Below I give a list of seven european countries that have one thing in common. They consumed in 2004 less oil than in 1994. And no, they are not east european countries and they have not experienced some kind of economic collapse. The numbers are in thousand barrels per day and you can check for yourself the BP's Statistical Review of World Energy 2005 at http://www.bp.com/genericsection.do?categoryId=92&contentId=7005893
Those countries not have experienced economic collapse, but at least Italy and Germany have much worse economic situation now than in 1994. Also lot of Europe has switched to russian gas during last ten years.
Additionally, a lot of energy intensive manufacturing has been shut down in the last 10-12 years and has been replaced by service jobs (or unemployment). For example there is virtually no more auto industry in UK. Even beyond that, in the case of Germany one has to see that in 1994 some ex-Communist industries were still running in the Eastern part. Germany has seen huge CO2 and consumption reductions just by switching off ex-Communist industry in the 1990s.
(saying that the situation is much worse in Germany than 1994 however is an exaggeration - the main problem is that it just never gets better)
So, among economic stagnation, moving traditionally energy intensive manufacturing to China, switching off Commie factories, and moving to Russian gas, this reduction is not any kind of policy achievement.
Also it should be remembered that several of these factors also make it quite easy for certain European nations to fulfill Kyoto requirements, without taking any 'courageous and daring' measures.
German total energy consumption has been essentially flat during that timeframe, so has Norwegian, and Swiss. Italian consumption has grown nearly 20%, UK by 5%. Denmark has gone down. So mainly it is explicable by fuel substitution and quite slow economic growth. Heavy, energy-intensive industry has also moved away from Western Europe. Notice that we speak here about the total energy, not only about oil.
Yeah, this one has been making the rounds over the past couple of days.
On the surface it looks kind of cool.
The downside is that they haven't even built a prototype yet. For that matter, the design itself isn't even complete. The company doing this says they have made breakthroughs in building things out of composite, but as best I can tell they don't have any automotive experience. They are still looking for 'angel investors' to help pay for the prototype.
They plan to use off-the-shelf components (so they won't be building engines themselves), and I am sure there are many other parts they can just buy as well.
I guess my point though is that there may be subleties to things like getting the suspension and steering working so that it feels right, and these are things that they probably won't be able to buy.
It is classified as a motorcycle - this helps evade much of the crash safety testing requirements.
They have no investment, and no experienced business people listed as executives on the web site. Hence they are at an extremely early stage - much too early to be issuing press releases - they clearly don't know how to raise money. Not very credible at this point.
Perhaps - I wonder if the point of the press release was to help raise funds. I gather that the venture capital people are all eager to fund alternative energy types of things right now.
They aren't the only people thinking along these lines, however. Volkswagen had a similar project - they had a turbodiesel two-seater with a carbon fiber body. Theirs was only rated for ~260 mpg, and this was something that they did build and field test. They didn't have any hybrid technology in there though.
They called it the '1-liter' car, meaning it would burn one liter of fuel to go 100 km. They did unfortunately abandon the project:
But Volkswagen now says that it could not produce an ultra-economical car for less than €20,000 ($25,900)--too expensive for its target market.
I gather that the carbon fiber was the deal-killer here. You need it to make the vehicle lightweight, but the stuff is expensive.
Now if this company (Accelerated Composites) has come up with a way to reduce the cost of making carbon fiber components, there could be value here if they were to simply license the technology to someone like VW who has sufficient experience to make an entire car.
That may be part of the venture capital play - get your name up in lights now, while the demand for fuel efficient cars is rising, and cause a big player to buy you out. This is common enough in other industries so I don't see why such a play could not be expected in the auto industry as well.
I apologize for the poor quality of the website, and the limited renderings. It will improve as resources permit. In the interim, the bio of the team members is available in .pdf format. http://www.acceleratedcomposites.com/team_bio.pdf
Judging by the lack of content on the website, it's understandable that our project doesn't seem further along than it is. Lots more photos, photos of our destructive composites testing, our white papers, simulations (CFD, FEA, et al), status of our patent applications, and more recent pictures of the prototype will be posted as time permits.
This article is very good. There's something here very important to note, if a country wants to dump dollars, it'll buy another foreign currency and not trade it to it's own. That way an unwanted appreciation of self currency is avoided.
