India turns to Renewable Energy and Abandons Coal, causing one of the World’s Worst Power Outages

Posted by PITHOCRATES - August 5th, 2012

Week in Review

India suffered a massive power outage that left some 600 million Indians without power.  Stranding train travelers.  And trapping miners underground.  Not to mention leaving people to swelter in 100+ degree Fahrenheit temperatures.  In one of the most humid climates to ever grace our planet.  Some buildings had backup generators.  Including hospitals.  But these were few.   Most just suffered.  One wonders how this can happen in one of the biggest emerging economies.  India is, after all, one of the BRICS.  And being that the modern economy runs on energy it leaves one scratching their head.  If India has such a burgeoning economy where is their electricity production (see India: More than 600 million without power in biggest blackout ever by Rick Westhead posted 7/31/2012 on the Toronto Star)?

 While India has been aggressively trying to encourage investment in renewable energy sources such as solar and wind power, critics say it rarely upgrades its electrical grid. India has missed every annual target to add electricity production capacity since 1951, Bloomberg reported.

Oh.  They’ve been pouring millions into renewable energy to save the planet while they in essence have left their country plugged into the lamp post on the corner.  Here’s an interesting fact.  India just recently switched on the world’s largest solar photovoltaic power plant.  They are also a leader in wind power.  So they are working hard to remove their carbon footprint.  While their economy, and their people, starve for reliable electric power.  Let’s go to Bloomberg for more details (see Ambani, Tata ‘Islands’ Shrug Off Grid Collapse: Corporate India by Rajesh Kumar Singh and Rakteem Katakey posted 8/3/2012 on Bloomberg).

About 1.6 trillion rupees ($29 billion) spent by companies including Tata Motors and billionaire Mukesh Ambani-led Reliance Industries Ltd. (RIL), to quarantine their plants from the national grid is shielding India’s biggest users of electricity from disruptions. Sixty years of missed investment targets, transmission losses and theft is prompting factories to build their own plants boosting costs in a nation that suffers from the fastest pace of inflation among BRIC nations…

Five of India’s biggest electricity users generate 96 percent of their requirement, according to their annual reports.

India’s electric power is so unreliable that large consumers of electricity have to produce their own.  We call it captive power.    They generate it.  They keep it.  Which is only fair as they paid a fortune to generate it.  Which, of course, they pass on to their customers.  Via higher prices.  Which just adds to the inflation.

India has missed every capacity addition target since 1951, underscoring the urgency behind Singh’s effort to boost investment in power. As much as $300 billion, or 30 percent of the total spend planned on infrastructure, over the next five years is on the electricity sector, according to Planning Commission Member B.K. Chaturvedi.

The network in Asia’s third-largest economy loses 27 percent of the power it carries through dissipation from wires and theft, while peak supply falls short of demand by an average of 9 percent, according to India’s Central Electricity Authority. Some 300 million people in India, or one in every four, remain without links to the grid and the number will still be about 150 million by 2030, according to the Paris-based International Energy Agency.

The blackout engulfed as many as 19 of the South Asian country’s 28 states on July 31, with more than 100 intercity trains stranded on the second day…

They have been failing to meet demand since 1951?  Wow.  What a horrible track record.  Yet they can build the world’s largest solar photovoltaic power plant.  Even though their electric grid can’t transmit the insufficient power that they can produce.  And what’s astonishing is one in every four people doesn’t even have electricity.  This in one of the strongest emerging economies.  A country that is capable of doing so much better.  Full of people deserving so much better.  But they leave the electric grid to the elements.  While they spend a fortune to build the world’s largest solar photovoltaic power plant.  That can only “power a medium-sized city’s worth of homes.”  What a catastrophic misuse of investment capital.  No wonder large consumers of electricity are building their own generating capacity.

Companies plan to set up more than 33,000 megawatts of new captive power capacity and applications for approvals are pending with various state agencies, Rajiv Agrawal, New Delhi- based secretary of the power producers’ lobby said on Aug. 2. Some of these stations may not be set up because of a shortage of coal supplies, he said…

The pace of growth in generation has failed to keep up with demand because of a shortage in coal and natural gas supply, and deficient monsoon rains.

The world’s second-most populous nation suffers from frequent power outages that can last as long as 10 hours, amid summer temperatures of as high as 45 degrees Celsius (113 degrees Fahrenheit) in the capital, New Delhi. Power supply shortages shave about 1.2 percentage points off the nation’s annual growth, according to the Planning Commission…

This is what happens when you demonize one of the most energy-rich and reliable fuels.  Coal.  To reduce your carbon footprint.  Saving the planet may come at the cost of killing people.  Forcing people in an advanced society powered by electricity to go without electricity frequently.  Coal-fired power plants are the backbone of baseload power.  Those plants that run 24/7 to produce a steady stream of power to meet most of our needs.  These efficient heat engines can spin steam turbines forever as long as we feed them coal.  And a large coal-fired power plant can power everything in a region full of large cities.  Not just the homes in a medium city.

Subsidized electricity to farmers is also exacerbating electricity-supply bottlenecks, discouraging producers from adding capacity. India deliberately abandoned metering power supply for agricultural irrigation in the 1970s, as part of a strategy of switching to new high-yield crops, which required regular water supplies, Miriam Golden of the University of California and Brian Min of the University of Michigan said in a report published in April…

The Reserve Bank of India refrained from raising its benchmark interest rate on July 31 amid the slowest pace of growth in almost a decade and raised its inflation forecast to 7 percent from 6.5 percent, citing rising food prices and lack of roads, ports and power plants…

A dry monsoon season is a double whammy.  The lack of rain has lowered levels in the reservoirs at hydroelectric dams.  Reducing the amount of power they can produce.  On top of that the dry weather has forced farmers to irrigate their lands.  Using free electricity.  Which doesn’t discourage them in any way from sucking power off the grid.  Adding to the strain of the grid.  Doing their part in causing power outages.  Adding to inflationary pressures.  And loss in GDP.

This is a horrendous energy policy.  But you know who would approve of it?  President Obama.  For he is trying to do the same thing in America.  Shutter the coal industry and replace it with renewable energy.  He’s even cool on nuclear power.  Which is something the Indians are planning to expand to meet their exploding electrical demand.  Nuclear power.  So their horrendous energy policy is bad.  But it’s still a bit more sensible in one area.  They aren’t trying to shutter nuclear power, too.  Which happens to be one of the other most energy-rich and reliable fuels.  Joining coal to provide the backbone of baseload power.  Where a government will have it, that is.


