China, pollution and the future of coal (Part 1)

A few days ago, there was an unprecedentedly bad smog in China: the two satellite pictures below compare January 3 to the situation 11 days later (htp: Barry Ritholtz):

Beijing and Tianjin: January 3, 2013

 

Beijing and Tianjin: January 14, 2013

It was partly a consequence of the coldest winter in 30 years, prompting rural Chinese to burn more solid fuel (which is no longer permitted in cities). But air pollution has been on the rise generally, because of increased numbers of power plants (many coal-powered) and cars. As well as the hazards of dangerous gases (such as sulphur dioxide and carbon monoxide), airborne particles below 2.5 microns in diameter are small enough to get deep into the lungs (ironically, this also happens to be an issue for eco-minded Westerncities that choose to incinerate waste.)

Geography is another factor. Like London and Los Angeles, Beijing is liable to periodic temperature inversions that trap particulates in a bowl of cold air, lidded by a warmer layer above. This relief map shows the mountains to the north and west that help to hold in the smog, and the January 13 picture above shows the pollution being pushed up and over them by the southern breeze.

China is hardly the only Asian country with that problem, as the Guardian newssite points out, citing the 4,500 pollution-related deaths in Tehran last year. And the West has long had similar experiences itself: the London smog of December 1952 is estimated to have killed 12,000 and harmed a further 100,000, and In the USA, despite Los Angeles officials battling atmospheric pollution since 1947, it was still reported in 2006 to be killing 9,000 Californians annually.

Last week’s foreign reportage offered more criticism than sympathy: the Wall Street Journal turned it into a story about official secretiveness undermined (said ABC News) by a Twitter feed from the US Embassy in Beijing, which has an atmospheric particle monitor on its roof. The New Yorker’s Evan Osnos hinted at future civil unrest: “Someday, I’ll write about the political effects of environmental pollution [...] Hungary and Taiwan...” In fact, the Chinese authorities are concerned about the issue: Time magazine has reportedon a study co-sponsored by Peking University that linked 8,500 premature deaths to pollution in four cities.

Perhaps there is an undercurrent of envy in the Western reports: it is almost as though the Chinese are supposed to suffer for their hard-won economic success. If so, the feeling is completely unjustified. What has happened over the past 30 years of international trade is reminiscent of the way that Britain exploited the Indian textile industry in the second half of the eighteenth century, when the East India Company ruled there: the low indigenous labour costs undercut British workers, until such time as technological improvements increased our own productivity. In the same way, the West has exported industrial jobs for decades, and now there is the beginning of a trendtowards “reshoring” – which will not be the job-saver for which Middle America might hope, since part of the process will be the increased use of automation.

If there is to be societal unrest, it is just as likely to occur among us as in the East, for US median real wages have stagnated since the 1970s, and now we face growing unemployment plus severe pressure on debt-saddled personal and public finances. This was foreseen by billionaire venture capitalist Sir James Goldsmith, who warned in 1994 of the consequences of the GATT talks then ongoing. And it’s not even as though all the profits of the trade imbalance have accrued to the Chinese: I was startled to read in James Kynge’s book  that “all of the work done in China – the sourcing, manufacturing, transportation and export – rarely qualifies for a return of more than 10 or 15 per cent from a product’s sales revenue.” The lion’s share of profit has been captured by a relatively small group of Western entrepreneurs and financiers and the resulting increase in inequality is straining social relations.

Increasingly free of restriction, the cash tsunami that roars around the world has upset stability in developing nations, too. China has experienced a speculative construction boom that has left 64 million residential units unoccupied, and has become uncomfortably dependent on its near-bankrupt export customers. Others are worried, too: the 2008 Doha round of GATT was quickly stalled by countries that realised the threat to their domestic agricultural production, and it seems significant that this was the time that the US chose to involve itself in the Trans-Pacific Partnership, which until then was a small-scale affair but now looks as though it could be used by the US as an alternative method to force the products of its competitive large-scale agribusiness onto foreign markets.

This is a challenging time for the balance of the world economy, not only for the above reasons but also because of ecological concerns about alleged climate change. However, the USA has refused to ratify the Kyoto Protocol and Canada has withdrawn, so they can hardly criticise China for its emissions.

And China can’t afford to stop its economic development. This study of China’s demographics shows that its population is expected to rise by only another 90 million (or 8% of its 2010 total) by 2030, and then decline. However, the underlying picture is that while not enough children are being born to replace those that die, the people are (thanks to the benefits of modern civilisation) living far longer. Proportionally, there will be fewer people in work, and they will on average be older. Without modern technology, how will they support the country’s dependants?

Coal is vital to China at this stage. The nation has the world’s third largest reserves, but is by far the biggest producer and consumerof coal, and (after Japan) the second biggest importer, too. Such is the rate at which this resource is being exploited in the breakneck pace of development that China is estimated to have used up its reserves in 35 years’ time (others say, half a century to a century).

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Part 2 will look at coal, coal-burning technology and coal's future in China and the West.

Copyright. Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Death of a Chinese sage

See World Voices here.

Death of a Chinese sage

See World Voices here.

China: Death of a master

 

Leading Chinese blogger De Day reported the death of Master Nan Huai-Chin in September. Until now, I had never heard of Nan, though he has a following among Western Budhhists.

 

De Day's post (oddly, his last) lists Nan's many writings, most of which have never been translated into English. Yet Nan's school, founded in 2006 when Nan was 89 years old, is influential in both academic and business circles.

 

His scholarship is a fusion of traditions (Buddhism, Taoism, Confucianism) and offers a balance of spiritual and practical, which is why he is revered in China, a country that is struggling to develop materially without losing its soul. 

 

The blogger comments:

 

大师认为人生的最高境界是佛为心，道为骨，儒为表，大度看世界。技在手，能在身，思在脑，从容过生活。

 

- which Google Translate renders as: *

 

"Gurus believe that the highest state of life to Buddhism for the heart, said as bone, Confucianism for the table, and generosity to see the world. Technology in hand, in the body, thinking brain, calm lived."

 

The English is a little fractured but it is wonderful that we can read Chinese at all, thanks to this program. When the peoples of the world can talk to each other directly, we may find peace easier to achieve.

 

By the way, the billion-plus figure at the bottom left of the picture above is the number of hits on De's blog.

 

UPDATE

 

* I am deeply obliged to commenter Qingyun for the following elegant translation:

 

"Buddha's teachings as one's heart,

Taoist teachings as one's bones,
Confucius' teachings as one's countenance,
Gives one a broad worldview.