Petrov says that a part of the dumping may occur overnight. I'm not convinced of that, I believe in a more slow change, were a country buys commodities with dollars and sells other goods accepting only euros (or other non-dollar foreign currency).
The most important issue raised by Petrov is the impossiblity of a long term cohabitation of two currency standards (gold and dollar). If true, we're really headed to a hard road.
Also note that the Federal Reserve announced in Nov. 05 that it will no longer be publishing data for the M3 money supply. This will take effect in March of 2006.
Even another twist for an interesting March is the Israeli preparation for an attack on Iran...
ISRAEL'S armed forces have been ordered by Ariel Sharon, the prime minister, to be ready by the end of March for possible strikes on secret uranium enrichment sites in Iran, military sources have revealed.
The crisis is set to come to a head in early March, when Mohamed El-Baradei, the head of the IAEA, will present his next report on Iran. El-Baradei, who received the Nobel peace prize yesterday, warned that the world was "losing patience" with Iran.
"Defence sources in Israel believe the end of March to be the "point of no return" after which Iran will have the technical expertise to enrich uranium in sufficient quantities to build a nuclear warhead in two to four years."
Sorry for so many posts on the same issue, but Econbrowser has just addressed this issue directly (citing Petrov's "excited" article) in a post titled: Strange ideas about the Iranian oil bourse
One highlight:
"...the notion that the U.S. dollar is currently "backed by oil" is so nonsensical that it is difficult even to fathom what that phrase is intended to convey."
Or a combination of the two. I've followed both Petrov and your slow change method. I dumped 60% USD overnight (@ 0.8215) then slowly bought other stuff with the remaining 40% USD (until 1.0425), meanwhile collecting on invoices in Euros, until ... no more USD. <Not making any claims to brilliance, mostly just a feeling that the Euro wouldn't drop any lower .. and tonnes of dumb luck.. at least so far.> Cohabitation of the two currencies doesn't seem to be a good fit and it did supercomplicate the bookkeeping figuring day to day equivalencies. At one time I had accounts in Riyals, USD, Euros, Pounds, Swedish K and Colombian Pesos. MSMoney lost it. Doing things slowly helps you gain confidence as you go, rather than getting heartburn from the putting all your eggs in one basket syndrome. On a central bank level slow would prevent large changes from being noticed and causing a panic, so it could protect your remaining account balance as you continue to unload, provided the cat stays out of sight. The only disadvantage of making a permanent change is, without selling Euros and changing back into dollars, there is no chance of "realizing the profit".
IRAN OIL BOURSE: ULTIMATE "NUCLEAR" WEAPON OR CONSPIRACY ON STEROIDS?
The Petrov article is an excellent platform for discussing the Iran Bourse - both because it is the most careful documentation of the argument and because the author makes no bones about his claim that it is among the primary threats to US power. Petrov calls the IOB the ultimate "nuclear" weapon, says it will "precipitate the demise of the dollar" and cause the US to take drastic actions that could include sabotage, launching coups, unilateral nuclear strikes and unilateral total war.
It not going to surprised anyone that I am going to escalate my own argument by calling the IOB the greatest conspiracy theory of the year. Below is an atttempt to deal with the issue at the level of first pricipals, since an fairly elaborate structure has been build on what I feel is a shaky foundation.
Petrov's article contains in near equal measure bold assertions that I disagree with, underlying economic concepts that I do agree with, and utter speculation about the future, which I'll leave alone.
Because the "bold assertions" recur and underpin the ongoing argument, let me start my stating my interpretation of the foundation of the "IOB as kryptonite" argument and where I differ. Fundamentally, whether you can accept the IOB premise seems to depend on whether you can accept the three claims below:
1. The foundation of US economic growth and strength is "extraction" or taxation of others, rather than creating value.
The belief that the US has a productive economy that has been growing near 3% a year because of high levels of productivity is fairly well documented. Greenspan and the US Fed focus intensely on measuring the growth in the productivity rate in the US economy because this is the key factor underlying the continuing strength of the economy. There is no tracking of "extraction rates", "taxation of economically subject nations" or trends in theft.
