Confluence of Housing, Energy, Commodities, Banking, Jobs & Food-price Strains Called 'Economic Perfect Storm'

On Thursday of last week, we found on the same day reports that mortgage foreclosures were at an all-time high in the US, the US dollar had fallen to an all-time low against the euro ($1.56 to 1€), the Federal Reserve joined with other central banks to infuse $200 billion into capital markets, oil hit an all-time record of $111/barrel, gold hit an all-time record of $1,001/ounce, Asian and European markets plummeted on news that Carlyle Capital —one of the world's largest capital management funds— was in collapse, and Chrysler would shut down its entire corporation for 2 weeks in July, with no pay, to "increase productivity".

The Fed deal for banks and bond-holders included a special allowance for banks to use otherwise questionable adjustable-rate-mortgage debt as collateral against the new loans. The move was an attempt to help banks re-capitalize holdings whose value had fallen so sharply that the likely result would be steep capital losses and a further wave of foreclosures. European and Asian central banks are likewise worried that a severe blockage in credit and lending in the US will cut into global export and trade potential.

Today, one of Wall Street's most prestigious and far-reaching investment banks, Bear Stearns, was bought for $2/share, a little more than 1% of what it was worth at the in late 2007, and just 10% of its worth just last Friday. Many investors lost far more than 90% of the value of their holdings; former CEO James Cayne is reported to have lost some 99.8% of the value of his holdings in the firm.

In January, the BBC reported that wild speculation by hedge funds may be driving financial deterioration extensive enough to create a global recession of historic proportions. Former Republican presidential candidate, Rep. Ron Paul (TX) has said US fiscal policy and government borrowing may overstress the US economy so severely it could lead to "global economic collapse".

On 14 March 2008, the last word in the US House of Representatives, spoken by Rep. Roscoe Bartlett (R-MD), warned of the economic crisis that could follow "peak oil", when oil extraction and production will enter a permanent decline, even as demand continues to rise worldwide. This was the 39th time Rep. Bartlett has presented the peak oil problem to the House of Representatives.

One can hardly exaggerate the swelling global economic crisis. Chinese officials are reportedly hoping that the crisis will slow its 10%-plus growth, because they are afraid unsustainable growth rates could lead to inflation. Exploding fuel costs, water resource depletion and the loss of arable land, along with the shift of grain crops to biofuels production, has brought a disturbing surge in food prices that threatens to exert long-term strain on economies across the world.

In June 2007, the Christian Science Monitor reported that:

A gallon of milk in Birmingham, Ala., is expected to cost $4.50 this summer, perhaps more. At Wetzel's Market in Glen Rock, Pa., the New York strip steaks that were on sale for $4.99 a pound last Fourth of July will be $6.99 this year. In Boston, some shoppers report checkout prices on certain items that are 30 percent higher now than last summer.

In 2007, Spain had one of its most productive harvests to date, yet the price of vital foodstuffs increased dramatically. The price of bread, the measure of economic stability or growth in Spanish tradition, increased by a stunning 40%, all while Spain's vibrant real estate and building sectors lost steam, and personal debt reached all-time highs, in an environment where incomes rarely grow by more than the mandatory minimum of the officially-declared rate of inflation.

Prices for basic grains in Kenya, itself a highly productive agricultural nation, have doubled in the last year. Recent political violence has slowed foreign investment, crippled the economy, turned off tourists and has delayed the start of the planting season, meaning that food production will likely diminish still further in 2008, as market pressures drive the cost of food sharply higher.

In a still more complicated case, Zimbabwe has inflation reported at 100,000% —some estimates in late 2007 put the rate of "real inflation" at 150,000%—, putting the price of bread into the millions of dollars (Z$). In 1980, US$1 was worth only Z$0.68, but by 2006, one US dollar was worth Z$101,000. The currency was revalued at 1,000 times its value, so that one US dollar was worth Z$101, but by the time the new currency was introduced, one US dollar was worth a revalued Z$250.

Part of the problem with the current economic unhealth is a failure of international systems to adapt real economic activity to globalized trade policies. Where markets have been "opened" and foreign investment has replaced failed compound-interest intergovernmental loan policies, the result has often been the displacement of resources without a corresponding infusion of comparable resources to balance the "innovations" of the global marketplace.

This means that agricultural powers —from Brazil to the US, Russia, Mongolia and western Europe— find themselves poorer in foodstuffs than they should be and facing price inflation, even as their real productivity has risen. The ability to move investment from tax-stressful markets to tax-favorable markets has built an expectation of gain into investment patterns that don't necessarily carry long-term economic resilience with them, making the reaction to underwhelming returns more severe than it should rationally be.