Skills in one's hands,
Ability in one's body,
Thoughtfulness in one's mind,
Allows one to live at one's pace."

Transhumance

Writing about moving South for the winter, CIngrams makes a passing reference to transhumance, and that sets me off on another few minutes' happy diversion through byways on the Internet. I'd known about seasonal movement of herds in the Swiss Alps, but not the ancient and widespread trails through Spain that were followed well into the twentieth century. CIngrams comments, "Now it has gone for good, and good riddance. It was a very tough way to live, but seen from a distance, there is romance and beauty in it."

I wonder whether much of the fidgety irritation of comment and protest on the Internet is related to the cellular instinct in us to roam as our ancestors did. From the Great Rift Valley we wandered out and along the riverbanks and coastlines of the world, reaching Australia maybe 50,000 years ago. We must have eaten a lot of oysters on the way.

Even now, that restlessness is in the bones of bikers like Richard and Longrider. I have it, too - wanting to change house, job, get to know new people, start new projects. In a way, the nomadism hasn't gone, after all.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Spain: Crispulito the hedgehog

From the Spain-based Sounds In The Hickory Wind:

Hedgehog Fetishism Revisited

My spiny co-blogger is a creature of strange habits. I have previously accused him of having an underwear fetish as he will run off with any bit of used clothing that happens to get left on the floor. They used to end up in one of his nests, which is why I assumed he liked being surrounded by the smell of human intimacy. But I may have misjudged him (slightly).

I now wonder if he just likes playing with things that smell like us, and he left them in his bed partly for warmth and partly to be sure he could find them again. But now that the heat is really beginning (it's 90º and we're only in spring) and he's been with us long enough to know his way around and to treat us as no more than a harmless, and sometimes useful, inconvenience, he just leaves them lying around when he's finished playing.

Because playing it is. In the summer he keeps them in his bed, too, but in summer we're in the mountains and it cools down rapidly once the sun goes down. But now, the days are hot and the nights are sweaty and he doesn't need a blanket. So he plays with underwear, and socks.

He pushes them with his snout, unable to see where he's going, following the sock as it veers left and right, until it gets caught on something or hits a wall. Then he stops, evaluates the situation, changes its position with his teeth, and goes off again, running behind it until it gets away from him again. He can do this for long periods. Then he will suddenly tire, leave the sock where it is, and go off to eat, drink, or run round in circles, something else he is very fond of.

He used to have a larger circuit, involving several rooms each with more than one door, so he could arrive back where he started and go round again. The region thus created was not simply connected, and I assumed that was part of the fun. However, he has recently taken to running round in much smaller circles, of two or three feet, beside the bed, and he does it so quickly that he often loses his rear legs on the polished wooden floor like a F1 car taking the chicane late in a race. Quite why he finds this entertaining I couldn't say, though I do have a theory.

The problem, I suspect, is that, like all animals, he has hormones, instincts, sap, urges, an understanding of the phases of the moon etc, but he doesn't know that there is such a thing as a hedgesow. If he ever met one I can imagine his face clearing and his shoulders untensing as a lot of things suddenly fell into place. As it is, he is forced to expend his energies and seek an explanation of his inner feelings in forms of play.

Yes, Crispulito is a geek, a Trekkie, obsessed with the details of objectively pointless pastimes because he can't "pull".

Copyright. Reproduced with the kind permission of the author, who says of himself and his friend:

"I am an Englishman who has spent his adult life in Spain, mostly as an English teacher, translator and occasional writer of textbooks. For the last 13 years I have lived in a small city in La Mancha, the hot and dry area south of Madrid. Here I run a language Academy, teach in a high school, teach the odd course at the University, translate articles for anyone who needs it, and drink cold beer while moaning about the government, You might say I am a professional Englishman. We spend the summer, and weekends whenever possible, in the lake district of Ruidera, 70 miles east of here, where we have a house. [Many of the photos on the blog are of that area]

 

Some five years ago my wife saw a hedgehog in a petshop and informed me she wanted it. Being a loving husband I obliged, and he has had the run of the house ever since. Aside from his documented fetishism, he is rather paranoid, never quite sure if he can trust you, and selfish with food, in that when he finds anything especially tasty he looks at you out of the corner of his eye and then runs under the nearest piece of furniture to enjoy it in peace. We have told him that we have chocolate and nuts of our own, and we have no wish to share his beetles, but he isn't taking any chances. He likes to be with us, sleeping under the bed and coming to run around the living room as soon as he gets up in the evening, but he isn't very keen on being picked up and stroked. He has a special, put-upon expression which he reserves for these occasions.

 

He is now nearly five, as I said, but is a happy- if slightly neurotic- and healthy hedgehog, who still spends the night running around the house, eternally optimistic that around the next corner there will be another little morsel. Which we usually make sure there is. In the summer he loves the farm because it smells of the wider world and he cleans the floor of ants and spiders and so on every night. When we arrive there I swear his face lights up."

 

I confess to sharing this writer's erinaceous weakness, as my family raised an orphan hedgehog to fat and sassy adulthood in Cyprus, many years ago. For more on Crispulito's charming ways, and the love of Spain generally, please see CIngrams' blog "Sounds In the Hickory Wind" (Europe bloglist in sidebar).

Fiji: trouble in Paradise

Fiji's blogwires are humming with discontent at Prime Minister Bainamimara's decision to scrap a draft Constitution that would have required respect for democratic principles. The island has been under military rule since 2009, but has suffered civil unrest since the late 1980s.

As in Ulster, the establishment of peaceful, settled democracy in Fiji is permanently problematic, and for the same reason: the historic importation of outsiders. In 1879, five years after becoming a British colony, indentured labourers began to arrive from India, mostly to work in the sugar industry; some 60,000 were brought in until the scheme ended in 1916.

The workers' contract allowed them to return home after five years, but at their own expense (likely unaffordable); otherwise, free passage would be provided at the end of the tenth year. The subtlety of this plan was that naturally, by that time many of the workforce would be married, have young families and generally have put down roots.

It looks like another legacy of colonialism in the service of business interests. You can follow developments on some of Fiji's blogs on our World Voices page - see the sidebars there.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Fiji: trouble in Paradise

Photo: Wikimedia

Fiji's blogwires are humming with discontent at Prime Minister Bainamimara's decision to scrap a draft Constitution that would have required respect for democratic principles. The island has been under military rule since 2009, but has suffered civil unrest since the late 1980s.