The extraction claim seem only to be supported by a circular argument that the US economy is based on taxing others, which is proven by the claim that the dollar as trade currency enforces it, which is in turned proven by the extraction argument. But maybe I am wrong and someone provide a factual basis for the claim that US economic strength is based on extraction of value from others by force. I am waiting.
2. The US dollar price is not only a requirement that currency be paid in dollars, but that this requirement is the primary reason why countries hold dollars
As discussed before the dollar price of oil is just a price tag. If an EU country wants to buy Iranian oil and Iran wants to hold Euros, they currently have two ways to make this happen:
a. First the EU country exchanges Euros for dollars, then transfer dollars to Iran for oil, finally Iran exchanges back into dollars. This can essentially occur instantaneously, so the time that the assets are held in dollars is so brief as to be meaningless. The beneficiaries are currency exchanges who gain a commission on both side of the deal - although the Euro/$ bid-ask spread is very small.
b. Just make the transfer in Euros at the rate based the Euro dollar exchange rate. If this is really done - as I suspect - this argument alone proves the Petrov point is wrong.
Both of these methods are no different than if I sold you a car, which I had priced at $1000. If you had Euros, you could convert to them to dollars five minutes before we met, then hand them over. I could then convert into Euros five minutes later if I wanted. In this case, it would be easier for me to just accept your Euros at the exchange rate times the price.
The IOB arguments seems to claim that the dollar police would come and hit me on the head, or blow up the cars, but again, I feel this is utter speculation. Since this is such a crucial assumption of the IOB argument, I think someone needs to document how these transactions take place. If the second method I describe above can be done, what is the use of the IOB. If it can not be done - why not?
A counter argument to this could be that by converting at the time of the transaction - rather than holding dollars - the buyer bears currency risk. But this is not really accurate. First, the same risk would exist if the transaction were conducted over an exchange such as the IOB. Second, the oil price fluctuations take into account the trade weighted average of the currencies it is procured in. There is no advantage that can accrue based on the currency oil is purchased in that can not be gained by mere speculative holdings of the same currencies.
I think it has been clearly established that there can only be one price for oil and that the IOB can only translate that price into Euros. If there are two different prices, everyone would only buy from the cheaper provider until prices equalized. If anyone disagree with this let me know.
3. Role of the US dollar is key component of US strength and the ability of the US to protect itself is economic distress by inflation.
I have no dispute with this line of argument. In fact I have used it myself in showing that the US is far less at risk from its overseas debt that it appears. I do think that if foreign economies stop sell or stop buying US dollar assets, the US can and will inflate itself out of the problem. It is not nice and does hurt the US too. But is a powerful tool and an economic reality.
However, my claim, which I have laid out in my entertaining earlier discussion with lads on the same topic (http://www.theoildrum.com/story/2005/12/27/232238/03 [scroll down]) is that this has nothing (or very little) to with prices tags or the currency used in transactions. The foundation for the predominance of the dollar is the long term holdings of dollar denominated assets, which is done voluntarily as part of a strategy of managing returns and exchange rates.
CONCLUSION:
My impression is that Petrov and his conspirators have started with a conviction that the US is an empire based on extraction of resources from others enforced by military might. The IOB argument is an attempt to reverse engineer reality to explain how it all works.
He ignores two key facts:
1. The US economy creates value rather than steal it
2. Other economies voluntarily hold US dollars because they also benefit
I contend that the position that one takes on these two points determines whether they will see the IOB as kryptonite or conspiracy.
Finally, one point that I find very strange. Iran has a real weapon that can harm or destroy the world economy: energy. Why try to trace such as convoluted path trying to believe they have a different one?
Heres a different spin -- Countries bought US assets to hold long term to ensure their access to oil, since (until anybody can show otherwise) oil has to be bought for USD. Look, you say that they can accept euros if they want, but thats hooey, Iraq started going that and just look what happened. Best out of any all the BS reasons to invade Iraq is that Saddam started favoring Euros. The idea is that you get a better price if you buy in Euros because they dont want dollars any more. They are still trying to figure out how to get rid of their USD assets but if they can get as many Euros as quickly as possible then at least they wont be wiped out by the demise of the USD they all see coming. Why do you think China unpegged the Yuan? Why do you think the Fed is going to hide the M3? And Saddam converting oilforfood assets into Euros? I think they all know the days of the dollar as world champion currency are numbered.
