2011/04/27

"She's Come Undun"

Shakespeare had one of his characters in a play utter the phrase, "Past is prologue."  As I understand it, he meant that what happened in the past sets the stage for current events.  And of course current events set the stage for the future.

We humans tend to learn little from others' experiences, even if the events occurred in our lifetimes.  Sometimes we don't even learn from our own experiences.   This failing allows historical themes to play out in a similar fashion over and over again, with each new generation thinking the previous has made a mess of things, and only the clear thinking and discipline of the new generation can make things better.
The last few days I have been thinking of the comedic displays that pass for politics, news, and current events in the United Suckers of America.  At the same time I have been reflecting on various recurring themes and how they have been dealt with in popular music in the past.

In this post I will connect some music primarily from the 1960s and early 1970s with current situations.  There is a saying that if you remember the 60s, you weren't there.  I was there and like to think I remember lots -- and my thinking of those events now is often quite different from my thinking as the events transpired.

This post will contain links to various videos.  Here's one that gives a refresher of some events during the 1960s.

Many artists in the 1960s incorporated the themes of cycles or circles into their music.  The band Blood, Sweat, and Tears had such a reference in their song "Spinning Wheel": 
What goes up must come down
spinning wheel got to go round
Talking about your troubles it's a crying sin
Ride a painted pony
Let the spinning wheel spin

You got no money, and you, you got no home
Spinning wheel all alone
Talking about your troubles and you, you never learn
Ride a painted pony
let the spinning wheel turn
"What goes up must come down."  Think of the NASDAQ bubble which collapsed in 2000.  "You got no money, and you, you got no home."  Think about the housing bubble that peaked in 2005-2007.  "Talking about your troubles and you, you never learn."  I see considerable whining from all quarters, accompanied with virorous finger pointing, but little understanding of, or even recognition of the underlying factors causing the pain.  "Let the spinning wheel turn."  Donald Trump, anyone?

Joni Mitchell hit the cycles theme in her song "The Circle Game":
And the seasons they go round and round
And the painted ponies go up and down
We're captive on the carousel of time
We can't return we can only look behind
From where we came
And go round and round and round
In the circle game

"We can't return we can only look behind, from where we came."  Nothing encapsulates our current society better.  Many people believe they can just go back to a simpler lifestyle, with their little patch of land, little garden, little windmill, little solar cell array, little arsenal, and 10,000 rounds of ammo. Only a very small percentage can do that.  The vast majority are tied to an energy-consumptive lifestyle that is about to get very interesting as low-priced energy disappears.

When Americans eventually find out they are never returning to business as usual, and every generation will have a lifestyle reduced from that of their parents, it is possible that violent protests and riots will again appear as they did in the 1960s.  Gordon Lightfoot used the Detroit Riot of 1967 as the theme for his song "Black Day in July".  The song was banned in 30 states.

In 2003, and again in 2006, The Dixie Chicks had their music banned on some venues as the American right wingnuts went beserk over the Chicks' comments opposing the war in Iraq.  If you missed it, think of a National Geographic special where chimps in the trees spot a leopard.  Try not to envisage the flinging of feces.  The ultra-conservative crowd prefer jingoistic nationalism as portrayed by people like Toby Keith:

You’ll be sorry that you messed with
The U.S. of A.
'Cause we'll put a BOOT in your ass
It's the American way
People like Toby Keith demonstrate why the expression "The Ugly American" will never go out of style.  His song lyrics include the combination of arrogance, ignorance, and aggression that people around the world associate with Americans.  Donald Trump has been demonstrating those three characteristics amply in the past few weeks in his fake run for the Presidency.


Way back in the Viet Nam era there was a song by Country Joe and the Fish that captured the anti-war mood of much of the American population (Woodstock live version, image slide show version).  This is truly a timeless piece.  Substitute a few words here and there and it fits any of the current wars America is in.  I particularly like these lines:
Come on Wall Street, don't be slow,
Why man, this is war au-go-go
There's plenty good money to be made
By supplying the Army with the tools of its trade,
Plus ça change, plus c'est la même chose.

Student protests against expansion of the War in Viet Nam to Cambodia resulted in the shooting incident at Kent State, as expressed by Crosby, Stills, Nash and Young in "Four Dead in Ohio". 


Today there is much more complacency among young people than in the 1960s.  Perhaps part of the reason is a sense of futility in attempting to challenge a strong corporatist state where the large corporations and governments are closely aligned, and powerful people move from one to the other on a regular basis.


