Here's my Top 10 links from around the Internet at 10:00 am today. We now have a Monday-Wednesday-Friday schedule for Top 10.
Bernard will be back with his version this Wednesday. We will have a guest posting on Friday.
As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.
See all previous Top 10s here.
1. The gated globe
The forward march of globalisation has paused since the financial crisis, giving way to a more conditional, interventionist and nationalist model, says Greg Ip at The Economist.
Most of the world now feels threatened by the growing power of emerging economies, and economies struggling to get better incomes for their people. Ironically, it is the emerging economies who feel the most threatened.
Mike Moore probably said it best; we are happy to be generous on Sundays, but when we return to work, we don't want to be threatened by their exports. A new selfishness is invading our collective; we no longer can be bothered to get more skilled and competitive.
It's just easier to throw up barriers at our borders.
Globalisation has clearly paused. A simple measure of trade intensity, world exports as a share of world GDP, rose steadily from 1986 to 2008 but has been flat since. Global capital flows, which in 2007 topped $11 trillion, amounted to barely a third of that figure last year. Cross-border direct investment is also well down on its 2007 peak.
Much of this is cyclical. The recent crises and recessions in the rich world have subdued the animal spirits that drive international investment. But much of it is a matter of deliberate policy. In finance, for instance, where the ease of cross-border lending had made it possible for places like America and some southern European countries to run up ever larger current-account deficits, banks now face growing pressure to bolster domestic lending, raise capital and ring-fence foreign units.
2. Dicing with death
It's not only the Americans who are dealing badly with public policy issues. China has a water crisis, one that will perhaps come to stunt their future rather sooner than we realise.
The Economist has a nice summary of the problem in this video, which you can't watch without realising how badly they are dealing with the issue, and how it might all affect us, rather soon it seems. (Sorry, I can't stop the auto-start.)
3. The (surprising) case against foreign aid
In his new book, Angus Deaton, an expert’s expert on global poverty and foreign aid, puts his considerable reputation on the line and declares that foreign aid does more harm than good.
It corrupts governments and rarely reaches the poor, he argues, and it is high time for the paternalistic West to step away and allow the developing world to solve its own problems. Here is an excerpt from the NY Times:
In his considered judgment, global poverty today is no longer a result of lack of resources or opportunity, but of poor institutions, poor government and toxic politics. Though about $134 billion in official aid still flows from donor governments to recipient governments, there is no mystery, he says, as to why foreign aid fails to erase poverty. That is not its mission, he asserts: typically it serves commercial interests at home or buys political allies abroad, too often unsavory ones.
All aid is distorted by politics at both ends, he says, citing the example of Mauritania several years back, when aid was in danger of being cut off. The country’s president hatched the brilliant idea of becoming one of the few Arab countries to recognize Israel. The aid taps were reopened and the reforms rescinded.
The author has found no credible evidence that foreign aid promotes economic growth; indeed, he says, signs show that the relationship is negative. Regretfully, he identifies a “central dilemma”: When the conditions for development are present, aid is not required. When they do not exist, aid is not useful and probably damaging.
4. Today's raw market data ...
A quick new-week update:
| as at 11:10am |
Today 9:00 am |
Friday |
Four weeks ago |
One year ago |
| NZ$1 = US$ | 0.8308 | 0.8280 | 0.8202 | 0.8173 |
| NZ$1 = AU$ | 0.8773 | 0.8759 | 0.8788 | 0.7978 |
| TWI | 77.17 | 76.94 | 76.74 | 72.92 |
| Gold, US$/oz | 1,286 | 1,299 | 1,324 | 1,736 |
| Dow | 15,071 | 14,962 | 15,058 | 13,561 |
| Copper, US$/tonne | 7,125 | 7,113 | 7,050 | 8,130 |
| Volatility Index | 15.72 | 16.48 | 14.38 | 15.28 |
5. Facts change faster than prejudices
Here are ten trends that don't get reported much and don't much fit the standard narratives, says The Atlantic:
1. Solar energy is now cheap and unsubsidised and threatening major disruption to fossil fuel based systems.
2. The US is becoming more Asian, not more Latin.
3. China's working age population is now falling, and its era of cheap labour is over.
4. US CO2 emissions are tumbling per capita, and may keep falling to even to 1950's levels.
5. Getting a degree doesn't help incomes like it used to.
6. Americans are driving much less, and taking public transport much more.
7. The growth in the cost of US healthcare is slowing fast.
8. The BRICs hit a wall; only China qualifies now.
9. Passive money management is trumping active.
10. Most US Govt debt is snapped up by Americans, not Chinese.
6. JPMorgan's legal woes
Only a bank could do this, only a very big bank. Last year it cost US$16.4 billion to run JPMorgan, plus it spent US$7.2 billion settling legal issues. They are reporting their first loss since 2004.