As in Ulster, the establishment of peaceful, settled democracy in Fiji is permanently problematic, and for the same reason: the historic importation of outsiders. In 1879, five years after becoming a British colony, indentured labourers began to arrive from India, mostly to work in the sugar industry; some 60,000 were brought in until the scheme ended in 1916.

The workers' contract allowed them to return home after five years, but at their own expense (likely unaffordable); otherwise, free passage would be provided at the end of the tenth year. The subtlety of this plan was that naturally, by that time many of the workforce would be married, have young families and generally have put down roots.

It looks like another legacy of colonialism in the service of business interests. You can follow developments on some of Fiji's blogs on our World Voices page - see the sidebars there.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

China: Inside an iPad factory

Photo: Daily Telegraph

 

The New Yorker's Evan Osnos interviews Li Liao, an artist who got himself hired by Foxconn in Shenzhen so he could make a gallery exhibit of the experience. Not quite as bad as blood diamonds, of course, but.

And according to Liao, they'll take just about anybody.

Nick Drew: Why Germany is forced back to coal

Our expert explains why eco-minded Germans have returned to the energy source we thought we needed to stop using.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Nick Drew: Why Germany is forced back to coal

Our expert explains why eco-minded Germans have returned to the energy source we thought we needed to stop using.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

When money velocity stabilises, inflation will let rip

A while back, before the trillion-dollar-coin idea that was publicly kited and then smacked down, I too was wondering why, if the government can conjure up money out of thin air and lend it to itself, it can't similarly forgive itself.

Insofar as banks are allowed to get involved brokering the deal, I suppose debt cancellation might deprive them of some of their income stream, but other than inconveniencing a few thousand banking families it wouldn't seem to be a bad scheme. As President Andrew Jackson famously said, "You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! " One longs today for such un-mealy-mouthed leaders.

But this kind of living on debt causes real damage, whether or not it is ultimately extinguished. Because the government is trying to keep things normal in the economy, and spends the borrowed money on salaries and other benefits. This is increasing the stock of cash in the economy.

The reason we don't have high inflation at the moment is that money is changing hands more slowly during the recession - its "velocity" is dropping, and counteracting the boost in the quantity available to spend.

When the velocity stops dropping, inflation will begin properly. (Food and energy prices may be rising at the moment, but there's other factors at work there. Houses, cars and all sorts of other things are trading at a discount still, for ordinary people. Overall, I think we are still experiencing deflation, partially disguised by increased prices for the things rich people buy because they are benefiting from the collapse of the middle class.)

If velocity increases, inflation will roar. Unless government removes money at just the right rate (by taxation, or higher interest rates) - and it will be reluctant to do so because it won't want to be seen to be "killing the recovery". Ordinary savers will be sacrificed for the sake of apparent health in stock and property markets. But the economy will still not have been fundamentally set right, and sooner or later we will need some reset in the currency. In real terms, in the currency of "stuff", the average Western person will be poorer.

And that is why smart, privileged money is pouring into tangible assets. A small fraction of the population will become the "Sultans of stuff".

UPDATE:

Charles Hugh Smith thinks the deflation is unstoppable. But there will be an end, however far off it now seems.  I think spotting the turn and moving out of cash fast will be the test for investors.

John Ward opines, "...there is no such thing as a gradual panic. Those ahead of the panic are openly opting for the last place left offering financial long-term and physical short-term safety: top-end property." Not all of us can afford it. It's the small saver who is being hauled to the stone table.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

What Lessons From Germany and Denmark? [3]

German energy policy has evolved scrappily, with unintended consequences aplenty.  In particular it was (presumably) not foreseen that the very large amount of subsidised solar electricity-generation capacity would seriously distort the wholesale electricity market.  This is greatly to the detriment of unsubsidised gas-fired power stations which would expect to make their money providing peak power during the middle part of the day, at prices commanding a premium over baseload (24/7) prices - a premium that has been substantially eroded by solar.

This situation could probably be sustainable if it were the end of the story.  In logistical terms, after all, it is not fundamentally problematic to introduce a source of electricity that peaks at roughly the same time as demand (midday, in Germany's case).  Unfortunately for German electricity consumers it is only the start of the tale.  For on top of the solar capacity is another large new tranche of renewables - wind power.  This is similarly subsidised and has a marginal cost close to zero.  But far from having the predictable output of solar, it is of course subject to the vagaries of the wind.  It has a similar distorting impact on the wholesale market as solar, but at essentially random times, creating a radically unstable market dynamic.

The purely physical aspects of the system problems caused by intermittent wind generation can generally be resolved with a combination of good engineering and operational practices, and enough money - provided the challenge is on a sufficiently limited scale.  However, in Germany these problems are on a large and growing scale, and the patchwork of solutions available to grid operators is not robust.

It is fairly self-evident that a situation like this requires, inter alia, a lot of flexible power sources.   The best solution is generally to access hydro-electricity.  With sufficient quantities of water stored at the top of a hydro facility, it can respond literally in seconds when called upon to back up some deficiency in supply at short notice - the Danish solution (using Norwegian hydro).

Where, as in Germany, there is inadequate availability of hydro power, gas-fired plant is the obvious second-choice.  It is not as flexible as hydro, but can nevertheless provide a useful contribution to flexibility requirements, albeit at sub-optimal efficiencies.

However, a market-based approach to bringing on flexible resources requires appropriate price-signals.  As we have seen, for much of the time solar power undermines the key price signal, namely the premium of peak price over baseload price, by dint of which it is exactly gas-fired plant that has been rendered uneconomic.  At the time of writing most German gas-fired plant lies idle; and no-one is building any more.

Imports from neighbouring countries therefore feature significantly in balancing the German grid - including hydro from Norway and Switzerland, when available, but predominantly nuclear (France), hard coal and lignite (Poland and the Czech Republic).  We have noted the ironies before.

(Confusingly, Germany also sometimes exports power; and inevitably this is at times of wind and solar surges.  Greens make great play of this, sometimes asserting it proves German energy policy is a roaring success.   But total capacity was never the issue: it is achieving an efficient and reliable balance in the system at all times between naturally variable demand, and increasingly unpredictable supply.)

So if gas is uneconomic, and nuclear is being phased out, where will Germany source its reliable power ? Another key component in the mix (and another irony) is the large-scale building of new coal and lignite (brown coal) power plants within Germany itself.  The ever-growing policy-driven renewables capacity seemingly cannot be halted: but at least the large German coal- and lignite-mining industries can support a new generation of highly efficient fossil-fuel plant.  The cost of CO2-burning permits is at rock-bottom; coal is cheaper than gas and is still economic to burn; and a new plant operates at much greater efficiency and significantly lower emissions than the old coal-fired plant it replaces.  Unfortunately it offers less flexibility than gas, but can make a contribution to this requirement also.