I know younger people use technology devices regularly, but my observation is that the technology is employed more for recreation and diversion than as an educational tool.  The Guess Who in their song "Share the Land" asked the following questions:
Did you pay your dues?
Did you read the news
This morning when the paper landed in your yard?
Do you know their names?
Can you play their games
Without losin' track, and comin' down a bit too, hard?
My impression is that people of all ages aren't "paying their dues" by spending time researching the important themes playing out in our society.  Most people just accept at face value the misleading trivia the mainstream media publish.

Leonard Cohen showed insight into the American system with his 1988 song "Everybody Knows":
Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That's how it goes
Everybody knows

Everybody knows that the boat is leaking
Everybody knows that the captain lied
Everybody got this broken feeling
Like their father or their dog just died
Yes, the American boat is leaking and Captain Obama is lying, as did his predecessors.  So are all his officers.  Lying is necessary, because the citizens can't handle the truth.  Or perhaps they still have access to tar, feathers, rails, and pitchforks.


In my opinion we are still in the early stages of what could be a two decade deleveraging process.  Almost everyone is in denial, thinking we will go back to business as usual.  We won't.  Much of our growth over the last 20-30 years was due to easy credit, which pulled forward demand for all things.  Now it's time to "pay the piper".  Substitute "credit" for "needle" in Neil Young's song "Needle and the Damage Done":
I caught you knockin' at my cellar door
I love you, baby, can I have some more
Ooh, ooh, the damage done.

I hit the city and I lost my band
I watched the needle take another man
Gone, gone, the damage done.

I sing the song because I love the man
I know that some of you don't understand
Milk-blood to keep from running out.

I've seen the needle and the damage done
A little part of it in everyone
But every junkie's like a settin' sun.
Everyone wants the other guy to be forced to be clean and sober (pay his debts).  In the meanwhile, it might be appropriate to allow me to have just one more little fix (credit expansion).  Every credit junkie's like a settin' sun.


In the meanwhile President O'bomber has proved to be a huge disappointment to many.  He is captured by the corporatists and his policies tend to be to the benefit of the corporations and wealthy individuals, and to the detriment of the citizens.  He is clueless on economics and energy issues, and as such is a collosal waste of skin in his present position.  Look at who he takes his counsel from -- some of the biggest plunderers of the American system.  It's hard not to notice that he has escalated war efforts and military spending beyond Bush's efforts.  


The sense of disappointment many have with O'Bomber might be reflected in some of the lines from the Guess Who song "These Eyes":
These eyes watched you bring my world to an end.
This heart could not accept and pretend.
The hurtin’s on me yeah,
But I will never be free no no no.
You took the vow with me yeah.
You spoke it, you spoke it, babe.
The fact is that credit deleveraging coupled with increasing demand worldwide for dwindling resources is a force that no administration can overcome.  Influence, yes.  Overcome, no.  Poor O'Bomber will leave office as President "No Hope and Change for the Worse".


Yes, America is coming undone, or "Undun" as the Guess Who spell it.  There is an idiom that "every dog has his day", which is similar to the saying about everyone getting his "15 minutes of fame".  But for nations the time period is longer.  Some historians have noted that the average lifespan of a democracy is about 200 years, after which it is replaced with some form of autocracy.  American Independence was in 1776; add 200 years (doing the Jethro Bodin carrying of the naughts in my head) and . . .  jeez, what's that awful stench -- something is past its "best before" date.  Or, from "Undun":
It's too late
She's gone too far
She's lost the sun

She's come undun
She wanted truth but all she got was lies
Came the time to realize
And it was too late
I find it both humorous and perplexing that American Democrats and Conservatives are having a major problem coming up with anything near a one percent cut in their deficit spending.  They can't cut because that will result in a slowdown in government spending which translates into a drop in GDP.  But they can't continue increasing debt indefinitely because they system will collapse suddenly if they don't contain spending.  


Americans think they have a problem.  They don't.  They have a dilemma.  Problems have solutions; dilemmas have only a choice of bad options.  In most dilemmas, the options become more painful as time goes on, and that is the case in America. 
Infrastructure is aging and maintenance has been neglected.  Every year the civil engineers give a lower grade to the state of repair of bridges, roads and dams.  Expect increased failures of all in the future.  