And industrial powers are finding that natural resources once considered so common and so basic in their overall economic expansion are now being distributed across the world, increasingly consumed in far higher per-capita rates by China and India —each close to or more than 4 times as populous as the United States—, meaning that the ability of traditional industrial powers to fall back on industry as a growth mechanism or to exert global economic power through industrial supply and demand dynamics, is severely diminished.

The tested wisdom available to most bankers and traders to deal with this apparently distorted but really "new-model" environment is limited. There has not been enough time to deal with a world where "emerging economies" can now dominate the pricing of global commodities like grains, metals and hydrocarbon fuels.

If we are seeing an 'economic perfect storm', what is not clear at present is whether it will be classed as a massive "correction" or whether it will build into a new productive model for global trade a tendency to shift resources away from traditional centers of power, a phenomenon for which few economic and political leaders are truly prepared.

FOOTNOTE: We may need to develop new technological alternatives to current regulatory practices, but keeping in mind that the freedom of movement of goods and services is key to the long-term health of a global economy. Balancing capital interests with consumer interests, lending interests with spending interests and resource availability with globalized demand are the keys to achieving such long-term resilience.

• HotSpring.fm: "Cloud Clarity vs. Shadow Banking"
  

Pittsburgh Jobs Conference to Focus on Greening of US Industry, Spurring Transition to 'Green-collar' Workforce

The emergence of ecological economic trends, methods and industries, means that a wave of job creation could be the stabilizing factor which helps American industry recover both momentum and public appeal, potentially helping to ease pricing pressures and banks' concerns about lending to individuals and small and medium-sized businesses.

An industry-environmentalist joint conference in Pittsburgh starting today will focus on the modes and the meaning of green job creation. According to the Houston Chronicle, "The growth of renewable energy should produce some 850,000 new jobs at existing U.S. companies alone, said David Foster, executive director of the Blue Green Alliance, a group formed by the United Steelworkers union and the Sierra Club."

The conference has as its aim the education of public officials, industry executives and other decision-makers, in light of new directions in energy, in public funding, in the long-term virtues of green industry, for both private interest and public good. And ultimately, the goal is to promote and to measure the progress made toward recasting the American industrial economy to survive in a globalized economy where environmental sustainability —still seen as costly and frivolous by many in leadership positions— is a basic requirement.

• Houston Chronicle: "Conference to Focus on 'Green Jobs'"

Green Economy: Resilience Services Will Meet Opportunity & Urgency

HotSpring.fm :: The ongoing transition to an environmentally sustainable economy, focusing on energy and agricultural resources, is already opening the door to a range of new industrial and engineering services related to resource and ecosystem resilience (now understood to be vital to the stability of the natural environment whose own services underpin every element of our civilization).

More efficient management of water, better testing, diversification, distribution and self-sustainability of crop varieties, energy resources that do little to disrupt the natural environment but seriously impact the more harmful tendencies of our economic activity, sustainable transport (increasingly shifting toward the low-emissions and emissions-free standards), each play a vital role in the emerging resilience economy.

What we are building into the global economy, in the same present tense, are both severely damaging extensions of now primitive industrial methods and also the antidotes or successors to those practices. As one after another city, province, region or state, begins to view its own natural habitat as an economic asset, resilience services and the goal of self-regulating elasticity become key market-altering forces, on both the conceptual and practical levels.

New technologies may go a long way to helping us serve the resilience interests of local and international markets, in ways that remain difficult to envision. The first wave of such technologies will likely be those that supplement energy production and reduce demand for high-polluting carbon-based fuels, while advances in overall efficiency and resource-light information distribution will continue to reshape economic output in favor of resilience and sustainability. [Full Story]

Green Investment Boom Gets Traction: Fund Promises $10 Billion for Clean Energy

HotSpring.fm :: The private investment fund Ceres, a group of institutional investors, has promised to devote $10 billion to investment in clean energy sources. The news comes as 3 of the world’s major oil companies call for coordinated policy on how to face climate change, constrain emissions, and a couple of months after 150 global corporations asked for a major boost in subsidized research into transitioning to clean energy technologies.

The Financial Times reports “A group of nearly 50 institutional investors has pledged to invest at least $10bn (£5.1bn) in environmental technologies and to incorporate ‘green’ standards in investment decisions”. The fund’s president, Mindy Lubber, said during the press conference at UN Headquarters in New York, “This action plan reflects the many investment opportunities that exist today to put a dent in global warming pollution, build profits and benefit the global economy”.