However it is facing a biblical deluge of future legal and regulatory claims and has raised its provisioning for these, to a massive US$23 billion. Basically, from a regulator's perspective, you can't hurt JPMorgan for their failings unless you make them pay more than US$23 billion ! Anything less, and they will write it back as a gain (for which Jamie Dimon will probably get a bonus).
On a conference call with analysts and investors, CFO Marianne Lake said litigation expenses would "normalize over time". She added that the $9.2 billion expense included mortgage and 'Whale'-related matters that have yet to be concluded.
"The board continues to seek a fair and reasonable settlement with the government on mortgage-related issues – and one that recognizes the extraordinary circumstances of the Bear Stearns and Washington Mutual transactions, which were undertaken at the request or encouragement of the U.S. government," said Dimon.
Later on a conference call, Dimon added that the bank would prefer to settle litigation, saying lengthy battles against regulators were difficult to win.
7. Rubbing their hands
And, of course, as in any business dispute, the only winners are the lawyers. More from DealBook:
Even as defense lawyers publicly complain that government regulators are being too aggressive, they privately celebrate the windfall. Law firms in New York and Washington are collectively earning many hundreds of millions of dollars representing JPMorgan in cases ranging from weak controls against money laundering to commodities trading, according to interviews with senior partners at several of top firms.
“It’s pretty straightforward: Whenever regulators go after the big financial institutions and corporations, it’s very good business for the law firms that represent them,” said Allen D. Applbaum, a co-leader of global risk and investigations at FTI Consulting and a former federal prosecutor.
8. E. coli, fuel of the future?
First bacteria to produce diesel, then E. coli to make petrol. Things are moving fast in biotech. Still, a long way to go before its commercial (- if ever).
Using genetically modified E. coli to generate biofuel isn’t new. U.K. scientists said in April they have developed a process under which the bacterium turns biomass into an oil that is almost identical to conventional diesel – a development that followed similar research by U.S. biotechnology firm LS9 in 2010.
But the breakthrough this time is important because the reprogrammed E. coli can produce gasoline, a high-premium oil product that’s more expensive than diesel if the biofuel becomes commercially viable, according to Prof. Lee Sang-yup at the Korea Advanced Institute of Science and Technology. His team’s study was published in the international science journal Nature on Monday.
“The significance of this breakthrough is that you don’t have to go through another process to crack the oil created by E. coli to produce gasoline. We have succeeded in converting glucose or waste biomass directly into gasoline,” Mr. Lee told The Wall Street Journal.
“The gasoline we’re generating could be used in your car. It has identical composition and chemical properties to conventional petrol.”
9. The case for tough medicine
Simon Nixon at the WSJ thinks the early evidence in Spain shows what the Keynesian didn't think would happen, a sharp recovery after painful austerity medicine. A Merkel win?
[I]t’s worth noting that mainstream economists consistently underestimated the depth of the recession in Europe and may be similarly underestimating the scale of the recovery – just as the profession has been almost universally taken by surprise by the strength of the U.K. recovery.
In the case of Spain, nobody predicted the strength of its export performance and the speed with which productivity and competitiveness have improved as a result of tough decisions by companies and a determined program of structural reforms. This has created the conditions for an investment and export-led recovery that - crucially - can be self-funded by a corporate sector now generating substantial cash.
10. Today's quote
"If you lend someone $20, and never see that person again, it was probably worth it." - Author Unknown
11. Where the Government spends its money
21 Comments
On number 1; free trade within a paradigm of a closer to balanced current account would seem far more optimal than the current global system. To achieve that would require overconsuming countries like New Zealand to spend less on foreign goods and services; or those countries with very large surpluses to spend more on foreign goods and services.
The better economic outcome (disregarding for now PDK jumping into the argument) is for countries like Japan, China, Germany, and Switzerland to consume more foreign goods and services, rather than focus on exporting as they do now.