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Those Living Closest to the Worst Nuclear Accidents still favor Nuclear Power

Posted by PITHOCRATES - July 29th, 2012

Week in Review

The ghost of Fukushima doesn’t appear to be haunting nations in the region.  Neither is the ghost of Chernobyl.  The China Syndrome is probably not being downloaded much from Netflix either.  For the people closest to the worst nuclear accidents aren’t spooked by nuclear power in the least (see Nuclear expansion in Asia on track despite Fukushima – report by Eric Onstad posted 7/26/2012n on Reuters).

Strong expansion of nuclear power as a carbon-free energy source in Asia is expected to press ahead despite the Fukushima accident in Japan that soured sentiment in some countries, a benchmark report said on Thursday…

Nuclear capacity is due to expand in East Asia by 125 percent to 185 percent by 2035, the report said. The strongest growth is expected in China, India, South Korea and Russia.

Despite their proximity to Fukushima, despite Chernobyl being the worst nuclear accident of all time, China, India, South Korea and Russia are proceeding with nuclear power.  While the U.S. pursues solar power and wind power.  The number two and number three economies in the world, China and India, are pursuing reliable nuclear power.  While the world’s number one economy, the United States, is pursuing temperamental renewable energy.  So we may see a reshuffling of the world’s top three economic powers.  As one starves itself of energy while the other two just gorge themselves on energy.  Or in other words, they have a sensible energy policy.

Energy drives the modern economy.  Reliable energy.  Countries suffering recurring blackouts don’t have strong economies.  And what energy source provides reliable energy?  Fossil fuel-powered.  Including nuclear.  We rate power generation by its capacity factor (CF).  Which is a measure of actual power produced over a period of time compared to the maximum that could have been produced over that same period.  Hydroelectric dams need rain to keep their reservoirs full.  If the rains don’t come the water isn’t there to drive their water turbines. Which gives a large hydroelectric dam a CF of about 50%.  Or less.  Wind power only works for a narrow band of wind speed.  Giving it a CF of about 30%.  And solar power only works when the sun shines.  Giving it a CF of about 15%.  The CF of fossil fuel-powered plants?  About 90%.  Or more.  Some nuclear plants can even exceed 100%.

This is why China, India, South Korea and Russia are proceeding with nuclear power.  Because it’s reliable power.  And as far as they’re concerned it’s safe power.  It’s also clean power.  So why is the U.S. pursuing wind and solar power?  Because they don’t have as sensible an energy policy as China, India, South Korea and Russia have.  Well, India is abandoning coal like the U.S. is.  But the Indians haven’t abandoned nuclear power like the Americans have.  So the Indians have an edge over the Americans in sensibility.  Even though their electric generation capacity is busting at the seams.  What with a dry rainy season hurting their hydroelectric generation and their move away from coal.


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Keynesian Policies gave us the Subprime Mortgage Crisis, Solyndra and Inflation while the Free Market gives us Jobs

Posted by PITHOCRATES - September 30th, 2011

The Problem with Washington is that there are too many Elitists who Think they are Smarter than Us

Now we know why we have slow economic growth.  Apparently it’s par for the course after a financial crisis (see Phony Fear Factor by Paul Krugman, Keynesian Economist, posted 9/29/2011 on The New York Times).

We might add that major financial crises are almost always followed by a period of slow growth, and U.S. experience is more or less what you should have expected given the severity of the 2008 shock.

So why do any spending?  Why have any stimulus to stimulate growth that won’t come.  Because “major financial crises are almost always followed by a period of slow growth…”  If true then we could have gotten here without that $800 billion stimulus bill.  And we could have avoided that debt ceiling debate.  And the subsequent downgrading of U.S. sovereign debt.  All because we were spending money trying to alter slow growth that was going to happen anyway.

But the Keynesian will say, “Just think how bad things would have been if we didn’t spend that $800 billion.  And how better things would be if we had just spent more.”  How do you argue with that?  When spending fails it’s because we didn’t spend enough.    By this logic, then, spending as a policy can never fail.  Even when it fails.

If slow growth is more or less what you get were they then lying?  When they said they would keep the unemployment rate below 8%?  If Congress passed the stimulus bill?  Or did they just not understand how bad things were?  Because their understanding of economics is that bad?  Or was George W. Bush so much smarter than them that he was able to hide how bad things were?

And it also, of course, reflects the political need of the right to make everything bad in America President Obama’s fault. Never mind the fact that the housing bubble, the debt explosion and the financial crisis took place on the watch of a conservative, free-market-praising president; it’s that Democrat in the White House now who gets the blame.

But good politics can be very bad policy. The truth is that we’re in this mess because we had too little regulation, not too much. And now one of our two major parties is determined to double down on the mistakes that caused the disaster.

Who was it that pushed subprime lending to get people who couldn’t afford a house into a house?  Whose policies were those that made home ownership available to everyone, not just those with good-paying jobs that could pay their mortgage payments?  Who was it that brought suits and protests against lenders for ‘redlining’ poor and minority communities by not approving mortgages for those who could not qualify for a mortgage?  The Republicans?  The so-called servants of the wealthy?  Or the Democrats?  The so-called champion of the poor and disenfranchised?

Buying risky mortgages from banks allowed banks to make risky loans.  And who was buying those risky mortgages?  Fannie Mae and Freddie Mac.  That was government policy.  Keynesian policy.  Keeping interest rates low and removing risks from the normal risk takers in the mortgage industry.  There could not have been a Subprime Mortgage Crisis without these Keynesian government policies in place.  And we know that conservative Republicans aren’t Keynesians.  That’s why Keynesians hate conservative Republicans.  Especially when they hold up further stimulus spending in Congress.

The problem with Washington is that there are too many elitists who think they are smarter than us.  And these elitists want to double down on the mistakes that caused this crisis.  Already the Obama administration has been talking about boosting subprime lending.  Incredible.  This after that very same policy caused the worst recession since the Great Depression.