The cost of the climate change burden is increasingly on the minds of corporate leaders, financiers and investors, and the glittering potential of economic windfall in pioneering the green economy is catching the eyes of investors and political leaders. Bio-ethanol, a crop-based fuel source, considered cleaner than fossil fuels, and having the benefit of being a renewable fuel source, has shown tremendous potential for financial growth.

In July 2006, Sentido.tv [a project of Hot Spring and Quipu's publisher], reported that:

The global wind-generation resource has been estimated at 72 terawatts, 40 times the entire global demand for 2000. Eliminating peat bogs and other highly vulnerable ecosystems from that resource potential will cut into the global capacity, but at 40 times demand, or 20 times or even at 10 times, there is clearly room to work with.

Finding the right combination of resources, in terms of cost-effective construction and maintenance, infrastructure development and ugrading, and stabilizing the role of consumers in both production and usage (solar and wind energy permit fitted individual homes to become production mechanisms expanding grid potential), will allow for the creation of a far more efficient and by extension, economically viable and sustainable energy market. This could be extended to a global scale, if investment accurately discerns and follows opportunity. [Complete Text]

Why Ethanol Production Will Drive World Food Prices Even Higher in 2008

Lester R. Brown, EPI :: We are witnessing the beginning of one of the great tragedies of history. The United States, in a misguided effort to reduce its oil insecurity by converting grain into fuel for cars, is generating global food insecurity on a scale never seen before.

The world is facing the most severe food price inflation in history as grain and soybean prices climb to all-time highs. Wheat trading on the Chicago Board of Trade on December 17th breached the $10 per bushel level for the first time ever. In mid-January, corn was trading over $5 per bushel, close to its historic high. And on January 11th, soybeans traded at $13.42 per bushel, the highest price ever recorded. All these prices are double those of a year or two ago.

As a result, prices of food products made directly from these commodities such as bread, pasta, and tortillas, and those made indirectly, such as pork, poultry, beef, milk, and eggs, are everywhere on the rise. In Mexico, corn meal prices are up 60 percent. In Pakistan, flour prices have doubled. China is facing rampant food price inflation, some of the worst in decades.

In industrial countries, the higher processing and marketing share of food costs has softened the blow, but even so, prices of food staples are climbing. By late 2007, the U.S. price of a loaf of whole wheat bread was 12 percent higher than a year earlier, milk was up 29 percent, and eggs were up 36 percent. In Italy, pasta prices were up 20 percent.

World grain prices have increased dramatically on three occasions since World War II, each time as a result of weather-reduced harvests. But now it is a matter of demand simply outpacing supply. In seven of the last eight years world grain production has fallen short of consumption. These annual shortfalls have been covered by drawing down grain stocks, but the carryover stocks—the amount in the bin when the new harvest begins—have now dropped to 54 days of world consumption, the lowest on record. [Full Story]

Final Bush Budget Shows Economic Weakness, Policies at Odds with Marketplace, Moment

Among the numerous scathing criticisms leveled against the record $3.1 trillion federal budget proposal —which will be the last of the George W. Bush White House— are fiscal irresponsibility, near record deficits, and plans to cut or eliminate fully 151 federal programs, in an effort to save just $18 billion, while base Defense Dept. spending increases by 8%.

Economists worry that spending priorities laid out in the budget will only exacerbate current economic slowdown. Democrats in Congress have vowed the budget "will not be the model" for the legislation they will put forth to govern spending for 2009. But the White House insists the budget is fiscally responsible and will in fact reduce spending.

Some $160 billion could be tied to a planned "economic stimulus package", currently being debated in the Senate, already approved by the House, and Iraq war costs severely inflate the overall amount of spending. It is believed that 2008 spending will also exceed $3 trillion, when all war costs are tallied. Total Defense spending for this year was a record $670 billion, including war costs.

One surprising budget cut would be funding for the Centers for Disease Control and Prevention, which could be a major necessary component in responding to any sort of biological weapons attack, a danger often cited by the administration in its warnings about terrorist attacks on American soil.

The Community-Oriented Policing Services (COPS) program, which put huge numbers of additional police on urban streets, and helped integrate police work into the fabric of communities, thus further reducing crime figures, would be cut 100%. Homeland security apparatus would see significant budget increases, however, of some $4 billion, while the Homeland Security Department would see its budget cut by $2.5 billion.

Democrats have already seized on such contradictions as evidence that the budget does not take real security for the American citizen seriously and misdirects vital government spending to what opponents see as ill-advised cash-drains, like the surplus-eliminating tax cuts of 2001 and 2003, and the war in Iraq.