Americans and Canadians have a  transportation system that is heavily dependent on automobiles rather than public transportation systems that most of the rest of the world have invested in.  As energy costs rise cars become a very expensive transportation medium relative to public systems so this is a competitive disadvantage.


Everyone who has studied ecology understands that any given parcel of land and/or water has a carrying capacity of a certain variety and number of plants and animals.  Animal numbers grow from low numbers where they have more than enough food, to high numbers where there is insufficient food (overshoot).  Then the population crashes back to low numbers again due to starvation, competition, or disease.  Humans are subject to the same rules.  The lack of any national energy policy in America or Canada means that we are in for some big negative outcomes, as cheap and plentiful energy supplies give way to more expensive and less plentiful sources.


Competition for resources has been a feature in North America for decades, but it has been masked somewhat by access to cheap credit.  Over the last 3-4 decades the already wealthy have been able to collect proportionally more of the wealth than the lower classes.  The middle class grew for about two decades following WWII, then began its slow decline, accelerating downward in the last decade.  


Against this backdrop there has been a constant propaganda barrage about the advantages of democracy and free market economics.  In reality the powerful elite have ensured there is only the semblance of democracy.  And there is no free market (and never has been); the powerful use governments to slant laws to their benefit while challenging the lower classes to adapt to austerity measures.


Leonard Cohen had a catchy song "Democracy" (link is slow loading, high resolution video of recent Wisconsin demonstrations -- worth the wait while loading).  The democracy theme is topical due to the unrest in the mid-East.  I wonder how many of the citizens fighting for regime change understand that they aren't going to improve their lot in any significant way just because they get to vote for their government officials.  And do they understand that in most cases America would prefer dealing with their current dictator than an elected government?  Wealth will always be concentrated at the top, regardless of the form of government.


I would like to believe that in our problematic near future we will work towards a system where logical decisions are made to mitigate the deterioration of our society.  As Cohen put it in his rhymes:
I'm sentimental, if you know what I mean
I love the country but I can't stand the scene.
And I'm neither left or right
I'm just staying home tonight,
getting lost in that hopeless little screen.
But I'm stubborn as those garbage bags
that Time cannot decay,
I'm junk but I'm still holding up this little wild bouquet:
Democracy is coming to the U.S.A.
However, my background is such that I tend to look at the probabilities logically, disregarding personal preferences.  As I mentioned above, the average democracy lasts about 200 years and American empire is clearly in decline, just as the British empire declined previously.  And numerous powerful emprires rose and fell prior to the British.


At present the citizens of America are at each others throats like the Cripps and Bloods.  The power elite have been effective with divide and conquer propaganda, so that the populace believe they are in a political ideology struggle.  They aren't -- they are in a class struggle, and as Warren Buffet states, his class is winning.  


America is experiencing the classic shock doctrine as espoused in Naomi Klein's book of that name.  The power elite are forcing reductions in education and social programmes, while looting everything not nailed to the ground, accompanied by transfer of debt from private hands to the public.  If Stephen Harper were to get a majority government in Canada next week, we would see an acceleration of the shock doctrine here; to this point he has been able to only make moderate changes, but remarkable ones considering he has never had a majority government.


Regardless of which party is in power, I apply the Guess Who lyrics to our economic situation -- "She's come undun".

2010/12/30

2010 Energy Update

This is an update to my post in June of this year, entitled "It's all about Energy".

In that post I outlined my reasons for believing that an average price of oil of $85 per barrel over a 10 week period (50 trading days) would be enough to send the American economy into recession.  Well, we're there, boys and girls.  In the chart from stockcharts.com below you will see the 50 day moving average (blue line) closed at $86.06 today.  Click on graphic for sharper image.

 But could I be wrong?   All the news out of Fraud Central (aka USA) states that things are much better, and the markets are going up. 

Of course I could be wrong, but hopefully never so much as a central banker like Alan Greenspan or Ben Bernanke who repeatedly failed to identify economic problems they had created, as in this clip.  

In May of this year we had a stock market pullback accompanied by a pullback in commodities prices.   My 50 dma oil price peaked at about $83.  In August Bernanke stated at the Jackson Hole summit that he would do whatever it took to support the economy, which was not performing as well as he had previously predicted.  This was widely interpreted as a promise to inject more liquidity into the financial sector, and the Banksters were off to the races once more.  