Failing that, some sort of steps to lower the current account deficit would seem optimal for NZ. We are best to try and control what we can control. Rather than put significant trade barriers up; I would advocate looking at the capital flows to get the exchange rate correctly valued, and the rest would likely fix itself.
In regards to the E.coli:
1L of petrol contains ~8,269 kcal of energy (an average dailly intake for a man is ~2500 kcal). So, in order to make 1L of petrol using this bacteria we would need to input at least 8269 kcal of precursors (sugars etc) assuming 100% efficiency (which it is bound to be far less than). Even using cellulose as a feed stock, that's a huge amount of biomass needed to generate a very small amount of fuel.
I'd hate to think what this would do to food prices if we start having to use more biomass for fuel generation, especially given the growing need for more food with the ever-increasing world population.
Also, in regards to China and there water problem: Why don't they just substitute water for something else?! An alternative to water will become viable should the scarcity increase and price of water continue to rise as per eco 101.
Thanks Pluto, just makes you realize:
a/ the immense power in oil and
b/ the stupidity of folk that think the problem is just one of converting all this "free" bio energy into petrol.
Mind you, the the distinction between value and price has been AWOL from homo suburbanus for some time now. A litre of fizzy "energy" gutrot costs more than super powerful petrol millions of years in the making.
People have naively assumed that we will always have access to large amounts of energy, and for better or worse (worse likely ) we have built all of infrastructure around this assumption too.
Given that 80% of the world's energy is derived from fossil fuels, which are essentially as you say a one-time inheritence of hundreds of millions of years worth of stored solar energy, you can see why this may lead to some problems in the years to come.
For perspective: It takes an estimated 5,000,000 (5 million) years to produce the amount of fossil fuel that we burn through in 1 year.
Convert wood to charcoal and bio oil. Leave bark and leaves in forest to recycle nutrients. Or if use right species and have option of using leaves for animal feed.. Use bio oil to replace bunker fuel or generate electricity. Use charcoal slurry to run diesel engines. World forest area increasing every year so plenty of wood available. So many options out there the future looks great!
Woods not very energy dense unfortunately, plus you lose even more energy when you convert it to charcoal. To save a long story I will say I agree that we will use substitutes but I doubt they'll be nearly as energy dense, portable or useful as the key fossil fuels such as oil.
Considering every single activity involves energy (such as manufacturing, transport, power, or name any other activity for example), it shouldn't be a large leap to realize that the 'real economy' (producing goods and providing services) will likely stop growing and start contracting once our access to large amounts of energy diminishes over time. Just for the record I am not trying to be pessimistic, I'm just trying to highlight the reality from a thermodynamic perspective.
Have a look at this blog http://physics.ucsd.edu/do-the-math/2012/02/the-alternative-energy-matrix/ which sums up the alternatives nicely.
Also recommend some of his older posts if you believe growth will continue forever:
http://physics.ucsd.edu/do-the-math/2011/07/can-economic-growth-last/
http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-energy/
Modern charcoal manufacture generates energy. Old school systems lost volatile matter in wood as smoke/heat. If you capture the volatiles you can condense them to bio oil or generate electricity. Wood is low energy density Bio oil and charcoal is energy dense. Charcoal and bio oil is also very low is S so you get low emissions to boot cf fossil fuel.
Charcoal cogen is upon us and there is plenty of wood around which essentially can be converted to replace fossil fuel.
Charcoal doesn't generate energy per say, (as energy cannot be created ala thermodynamics). Charcoal may increase the thermal energy yield but even then it still pales when compared to the fossil fuels. For example 1 kg of wood will typically only produce 0.16-0.3 kg of charcoal. Charcoal has a thermal energy yield of 28% compared vs 8-10% for wood i.e. 28% of it's energy can be effectively utilized compared with 8% of wood.
So 1 kg of wood (a high energy density wood) has 4500kcal x 8% = 360kcal of useful energy per kg.
Charcoal = 1kg × 0.20 (the amount of charcoal you make on carbonization) × 0.28 (thermal energy yield) × 75.00Kcal/kg (energy density of charcoal) = 420 Kcal
To summarize, to get the energy equivalent of 1 litre of petrol (8,269kcal) you would need to convert 19kg of wood to charcoal. So with an average commute of 6km each way (statsNZ) and a fuel efficiency of 8L/100km, the average commuter would need to burn the energy equivalent of 18.9kg of wood each day to power their commute.