After the Benefit of a Cheap Euro runs its Course the Depreciated Euro turns into a Liability

The Keynesian’s answer to everything is more spending.  And when someone warns about igniting inflation with all of their easy monetary policy they call those people misinformed.  Monetary policy doesn’t cause inflation.  Greedy business people do.  By raising prices.  And supply shocks.  Like the OPEC oil embargo of the Seventies.  They point to the Eurozone and say, “See?  Their central banks have been keeping rates low to stimulate spending.  And where is the inflation?”  Here, apparently (see Euro-Zone Inflation Surges by Paul Hannon, Dow Jones Newswires, posted 9/30/2011 on NASDAQ).

The annual rate of inflation in the 17 countries that share the euro surged to its highest level in almost three years in September, while the number of people without work fell slightly.

The European Union’s official statistics agency Eurostat Friday said consumer prices rose 3% in the 12 months to September, up from 2.5% in August and was well above the European Central Bank’s target of just below 2%.

Prices rose faster than at any time since October 2008, and more rapidly than economists had expected. Those surveyed last week by Dow Jones Newswires had estimated that prices rose 2.5%. The last rise in the annual rate from one month to the next that was of a similar scale was in March 2010, when it picked up to 1.6% from 0.8%.

With a depressed economy businesses haven’t been able to raise their prices.  But what they couldn’t do their central bank has.  Put so much cheap money into the economy that they depreciated the Euro.  Which is another way to cause inflation.  Eventually.  After the benefits of a cheap Euro (making cheap exports) run its course.  And the depreciated Euro turns into a liability (higher input prices in the manufacturing process).

This always happens in Keynesian economics.  Yet the Keynesian ignores this reality and doubles down on the failed policies of the past.

Government Policies Favor Green Energy over Oil and Gas because Government Elitists are in Control

Keynesian economic thought is the prevailing though in most governments.  For a reason.  They’re expansionary policies.  And put government in control of that expansion.  Government officials don’t care if they work.  They just like the power it gives them.  The control over the economy.  And an open checkbook to buy votes.  So governments everywhere put Keynesians into their administrations.  Which give the Keynesians legitimacy.  People accept what they say.  Because if government adopts what they say they must know what they’re saying.

But Keynesian thought is wrong.  History has shown this.  The Austrian School of economics has a far better track record of success.  But that is not a popular school among expansionists.  Because it leaves the economy to the free market.  Not to elitists in government.  Who think they know better than the free market.

An example of this elitist intervention into the free market is government’s choice of green energy as the smart investment of the future.  Which has been failing even with heavy subsidies.  While the hated oil and gas industry, on the other hand, is creating jobs (see Gassing Up: Why America’s Future Job Growth Lies In Traditional Energy Industries by Joel Kotkin posted 9/27/2011 on Forbes).

But the biggest growth by far has taken place in the mining, oil and natural gas industries, where jobs expanded by 60%, creating a total of 500,000 new jobs…

Nor is this expansion showing signs of slowing down. Contrary to expectations pushed by “peak oil” enthusiasts, overall U.S. oil production has grown by 10% since 2008; the import share of U.S. oil consumption has dropped to 47% from 60% in 2005.  Over the next year, according to one recent industry-funded study, oil and gas could create an additional 1.5 million new jobs.

What makes this growth even more remarkable is that the month of August posted zero new jobs.  So if there were no new jobs while oil and gas was creating hundreds of thousands of jobs, hundreds of thousands of jobs in other industries must have been disappearing.  Such as in that government-backed green energy sector.

How about those “green jobs” so widely touted as the way to recover the lost blue-collar positions from the recession? Since 2006, the critical waste management and remediation sector — a critical portion of the “green” economy — actually lost over 480,000 jobs, 4% of its total employment…

The future of the rest of the “green” sector seems dimmer than widely anticipated. One big problem lies in cost per kilowatt, where wind is roughly twice as expensive and solar at least three times as expensive as electricity produced with natural gas. Given the Solyndra  bankruptcy  and their inevitable impact on the renewables industry, it’s also pretty certain that the U.S., at least in the near term, will not be powered by windmills and solar panels.

Natural gas is a clean burning fuel.  It’s so clean we use it in our homes.  In our stoves.  And our furnaces.  It’s cheap.  And it’s plentiful.  We’re getting it out of American ground that can put hundreds of thousands of Americans to work.  Without loan guarantees.  And they can bring it to market at market prices.  Without any subsidies.  It’s the hanging softball of energy policy.  But what are we pursuing?  Green energy.  A sector that is bleeding jobs.

The relative strength of the energy sector can be seen in changes in income by region over the past decade. For the most part, the largest gains have been heavily concentrated in the energy belt between the Dakotas and the Gulf of Mexico. Energy-oriented metropolitan economies such as Houston, Dallas, Bismarck and Oklahoma City have also fared relatively well. In energy-rich North Dakota there’s actually a huge labor shortage, reaching over 17,000 — one likely to get worse if production expands, as now proposed, from 6000 to over 30,000 wells over the next decade.

Why are we subsidizing green startups when we have an energy belt almost the size of the Louisiana Territory?  A labor shortage of 17,000?  And a plan to increase wells from 6,000 to 30,000 (an increase of 400%) in one state?  This is real economic growth.  Created with no government help.  I mean, if there is one thing the Obama administration isn’t known for it’s being a friend to the oil and gas industry.

So this is an industry government doesn’t help.  If anything government hinders it with heavy regulation.  And yet the gas and oil industry is blowing government-subsidized green energy away.  There’s a lesson here.  Free market works.  And when government intervenes into the market you can bet on them picking a loser.

Industry experts say that the shift in energy exploration is moving from the Middle East to the Americas, with rich deposits of oil and gas uncovered from Brazil to the Canadian oil sands.

Much of the new action is on the U.S. mainland, including the Dakotas, Montana and Wyoming. Increasingly, there’s excitement about finds in long-challenged sections of the Midwest such as Ohio. The Utica shale formation, according to an estimate by Chesapeake Energy, could be worth roughly a half trillion dollars and be, in the words of CEO Aubrey McClendon, “the biggest to hit Ohio, since maybe the plow.”

Ohio now has over 64,000 wells, with five hundred drilled just year. Recent and potential finds, particularly in the Appalachian basin, could transform the Buckeye State into something of a Midwest Abu Dhabi, creating more than 200,000 jobs over the next decade.