How much pleasure is derived by greens from the large programme of newbuild coal plants is anyone's guess; but it is how practical German power engineers are attempting to square the circle.

There is no guarantee they will succeed.  The final piece in this series will consider the effects and the costs of dysfunctional German energy policy - and a warning to the rest of us.    

READ ON:
PART FOUR (CONCLUSION)

PREVIOUS:
PART ONE
PART TWO


Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Nick Drew: "Green" initiatives have contradictory effects

See our energy expert's latest squib here.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Nick Drew: "Green" initiatives have contradictory effects

See our energy expert's latest squib here.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

The Only Solution Is My Solution

The following Grauniad headline gets my prize for best of 2013 so far:

Rogue geoengineering could 'hijack' world's climate

"The deployment of independent, large-scale "geoengineering" techniques aimed at averting dangerous warming warrants more research because it could lead to an international crisis with unpredictable costs to agriculture, infrastructure and global stability, said the Geneva-based WEF in its annual Global Risks report"

Haha ! They don't like it up 'em, Captain Mainwaring. But aside from 'independent' not fitting with 'dictated by the green lobby', what exactly is the problem ? Let's turn to the report:

"A long series of ethical, legal and scientific questions quickly arises about countless knock-on effects that might be much more difficult to assess ... Almost any change in weather and climate patterns is likely to create winners and losers, but determining causation and quantifying impacts on any given region or country would be a massive challenge."

What, unintended consequences ? Well, b****r me ! That would be like, err, when you subsidise biofuels and discover that entire forests are being felled, and food-stocks diverted, for use as fuel ? Or when you subsidise solar power and find that your electricity grid can't cope ? Or when you implement 'green' policies and find that your CO2 emissions are rising ?

"Determining causation and quantifying impacts would be a massive challenge" !!   Are they reading what they are writing ?  


This piece first appeared on Capitalists@Work

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Ancient underground city in Turkey!

Seen on Nourishing Obscurity: a fantastic, multi-level underground city that housed up to 10,000 people in siege times, a thousand years ago. Discovered only in 1963, when a Turkish man demolished an interior wall in his dwelling. Don't miss it!

Part 1
Part 2

Green energy, black lungs

See the Energy Page for the dark side of "heat from waste".

Green energy, black lungs

See the Energy Page on the dark side of "heat from waste".

Green energy can be a killer

When it comes to ecology, there are debates about evidence, and how reliable it may be.

Michael Crichton's 2004 sci-fi novel "State of Fear", which I read recently, shows how scientific data can be misleading or contradictory. For example, historic air temperature measurements in New York City seem to prove that the atmosphere is heating up; but figures over the same period from an instrument in rural New York State show the opposite. Some of the scientists in the book start with a quasi-religious belief in global warming and bend or discount counter-evidence. By the end of the story I was certainly more skeptical than when I started it, though that doesn't mean I was necessarily persuaded to "cross the floor". There's plenty still to argue about; for example, this internet essay offers a reexamination of some of the science in Crichton's book.

In fact, Crichton himself adds an author's note at the end, in which he gives his view that global warming probably is happening, and that human activity is probably contributing to it. His real point (other than entertainment) is to have us examine evidence more critically, and to watch out for the influence of a scientist's more personal motives - grants for research, career progression, public attention.

There are also debates to be had about competing values.

Most of the world's nations have ratified the 1997 Kyoto Protocol on "greenhouse gas" emissions reduction (in force eight years come next Wednesday). We're trying to do our bit to "save the planet": as part of the UK's 2011 Carbon Plan and 2009 Renewable Energy Strategy the Government has initiated the Renewable Heat Incentive. This encourages the burning of waste as a way of providing heat as well as disposing of rubbish. Sounds good, and there happens to be recently-contructed incinerator only a couple of miles away from me, in south Birmingham.

But it's not purely beneficial, as the readers' letters pages in The Oldie magazine point out. In response to TV personality Johnny Ball's lately-expressed support for incinerators, Michael Ryan of Shrewsbury (January 2013 issue) used ONS data to suggest a link between incinerator emissions and increased infant mortality. In the February issue (just out), Chris Butler of Borough Green in Kent writes in to say that the Public Health Observatory blames atmospheric particulates for 5.6% of mortality in England. (That's not to say that all the particles come from incinerators; nor that we'd live forever if the air was clean. But this London website quotes the same PHO figure and says it's worse in London: 6 - 9% of mortality so attributable.)

Mr Butler makes a second reference in the same letter, this time to the DECC's own July 2012 impact assessment of the Renewable Heat Incentive. This attempts to quantify in monetary terms the pros and cons of (a) doing nothing about incinerators' emissions and (b) introducing stricter rules. If the sums are right, the cost of extra regulation discounted back to today would be £420 million, but the benefits in terms of better health and reduced mortality are estimated at nearly £3 billion. (How are exactly are these figures calculated? What happens if the discount rate used (3.5%) is higher or lower? One can imagine the money-debate rattling on.)

And it can be very hard to apply money to values. How do we price health and life per se, apart from the cost of medical interventions, social security costs for the sick and so on? What counts as the best solution depends so much on what kind of, and the degree to which, "negative externality" is internalized into the calculation, if at all. For example, one of the externalities not assessed in this report is the impact on the ecosystem (see paragraph 33).

And one option is simply not to care at all. Stalin's view on externality was brutally simple: no man, no problem.

Not all particulates are equally hazardous, but none is deemed safe: "the World Health Organisation advise that there is no safe exposure level to P(articulate) M(atter)," says the DECC's report. The danger is not uniform in time, either, e.g. more dioxins are emitted at operational startup and shutdown than in mid-burn.

The damage caused by other pollutants is not yet completely known, and there are many of them: "Incinerator emissions are a major source of fine particulates, of toxic metals and of more than 200 organic chemicals, including known carcinogens, mutagens, and hormone disrupters," says this 2008 report by the British Society for Ecological Medicine. Perhaps the chemtrail conspiracy-hunters should turn their attention from the skies to their local waste tip.

What are the facts, then, and what are the relevant facts, and what values should we use in relation to them? There's so much uncertainty and room for disagreement that the precautionary principle might save us much ill-tempered controversy as well as, possibly, harm to life and health: let's simply make less waste in the first place.