Assume 1 million people make that commute each day (conservative?) then that's 18,900 tons of wood per day, or 6,898,500,000 kilograms of wood per year for this conservative estimate.
TLDR = Oil - We are spoilt
Im not arguing thermodynamics the energy comes from the wood. You forgot about the volatiles in the wood. There is more energy in there than in the charcoal itself. Simplistically if you get 30% charcoal you get 70% vm that can be burned for electricity or condensed into bio oil. Say 20% charcoal, 60% bio oil, 20% non condensable gases. Burn the gases to run the system. Key is to have dry wood which is not such a big deal if you are organised. Now rerun the numbers. Id offer to help but im stuck in a traffic jam. Wood really is just solar storage and seems more practical to me than solar panels on a large scale.
I think my original point still stands that we cannot easily substitute wood for petrol.
Petrol is far more energy dense, and this comes down to the chemisty of hydrocarbons themselves when compared to wood. Secondly, there is no way that we will ever be able to recover anywhere near 100% of the energy stored in wood, it's thermodynamically impossible as there will always be heat loss (energy loss). Even recovering 50% of the energy may be extremely difficult if not impossible to do! The volatiles you mention in charcoal production are currently vented off as they're uneconomic to capture (too much effort for return). Sure we could try and squeeze out some more efficiency but this is still no panacea.
Finally, your point about the diesel from biomass may have some merit, but remember that diesel accounts for only 1% of the US's transport fuels.
I guess the difference is I am talking about bio oil and charcoal and you are talking about wood. Oil is now $100/barrel so a lot of these things come into play. That patton paper was written when oil was $60/barrel and charcoal slurry was much cheaper than diesel. Bio oil is about 20 GJ/t and is essentially a by product of charcoal making and can be substituted for bunker fuel. 600kg of bio oil from a t of wood + 200kg of charcoal is a lot more useful than a t of wood. I agree fossil fuel is easier but if charcoal and bio oil is cheaper then these things will come on line.
Not cheaper, for get money, think EROEI, energy return on energy invested. So if 1 unit of energy is used to get 20 units, it doesnt matter if that 1 unit is $10 or $50. I however your EROEI is 1 to 1 or 1.2 to 1 then yes it matters....and this is where bio-fuels sit....inadequate.
Also ur modern economy needs an EROEI for 8 to 1 maybe 10 to 1....so at 1 to 1 we dont have an economy....
regards
#3
Nothing new or that hasn't been long understood. I remember a well-argued leader in The Economist in the early 1990s which made the same point. When looked at in any depth foreign aid has never been a zero-sum game. The downside has caused more damage than the minimal gains.
One major problem (among many) has been the reaction to major famines in Africa. Helping to save people in the last throes of starvation has resulted in millions of physically and mentally damaged people who then go on to have 6 damaged children who then in turn become victims of the next drought.
The developed world and affluent do-gooders can help with micro-loans, and in less direct ways by making life difficult for corrupt regimes and by doing our bit to assist and encourage education of 3rd world women.
For everyone interested in the Big 4 Accounting firms- this is gold
A very big very deep site
#5
New Trend: Plummeting U.S. CO2 emissions.
This gets plenty of coverage in news sources I follow. It's also the case in the UK. What doesn't get coverage is that it's not because the Yanks, the Brits and the rest of us are exporting our emissions, along with our jobs, to China.
As I'm sure we're all aware, China's ever-increasing emissions are in large part produced in manufacturing and delivering mountains of crap to Ewen Mee.
Profile - there are a lot of ways of turning solar energy to uses. That's not the problem, we know enough now to understand the potential of the options.
The problem is that we have set up a society which requires something the equivalent of oil, and in ever-greater quantities.
No Solar-to..... process gets that good, or anywhere near it. The wood acreage, for instance, would require more than the current rain-forest area and acricultural area, combined, to sustainably deliver the same amount of useful energy. Can't be done.
Either we reduce population (to around 2 billion) or we reduce energy-per-head consumption to current 3rd-world levels. Any other scenarion end in grief, before 2030 globally, and earlier depending on who you are and where you live. The biggest danger is that the loose and the desperate (think India) are bust getting into nuclear, in a way that makes what we have built to date, look like kindergarten. The statistical chances of catastrophic failure and/or contamination, spread over the theoretical half-life, approach 100%.
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