A Midwest Abu Dhabi?  Creating 200,000 new jobs?  And that’s just in the oil and gas business.

The energy boom also has sparked a spate of new factory expansions, including a $650 million new steel mill to make pipes for gas pipelines. Other local firms are gearing up to make up specialized equipment like compressors.

This is real economic growth.  Created and sustained by the private sector.  Without any stimulus funding or subsidies.  The way of the Austrian School of economics.  But is anathema to expansionist Keynesians.  That’s why government policies favor green energy.  Like they favored subprime lending.  Because government elitists are in control.  Not the free market.

The Genius Elite have given us the Subprime Mortgage Crisis, Solyndra and Inflation in the Eurozone

The government bet wrong on green energy.  As smart as they are.  And as smart as their Keynesian advisers are.  Is there a lesson here?  Yes.  They are not that smart.

The oil and gas industry is booming.  Why?  Because there is enormous demand for oil and gas.  For all the Keynesians’ lament over the lack of demand you’d think they’d jump on this.  But no.  They ignore it.  Instead they impose oppressive regulations.  Impose moratoriums on Gulf drilling.  And do more to impede this industry than to help it.  To please the environmentalists.  And their friends in green energy.

The genius elite have given us the Subprime Mortgage Crisis, Solyndra and inflation in the Eurozone.  The Keynesian way.  Whereas the free market is finding domestic sources of real energy and creating jobs.  The Austrian School way.  Which was also the American way.  Once upon a time.  And it can be again.  If we listen more to the market.  And less to the Keynesian elites.


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Can’t see the Fiscal Forest for the Monetary Trees

Posted by PITHOCRATES - June 24th, 2011

He won’t Drill but he will Draw from the Strategic Reserve

The Great Recession lingers on.  As high oil prices hit consumers hard.  Gas prices are back to $4/gallon territory.  Leaving consumers with less disposable income.  Home values are declining in a deflationary spiral.  Wages are stagnant.  Unemployment is high.  And there’s inflation in food and consumer goods.  All driven by the high price of oil.  And all that quantitative easing (QE) that has depreciated the U.S. dollar (which we buy and sell oil with in the global market).

The demand for oil is soaring.  And yet President Obama put a moratorium on drilling in the Gulf of Mexico.  In fact, the U.S. isn’t drilling anywhere.  Which has forced the U.S. to import more foreign oil.  Because of this squeeze on supply.  Economics 101 tells you when demand increases supply should increase to meet that growing demand.  When it doesn’t, prices rise.  Like they are.  And the QE just compounded that problem.  When the dollar is worth less it takes more of them to buy the same amount of oil it used to.  Which means higher prices at the pump.  From demand outpacing supply.  And a weaker dollar.

The president’s solution to the high gas prices?  Blame the oil companies.  Because their profits were too high.  It had nothing to do with his policies that restricted the supply of oil on the market.  Of course, with an election coming up and gasoline prices too close to $4/gallon, he’s changed his position on that (see Loss of Libya oil bigger disruption than Katrina: IEA by Simon Falush and Zaida Espana posted 6/24/2011 on Reuters).

On Thursday, the International Energy Agency which represents the major oil consumers agreed to release 60 million barrels from emergency stockpiles, sending crude prices tumbling.

Imagine that.  Increase supply.  And prices fall.  For awhile, at least.  Because once these 60 million barrels are gone, the prices will just go back up where they were.  Unless there is a real increase in supply.  Like more drilling in the Gulf.  The Atlantic.  The Pacific.  In Alaska.  We know it works.  Increase supply.  And prices fall.  So why not just increase supply with more drilling?  Instead of drawing down our strategic reserves (America’s share being 30 million of the 60 million barrels).  Which, incidentally, we’ll have to replace.

Energy Policy Driven by the 2012 Election

Even the White House is all but admitting this move is purely political (see The wrong reason for depleting the strategic oil reserve posted 6/23/2011 on The Washington Post).

So on Thursday Obama administration spokesman Jay Carney argued that oil demand is likely to rise over the summer. In other words: It’s vacation season, and the White House is worried about high prices through the summer driving months.

Therein, perhaps, is a political emergency, at least in the White House view: President Obama’s reelection prospects will be harmed if national discontent over high gasoline prices continues. The oil release could be seen as a way for the president to take credit for gas prices that are falling anyway, or as an indirect, pre-election stimulus.

Personally, the president doesn’t have a problem with the high cost of gasoline.  His administration wants it high.  The higher the better.  They’d like to see it European high (see Times Tough for Energy Overhaul by Neil King Jr. and Stephen Power posted 12/12/2008 on The Wall Street Journal).

In a sign of one major internal difference, Mr. Chu [who became Obama’s Energy Secretary] has called for gradually ramping up gasoline taxes over 15 years to coax consumers into buying more-efficient cars and living in neighborhoods closer to work.

“Somehow we have to figure out how to boost the price of gasoline to the levels in Europe,” Mr. Chu, who directs the Lawrence Berkeley National Laboratory in California, said in an interview with The Wall Street Journal in September.

To make the more expensive green energy less expensive in comparison.  And an easier sell to the American people.  Pleasing his liberal base.  But there’s an election coming.  And high gas prices don’t help you win elections.  Especially during record long-term unemployment.  Even though it goes against every fiber in his body to act to bring down the cost of gasoline, he will.  If it’ll help his reelection chances.  It’s not like he’s going to lose his liberal base.  Who else are they going to vote for?  The conservative?  Not likely.  They’re always going to vote for the most liberal candidate in the race.  And that will still be him.  Despite encouraging more oil consumption.

The Fed doesn’t know why the Economy is in the Toilet

The president needs to get the price down at the pump.  Where people really feel the full weight of his economic policies.  Because the economy isn’t going to get better anytime soon (see Serial disappointment posted 6/23/2011 on The Economist).

THE Fed attracted attention this week for downgrading its forecast not just for this year, but for 2012, as well. More striking is how often it does this. As my nearby chart shows [follow the above link to see chart], the Federal Open Market Committee has repeatedly ratcheted down its forecasts of out-year growth. The latest downward revision is particularly large, and in keeping with the pattern: when the current year disappoints, they take a bit out of the next, as well.