The Congressional Budget Office in January published its own projections showing concern that budget deficits would jump by $250 billion in 2008, in part a sign of the poor state of economic performance at the individual and corporate level. Economic stimulus would sharpen those deficits, though long-term tax-revenue gains may offset some of the cost.

The state of the American economy at present is in part why the president is not able to fund his own priorities (border-security, Iraq war, the $635 billion 5-year price of making his tax cuts permanent) without slashing much-needed government spending in other areas, leaving even then a likely record deficit.

The result is that Congress will not start with the White House budget proposal as a baseline, but will likely initiate an entirely parallel process of negotiation and planning, as even top Republicans in Congress have complained about the massive deficits and potentially unpopular spending priorities.

MORE AT
AP: "Congress Looks Askance at Bush's Budget"
OMB: "Budget of the United States Government, Fiscal Year 2009"
Atlanta Journal-Constitution: "New president will be faced with long-term economic woes"
The Cheers: "Bush's budget for 2009 could spell disaster for AIDS research in the US"
Reuters: "Rising budget deficit may add to Republican woes"
CNN: "CBO expects deepening budget woes"

'Davos Conversation' Allows Public to Match Ideas with Policy-Makers

The 'Davos Conversation' is a multimedia effort to bring online public together with major policy-makers, activists and economists, to broaden the scope of debate at the World Economic Forum. The question which was used as a platform for the online forum was "what one thing would make the world a better place?"

Individual citizens, government officials, economists and thinkers, recorded their ideas on video and blogged their answers, in an effort to ensure that there is contact between those thinking about the future of an increasingly integrated world's economic structure and those who have no direct say but will be affected.

Many take issue with the unfettered nature of "free market" capitalism, which some critics say is less about open markets and more a euphemism for the "laissez faire" plunder that shook the US economy and political system in the late 19th century, leading eventually to major anti-trust legislation.

Bill Gates, founder and chairman of Microsoft, put forth at the Forum itself his vision for a more humanitarian kind of capitalism, which not only acts responsibly, but envisions narrower wealth divides and increased prosperity among the poor as clear benefits for long-term financial gain.

Efforts to push for sustainable development as an absolute standard in international economic policy fed into debates on the nature of environmental resource depletion, agriculture, the hunger of developing nations for fuel and industry, and the responsibility of those at the top of one market for those at the bottom of another, socio-economically speaking.

Climate change was a prime subject, with presentations, videos, and some of the most credible debate yet on the policy side, as world leaders struggle to find a way to imagine tying down highly profitable but unsustainable industries in an effort to find a more responsible way forward.

Fmr. US pres. Bill Clinton espoused the theory of one British economist, who has called for the need for wealthy nations to voluntarily enter into an economic slowdown, if that's what's needed to arrange and implement a rapid transition away from the carbon-intensive 18th-century model that still underlies much industrial production, though he did not say it was an absolute necessity.

Clinton's vision, like that of many other attendees and observers, leans toward the idea that the US and other wealthy industrialized nations, are plodding along with ill-advised caution, when they could be enjoying a major innovation and job-creation boom, as whole economies transition to renewable energy systems.

Joseph Stiglitz warned that deregulation (again, a euphemism for "laissez faire") has not worked as many dreamed it would. With "barriers" to investment removed, money may flow into certain markets, but without regulatory authority to ensure fair play, that money does not necessarily benefit the market as a whole.

What now appears to be a global crisis in credit overwhelmingly affected the talks. Mass default on loans given in the US to people who did not have the capital to pay them back, with "adjustable" (read "rapidly escalating") interest rates that make them even harder to pay back, has dampened the lending power of banks across the world.

Central banks, major financial institutions, state pension systems, and high-value stocks, have all suffered as money available for lending and spending seems to dry up. The US government is planning to inject as much as $150 billion into its citizens pockets, in an effort to spur a positive economic reaction, though no major market has reacted exceedingly well to the news.

What one thing will make the world a better place? Communication, dialogue, understanding, efforts to collaborate and to seek mutually beneficial solutions. The Davos Conversation is an encouraging experiment, because the policy-makers who respond to what average people are worried about gain credibility, and that helps make for more responsible, more effective economic policy, and a brighter future for those who need such improvements.

MORE AT
DavosConversation.org

Unified Earth Theory: Can Integrating Efforts to Reduce Poverty with Sustainable Development Heal Global Economy?

At the World Economic Forum at Davos, Switzerland, a range of ideas from international disease relief, healthcare, security, climate change, extreme poverty, and the responsibility of market incentives, took the discussions in a new direction. Fmr. US vice-president Al Gore spoke of the need for a "marriage" of policy regarding extreme poverty and the climate crisis.

