labor make it easy for China to undercut its U.S. competitors. The result is more and cheaper solar power for Americans — but perhaps less market share for U.S. manufacturers.

You’re never going to compete against Chinese manufacturing and win.  And it’s not because of government support.  (Or their currency manipulation.)  Because the U.S. is providing government support, too.  Case in point, Solyndra.  It’s the cheap labor.  In a country that builds dormitories in factories.  Where workers work, eat and sleep.  And like it.  Because these are the good jobs.  Unlike being a starving peasant farmer.  Also, China doesn’t allow unions.  Or complaining or disobedience in the workplace.  Only when U.S. workers flood factories under similar conditions will the U.S. manufacturing ever hope to compete against the Chinese.

Of course, the U.S. could make this cheap solar equipment (that can save the planet) less cheap by slapping tariffs on it.  Making people spend more to buy this solar equipment.  So much more that the expensive American manufactured equipment is no longer more costly than the once cheaper Chinese imports.  Which, of course, would greatly discourage people from buying it and hiring people to install it.  Unless they receive massive government subsidies to offset the added tax of the tariffs.

Higher solar equipment costs for installers?  Higher costs for solar power installations for people who want to ‘save the planet’?  Higher taxes for everyone to pay for ever more government subsidies and incentives to save a few manufacturing jobs?  All while discouraging people from ‘saving the planet’?  Seems like some real silly policy.  And one that no one really thought through before getting us on this silly road.

If it’s not about saving the planet then the heck with solar power I say.  Let’s just keep using fossil fuels.  From American sources.  Let’s create good coal jobs.  Good oil jobs.  And good natural gas jobs.  For if we mine it or pump it up in America, all of the jobs will be American jobs.  It doesn’t require massive government subsidies or incentives.  And there will be no more Solyndras.  And the Chinese will be left with a surplus of solar panels that they will have to discount to unload.  Which we could then add to the electrical grid to offset peak demand on those hot summer days.  When the sun is scorching the land beneath it.  Now that would be a practical use.  It would help conserve our precious fossil fuels.  And it will also help to reduce emissions during peak demand.  Which was the whole point of solar power in the first place.  Only this way it wouldn’t require massive government subsidies and incentives.  Or the massive job-killing taxes to pay for those subsidies and incentives.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , ,