domingo, 30 de marzo de 2008

Iraq and Global Warming

(Part 1)

It is a fact that the only thing that moves humanity is money; power and other accessories come with it. Therefore, money is the final answer to every conspiracy theory out there -about anything.

This pops up the most important question that the world faces right now. How do we stop Global Warming from destroying our planet? It also helps to answer a key question about George´s impulse to invade Iraq despite the lack of evidence against Saddam Hussein. Why did he do it?

Two hypotheses will be analyzed as I try to explain how money is the only determinant behind failed policies and also unprovoked wars.

First hypothesis: The only factor that will function in the race against Global Warming is taxes on everything that emits pollution.

Second hypothesis: The only reason why the United States attacked Iraq was money.

Just in case that you don’t find any connection between this two hypotheses learn this. The Iraq war is running at $5000 a second, according to Nicholas D. Kristof of the New York Times, but it is finance with debt, not with taxes as it should had been. If you tax people they will complain and the support for the war would had fallen years ago. So it is universal that if you want to change people’s behavior -as a government- you have to do it by affecting everybody´s income. That is why if you are talking on real terms about Global Warming, you need to tax polluters. This is a caveat that we need to address seriously, otherwise we will continue to hear Al Gore from years to come.

First of all we need to assume that there is Global Warming and that this is caused by man, we will leave other theories out because even if there is no Global Warming, and even if it is not caused by men, we need to acknowledge that our present level of contamination is bad enough on itself.

Let’s put Global Warming on a single person perspective. On your work place you see a lot of waste by most of your co-workers. They print too many things on new paper, they don´t recycle, they don’t turn their computers off after work, lights are usually on even when they are not needed, heating systems, cooling systems, and any other artifact that keeps the temperature as you want, are unnecessary set to high standards.

And that is just with things that are part of your working experience –feel free to add any other wasteful act or to demostrate that attitude. But if we go forward to a more expanded network of activities we see that our companies in general, are enclave in part of some serious natural damaging businesses.

Look at you production lines (not good examples of thrift) and try to come up with every item that pollutes in great scale some part of your environment. If you are into developing software, do you care if your computes will be recycled after you are done with them? If you export flowers, do you care if the boxes and paper that cover them will be recycled by the florists? If you work at a newspaper, do you care what happened to the millions of papers that you print every year? The examples could be infinite.

This is going forward in your business, what about going backward. Do you know where the paper that you use at the office comes from? What about the light that is provided to your company, or the new laptop that you bought? Is is part of your concerns to focus on where those new wooden desk come from? Were those trees planted specifically for industrial purposes? Or were those trees cut from a natural reserve forest?

A troubling study found out that Global Warming has a exponential effect –I will not get too much into technical details that you can easily research- on how it acts over delicate ecosystems. The study “quote needed” found that when trees are under extreme conditions of heat they stop emitting oxygen. This pose an uncontainable problem, if trees are located in extremely warm places in the world, they won't help in absorbing carbon dioxide but instead they will contribute to the already excessive pollution. Scared already? If they don’t convert carbon dioxide into oxygen the heat on the planet accelerates even further.

A separate study on the Arctic – by NASA- found that “emissions of black soot alter the way sunlight reflects off snow”. Therefore, energy that the sun emits to that particular place is absorbed, warming up the zone even more. So when the ice cap melts, the consequences are disastrous. There is no way to stop the sun from reaching those places, there is no way in the first place to keep that ice cap from melting. And you know what comes after this. The ice melts, it warms up the ocean, the sea level increases, the currents are altered and the extreme weather developments after this, run rampant tearing down the planet. It makes you begrudge the past or at least our present when you think about this perspective; billions of people that live in low areas will be affected by flooding, coastal areas will be swallowed by the ocean, and let’s not even talk about the increase of hurricanes, droughts, heaving rain, extreme weather conditions (torrid areas absorbing thousands of kilometers). What will happen to our offspring?

There are important questions to ask. Is it too late to stop the earth from overheating? What if we control the emission of green house gases, would that help? or could that only decelerates the inevitable? What if what we need to do is not just stop the current warming of the planet, what if we need to cool it down?

As far as we can see if our ice age is over and the uncontainable warming of the earth is not just a product of our human irresponsible behavior, any action that we take right now won’t stop the planet from getting hotter, it will probably just delay that. This doesn't mean that we should act as if the inevitable death is a blank check on our acts. As Robin Williams said when he played the role of Patch Adams in the movie with the same name. "Our job is improving the quality of life, not just delaying death”.

The main actions, thought comes to the inevitable. If we are to maintain our standard of living, we need to take serious improvements in our wanton behavior. If you have to pay too much for a specific service you have two options. The fist one is keeping your present consumption as if nothing has changed, the second one will be to lower your consumption.

But this will only work if we believe that man is driving the temperature to records high.

Let’s assume that this is the case, the green house gases that are thrown into the atmosphere are the only cause of global warming. So in order to stop global warming we need to stop emitting those green house gases. Industries don't have any reason to do that if there is no serious consequence on their actions, common citizens are unwilling to change their behavior for a good cause. That is why taxes come as the only predictable solution in the table -any other proposal is sophomoric.

Changing from fossil fuels to biofuels is not right either, on a Newsweek article Michael Grunwald talks about the enormous threat that this poses on the Amazon where deforestation is destroying the entire ecosystem. We are not only losing trees, as the Amazon is deforested carbon is free into the atmosphere, this has made Brazil “fourth in the world in carbon emissions”, according to the same article. The Amazon is being killed because as we embrace biofuels, they turn into a lucrative business that expands at a fast rate. Since there is no other place where you can grow crops to produce biofuel, the agriculture expansion has no other way to go but into the Amazon, which lost in the second half of 2007 a chunk the size of Rhode Island.

A way to change this is by enacting laws that punish people who are destroying the environment, it is also important to drive the international community to assume the responsibility of paying countries like Brazil so they can protect the Amazon. To do this you need political will, but this will is tie to electability, so members of the United States Congress –in general- won’t take their chance if this is not supported by the constituencies. This is why the whirlwind war in Iraq could be the best foreign policy decision that George has taken, even when the consequences are different from the original ones.

The fact is that when the war helped out to an unprecedented increase of the price of oil tied up to the devaluation of the dollar, people started taking serious steps in order to reduce oil consumption. This being the case, much of the next important inventions will be driven by energy promoted investigations, hybrid cars, cities run by renewable energy, thousands of solar panels, millions of wind turbines, etc. Which may end up provoking a radical change into our lives. Who gets this right will be the power of this century, too bad for China as it struggles with Tibetan monks while their water supplies are disappearing completely -and they don't even shudder-.

Such improvements won’t have enough resources unless governments keep the price of oil at the current level. What can be done is, as Thomas L. Friedman said before, tax oil consumption. This will mean that no matter what happens in the coming future, people will always pay high oil prices. So any other energy source will substitute petroleum without having to be competitive on regular basis. On the other hand this is also a much needed energy independence policy. Global markets won’t panic if the fact that middle east is at war, or if Chavez claims that the empire won’t get his oil, or if Russia threatens to cut gas supplies to Europe, or if Africa sums into a continental genocide.

Taxing just oil is not enough though. What needs to be done is to complement the global fight on high temperatures by reducing emissions in every direction possible. This means that companies should be more energy efficient, take for example what Texas Instruments did when it built its new eco-friendly plant (RFAB).

The transformation of our black world to a green world may take decades to complete, however, this may include side effects too. If you think that ethanol is the next big thing, there are thousands of considerations that you need to take. If the final product uses less energy than it produces, if the products where it comes from (corn for example) is threatening the food supply for millions -take what Jean Ziegler said to reporters in New York, “that converting crops such as maize, wheat and sugar into fuels was driving up the prices of food, land and water”, according to the UN News Center. If you go for nuclear energy, what about the threat of nuclear waste, where will you storage those? Solar power could be the answer, only if you have enough materials to make it true. Wind power will face the same consequences. The best solution could be to adapt them to every specific situation in each region, or to combine the best of them.

This development will only be expanded to the masses if the price is competitive. With the surge of India and China, followed by many other third world countries the balance between what is produced of oil and coal and what is consumed is negative. In the years to come what the price will do is to go up even more, destroying the economies that depend too much on it and also empowering undemocratic regimes all over the world.

To give you an idea of the scenario is the current China-Darfur situation. China gets oil from Sudan where it has heavily invested, which means that Sudan is protected by a superpower that will look to the other side when it agrees to its interests. Sudan will maintain its power as long as it holds large amounts of petroleum. The same will apply to Venezuela, Saudi Arabia, Iran, Iraq, Kuwait, etc. All this petro-states will not have the wiliness to invest in alternative sources of energy as long as the price of oil is high. So the principal source for global warming will be there at the current level.

This is an important point to take into account when you try to understand how natural resources will be handled in the future. If it is settled that the current level of pollution will threaten the world, we need to reduce the amount of pollution, simple isn't it? But since the scenario will look like what was described above, the reduction can’t be a reality. Here is why:

Even if the United States, Europe and Japan lower their green house emissions, the rise of every other nation in the world and the incremental amount of resources and energy that they consume will overcome the reduction of emissions from this powers. Places like China will continue to rely on oil and coal to supply its much needed energy. Sudan and Nigeria will have the same autocrat governments repressing its own citizens with no serious punishment from the international community. What this means to the environment is that while much of the world will be transforming their current predator behavior, some other part of it will engage in just that.

What taxes could do on this case is to keep the price of oil high enough to make new developments available for the masses. So, my hope is that the United States and Europe set high standards to their industries, tax polluters and encourage entrepreneur spirit, therefore, at some point in the future the rest of the world will have cheap alternative sources and can detach itself from oil and coal.

This may not be enough, as I said before the chances that stopping our current levels of pollution won't horten the Armageddon. The earth is already feeling extreme heat and cold weather on diverse parts of it, simultaneously. A startling drought in the Amazon could destroy millions of trees turning green areas into desserts and vaporizing 20 percent of the global supply of oxygen. The discovery of alternative energy sources that replace entire lands of crops will starve millions of poor people. Our only hope? That our scientists are wrong and we still have time to change the future of the planet.

On the second part of this article I will analyze how the war in Iraq allocated billions of dollars that could had been used to improve the life of Americans in incalculable ways, in the hands of few corrupt companies that wasted the unique opportunity of creating a dream society -with élan- in the Middle East. I will also put in perspective the connection of Global Warming, Iraq and our priorities as society. How foreign policy is developed and how we are securing our natural resources.

I hope that for now Global Warming deniers at least take the plethora of opportunities in reducing pollution, even if they don’t believe in the end of the world, as we know it.

domingo, 23 de marzo de 2008

(Part ")

Well, all seems just fine... right?

Between the first part of this article and this second one, the United States has fallen "officially" into recession. This brings terrible thoughts to my head; are our leaders that stupid? And if so, why are they our leaders?

The housing bubble ended being the most dangerous economic threat that the world has faced in the past half century. As I pointed before, I was with the pessimist souls that were at Davos this last February. The rest –the optimist- look not just foolish, they look ignorant.

Alan Greenspan still denies any blame for this uncontrollable mess. George talks as he does not know how deep this crisis is and the rest of the world watches helpless as the dollar falls to its lowest level ever.

This translates into a disgrace line of bad policies that are leading to the worst nightmare that a country could face -that is when no one wants to trade with you.

I thought at a certain point that the United States -lead by Bernanke- could skip this mess with the right monetary policy. It turns out that Bernanke was just another piece in the long list of incompetent managers. His improvising has lead to record prices of the futures of oil, gold and other “save” goods.

The Fed is driving the United States to the worst case scenario, one that could destroy the entire economy. Let’s see which two policies are turning the United States economy into a shred of worthless green papers that are losing the only thing that they hold, value.

The first irresponsible policy is this; lowering the interest rates without accounting the inflation factor, and not only that, lowering interest rates bringing the value of the dollar against other currencies to an all time low.

The second irresponsible policy is this; sending billions of dollars into the economy, on one hand by lending that money at a low interest to the banks, on the other by giving back billions in government checks to the American people as tax credits. This is setting the fiscal deficit further into red ink, while overheating certain segments of the economy while the rest is falling down.

Of these two disastrous policies the first one is the worst. Bernanke could lead to the end of the American prosperity by taking out the only thing that sustains the American economy, trust. How is this done?

When the Fed lower the interest rates that it charges to banks -so money is injected into the economy- what the Fed is doing is? a- pushing the “worth” of the green buck down, b- making more money available, c- making people spend that money, d- all of the above.

Those measures are done so the influx of billions of dollar in the economy helps increase the acquisition power and therefore moving the economy out of recession. The possible side effects are bad though, first you get cheap money that no one wants to keep, you rather spend that money than saving it. Since interest rates are lower people don’t have any incentives to keep their long term savings. But since the economy is weak, after the effect of sending everybody on a shopping haunt, certain parts of it will get overheated. Some business will find themselves into the weird unbalance of selling things in exchange of less money. This is what leads to inflation.

Once inflation is on the market it could tear the economy apart. The industries that are big enough to send their merchandise overseas will do that, because the exchange rate will benefit their profits, bringing further dearth of goods in the market. But the worst problem is the devastating toll on the value of the dollar.

Once the dollar loses its value the world will run in a stampede to sell them as fast as they can. Why having a currency that is not easily exchangeable when I can have some hard money as the euro in my hands? Why buying treasury bonds when I can buy gold or silver? Why exporting to the United States when I can sell to Europe where my products will be sold at a better price?

What we are seeing right now is the worst case scenario ever. The dollar is not longer wanted in the world, not even in America, and when a currency loses its value in such rapid way, the only solution is changing the currency.

Now let’s put our hands up for Greenspan and Bernanke. Good job boys!

When I first looked at this problem I thought of a simple solution. Letting the market fix itself, but as time runs out, if it has not done so already, I had a change of heart. My first impressions were, looking at the past and assuming that another bubble will be created, that as long as people believe in the economy some will think of a way of creating wealth out of nothing. And that other bubble could fix, at least on a temporary basis, the problems that the economy faces.

I have to admit that I cannot think of the magical bubble that will come and save the economy. Thanks to George´s lame duck policies, all that will be left is going to be memories of a better past. What lies in the future are dark days, not only because when most people get $300 they will spend them at Wal-Mart buying groceries or paying old debts, but because until that happens many major employers will be sending dozens of thousands out of work.

Think about the chain reaction that is happening right now. If people don’t buy things, businesses don’t sell things, they don’t hire people but instead they fire them, people out of work don’t pay taxes, the government collects less taxes, spend less money and finally, fire more people. In the end what you have is an economy filled with unemployment, lack of investment and a worthless currency.

But problems don’t end here, there is a credit card problem that is waiting to exploit and as sometimes happens, it will give the last blow to the economy. Credit cards lend too much money to people that could not afford to pay it back, and as it happened to Bear Stearns –who was sold for $2 a share to JP Morgan- individual debtors could end up giving their belongings to banks who will take them for almost nothing.

So credit card lending won’t be the next bubble to be created. However, it could be the last one to burst, then again we face a tough question. What bubble could save the economy? Oil?

What could happen in the near future is that the dollar will slip further against the euro, foreign investors will rather hold stock in European markets and will rather detach their financial ties with the United States. The final result may drive China to stop looking at the United States as a destiny market leaving the US government with no buyer for the billions that it need to fill the hole in their fiscal debt sheet.

Even when I tried to find an exit to this huge problem, no easy way is in the horizon. The only bubble that could be created is in the stock market (not likely) and on the credit card lending (too late).

What will actually bring the United States back on track will be the opportunity that countries like Saudi Arabia, Japan, China, India and others, see in the falling US market, they could go on a shopping day looking for plethora of opportunities in the poor housing, stock and private markets.

No other bubble will save the economy, no easy way out is on the near future; sure the exchange rate could soon stabilize the trade imbalance between the United States and its partners, bringing other economies into recession. This 2008 will be a nasty year for everybody, particularly for the optimist leaders such as George. As America´s leaders live in denial about the health of the economy, smart pessimist are betting on high risk businesses that will lead them to make billions once the crisis is over. They will create the next bubble –that I don’t know yet what would be- but I am looking closely to how the economy handles low interest, an overflow of “cheap” money and the write offs of hundreds of billions related to the housing market.

Good luck to the US consumers… while they shop at Wal-Mart.