Now to put out two large bags of washed plastic bottles, for tomorrow's binmen.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Nick Drew: solar power undermines the efficient market in electricity

See the really enlightening next instalment on the Energy Page.

Nick Drew: solar power undermines the efficient market in electricity

See the really enlightening piece on the Energy Page.

What Lessons From Germany and Denmark? [2]

If the Danish electricity sector is an unrepresentative model for most other nations to follow, by dint of its hard-to-replicate access to ultra-flexible hydro electricity from Norway, the Danes do at least seem to have a feasible (if expensive) structure in place.  The same cannot be said of Germany, that other favourite exemplar of red/green advocates of renewable energy, which upon examination is a very odd model for them to be eulogising.

To summarise: Germany barely got through 2012 without serious blackouts; voltage has become highly unreliable in many parts of their complex grid system; heavily subsidised renewables have trashed the German wholesale power market; neighbouring markets are also suffering as a result of unpredictable surges of German wind-power exports; Germany is building a large number of big new coal- and lignite-fired power stations to cope; in the interim, they have become dependent on large-scale imports from some very dirty old lignite plants in Eastern Europe; and to crown it all, their CO2 emissions are increasing!

How has this come to pass?

On major issues like energy, German policy is generally framed by big, set-piece legislation that lays down what is in effect a national plan.  The last coherent German energy plan dates back to the 1980s, and more recent policies have been layered on top in an ad hoc fashion.  That's how it's often done in the UK and other countries, but for methodical Germany it is anomalous: and intelligent Germans view the resultant mess as inevitable.

The most recent nonsense was the sequence of on-off-on-off nuclear decisions, culminating in a post-Fukushima bombshell: the summary closure of a large part of the nuclear fleet.  This was always going to leave a big gap to fill in a hurry - hence the immediate increase in imports, which naturally come from neighbours with surplus capacity:  France (nuclear, of course), Poland and the Czech Republic (coal, some of it dreadfully polluting lignite).  The ironies are obvious, and one hopes the anti-nuke greens are proud of themselves.

But the subtler and even less tractable issue is the unforeseen impact of large amounts of 'must take' wind- and solar-power, financed by whopping subsidies.  (The electricity doesn't even need to be generated - the producer merely needs to install the plant.  There are many windfarms in northern Germany that are completed but not connected to the grid - the system cannot accommodate them, and they lie idle - getting paid anyway.)

Key to the situation is that the marginal cost of wind- and solar-power is close to zero. Unsurprisingly, at times of the day when large quantities of zero-cost power are being fed into the grid (foisted on utilities who must take it, irrespective of its market value), the impact on the wholesale market price is to reduce it substantially - not just to zero, it sometimes actually goes negative, so that people are being paid to take power off the system

The timing of wind generation is notoriously unpredictable, but solar is straightforward: it peaks around noon.  In Germany (though not in all countries) this at least coincides with peak demand.  The impact on wholesale prices is clear.

Source: EPEX

One cannot fail to notice (a) demand rising to maximum at midday ('Volume' on the chart) which would 'normally' coincide with the highest hourly prices: but (b) a midday collapse in hourly price, which at 1pm is lower than at midnight !  The market price for 'peak' electricity as defined in the German/Austrian market (9 am to 8 pm) is now barely greater than for baseload (24-hour), meaning inter alia that no-one will see any incentive to build or run a plant designed to offer flexibility.  In particular, it fundamentally undermines the economics of flexible gas-fired plant, which - since no subsidies are on offer to fossil fuels - needs a 'normal', undistorted day-time price to pay its way.  And yet that is the very plant needed to balance the vagaries of wind generation !  

Why this was not foreseen is a matter for conjecture.  (Personally, I reckon - and have offered evidence elsewhere - that many Germans who should know better genuinely do not understand how markets work.)  But of this we may be sure: its impact is highly destabilising.

READ ON:
PART THREE
PART FOUR (CONCLUSION)

PREVIOUS: PART ONE
 
 
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Nick Drew: Danish & German power problems

See new article on the Energy Page.

Nick Drew: Danish & German power problems

See latest article on the Energy Page.

What Lessons from Germany and Denmark? [1]

Energy, like defence, is a topic where huge numbers of people seem to have strong views based on very little knowledge. If evidence is required, go to the Guardian’s Comment is Free website where almost any piece on an energy topic receives hundreds of comments exhibiting ignorance aplenty.

A favourite theme from the green/red camp is ‘what about Germany?’ or its close variant ‘if Denmark can do it, we can, too’. The ‘it’ in question is of course very large-scale renewable generation in both countries, which is taken to be triumphantly proving its worth there in quantities that put the UK to shame.

At the headline level, the statistics are striking. In the 1st half of 2012, renewables generated around 25% of Germany’s electricity, of which 9% was wind and 5% solar. (The balance is mostly biofuels, which greens are a bit more ambivalent about, but let that pass.) Denmark has reached 24% of electricity consumption being generated from renewables: and as a percentage of Denmark’s own generation, the figures are even more remarkable: over 40% is renewable, of which 28% is wind.

The difference between Denmark’s ‘24% of consumption’ and ‘40% of own generation’ immediately tips us off to an important additional factor – imports, or, more generally, cross-border electricity trade. Trade between interconnected countries is generally in either direction at different times, as advocates of free trade would hope and expect: wholesale electricity prices in one country will rarely be identical to those in a neighbour’s market, given different supply/demand dynamics, generation fleets, weather etc. Cross-border trade is the highly appropriate result.

 In Denmark’s case the detailed pattern is complex: they do indeed export electricity some of the time but, as the figures suggest, they are generally substantial net importers. Wind turbines, of course, produce ‘intermittently’ (and relatively unpredictably): and anyone wishing to hold up Denmark’s renewables as an example for other nations should be aware that their significant amount of wind generation is only feasible because of the ease with which they are able to import the ultra-flexible hydro-power available from Norway.  Attempting to balance the grid using their remaining indigenous sources - the largest of which is, yes, coal - would not be remotely economic, and in fact would probably not be feasible at any price (we will comment later on cost aspects.)

Wind plus hydro can be a feasible combination with which to satisfy electricity demand. Denmark, where this is achievable, doesn’t offer a model for countries where there is little or no hydro on tap (or, of course, some equally flexible alternative - of which there are very few indeed).

Germany’s import / export pattern is exceptionally complex, and changing all the time as the unexpected post-Fukushima decision, to shut down a significant portion of its nuclear capacity, is accommodated. But it is not hydro imports that make Germany an unconvincing model for other nations. Rather, it is the distinct possibility that Germany’s power system is not feasible at all.

Read on:
PART TWO
PART THREE
PART FOUR (CONCLUSION)

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Max Keiser's speech in Parliament ignored by MSM

See report and video on Home Page.

Max Keiser and George Galloway: a deafening silence in the media

On 20th November, Max Keiser addressed a large audience in the Grand Committee Room in the Houses of Parliament, as the guest of George Galloway MP.

Galloway pointed out that this was the second largest public room in Parliament (the first had already been booked) and all MPs had been invited in writing, twice - yet none of them had turned up.

In some ways this is understandable: Galloway is "colourful" and, to me, something of an enigma, and his fellow Parliamentarians must have considered the risk of tainting by association.

Or worse, reputational entrapment: for although Keiser had strong criticisms to make of Gordon Brown's gold sale (1999 - 2002), which he said is the moment when Britain's independence was surrendered, he also laid the blame for the present crisis on the monetary expansion that began under Reagan and Thatcher. Additionally, he had harsh words to say about George Osborne and David Cameron, whom he sees as fighting for corrupt City interests. In the circumstances, MPs on both sides must have seen little political advantage in attending.

Yet there wasn't that much else on in Parliament on the evening of 20th November. The House of Commons Order of Business after 7 p.m. was a handful of decisions to be made without debate, plus the presentation of a petition and the Adjournment Debate. Granted, many MPs would be heading home for the weekend - but another hour or so, of worthwhile economic instruction, might have done them some good.

And it's surprising that, try as I may, I can find no mainstream media report of Keiser's speech. Remember that he is possibly the most-watched TV journalist in the world, talking on a subject of the utmost importance in the very heart of London. This, perhaps deliberate neglect plays into the growing public cynicism about our political elite and the Fourth Estate.

Regular Keiser-watchers will have heard much of his material before, many times, though it may be news to some that the reason he's shifted his base of operations to London is that he wants a ringside seat to cover what he sees as the coming, full-blown disaster of historic proportions, and expects our poor country to be the epicentre.

He also says that Germany will use its gold hoard and massive Eurobond issuance to establish its advantage over the City; Frankfurt will become the centre of banking and trading in Europe, he feels. Britain, having allowed its financial sector to swell to over 10% of national GDP, has set itself up for a terrible fall.

According to Keiser, only raising interest rates sharply - as Paul Volcker did in the USA (20% by 1981) - can cleanse the speculation and malpractice from the system; and he doesn't see us doing that.

Also interesting in this film, is the naivety of questions, underlining Keiser's (and George Osborne's) observations about the financial illiteracy of the British public.

Like Nigel Farage (another ex-financial trader), Keiser is loud, brash and fast-talking (he starts more sentences than he finishes); and both are also, in my assessment, completely sincere in their concern and indignation.

The film lasts slightly more than an hour, but you can simply listen to it while doing something else, as I did. I think you'll find it worth your while.



Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Looking for a widget!

Help wanted! We thought we'd found a multiple blog widget so you can follow all pages in one simple device, but the one we got can't be installed by readers. Anyone out there know a good one?

Airbrushing out The Queen

My wife asked me what this was, on the back of a pound coin:

 

It's the Arms of the City of London:

... and on further investigation it seems that ever since this little metal thing was introduced into our system of exchange, the Royal Arms have been omitted (except for the 1988 design) in favour of a cycle of images from the regions.

Doubtless we'll be told not to take it too seriously, but it seems to me that the 1.5 billion pound coins are being used as yet another method to condition us to accept the "inevitable" breakup of the Union.

Another subliminal point, maintains the wife of a friend, is that the change from a banknote to a small coin was to help us not to expect so much for our money.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Nick Drew: Solar power the worst option for reducing carbon emissions

See The Energy Page for an industry expert's assessment.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Nick Drew: Solar fad a waste of money

Energy expert and journalist Nick Drew has written a new piece for The Energy Page on cost-effective ways to reduce carbon dioxide emissions. Turns out that the fashion for roof-mounted solar panels is just about the worst possible option - read the full story here.

Nick is a regular contributor to the Capitalists@Work blog.

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Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Solar Power is Daylight Robbery

 The UK government is very fond of claiming that its decarbonisation policy is being delivered at least cost to UK citizens.  Irrespective of whether one supports the policy goal, one would at least like to believe them on the cost. 

Sadly, their claim is a blatant falsehood; and we can see why this is by utilizing the government's own methodologies.

A very standard way of presenting the cost-effectiveness of measures that can reduce CO2 emissions is the Marginal Abatement Cost Curve (MACC) and we will look at some examples below.  The basic concept is simple: for each measure, calculate the cost per unit of CO2 emissions reduced, and rank them from cheapest to most expensive on a bar-chart.  If we pick (e.g.) a particular market segment, we can additionally plot the total absolute potential for CO2 abatement each measure can deliver in that sector (e.g. in tonnes), by making the width of each bar correspond to the amount.

Having ranked them thus, for a given target amount of reductions we can directly read off the cost of the most expensive measure required to achieve the target.  And why would anyone institute measures that cost more than absolutely necessary ? Surely, they would exhaust the potential of the cheapest measures first, before proceeding to the more expensive.

Before looking at UK examples, it is interesting to note that in every MACC example one ever sees, the cheapest abatement measures are in fact profitable - that is, they pay for themselves - in some cases, handsomely so:  their 'cost' is not just cheap, it is negative.  (We will consider what this means in policy terms another time.)  Our first example shows this aspect clearly: it comes from DECC and is the MACC of the total potential abatement identified in the UK 'non-traded' sector (the part of the economy not subject to the EU Emissions Trading Scheme), for the period 2023–27.

Source: DECC

As can be seen, at the left-hand side there is around 90 MtCO2e abatement potential that pays for itself.  We should only need to start paying for abatement if the target was in excess of that amount.  The weighted average of the cost (by a complex calculation) is £43 per tonne, which coincides with an abatement potential of around 130 Mt - well over half the total.  Even the most expensive measures plotted come in at under £250 per tonne.

This, then, is a baseline of sorts, and certainly gives some background perspective for considering the next chart, which is the detailed MACC for abatement potential in the UK residential sector through to 2020.

Source: Committee on Climate Change

Note that solar power (PV generation) is well to the right of the curve, with a cost that towers over most of the measures available.  (Solar water-heating is even worse.)  Secondly, at £265 per tonne it is more expensive than any of the measures from the previous MACC.

A very obvious conclusion must surely be that solar power should not be receiving public money (via whatever mechanism) until the vastly greater potential that is available at very much less cost has been comprehensively exploited.  Needless to say, the opposite is the case: residential solar power installations are heavily subsidized via our electricity bills, while huge amounts of cheaper - much cheaper - abatement potential lies dormant.

No end of sophistry is offered to defend this state of affairs.  Costs of PV are falling all the time; many jobs have been created (mostly in China, of course); we need to create a level playing-field for all technologies (whatever that means).  And there are all manner of nuances relating to the interpretation of MACCs - as DECC is keen to tell us (Box B5 here).

No amount of ratiocination, however, can deflect the accusation that subsidizing solar PV in the UK is indefensible from a cost perspective. And in straightened times, costs matter.

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Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Does the stockmarket correlate with energy usage?

I've suggested recently that not only does modern money fail to act as a store of value, it is failing as a unit of account because of central bank/government interference in its quantity and distribution. It's an elastic ruler and its unreliable measurements are a factor in unsatisfactory decisions (misallocation of resources, as the monetarists say). So we look for alternative ways to assess relative advantage.

One more scientific-seeming (but complex) measure is energy. Professor Charles Hall adapted the notion of energy return on (energy) investment (EROI, or EROEI) from the biological sphere (where he began his studies) to human social-economic systems. This appears to be a promising method for analysing different forms of commercial energy production.

However, the entry linked above goes on to claim a correlation between the stockmarket and energy usage:

... a century's market and energy data shows that whenever the Dow Jones Industrial Average spikes faster than US energy consumption, it crashes: 1929, 1970s, the dot.com bubble, and now with the mortgage collapse.

I'm not so sure, and I've had a look for the evidence. So far, I've come across a study by the US Energy Information Administration of oil futures vs stock and other indices, and over the admittedly fairly short period covered, the correlation with the Dow is not uniformly high, though it has increased since the Credit Crunch:

 

Granted, energy usage and energy prices are not necessarily tightly bound together, but does the above tend to disprove or prove the assertion that the Dow cannot long outrun energy use?

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Solutions are dynamic

Proud to be a bear

The Yorkshire vet "James Herriot" wrote of a rich farmer whose principle was, "When all the world goes one way, I go t'other."

Barry Ritholtz publishes a report by James Bianco saying that the Investor's Intelligence survey of investment newsletters shows bearishness at its lowest since 1963.

When nearly everyone agrees, nearly everyone's wrong. The system hasn't been fixed yet and we haven't yet had to face up to the full cost of the consequences. I'm not an active trader - how can you beat the City gunslingers? - so instead of trying to predict the waves I look for the tide.

Until the British Government withdrew Index-Linked Savings Certificates, I'd have settled for them, since I'm more interested in not losing than in making a killing. Now, and until money velocity levels out and QE leads to serious inflation, it's cash for me, plus, reluctantly at these prices, gold.

I agree with Mish:
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1. Gold has been sinking, as it should, if Congress is fiscally prudent.
2. Government Should be Prudent
3. Government Won't Be Prudent

Should Congress be fiscally prudent (and the fiscal cliff is not close to being fiscally prudent), I would change my stance on gold in one second flat.
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Proud to be a 5%-er, then.
 
Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Fracking - new post

See Broad Oak Blog's Energy Page, here.

Why fracking - and other energy alternatives - won't save us completely

The discovery of large reserves of shale oil and gas has raised hopes that our economies may be rescued by a new energy bonanza. But this is not a rerun of the 1970s North Sea Oil boom that gave the UK economic relief for decades afterwards.

Attention is focused on the quantities of reserves, but the missing factor in the analysis is what it costs to exploit the energy source. What we should be looking at is "net energy profit", also known as the "energy profit ratio" or "energy return on investment (EROI)". The "profit" is accounted for not in dollars but in energy - what is put in, versus what is made available to the end user.

The table below is taken from an August 2010 article by Roger Blanchard of Lake Superior State University. It shows that the energy profit from shale oil is a mere 10% of what was obtainable from 1970s conventional oilfield production.

 

Other energy sources are even worse. For example, corn ethanol barely covers its energy costs and is controversial because it harms the poor: a May 2012 study concludes that the price of corn has tripled in Mexico because of this additional demand and associated financial speculation.

 

Wikipedia offers this EROI comparison of energy sources:

 

Corn ethanol is even worse than solar, and that's saying something.

 

Of the renewables, wind turbines look promising, though they are also stigmatised by some as noisy, unsightly bird-chopping machines. And the estimated EROI on them varies startlingly, according to this graph from a 2007 article in "Encyclopedia of the Earth" (updated 2011):

 

 

 Accounting for every scrap of energy in the process - from the production of equipment to its ultimate decommissioning - must be hideously complex, leaving the debate open to skewing by a variety of competing commercial interests and pressure groups (including, no doubt, the publishers of the above).

 

But accounting in financial terms is also biased by subsidies and permissions granted at the whim of governments swayed by industry lobbyists or trying to earn political credit with environmentally-minded voters. Money has already lost one of its three functions - as a store of value - and thanks to official interference in its quantity and distribution, is now rapidly losing another - its value as a unit of account, to inform decisions. Otherwise we would be unlikely to see so many British homes festooned with solar panels - an enthusiasm that has waned dramatically since the subsidy was cut this year.

 

Renewables will only go a small way towards replacing fossil and nuclear fuels, and shale fuels cannot promise "business as usual" in the meantime. Energy is not going to run out soon, but it will become more expensive, and our focus in the next few decades should be on restructuring the way we live.  We didn't do that when North Sea oil was gushing. Shale is pricey and will be attended by inconvenience and controversy, but it may be our last chance to adapt without even more catastrophic disruption to normal life.

Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Why moneylenders MUST be busted

The equivalent of one US dollar invested on the night of Christ's birth at less than 4 per cent per annum, would today be worth more than the Earth's weight in gold.

Here's the math:

a. The Earth's mass is estimated at (5.9722 times 10 to the power 24) kilograms
b. According to goldprice.org, a kilo of gold today costs $53,235.21
c. a*b = $(3.17931 times 10 to the power 29)
d. $1.03434 to the power 2012 = $(3.18127 times 10 to the power 29)
e. d>c.

Yes, you say, but what about tax?

Let's assume that interest over the last two-millenia-and-a-bit was taxed every year at the outrageous rate of 50%. All that does, by reducing the effective interest rate to 1.7% p.a., is defer the date at which the goal is reached; in this case, the year 4030.

The same argument applies to inflation, as long as it's significantly less than the interest rate.