There’s been a steady downward progression of economic projections.  Despite the stimulus.  And the quantitative easing.  Nothing has worked.  When the chairman of the Federal Reserve, Ben Bernanke, was asked why the economy was not responding to the government’s actions his reply was rather Jeff Spicoli: I don’t know.  And he’s supposed to be an expert in this field.

Mr Bernanke does not need lessons about the painful deleveraging that follows crises. His pioneering work with Mark Gertler on the Great Depression introduced the “financial accelerator”, the mechanism by which collapsing net worth crushes the real economy. This concept has been rechristened the “balance sheet recession” by Richard Koo. Stephen Gordon admits he is new to the term and notes (with some nice charts contrasting America with Canada) “it’s not pretty”. (HT to Mark Thoma). Yet until now Mr Bernanke seemed to think America had learned enough from both the 1930s and Japan to avoid either experience. Reminded by a reporter for Yomiuri Shimbun that he used to castigate Japan for its lost decade, Mr Bernanke ruefully replied, “I’m a little bit more sympathetic to central bankers now than I was 10 years ago”…

Mr Koo has argued that quantitative easing cannot help in a balance sheet recession; only fiscal policy can. Does Mr Bernanke secretly agree? He may believe as strongly as he did a decade ago that sufficiently aggressive monetary policy can prevent deflation, but not that it can create enough demand to restore full employment. This does not rule out QE3; it only means it will be pursued with less hope about the results than a year ago.

The Great Depression (during the 1930s) is a complex topic.  And monetary policy played a big role in making a bad situation worse.  In particular, the numerous bank runs and failures can be blamed on the Federal Reserve.  Starving the banks for capital when they most needed it.  But there was a whole lot more going on.  And it wasn’t the stock market crash that caused it.  World War I (1914-1918) is probably more to blame.  That war was so devastating that it took the combatants a decade to recover from it.  And during that time America exploded in economic activity and fed the world with manufactured goods and food.  We call it the Roaring Twenties.  But eventually European manufacturing and farming came back.  Those lucrative export markets went away.  And America had excess capacity.  Which had to go away.  (A similar boom and bust happened in the U.S. following World War II.)  Then all the other stuff started happening.  Including the Smoot-Hawley Tariff.  Kicking off a trade war.  It was all too much.

Japan’s lost decade (the 1990s) followed their roaring Eighties.  When the government partnered with business.  And interest rates were low.  The economy boomed.  Into a great big bubble.  That popped.  Because they stimulated the economy beyond market demand. 

The lesson one needs to take away from both of these deflationary spirals is that large government interventions into the private market caused most of their woes.  So the best way to fix these problems is by reducing the government’s intervention into the private market.  Because only the private market knows how to match supply to demand.  And when they do, we have business cycles.  That give us only recessions.  Not depressions.

Like a Dog having Puppies

The market is demanding more oil.  But the U.S. is not meeting that demand.  So gasoline prices are up.  To lower those prices we need to bring more oil onto the market.  And you don’t do that by shutting down the oil business.

We have high unemployment.  And excess capacity.  That’s not a monetary policy problem (interest rates).  It’s a fiscal policy problem (tax and regulation).  No one is going to borrow money to add jobs to build more stuff when no one is buying.  But if you cut taxes and reduce regulations to make running a business highly profitable, people will build businesses here.  Create jobs.  And hire people.  Even if they have to ship everything they make halfway around the world to find someone who is buying. 

Running the economy is not rocket science.  Because it runs itself.  Like a dog having puppies.  Everything will be fine.  If greedy politicians just keep their hands out of it.  But they don’t.  And they love printing money.  Because they love to spend.  But the problem is that they can’t see the fiscal forest for the monetary trees.


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Falling Oil Prices will lower Gas Prices, if the Fed stops Printing Money

Posted by PITHOCRATES - May 9th, 2011

Falling Oil Prices and you at the Gas Pump

Here’s something you don’t see every day.  Oil prices have fallen (see Special report: What really triggered oil’s greatest rout by Matthew Goldstein, Svea Herbst, Jennifer Ablan, Emma Farge, David Sheppard, Claire Milhench, Zaida Espana, Robert Campbell and Josh Schneyer posted 5/9/2011 on Reuters).

Never before had crude oil plummeted so deeply during the course of a day. At one point, prices were off by nearly $13 a barrel, dipping below $110 a barrel for the first time since March.

Apparently the speculators aren’t all that eager to buy and hold oil right now.  Something must have spooked them.  Because it’s May and the summer driving season is about to ramp up.  People driving around to enjoy their summers.  Some 3-day holiday weekends.  And a vacation or too.  Demand for oil should be up.  Not down.  So what happened?

A routine report on U.S. weekly claims for unemployment benefits spooked investors, showing the labor market in worse shape than expected. That fed a growing pessimism about the resilience of the global economy after industrial orders slumped in Germany and the massive U.S. and European service sectors slowed. Then the European Central Bank surprised with a more dovish statement on interest rates than expected, signaling its wariness about the euro zone outlook. The dollar rose sharply.

Oh.  So that’s what spooked them.  Recession.  Which is another name for continued high unemployment.  Looks like people will be taking more ‘staycations‘ this year.  Just like last year.  Which means people won’t be gassing up the family car for those long trips.  Instead of gas they’ll be buying more expensive groceries.  So the speculators don’t want to buy oil.  Demand for oil will drop.  And something with low demand has a low price.

A range of factors, both economic and political, were also at play. The recent rise in raw goods has been fueled in part by the U.S. Fed pumping cash into the markets by purchasing $600 billion in bonds. This program has pushed interest rates extraordinarily low, making borrowing essentially free once adjusted for inflation. Investors have been using the super-cheap money to buy into commodity markets. But the Fed’s program is slated to end on June 30.

The U.S. Fed in their infinite wisdom printed more money to entice business owners to expand business and hire more people.  Unfortunately, this also created inflation.  Made our money worth less.  And this raised prices.  So we bought less.  And if we’re buying less, businesses aren’t going to expand.  They’re going to contract.  To reflect the falling consumer demand.  So where did all that printed money go?  Wall Street.  Investors borrowed the money ‘for free’ and invested in commodities.  Which drove the prices up.  And oil is a commodity.  Now that the Fed is shutting off the ‘free money’ spigot, they’re not buying anymore.  They’re selling.  Hence the fall in oil prices.

China, the world’s fastest-growing consumer of commodities, also is tightening monetary policy to tamp growth rates and control inflation, raising the prospect of a slowdown in demand for oil.

And one of the big things that triggered the huge run up in oil prices back in 2008, an explosion of Chinese demand, is reversing itself.  They are trying to control inflation.  By slowing their economic growth.  And, of course, slower growth requires less energy.  And less gasoline for cars.

Put all of this together and it explains why oil prices are falling.  Which is typically what happens in a recession.

Recession and Tight Monetary Policy always lowers Gas Prices

The greatest factor in the cost of gasoline is the cost of oil.  Oil goes up and gas soon follows.  Oil goes down and gas follows.  Eventually (see Just say no to $5 gasoline by Myra P. Saefong posted 5/6/2011 on MarketWatch).

Despite Thursday’s drop, crude futures are still more than 9% higher, year to date. Crude oil makes up 68% of the price of gasoline at the pump, according to the EIA.

Overall weakness in the dollar is also to blame for rising gasoline prices. “The U.S. dollar has an inflationary impact on U.S. buyers, while also triggering increased buying in equities and commodities to stave off lost currency value,” said Telvent DTN’s Milne.

And there’s an “overlap” between refinery maintenance and a cluster of bad luck for Gulf Coast and Midwestern refineries, including electrical outages and storm-induced shutdowns, said Kloza. “This is the catalyst for the last leg [of the gasoline-price rise], which may take us to $4-$4.11, but also should soon stall.”

So we’re not going to see a corresponding fall in gasoline prices right away.  But it’s coming.

Still, gasoline prices may hold a $5 average in California, where a strict gasoline formula makes the state more susceptible to higher prices, and in New York, due to tax issues, he said.

Of course, there’s always concern over the start of the Atlantic hurricane season, which begins on June 1, given the potential for disruptions to oil production and refineries in the Gulf of Mexico.

Be grateful you don’t live in California or New York.  At least, when you’re buying gas.  The environmentalists have added about $1 a gallon to the price of gas in California.  And New York is just tax-happy.  Add that to the recent storm damage, heavy rains and Mississippi flooding, prices won’t be coming down anytime soon.  But they’ll be coming down.  Because they always do during a recession.  As long as the Fed stops printing money (which was President Carter‘s problem.  Prices stayed stubbornly high in the Seventies despite recession until Paul Volcker finally tightened monetary policy).

Drill Baby Drill

Supply and demand determines the price at the pump.  That’s why prices go up during the summer driving season.  And down when much of the world is shoveling snow.  Oil is the biggest factor in the price of gas (68%).  Therefore, the less oil on the market the higher gas prices go.  And the more oil on the market the lower gas prices go.  Simple supply and demand.  Which provides a very easy solution to bring gas prices down.  Drill, baby, drill.  The next best thing we could do to keep prices down is to increase refinery capacity.  The more capacities available to refine crude oil the less storm damage will affect the price at the pump.  Finally, roll back environmental regulations and cut taxes.  Californians could easily see a drop of a dollar a gallon.  Even with current oil production and refining capacities.

Energy policy can be very easy if only you can separate the politics from it.  But when your political base is defined by those politics, that ain’t going to happen.  So get use to high gas prices.  Because they’re being kept artificially high for political reasons.  And enjoy your staycation this year.  And next year.


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The Deepwater Horizon Accident Destroyed the American Oil Industry, but not the Gulf of Mexico

Posted by PITHOCRATES - April 20th, 2011

Still no American Offshore Oil Production in the Gulf of Mexico

This is the anniversary of the Deepwater Horizon rig explosion in the Gulf of Mexico.  The beginning of the world’s greatest environmental catastrophe.  And the ‘day the music died’ for American oil exploration. 

But was it really that bad?  Sure, it was.  There was loss of life.  Eleven men died on that platform.  Brave men working the hard and lonely life of offshore oil production.  Their families no doubt suffering the greatest loss from this catastrophe.  So, in their honor, and everyone working the oil fields, let’s take a glimpse into that life.  And see what it was like in the beginning.  When we first went offshore oil in the Gulf of Mexico.  In the Jimmy Stewart movie Thunder Bay.   

That was then.  That movie had a happy ending.  The shrimpers, fishermen and oil men all lived happily ever after.  Together.  Today, the government itself is after the oil men.  And I doubt even a great American like Jimmy Stewart could stop what’s happening.

The Ecosystem doing just Fine in the Gulf of Mexico

They predicted the end of the world for the Gulf waters.  The oil spewing from Deepwater Horizon was going to kill everything in that ecosystem.  So they predicted.  But the dire predictions of doom and gloom, as usual, have proven more hysteria than fact (see BP Oil Spill: How Bad Is Damage to Gulf One Year Later? by Bryan Walsh, Time, posted 4/19/2011 on Yahoo! News).

Yet nearly a year after the spill began, it seems clear that the worst-case scenario never came true. It’s not that the oil spill had no lasting effects – far from it – but the ecological doomsday many predicted clearly hasn’t taken place. There is recovery where once there was only fear. ” A lot of questions remain, but where we are now is ahead of where people thought we’d be,” Safina says. “Most people expected it would be much worse.”

Good news indeed.  And there’s more.

Yet the damage does seem so far to have been less than feared. Take the oil itself: scientists with the National Oceanic and Atmospheric Administration estimated last August that much of the oil had remained in the Gulf, where it had dispersed or dissolved. Many environmentalists attacked the report for underplaying the threat of large underwater oil plumes still active in the Gulf, yet later independent scientific studies indeed found that oil had largely disappeared from the water. Turns out we can thank bacteria. Scientists from Lawrence Berkeley National Laboratory; University of California, Santa Barbara; and Texas A&M University traveled to the site of the blown well and found that microbes had digested much of the oil and methane that remained in the water. By autumn, the levels were back to normal. “It’s very surprising it happened so fast,” John Kessler, an oceanographer with Texas A&M, told me earlier this year. “It looks like natural systems can handle an event like this somewhat on their own.”

Is Mother Nature mocking us?  Is she taunting, “Is that the best you can do?”  For it would appear she is.  Here we all were, wrought with worry about oil in the water.  Both of which Mother Nature created.  During our time on this planet.  And long before man began adapting nature for our own needs.  And now, despite all the doom and gloom, the water appears just fine.  As is the stuff that lives in it.