A big part of the reason is that sweeping economic trends, that encourage rampant industrialization of regions where economies are still deeply rooted in subsistence farming, and whose governments are broken by unfundable international debt, often leave the poorest people with little or no access to real economic benefits of any surge in investment.

Activist and musician Bono also spoke of his efforts to help reach the UN's Millennium Development Goals and the Gleneagles G8 aid pledges, amounting to some $50 billion in aid and debt cancellation. A fundamental principle of what might be called a 'unified Earth theory' for economic integration and socio-economic sustainability is that overcoming the severe drag of extreme poverty and environmental degradation will lead to widespread economic health across poorer and wealthier markets alike.

The focus of the forum presented in the embedded video is the ongoing effort to integrate hard scientific data and the most effective policies for reaching long-term solutions and moving world economic structures toward a prosperous, sustainable, open and accessible future.

Elections, Credit, Fuel Costs, Soil Quality, Water Policy & Access to Food Crucial in 2008

Sentido.tv :: 2008 will be a year in which the integrity of election processes, the quality and resilience of cultivated soils, the availability of credit to consumers, the affordability of homes and rentals, and access to affordable vital staples like food and water, as well as the cost of transportation, will affect economies the world over. Some economic analysts have said the combination of these factors, resulting instability or environmental degradation, and migration of affected populations, could mean the world is facing an unprecedented level of economic precariousness.

2007 saw prices of commodities, ranging from grains, to metals to petroleum, skyrocket, with mining giants like Río Tinto tripling their stock value, and the price of bread in Mediterranean countries like Spain, jumping 40%. The Earth Policy Institute reports that world grain stocks are at an all-time record low, with only about 54 days of consumption available in case of crop failure or demand-driven scarcity. Drinkable water is also frighteningly scarce, with overpumping of fossil aquifers already beyond sustainable and on the rise. [Complete Text]

Massive Diversion of U.S. Grain to Fuel Cars is Raising World Food Prices

Lester R. Brown, EPI :: If you think you are spending more each week at the supermarket, you may be right. The escalating share of the U.S. grain harvest going to ethanol distilleries is driving up food prices worldwide.

Corn prices have doubled over the last year, wheat futures are trading at their highest level in 10 years, and rice prices are rising too. In addition, soybean futures have risen by half. A Bloomberg analysis notes that the soaring use of corn as the feedstock for fuel ethanol “is creating unintended consequences throughout the global food chain.”

The countries initially hit by rising food prices are those where corn is the staple food. In Mexico, one of more than 20 countries with a corn-based diet, the price of tortillas is up by 60 percent. Angry Mexicans in crowds of up to 75,000 have taken to the streets in protest, forcing the government to institute price controls on tortillas.

Food prices are also rising in China, India, and the United States, countries that contain 40 percent of the world’s people. While relatively little corn is eaten directly in these countries, vast quantities are consumed indirectly in meat, milk, and eggs in both China and the United States.

Rising grain and soybean prices are driving up meat and egg prices in China. January pork prices were up 20 percent above a year earlier, eggs were up 16 percent, while beef, which is less dependent on grain, was up 6 percent. [Complete Text]

The 12-year Sea Change, the Green Economy

Between the years 2008 and 2020, we are likely to see a still unimaginably sweeping shift away from fossil fuels and high-contamination modes of powering our economy. The transition will have a political component, but will be driven mostly by cost concerns, resource scarcity, and public demand for cleaner air and responsible climate policy, a demand which is not ideological in nature.

The long-term overhaul of the global economy, to bring it in line with what would be a responsible climate policy, will be more gradual, and has for some time now been taking its first halting steps toward acquiring momentum. But wealthy countries, ostensibly the most dependent on carbon-based fuels, also enjoy the conditions that permit broader flexibility in fuel resourcing, namely an economic cushion and variety in the marketplace.

It is often necessary to assess economic trends in emotional terms, or to use a new catch-phrase in social awareness and economic undercurrent analysis, to locate the 'tipping point', after which momentum becomes reality. This idea is attractive to those who want the market to 'set' the rules, i.e., design-in public consciousness and cost-considerations based on 'what the market will bear'.

This last idea is often used to justify the notion that a commonly talked-about direction is the inevitable direction: not for reasons of a grand conspiracy nor because one company will profit from its point of view taking hold, but because if the known ideas dovetail with real economic momentum, then investors find some measure of stability. Instead of blaming the 'perfect storm' of unforeseen events for a given failure, they believe they'll be able to cite something like a 'perfect groupthink', with a delightfully positive outcome.