So in the long run, the lender must end up owning everything - provided he can always find borrowers and especially, always have his capital safe.

Our governments, by bailing out the banks, have ensured that capital security.

Better still, under the present arrangement banks hardly need their own capital at all. If the Federal Reserve conjures up a billion dollars and lends it to a bank at zero interest, and the bank uses the money to buy safe government securities (albeit at a low yield), then the bank is being drip-fed free cash. Inflation doesn't matter - there's no bank capital to erode, so all inflation does is reduce the value of the guaranteed profit.

Give the lender complete security of capital, and real interest after expenses, taxes and inflation, and you will in time give him the Earth.

Which is why there must be a reset, or Jubilee.

There is no such thing as a perpetual motion machine, or a safe paper-based solution to a broken economy in which a minority increasingly takes ownership of their fellows. Sooner or later, the gathering of wealth by materially unproductive means must end.

Cause for outrage: what bankers and traders have done to "the people"

"When floodwaters cover our homes, we expect that FEMA workers with emergency checks and blankets will find us. There is no moral or substantive difference between a hundred-year flood and the near-destruction of the global financial system by speculators immune from consequence. But if you and your spouse both lose your jobs and assets because of an unprecedented economic cataclysm having nothing to do with you, you quickly discover that your society expects you and your children to live malnourished on the streets indefinitely. "

- From "The Sharp, Sudden Decline of America's Middle Class" by Jeff Tietz, Rolling Stone magazine. The article details the harrowing experience of recession victims, many of whom have done "all the right things" and never been unemployed before.

Inequality is starkly worse in the USA than in other "developed" countries, as shown in the graph below (source):

 

 

That uses data from 2010, but according to the official Census it's getting worse:

 

"The Gini Index for the United States in the 2011 ACS (0.475) was significantly higher than in the 2010 ACS (0.469). This increase suggests more income inequality across the country."

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Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Cause for outrage: what bankers and traders have done to "the people"

"When floodwaters cover our homes, we expect that FEMA workers with emergency checks and blankets will find us. There is no moral or substantive difference between a hundred-year flood and the near-destruction of the global financial system by speculators immune from consequence. But if you and your spouse both lose your jobs and assets because of an unprecedented economic cataclysm having nothing to do with you, you quickly discover that your society expects you and your children to live malnourished on the streets indefinitely. "

- From "The Sharp, Sudden Decline of America's Middle Class" by Jeff Tietz, Rolling Stone magazine. The article details the harrowing experience of recession victims, many of whom have done "all the right things" and never been unemployed before.

Inequality is starkly worse in the USA than in other "developed" countries, as shown in the graph below (source):

 

 

That uses data from 2010, but according to the official Census it's getting worse:

 

"The Gini Index for the United States in the 2011 ACS (0.475) was significantly higher than in the 2010 ACS (0.469). This increase suggests more income inequality across the country."

Why buy gold?

Gold is a condensed way to hold your wealth.

Currently the most popular US gold coin, the American Gold Eagle, retails for around $1,800. A recent Federal Reserve survey says that the median US family had a net worth of $126,400 in 2007. Today, that would buy 70 gold eagles and some change. Everything you have, in two handfuls: two 4-inch-long rolls, weighing 43 ounces each.

Actually, less: the same Fed survey shows the average family net worth was down to $77,300 in 2010. That's 41 gold eagles and change; or, a handful of coins 4.63 inches long and weighing less than 50 ounces. It doesn't rust or rot, and although the value will vary, it'll never be worthless.

But there you are, gold in hand, standing in the street. You can't eat or wear the stuff, it won't cover your heads or cook your food. It doesn't earn interest, and unlike farm animals, it doesn't breed. And it doesn't protect you and your loved ones. Your 50-ounce stash against a 40-ounce, fully-loaded 1911 Colt 45? You'd be lucky to walk away empty-handed.

It preserves wealth, but not necessarily for you. Three years ago in central Britain, a man with a metal detector discovered a hoard of well over a thousand intricately-worked gold items. Together they weigh some 6.3 kilos - worth a third of a million dollars in scrap value (but over $5 million because of their history and artistry). The magnificent Anglo-Saxon treasure dates from the 7th or 8th century.

The key point is, whoever buried it didn't come back.

Gold doesn't ensure your survival if society breaks down altogether, but it can help protect you from the wipeout that happens when paper money becomes worthless. However, remember how the hungry Esau sold his inheritance to his brother Jacob in exchange for a bowl of stew: it's not enough to have gold, you need someone to sell it to, and at a fair price.

So ignore the apocalyptic prophets; gold is for troubled times, not for utter disaster, and it's not the only thing you should have. As Eric Sprott said recently, "most ... experts say that you should have 5% or 10% of your money in gold".

The question is, how to hold it.

Via a broker? MF Global held gold in a client account (effectively, as trustee) for investor Gerald Celente, yet the holding was seized by the firm's creditors when it collapsed in 2011.

Via a depository? Congressman Ron Paul has tried to get the Federal Reserve to open its vaults to auditors to find out how much is actually there; we're still waiting, and Germany is getting worried about its holding in the US. It is even rumoured that China has "lost" 80 tons from its own national treasury. Attractive stuff, is gold.

How else? An August 2012 article in Investors Chronicle looks at other ways: gold funds, gold bars, coins. Even then, you need to be confident that the fund holds 100% of its stock, 24/7 - you'll recall that fractional reserve banking began among gold dealers who took advantage of the fact that their customers usually didn't all want access to their metal at the same time. And it's worth noting that some outright physical fraud is now going on: tungsten has the same density and is far cheaper, so selling a gold-wrapped bar of tungsten represents a fat profit for criminals.

In these times of weakened trust, perhaps you could accumulate some gold coins from a reputable dealer, and keep them safe somehow - and don't tell those who don't need to know.

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Nothing here should be taken as personal advice, financial or otherwise. No liability is accepted for third-party content, whether incorporated in or linked to this blog; or for unintentional error and inaccuracy. The blog author may have, or intend to change, a personal position in any stock or other kind of investment mentioned.

Where are the rich investing?

Last week I visited a successful Midlands brokerage. The boss was looking where to invest tens of millions of pounds for a client.

Stocks, bonds, real estate, commodities?

No: cash.

He'd found somewhere that offered 3.6%. Security of capital, and protection against our current moderate inflation.

How many individuals and corporations around the world are doing much the same? Are they waiting for the optimistic losers to slug it out, before stepping in and buying up when everything gets cheaper?
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Why buy gold?

See new post, here.