The Gulf’s valuable fisheries also seem to have escaped the worst damage. John W. Tunnell Jr., the associate director of the Harte Research Institute at Texas A&M, estimated in a report that the region’s shrimp fisheries would rebound to normal within two years, while blue-crab populations would be back to normal this year and commercial fish species such as red snapper and grouper largely escaped any negative impact. (Oyster beds, hit hard by the oil, might take up to a decade to recover, however.) It’s possible that the lengthy moratorium on fishing in much of the Gulf during the worst days of the spill – when up to 84,000 sq. mi. (217,600 sq km) were off limits – may have even given some fish species a much needed break from exploitation, allowing them to recover in population.

You know, that’s not bad.  For America’s worst environmental catastrophe.  And the shrimpers and fishermen are going to escape unscathed, too.  A year or two of loss revenue?  The slush fund President Obama shook down BP for will more than cover two years of lost revenue.  And the shrimpers, fishermen and oil men may very well all live happily ever after.  Just like they did in Thunder Bay.

The Environmentalists have Never been Right

You know, this is not surprising.  Because environmentalists are a bunch of fear mongers who haven’t a clue of what they’re talking about.  They’re not scientists.  They’re activists.  Even their ‘scientists’ are activists.  For no matter how wrong they are with their catastrophic forecasts, they just keep shoveling their doom and gloom.   But we should believe them this time.  Because this time, their models are better.  And this time, their ‘science’ is better.  Sure, they may have been a little off before.  But this time they got it right.  This time it’s for real.

So when it comes to forecasting, let’s take a look at some of these oldies but goodies of yesteryear (see Eight Botched Environmental Forecasts by Maxim Lott posted 12/30/2010 on FOX NEWS).

1. Within a few years “children just aren’t going to know what snow is.” Snowfall will be “a very rare and exciting event.” Dr. David Viner, senior research scientist at the climatic research unit (CRU) of the University of East Anglia, interviewed by the UK Independent, March 20, 2000.

2. “[By] 1995, the greenhouse effect would be desolating the heartlands of North America and Eurasia with horrific drought, causing crop failures and food riots…[By 1996] The Platte River of Nebraska would be dry, while a continent-wide black blizzard of prairie topsoil will stop traffic on interstates, strip paint from houses and shut down computers.” Michael Oppenheimer, published in “Dead Heat,” St. Martin’s Press, 1990.

3. “Arctic specialist Bernt Balchen says a general warming trend over the North Pole is melting the polar ice cap and may produce an ice-free Arctic Ocean by the year 2000.” Christian Science Monitor, June 8, 1972.

4. “Using computer models, researchers concluded that global warming would raise average annual temperatures nationwide two degrees by 2010.” Associated Press, May 15, 1989.

5. “By 1985, air pollution will have reduced the amount of sunlight reaching earth by one half.” Life magazine, January 1970.

6. “If present trends continue, the world will be … eleven degrees colder by the year 2000. This is about twice what it would take to put us in an ice age.” Kenneth E.F. Watt, in “Earth Day,” 1970.

7. “By the year 2000 the United Kingdom will be simply a small group of impoverished islands, inhabited by some 70 million hungry people … If I were a gambler, I would take even money that England will not exist in the year 2000.” Ehrlich, Speech at British Institute For Biology, September 1971.

8. “In ten years all important animal life in the sea will be extinct. Large areas of coastline will have to be evacuated because of the stench of dead fish.” Ehrlich, speech during Earth Day, 1970

In case you’re wondering, they were wrong on all of these predictions.  And sea life?  Even America’s worst oil catastrophe couldn’t kill it off.  You’d think the people making these predictions would be a little embarrassed today.  Not so.  FOX asked them.  They’ll admit that they weren’t 100% correct.  But they say they were still pretty damn close.  And their work is still relevant.

Particularly fascinating about this wild-ass guessing that they call science is this statement by Dr. Paul Ehrlich, author of “The Population Bomb” and president of Stanford University’s Center for Conservation Biology about the trend of global temperatures (see Item 6 above).

“Present trends didn’t continue,” Ehrlich said of Watt’s prediction. “There was considerable debate in the climatological community in the ’60s about whether there would be cooling or warming … Discoveries in the ’70s and ’80s showed that the warming was going to be the overwhelming force.”

Ehrlich told that the consequences of future warming could be dire.

So the scientific consensus that chose cooling over warming was wrong.  They should have been warning us about the end of the world due to global warming, not global cooling.  There, I’m glad we cleared that up.  For awhile there, in the Seventies, we were living in fear of the wrong fear.  Boy, is my face red.  From embarrassment.  Not cooling.  Or warming.

The lesson learned?  Don’t take any investment advice from an environmental scientist.  Because their track record proves that they’re not very smart.  And that they’re pretty bad guessers, too.

Global Cooling Elbowing its way past Global Warming in Chicago

Or maybe the dumb environmentalist scientists were right after all (see Temperatures Lowest For Time Of Year Since 1940s posted 4/20/2011 on CBS Chicago).

Not only has Chicago dealt with chilly rain, hail and even snow this week, but temperatures Tuesday were at their lowest for this late spring date since the 1940s…

In the early evening hours, just walking a few blocks along the streets of Chicago felt like going out to sea in an open boat during a rainstorm in northern Canada. Anyone walking against the wind was blasted continuously in the face with cold droplets of rain, and given the strength of the winds, an umbrella was as good as useless.

Score one for the dumb guys in the Seventies.  They were right.  It’s getting cooler.  The glaciers must be on the move in northern Canada, pushing that arctic weather ahead of them.  Gee, I wonder what will happen when this new ice age slams into the global warming front.  I can’t say for sure but I’ll bet it’ll be a pretty windy day.  Probably best not to schedule any golf when that happens.  I don’t play well on windy days.

Bye, Bye, Miss American Pie

The good news is that the Gulf of Mexico is fine.  The bad news is that the Obama administration has killed the American oil industry for no good reason.  All for the insanity that is global warming.  Or Cooling.  Or Change.  Whatever we’re calling the impending climate disaster heading our way these days.  We’ve acted and made horrible energy policy decisions based on a bunch of ramblings from these pseudo scientists.  And it is killing our economy.  For as Jimmy Stewart said in Thunder Bay, “Without oil this country of ours would stop.  And it’d start to die.”