In November he announced his plan to inject $600 billion of "quantitative easing", between November and June, 2011.  And he would top that up with about $300 billion more from mortgage-backed securities held by the Federal Reserve as they matured.  The end result is a plan to inject about $7.5 billion per day into the economy, which he interpets as the Wall Street Banksters.  

And about a week before Christmas President O'Bomber announced a deal he had made with the Republithugs to extend "temporary" low tax rates for another two years, accompanied by an extension of unemployment benefits, and a few other tax reductions for a total of about $858 cost to the taxpayers over two years.

Now, out in the real world where central bankers and Washington politicians spend little time, people around the world didn't like these plans.  It looks like the United Subsidies of America is happily continuing down a debt spiral to oblivion.  

The people I call the commodity vigilantes bid up most things that had real value.  Oil, corn (and other grains), copper, cotton, gasoline and others have been going up.  Copper recently set a new all time high.  

My take is this.  Anything that is widely needed will be bid up in price, things like food and energy which are the first to increase in price in an inflationary cycle.  But things that are not needed will go down in price, like electronics and housing.  Earnings are not going up in real terms for the lower economic classes, while they are for the top few percent.  In fact, the largest private employer in America, Wal-Mart is removing its $1.00 per hour Sunday premium for new employees.  Why?  Because it can.  I use Wal-Mart as an example of overall wage suppression.

But surely housing is a need?  Nope.  Shelter is a need.  Housing is a lifestyle choice.  Most of the housing space in North America is not a need -- it is a luxury, so it will continue down in price in the US, and begin the descent in Canada in 2011. 

Two things have backfired on Bernanke so far.  Commodity prices have risen.  This results in one or both of two consequences:
  1.  Higher prices of consumer goods if the price is passed on; or,
  2. Lower profits for businesses if the cost is not passed on.
 The second thing that backfired recently is that long bond rates have risen, the opposite of Bernanke's intention.  American 30-year mortgage rates tend to follow the long bond rates.  In the chart below divide the rate by 10 (44.30 is 4.43%). I guess the bond vigilantes are still around.  We'll see in the new year whether Bernanke can manipulate the rates down again.  If not, watch the American housing market lose another 10% in 2011.

 While we're at it, let's take a peek at a 6-year chart of American national average gasoline prices (regular unleaded), from gasbuddy.com. 
 Gasoline prices are back in the same range they were at near the highs during 2005, 2006, and 2007 when Bernanke was unaware that house prices could fall on a national basis.  Forget 2008 because that was the speculative blow-off in commodities, and (in my opinion) is unlikely to happen again for several years.

 After all the above bafflegab, here's my thesis.  We're at the point where commodity prices cripple the economy.  I use oil as my indicator, and more precisely the 50 dma of oil prices.  Oil price feeds into the cost of almost every undertaking.  The money Bernanke is injecting is going mostly into stocks, commodities and emerging markets. 

There is an undeclared economic war going on between America and China.  Inflation is high in China due to "hot" American money flowing in, and the Chinese are some PO'd.  This is an attempt to get China to increase the value of the Yuan, so Bernanke can continue taking the US dollar down.  But as the US dollar decreases in value, things priced in USD go up (like oil) which is a tax on the lower economic classes in America.  But the Banksters make out like the bandits they are.  It's all part of the plan to accelerate the transfer of wealth from the working class, and what's left of the middle class, to the wealthiest members of society.  

Don't listen to stated intentions. Look at what actually transpires (and has transpired) as governments and Banksters manipulate currencies, markets, and laws.

 Be aware that most economists and Wall Street analysts think that it takes about $110-120/bbl oil price to drop the US GDP to zero.  Really?  Maybe that's why many of them are predicting $150 to $200 oil price in 2011, and gasoline up to $5.

That is extremely unlikely, and if it does happen it will be for a very short period.  If the O'Bomber stimulus and the Bernanke "quantitative easing" were stopped tomorrow, next week we would see a crash in stock markets and commodities.  At least 10% of US Federal government spending is borrowed money, adding to the debt.  Take that away, and the economy is instantaneously in deep recession.  

 Europe is in worse shape economically than the US, and China is hard to read.  I expect China to exhibit major social and economic problems in 2011 as their bank debt and huge housing bubble finally cannot be expanded more. If China doesn't crash first, they will continue driving up the price of commodities until Europe or the US (probably Europe) take a dirt dive.  In the end it doesn't matter who is first.  Those three major economies are linked like Siamese triplets, so damage to one tends to inflict pain on the other two.