The problem is: groupthink as is well known is not a grand scheme brought into being by the best and brightest minds to achieve the most good for the largest number of people or interests; it is a way in which deferring to incomplete ideas bandied about in an echo-chamber leads to poor decision-making, hands bound, intellectual traps and the failure of policy to meet the moment.

So, the market may signal a point of 'readiness' in consumer consciousness, or the tipping point in support among those who will have to actually 'transition' their systems into the new cleaner model, but it will not give us sound policy suggestions. It will be emotional, slow to react, and not thoughtful enough. We must still look to the human element, to scientific analysis, and to the imagination of those tuned to the problem.

On 30 November, the AP and the Washington Post reported that officials from 150 global corporations, worth more than $4 trillion in market capital, have signed a petition urging strong action to mandate emissions cuts and reduce global carbon emissions by at least 50% by 2050. The move reflects a growing unease about inaction by policy-makers, that unease rooted in the feeling that irresponsible delays will cost far more later, possibly sinking large companies when mandatory cuts are, potentially and by need, more radical and harder to adjust to.

Concerns about the rapidly rising cost of fuel for heating indoor spaces or providing electricity, are driving a race to implement environmentally-friendly building techniques: structures that leak less heat, or that are easier to power, or include power-generating elements like solar paneling, which can now be integrated into roofing or cladding.

Cost is a major concern, but the goal is elasticity, protecting the bottom-line while allowing a company to weather price pressures from volatility in fossil fuel markets. The result is what looks like a move toward ecological responsibility in building practices, a first step toward re-structuring an economy that feeds on environmental degradation, in hopes it can be made sustainable.

Housing Market Crisis Tied to Speculation, 'Predatory' Lending

As the crisis stemming from high-risk sub-prime mortgage lenders' collapse in the US spreads, the real estate market beyond US borders is being hit by what observers are calling the 'credit crunch', taking for granted this will affect all international financial endeavors, such is the situation. The governor of the Bank of England has now warned that the United Kindom is facing what should be its tightest economic year in a decade, warning that the slowdown could last into 2009.

As such, it's worth rehashing a story published by Sentido.tv in January 2006, on the coming crisis in housing markets, as a result of overpricing and over-exuberant speculation. The Economist magazine had in June 2005 published an article on the unprecedented bubble of the global housing boom. The boom in developed economies amounted to a value increase of 100% of combined GDP, a figure whose trajectory could not be maintained by existing wealth or regular economic growth.

Sentido's reporting took into account "outlyer" values —cases where cost per property had literally gone of all charts— like the town house renting for £23,000 per week in Knightsbridge, the high-rent corner of the Royal Borough of Kensington and Chelsea in central London. The mood was that expanding prices were so inherently good, they would somehow generate the wealth necessary to feed the boom.

The problem, obviously, is that this is not how economic growth occurs. Mystical presumptions do not a prolonged expansion make, and at some point the biggest boom markets, like Ireland, Spain and the UK, would have to reach a maximum of capital available, at which point, cost of use could not justify cost of purchase for most properties at then current —or feasible— growth rates.

The Sentido report reads as follows: According to [The Economist's reporting], property values in South Africa increased by 244% between the first quarters of 2004 and 2005. Ireland's expanded by 192%, Britain by 154% and Spain by 145%. The piece also warned that like Germany, Japan and Hong Kong, some major markets were beginning to "fizzle out" and enter a period of likely decline.

The Economist proposed the possibility that the global economy, not just that of one nation or one region, had become too dependent on the untenable expansion of property values and profit from real estate sales. If the bubble were to burst, it could be the trigger event for the most severe and widespread economic downturn —potentially, a worldwide depression, in technical terms— yet seen in modern times and measured.

It's a sticky problem, because preventing such an event means first of all identifying the aspects of any given real estate market which contribute to overvaluation and to growth beyond real market potential. Then, it means persuading those with most direct invovlement in that aspect of the market to act to reform their methods or their outlook, to reign in a new kind of "irrational exuberance".

One worry is that as property values soar, many people will be forced to abandon neighborhoods they have largely built and maintained, possibly stripping the community fabric and undermining the inherent value of a given urban area. That flight would also mean average incomes reach too high a range, and basic services become less widely available and cost of living continues to escalate, further pushing community breakdown and/or flight.

A big part of the secret to the record boom in housing markets was lending practices, which were significantly liberalized to allow 'new money' —as if materializing out of nowhere— to flow into the home-buying markets, which in and of itself artificially inflates speculative earning potential for resale over the short term. The added value is 'artificial' because this new money depends heavily on the lending practices themselves, and represents theoretical wealth which may not actually be available to flow into those purchases.