So we’ve stopped drilling.  But China hasn’t.  Brazil hasn’t.  In fact, we’ve invested in the Brazilian oil industry.  While China works with Cuba to drill for oil in our backyard.  The Gulf of Mexico.  So their economies will grow.  While ours continues to limp along in the recession that just never ends.  As gasoline shoots past $4/gallon once again.  This energy shortage will drive inflation.  Making the basics of life more expensive.  Leaving us with less disposable cash to enjoy life.  Lowering our standard of living.  This in the world’s largest economy.  Well, largest for now.

Bye, bye, Miss American Pie.


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FUNDAMENTAL TRUTH #19: “Philosophical debates can be effective but character assassination is more expedient, especially when no one agrees with your philosophy.” -Old Pithy

Posted by PITHOCRATES - June 22nd, 2010

WARNING.  The following contains some explicit language and sexual content and may be inappropriate to some.

“F*ck you.”  “Ass h*le.”  “You’re mother is a whore.”

We all probably heard these before.  Directed at us.  At the end of an argument.  Which means we’ve argued well.  For when the invectives fly, you’ve won the argument.

 A good sales man would never call your mother a whore.  Instead, if you say ‘no’, they come up with other reasons for you to say ‘yes’.  They believe they can get you to see things their way.  And often do.  Not so when it comes to politics.  Especially if you’re arguing with a liberal.

A lot of liberals are liberals for no good reason.  Calling yourself a liberal is just a way to feel good about yourself, to make you feel more enlightened and smarter than non-liberals.  But most are not as smart or enlightened as they would like to think they are. 

I met an old friend for lunch.  She was once a liberal but has since moved to where the bulk of the country is.  Center-right.  She brought an old friend of hers with her.  From her liberal past.  A single mom.  Who successfully juggled career and motherhood.  Did it well, too.  And, of course, my dear old friend introduced me as a conservative.  And she said it with a smirk.

I have long since stopped discussing politics outside my inner circle.  Political and philosophical debate is the raison d’être there.  It’s what we do for intellectual fun.  While drinking some fine single malt.  A time and a place for everything.  And casual conversation is neither the time nor place for politics. 

So I was polite and behaved.  But they kept poking the bear.  Laughing and enjoying themselves.  So, I thought, fine.  Let’s discuss politics.  The current subject was George W. Bush.  Not my favorite president.  Not all that conservative when it comes to the spending.  But I respect him.  I understand his philosophical basis, much of which I agree with.  But there are things I don’t like about him.  So I asked for some specifics.  To make it a fair debate.  Why was he a bad president?  Because he’s an idiot, she said.  Yeah, I asked, but what specifically has he done that you think was idiotic?  Have you heard him speak, she asked.  I mean, she said, he sounds like an idiot.  And so went the conversation.

I pressed for specifics.  Didn’t get any.  Then the name calling started.  I wasn’t being very tolerant of her views.  I replied, but you haven’t told me your views.  All I know is that you think Bush is an idiot.  Apparently, that should have sufficed.  Luckily, we had already consumed a bottle of wine by then so it was easy to change the subject and forget our little dustup.

And that’s a common experience I have with liberals.  They know everything.  But can’t explain anything.  I’m then called intolerant for not seeing things their way while they refuse to consider my arguments for seeing things my way.  In politics, people believe they base their opinions on a sound philosophical basis.  Most times they don’t.  They just heard something funny on Saturday Night Live or the Daily Show.  And they repeat it.  That’s why, when pressed for specifics, they can’t give any.  And then the name calling ensues.

DO YOU KNOW what ‘tea bagging’ is?  If you’re a gay man, you probably do.  At least, one of the meanings.  It’s a sex act in the gay community.  It’s when a dominate man lowers his genitals into a submissive man’s mouth.  It gets its name from the similarity of lowering a tea bag into a cup of hot water.  It’s a popular sex act, for it has migrated into the heterosexual community.  Without the BDSM aspects, though.  But when people call someone a ‘tea bagger’, it generally refers to the homosexual act.  Because of the degrading/humiliation aspects of the BDSM role playing.

David Gergen was on Anderson Cooper’s 360 on CNN.  They were discussing the new grassroots movement known as the Tea Party movement.  It’s called this in honor of those who stood up against the mercantilist policies of the British Empire who said you can drink whatever tea you’d like as long as it is British East India Company tea.  Good tea, yes, but it was British tea.  The Americans were taking a stand on principle.  And tossed the tea overboard. 

Carrying on with the ‘tea’ theme from the colonial period, Tea Party people used tea bags on signs and sent them in to Congress as a symbol of protest.  Some people used the symbol with a sexual undertone.  But most people didn’t.  Most didn’t know of the sexual act.  Well, these people, using tea bags as a symbol of their protest, were dubbed ‘tea baggers’.  And those familiar with the sexual act used it to attack and ridicule those people in the Tea Party movement.  When David Gergen said the Republicans were trying to find their voice, Anderson Cooper made the crude statement, “It’s hard to talk when you’re tea bagging.”

So much for your objective journalist.

Sure, the Tea Party people were worthy of such contempt for the things they stand for.  By the way, do you know what they stand for?  It’s easy to find out.  I did.  They adopted a 10 item agenda called Contract from America.  Here’s a bulleted list:

1. Identify constitutionality of every new law.
2. Reject emissions trading.
3. Demand a balanced federal budget.
4. Simplify the tax system.
5. Audit federal government agencies for constitutionality.
6. Limit annual growth in federal spending.
7. Repeal the health care legislation passed on March 23, 2010.
8. Pass an ‘All-of-the-Above’ Energy Policy.
9. Reduce Earmarks.
10. Reduce Taxes.

Yeah, I know.  This is crazy talk.  Do you realize what would happen if these ‘tea baggers’ got their way?  Everyone would probably live happily ever after.

FOR TOLERANT PEOPLE, liberals can be pretty intolerant of anyone who doesn’t think like them.  And they can get pretty nasty, attacking people instead of the issues.  The Conservatives are yearning to debate the issues.  But they get invective instead.  Why?  Because it’s the last refuge for someone who has already lost the argument.  Name calling.  Because it’s all they have.  They can’t beat you with the facts.  So they pummel you with personal attacks.


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