 The minimum wage in Bejing is rising 21% next week.  Bejing is also severely cutting back on the number of permits for new cars in 2011, due to traffic jams and lack of parking space.  Duh! Who woulda thunk?  Maybe they could have looked at some North American cities traffic problems before re-creating the same thing.  It just shows people don't learn from others' mistakes; another example is financially over-extended Canadians who learned nothing from their American friends and relatives.  It's always "different here".

China is producing about 17 million vehicles this year and most of them are for new users.  Every new user adds to fuel consumption, as well as the materials used in automobile manufacturing.  In North America, most new vehicle sales are at about the same rate that older vehicles are being scrapped, so there are not many new users, and there is some salvage from scrapped vehicles.  And the newer vehicles are usually more fuel efficient than the older ones, so it is possible for there to be a reduction in fuel consumption.

That is not possible in China.  Vehicle sales and fuel consumption continue to rise. The same applies to all developing countries.  At some point their demand drives energy and other commodity prices to a point where growth in developed nations ceases (because our economies are much more dependent on low energy costs, due to our huge per capita energy consumption).  I'm thinking we're already there.

The bright spot on the energy scene is natural gas prices.  At $4 this is a bonus for consumers.  It is also a bonus for the Canadian bitumen producers, since their operations are basically an arbitrage on natural gas and oil prices.  This article states the Fort McMoney boys use 20% of Canadian natural gas consumption.

This price is too low for gas producers to make money.  It is a result of companies staking out positions in shale gas plays, and then having to do a certain amount of drilling and production to hold their land positions.  They know they are over-producing but it's basically a war to see who survives and who goes under.  In 2009 there was a big enough contango in natural gas futures prices (higher prices for longer dated futures) that many companies could hedge some of their 2010 delivery prices.  For instance, Encana hedged something like half of its 2010 production at prices around $6.  That's still not good, but better than the $4 they're getting for the other half. 

The chart below shows the futures strip price for natural gas for the next two years.  A producer could lock in delivery price for next December for $5.02 and for December 2012 for $5.42.  That's a real gamble because it's not much above current prices, and if spot market prices are higher then, they will have hedged below market prices.  If there is no price spike this winter there will be no opportunity for producers to hedge some future production at significantly higher costs.  2011 will likely be the year that many under-capitalized producers go out of business.  Chart is from metalprices.com.

Conclusion
 I think we are near the end of this current rise in energy prices, and many other commodities as well.  In my previous post I indicated that I thought prices would stay between $60-90 with only brief spikes outside that range.  For the next six months I'm raising that range to $65-95.  

If there is an oil supply scare (due to real or imagined issues) there could be another price spike like in 2008, but I would expect the spike to be lower, and of shorter duration.  The entire consumer psychology has changed and people will change their habits by cutting consumption quickly.  They have no choice; they no longer have credit available.  The mutterings are already beginning about $3 gasoline, and the usual conspiracy theories about price rises are being dusted off and plopped into reader comments on the blogs.

 Bernanke & O'Bomber may provide enough liquidity to get oil prices past $100, but I think this will be self defeating and self correcting.  It is not their purpose to do so, but the commodity vigilantes will not let them depreciate the dollar and/or increase the money supply without driving up commodity prices of all kinds, especially oil.  I expect the American economy to re-enter recession in the second quarter of 2011 (although many knowledgeable people whose opinions I respect disagree), and Canada will follow by the end of 2011.  You can't cure a debt crisis with more debt.

Our North American lifestyle is dependent on cheap and plentiful energy.  Watch the price of oil, as it is the most important energy source.  The higher oil price goes, the sooner we approach the next economic downturn.

American News Quiz

It's time to warm up the old keyboard before getting into some end-of-year posts.

If you haven't seen my second YouTube fun video, go here.  In this one I used old radio and TV ads and public service announcements and applied them to mostly newer images.  Just my bizarre sense of humour.

Today I filled out a quiz on current affairs conducted by the Pew organization.  It was designed for Americans, but I follow American news regularly, so I decided to give it a whirl.  It had 12 questions, and I got all 12 right.  Some of them were ridiculously easy.  See screen shot of my results below.  Click on image for sharper pic.
 Apparently less than 1% of 1001 Americans got 12 right, and about 1% got 11 right. 