Sentido pointed out in January 2006 that "The solution to the problem could be linked to lending; if banks are aware of the bubble risk, then they might take a more thoughtful approach to planning for lending for long-term buys, considering the sustainability of property values or the risks posed by increased volatility from excessive financing of 'flipping' schemes."

They did not. The thinking that prevailed across financial markets tended toward the boom-time logic: there's money to be made, and the way to make it is to invest in markets ripe for growth. That logic was not in itself inaccurate, but by the nature of the moment, it was applied to situations where the money to be made would stem in many cases from sales which could only occur with the help of risky mortgage schemes.

The lack of proper adjustment to lending policies and lack of assistance to borrowers overburdened by adjustable mortgage rates has led to the failure of many of those mortage accounts and the collapse of many smaller lending institutions. At present, economists predict this crisis is just the beginning of a serious credit shortfall, in which no less than 2.5 million American families may face losing their homes, further affecting equity valuations, lending practices and saleability of properties internationally.

Legislation is pending in the US to ban "predatory lending", but the nature of such practices is that they are tied to the logic of the demand for low-interest loans, provided with highly adjustable rates whose incremental rise in cost is justified by the notion of further borrowing power (assuming property values continue a steep rise, even where many are tied to risky loans).

Among the side-effects of sub-prime mortgages is the resulting upward price pressure on markets that require sustainable cost-to-funding ratios to be fruitful. Homes are bought for living in, in most cases, and require a sustainable local economic picture to be used as intended.

As overextended buyers find themselves priced out of communities they've just moved into, other areas of economic measurement slow accordingly, undercutting the very loans that in theory were to help create new wealth. This is part of the ripple effect now slowing world markets already affected by disappearing credit.

The Cost of Going Green May Be New Boom Economy

Sentido.tv :: Through existing economic structures and technological systems, we can fund and implement the ecotech revolution, Part I...

Ecological advancement and retro-fitting will be the new boom economy. Let's make sure we do everything possible to fund not only research, but implementation. What will it cost to produce an environmentally-oriented overhaul of the US economy, by way of the private sector, with government incentives, and to the ever-growing benefit of private sector interests?

These are key questions being asked by scientists, activists, economists and politicians, not to mention energy industry executives and those whose core business involves fossil fuels. One British economist has proposed that wealthy countries should voluntarily embark upon a planned economic recession, under the assumption that costs will be staggering and profit-growth will slow, as the transition is made from a wasteful carbon-based economy to a more elastic renewable-recyclable one.

It would seem a daunting task: after all, not only is every major mode of civilian and commercial transport run on petroleum-based fuels, but most military transport and artillery are as well (barring nuclear submarines). So there would need to be a very well-crafted, very cautious and steady overhaul of the tax system and research subsidies, to ensure that the transition is inspired not only by humanitarian or ecological interests, but also by sound long-term financial planning.

What we need now is to make the calculations, for politicians in Washington, DC, to talk to MIT, to the Worldwatch Institute, the Earth Policy Institute, to current and former EPA experts, top scientists at the IPCC, and engineers and researchers working toward the needed advances in renewable energy technologies.

We, as a society, as an argumentative and curious press-driven public, as academics and policy-makers, need to look at how to make those calculations more affordable in the short-term through better planning and decentralization. A comprehensive plan to achieve certain targets by 2012, incentivizing private business to do well by taking part can afford the intelligence and dynamism of a decentralized but collective enterprise, where local efficiencies built into the marketplace compensate for the time we cannot afford to waste, and help us to optimize the outcome of a courageous national endeavor.

Small businesses may be the driving force behind the coming ecological revolution. They may find it more economical to invest in ecologically efficient zero-emissions technologies, if there is no added cost in the moment. We can help with that, if we put serious policy into making the transition a time of opportunity. [Complete Text]

Weak Dollar is Canary in Proverbial Economic Coal Mine

THE DROP IN THE DOLLAR'S VALUE AGAINST LEADING CURRENCIES WILL HAVE REPERCUSSIONS, WHATEVER THE IMMEDIATE CONSOLATIONS

Sentido.tv :: Americans living overseas see the front edge of the dollar collapse. Life in Europe seems to be twice as expensive as just a few years ago, as Euro-driven price-inflation meets the rapid drop in the value of the dollar against major currencies, like the Euro and the British Pound Sterling. Americans at home are facing higher food prices, higher fuel costs, and an overall slowdown in home-buying.

This is partly due to the US dollar's reduced ability to 'capture' wealth from abroad, via currency exchange, and by extension, via trade. As the dollar falls in value —losing 10% of its value against the Euro in just a few months, and roughly 41% of its value against the Euro since November 2000, when a Euro cost just $0.83—, it less likely that additional wealth will flow into the US economy by means other than the export of manufactured or agricultural goods. And, it is important to note that those exports need not increase in proportion to the dollar's decline.

For now, China has helped by aggressively promoting its exports to the United States, but should it feel able to free up some of that economic might for other pursuits —for instance, to double the EU market for Chinese exports—, the US could see the current economic bubble become suddenly very visible and very brittle. [Complete Text]

Bottled Water: Pouring Resources Down the Drain

Emily Arnold & Janet Larsen, EPI :: The global consumption of bottled water reached 154 billion liters (41 billion gallons) in 2004, up 57 percent from the 98 billion liters consumed five years earlier. Even in areas where tap water is safe to drink, demand for bottled water is increasing—producing unnecessary garbage and consuming vast quantities of energy. Although in the industrial world bottled water is often no healthier than tap water, it can cost up to 10,000 times more. At as much as $2.50 per liter ($10 per gallon), bottled water costs more than gasoline. [Feb. 2006]

The United States is the world’s leading consumer of bottled water, with Americans drinking 26 billion liters in 2004, or approximately one 8-ounce glass per person every day. Mexico has the second highest consumption, at 18 billion liters. China and Brazil follow, at close to 12 billion liters each. Ranking fifth and sixth in consumption are Italy and Germany, using just over 10 billion liters of bottled water each.

[...] In contrast to tap water, which is distributed through an energy-efficient infrastructure, transporting bottled water long distances involves burning massive quantities of fossil fuels. Nearly a quarter of all bottled water crosses national borders to reach consumers, transported by boat, train, and truck. In 2004, for example, Nord Water of Finland bottled and shipped 1.4 million bottles of Finnish tap water 4,300 kilometers (2,700 miles) from its bottling plant in Helsinki to Saudi Arabia.

Saudi Arabia can afford to import the water it needs, but bottled water is not just sold to water-scarce countries. While some 94 percent of the bottled water sold in the United States is produced domestically, Americans also import water shipped some 9,000 kilometers from Fiji and other faraway places to satisfy the demand for chic and exotic bottled water.

Fossil fuels are also used in the packaging of water. The most commonly used plastic for making water bottles is polyethylene terephthalate (PET), which is derived from crude oil. Making bottles to meet Americans’ demand for bottled water requires more than 1.5 million barrels of oil annually, enough to fuel some 100,000 U.S. cars for a year. Worldwide, some 2.7 million tons of plastic are used to bottle water each year.

After the water has been consumed, the plastic bottle must be disposed of. According to the Container Recycling Institute, 86 percent of plastic water bottles used in the United States become garbage or litter. Incinerating used bottles produces toxic byproducts such as chlorine gas and ash containing heavy metals. Buried water bottles can take up to 1,000 years to biodegrade. Almost 40 percent of the PET bottles that were deposited for recycling in the United States in 2004 were actually exported, sometimes to as far away as China—adding to the resources used by this product. [Complete Text]

Preventive Measures to Curb Damage from Climate Change: How Close Are They?

Sentido.tv :: Can the world prepare to face the potential economic fallout from increasingly intense weather phenomena, prolonged heat waves, desertification, ice-melt and flooding? While there is no clear proof Hurricane Katrina was a direct result of climate change, hurricanes of such intensity will become increasingly frequent as Gulf waters warm; the aftermath provides real instruction for just how fragile the social fabric can be in the face of natural disaster.

A major US city and one of the world's major ports famously collapsed in the face of overwhelming inundation; society unraveled and the horrors were widely reported, with the military deployed to "pacify" the afflicted population. One of the great lessons is that that aftermath was likely wholly preventable, had warnings been heeded and the proper measures put in place.

One of the most common arguments against comprehensive action to halt or slow climate change or to reduce carbon emissions or penalize polluters is that it would "hurt the economy". This is, first of all, shamefully unimaginative, and second, entirely untrue. There is no reason that the enormous amount of spending involved in overhauling global industry and transportation should in any way represent an obstacle to economic growth. Quite the contrary, it may be the biggest boom on record, if spending on innovation, sustainability and development, are properly encouraged.

Governments have a role to play, but private business will have to stoop dragging its feet. Until now, caution in committing to clean energy solutions has been short-sighted and ill-advised. From now on, it may be fundamentally dangerous: society as a whole needs the economic elasticity provided by sustainable fuel sources, and businesses need to adapt now to the coming climate crunch, which will highly regulate destructive activities, such as pollution. [Complete Text]