But I am puzzled by the distribution in the above chart.  How can 4% get all 12 questions wrong?  As I recall the quiz (I'm too lazy to go back and check) there were 4 options for each question.  Even if you guessed at random, should you not get 3 out of 12 right (on average)?  What are the odds that someone could guess all 12 questions wrong?  Again, I'm too lazy to go back to basic probability theory and work it out.  Maybe one of the Ph.D. candidates in the family can help? (I know you do this type of thing on a daily basis.)

At first I thought the 4% must be Fox News viewers.  But then I glanced through the analysis and noted that Republithugs, the Fox demographic, got an average of 5.5 questions right while the Dummycrats only got 5.0 right.  

There were three easy questions dealing with the results of the mid-term elections last month.  Apparently this poll was done November 11-14, and the Nov. 2 election results were widely publicized around the world, not just in America.  How can any American not know what happened in their recent election?  Un-be-friggin-believable!  And how can anyone not know the current unemployment rate, which is in the news every day, especially when there is only one answer that makes sense?  And still people can get 0 out of 12?

Apparently Americans are poorly educated not only in math and sciences, where they rank in the bottom third of developed nations, but in their own current events as well. 

To take the quiz, go here and click on "Take the Quiz".

In the quiz only 15% of Americans picked the Prime Minister of Great Britain out of a list of 4 names, the same percentage who picked the CEO of British Petroleum (thinking he was PM).  Of course this isn't news to Canadians who are  bemused every four years by the number of American presidential candidates who don't even know who the current Prime Minister of Canada is, despite the fact that most of the presidential candidates are incumbent congressmen, senators, or state governors.

Rick Mercer used to have fun with this theme in his series "Talking to Americans", as in this one (poor quality video, audio is funny). 

For a more serious informative clip with much better quality, I like this one from Tom Brokaw, which I think was a prelude to the 2010 winter games.  Good video quality here.  I think he was subtly making the case to Americans that if they attended the games they wouldn't have to reserve an igloo.

2010/12/08

Consumers

When did we stop being citizens, and start being consumers?  I must have missed the memo.


It may have started with Edward Bernays who made a huge fortune teaching merchandisers how to sell things to people who don't need them.  Adam Curtis' production of The Century of the Self is on YouTube, profiling Bernays' methods.

I find the term consumers somewhat offensive.  When I think of consumers I think of cattle in a feed lot.  Perhaps the comparison is apt.  (See my YouTube video production link at the end of the post.)


There is no doubt Americans are "the biggest winners" when it comes to packing on the pounds.  It is regularly reported that one third of the population is overweight and another third is clinically obese.  Charles Hugh Smith had a neat graph depicting this situation in his blog today (reproduced below, click for clearer image).




 But this post is more about our general spending habits, not poor dietary choices.  It would appear that Bernays and his followers have been remarkably successful in getting us to confuse wants with needs, to the point where we have gone deep into debt to purchase nonessentials. 

Just before the last recession rental storage units were popping up everywhere like mushrooms after a summer rain.  People just had too much stuff, as George Carlin used to talk about in his stand up comic sessions.

So now that we've "pigged out" on credit and simply can't eat any more, it's time for our owners to send us to the slaughter house for debtors.  But not before force feeding us more debt.  The private sector is in the process of transferring its debt to taxpayers via increasing government indebtedness with help from the Federal Reserve Bank.  

When the system collapses the top few percent of society will be relatively unaffected while the large majority, the working class who like to think of themselves as "middle class", will be wiped out financially.  This game has been played out all over the world, particularly for the last 40 years.  The latest victim is Ireland; I expect America's economic collapse will be within 10 years.

I posted a YouTube video slide show entitled "Stampede" which shows my morbid sense of humour with respect to consumerism. 

Corny Math

I have always had admiration for those both audacious enough and skilled enough to hide a scam in plain site, undetected.  That's what I view the US ethanol blenders tax credit as.

The credit is $.45 per gallon of ethanol blended into gasoline, and should not be confused with any of the numerous subsidies for agriculture.  This credit amounted to $7.7 billion in 2009.

While the blender credit is controversial, almost no-one ever calculates the true cost of the credit for each gallon of new energy produced and blended.   I don't think I have ever seen such an analysis.

To calculate the true cost of the blending subsidy for new energy produced you need to apply the realities of energy return on energy invested (ERoEI) to the stated tax credit.  

It takes considerable energy to produce a gallon of ethanol.  There is energy embedded in the fertilizer and pesticides applied to the corn crop, energy to run the machinery to fertilize, plant, spray, harvest, and transport the corn to the ethanol plant.  Then there is the energy to process the corn through the fermentation stage, and more energy to evaporate most of the water.  Finally there the energy used in shipping the ethanol to the blending site.  There is a byproduct called distillers' grains which can be sold as animal feed to help offset input costs.

Estimates of ERoEI for corn ethanol vary widely.  Naturally people in the industry tend to have higher estimates than those who aren't.  There are credible university research papers that calculate there is a net energy loss in the production of corn ethanol.

For our purposes, let's examine two possibilities.  The first would be an ERoEI of 1.5, which would mean 3 units of energy out for 2 units of energy in.  This is on the high end of credible efficiency reports.  The second possibility is an ERoEI of 1.1, or 11 units of energy out for 10 units in.

If you haven't unravelled the scam yet, I'm getting to it.  In the first situation you pay $.45 for each of 3 gallons of ethanol.  But only one of those gallons is new energy.  The other two gallons were inputs of existing energy such as electricity (coal, natural gas, nuclear, etc. as energy sources), diesel fuel, gasoline, natural gas used directly or embedded in inputs such as fertilizer and pesticides.  The process produces one unit of new energy and converts two units of existing energy.

So the taxpayer is paying $.45 for the blending of one unit of new energy and an additional $.90 for the blending of two units of energy that existed before, probably mostly as coal, natural gas, and diesel fuel.  In essence, the taxpayer pays $1.35 per gallon of new ethanol energy just for the blending credit.  This doesn't count any other subsidies to the farmers or ethanol plants, or the cost of the ethanol itself, just the blending credit.

Now you can see where I'm going with this.  For the 1.1 ERoEI scenario, taxpayers would pay 11 x $.45 = $4.95 per gallon of new ethanol energy just to mix it into the gasoline.  This does not include the cost of the ethanol itself, just the blending credit.

This is why it is critical to do some real science when introducing new energy options to get a true analysis of costs and benefits.  It may make sense to convert coal and natural gas to ethanol via corn farmers.  Then, again it may not.  As more corn is used for ethanol production, the price of corn goes up for all other users of corn.  (No ethanol producer ever puts that cost into their calculations.)

My personal feeling is that the ERoEI is closer to the 1.1 number than the 1.5 one (based on credible analyses I have read), which would make corn ethanol a huge boondoggle.  (If the ERoEI were 1.5, why would there be a need for any subsidy anywhere in the system?  Corn ethanol would be highly profitable without subsidies.)  The fact is that the US government has no credible energy agency that compares various energy sources and the true costs of delivery of each to the end user.  Without such analysis there is no way of developing a rational energy policy.

This is just one small example of what I believe is unproductive economic activity adding to the decline of the American Empire. 


2010/11/25

Shcool Daze

It's been a while since I posted anything.  I've been busy trying to make sense of world events.  So, to get back in the groove, let's start with some humorous images on the education theme, then move on to more serious and (hopefully) useful material.  Click on any image to see it enlarged in higher definition.

In addition to "shcool" in the below image, you will note the capital "I's" are dotted.  Why?  Literate people often do this.  Why?  It's a mystery.




I'm not sure what topics are taught at the schools advertised below, but I'm certain the sign attracted many teenage scholars.  "But Mom, I've gone to Holy Immaculate all my life.  Don't you think I should diversify my education?"


According to this article, the above billboard was proofread by four members of the advertising agency staff. 


Moving on, below is an image with demonstrable proof of the efficacy of home schooling.  I presume this was at a campaign rally for current Texas Governor, Rick Perry.  Incidentally, 8 of the last 12 national spelling bee champions were Indian American (ancestors immigrated from India), not bad for an ethnic group comprising about 1% of the American population. Those who put an effort into their education from an early age tend to excel (just like sports); those who don't tend to complain about "foreigners stealing our jobs".


And, for the final pic, I'm guessing that Mom or Dad took the below image, and she or he was also home schooled.  This must be the "No Child Left Literate" programme that President Bush promoted.


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Here are 3 simple tools/tips to help you archive articles or images you come across on the internet.


1.  Microsoft Snipping Tool
Most people are aware that you can capture everything presently on your screen by using the Print Scrn button.


But some people are unaware that there is a useful utility in the last few versions of Microsoft Windows called the Snipping Tool.  With it you can capture all or part of your screen and save it as a .jpg image.  It's quite handy for grabbing still images, news article headlines, or an image from a stopped video.


To find this tool simply go to the Start icon in the lower left of your screen (presuming you are running Windows), select All Programs, select Accessories, and finally select Snipping Tool.  Here's how it works.




2.  TinEye
This is an excellent tool!


From the TinEye site, "TinEye is a reverse image search engine. You can submit an image to TinEye to find out where it came from, how it is being used, if modified versions of the image exist, or to find higher resolution versions."


Have you ever found an image on the internet that you wanted, but it was only a thumbnail, or fuzzy, or perhaps someone had put text over the image and you wanted it without the text?  If only there was a way a person could find if there was a better version of the image somewhere on the web . . .  Then TinEye is for you.  This powerful image search engine was developed by the Canadian company Idée Inc.  It searches almost 2 billion images and lists all versions of the image you submitted, and does it in a few seconds!


Simply go to tineye.com and read the FAQ (found in the "about" menu) for more info.  You can do 50 image searches per day, or 150 per week for free.




3. Microsoft Word Pad
This is really basic, but I find this small word processor to be quite useful in organizing my thoughts or listing links to articles that I might want to review later.  The advantage over "full meal deal" word processors like Microsoft Word is that it is much smaller, uses less memory, and saves a smaller file.  


I keep links to interesting articles on one Word Pad file for a month, then start a new file.  Word Pad is found in the same Accessories folder as the Snipping Tool above.
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This final section on today's education theme is dedicated to a few blogs.  The first is an excellent Canadian blog, Financial Insights, by Ben Rabidoux.  Ben has a very readable style, and is skilled at presenting concepts with clarity.  I recommend all Canadians at least skim his material, and read it in depth if you care at all about money, jobs, housing, and the Canadian economy.


One of the reasons I like Ben's blog is that he deals with relevant Canadian themes.  He is intelligent, educated, and insightful, three features not necessarily found together in the same person.  In addition, he is very analytic, and somewhat of a skeptic of general statements made about the economy in our media (which endears him to me).  In a recent post he dissected the assertion often made by Vancouver residents that "rich Chinese" immigrants will keep house prices high.


I would suggest readers start with Ben's Primer series.  Scroll to the bottom and start with #1.


Ben's brother, Ethan, has made a YouTube video of some of the Primer material.  I find it well done, but you have to pay attention to catch all the images, which are both educational and entertaining.   Très beau!



The second blog I recommend in this basic education theme is Chris Matenson's site (mentioned in Ethan's video above).  Chris has created a series of videos to provide basic education on economics, called the Crash Course.  It is very well done, and presents the concepts with graphics and comparisons that are easily understood.  Chris deals with the themes of economy, energy, and environment and how they are interrelated.  The total time for the series is about 3-1/2 hours, but there is also a 45 minute overview.  I haven't watched the overview, and it's been about a year since I last viewed the Crash Course, so I need to review it soon.  I get more out of it every time viewed, especially in light of world events since the last viewing.


I will be referring to one of Chris' recent articles in a future post.



2010/08/23

Born-again Home Buyers

This is hilarious, and a testament to the lack of financial education in the Untied States of America.  (It's no better in my country, Cana-dumb.)  Today I came across the following:


In an annual survey conducted by the economists Robert J. Shiller and Karl E. Case, hundreds of new owners in four communities — Alameda County near San Francisco, Boston, Orange County south of Los Angeles, and Milwaukee — once again said they believed prices would rise about 10 percent a year for the next decade.
With minor swings in sentiment, the latest results reflect what new buyers always seem to feel. At the boom’s peak in 2005, they said prices would go up. When the market was sliding in 2008, they still said prices would go up.
“People think it’s a law of nature,” said Mr. Shiller, who teaches at Yale.


 At least that's an improvement from the survey done in SoCal in 2005 which I referenced in a previous article, wherein the average estimate for increase in house prices for the next 10 years was 20% per year.  And we all know what happened next.


These are definitely born-again house buyers because their estimate has to be based on nothing but faith.  There is no logic in such an estimate based on fundamentals.

There are places for faith in a person's life, but a home purchase is not one.


“Faith... Must be enforced by reason...When faith becomes blind it dies.”-- Mahatma Gandhi