I dont think anyone can truly say whether the IOB will matter until after it begins operation. But if I was an Iran who wanted Euros over Dollars I'd make sure people got a better deal by giving me my desired currency. And when you get a better deal with Euros over Dollars for the worlds number one commodity, well, who needs dollars anymore. Of course the US administration knows of this possibility, and truthfully, what other reason to set up a Euro denominated exchange? Just for the fun of it? No -- its to say FU USA.
And I think its pretty speculative to say that USA actually increased productivity. Comes off more like USA corporations improved productivity on paper by becoming even better externalizers than yesterday. I dont think real Americans are any better off. More in debt and less savings than ever.
Alas, it's not my field, and I have no data. But I believe US corporations increased productivity for about a 10-15yr period due to the widespread implementation of computers and automation tools. I think this revolution is now largely complete. Things will continue to advance, but not the step-change improvement we've just been through. OTOH, Europe and some other parts of the world also got an improvement due to the same reasons - probably not to the same extent - so it's an advantage to the US only to the extent that we got a bigger part of it. And in the future that advantage may swing to others.
And I also agree that some part of what is measured as increased productivity is just on paper - due to outsourcing and the like. So I guess I'm doubtful that the increase in worker productivity really makes other countries want to hold USD.
I'm with Jack on this one. To Anonymoose's point, if all my assets were in, say, yen, and I wanted to buy oil, why would I need to buy U.S. assets first? Why not simply trade enough yen for dollars right before I wanted to buy my oil?
The Econbrowser piece Jack recommends is worth a read. I especially enjoyed Prof. Hamilton's conclusion:
Which is also my explanation for the prevalence of these theories on the internet-- there is a demand for a deeply conspiratorial interpretation of world events, and always someone willing to supply such.
A non-conspiratorial reason why there is so much global demand for U.S. government debt is that you can get a better interest rate compared with other governments' debt.
I agree with your central point: the IOB will not directly cause huge problems for the US $ or economy.
But when it comes to whether it might be a perceived reason for an attack on Iran it is difficult to know if the US regime thinks so. After all, their logic seems to be pretty flawed at times. Ultimately it is their perception that matters.
I do think it will undermine holdings of US$. Although any currency can be converted at time of oil purchase there is a logic in holding stocks of $ if you know you are going to need them in future to buy oil. That's hedging for you, in its most basic form. I don't expect this to be a significant effect, in the short term at least.
My belief is that US GDP figures are artificially high, mostly due to the way inflation is treated. I would say that real US GDP growth is between 1.5% and 2% lower than is stated in the official statistics. US manufacturing is certainly a pale shadow of what it was 20 and more years ago, how useful or robust the majority of the US economy will be when contraction begins we will soon find out.
If you look at the oil price in detail over the last couple of years you would see that it is surprisingly insensitive to changes in the $ value in relation to other currencies. The IOB is likely to contribute to a decoupling of $ and oil and hence, if the $ declines - as I expect soon, the $ price of oil is likely to rise more than other currencies' price of oil.
While these effects are likely to be relatively small they will probably reduce the demand for holdings of US treasury debt. That will be problematic for the US while its trade deficit remains so high, and climbing, and will climb further as the $ price of oil increases.
Do you not see the possibility of vicious circles here?
Thanks for framing your analysis in such clear terms Jack. You've made me put my thinking cap on, which I appreciate. I agree that the three noted assumptions are indeed the key to the debate. Please forgive me for the fact that some of the following is a mental work-in-progress based on an on-going learning process.
1) The first assumption: "The foundation of US economic growth and strength is "extraction" or taxation of others, rather than creating value."
I would say that the point of capitalism in practice is to concentrate wealth at the centre at the expense of the perifery, either at small scale (urban vs rural) or large scale (rich countries versus poor countries), as efficiently as possible. As the system develops, its wealth permits its reach to spread in a virtuous circle of positive feedback (from the point of view of those at the centre), bringing more periferal regions into its shpere of influence in order to accumulate wealth transfered from larger and larger areas.
The growing perifery typically provides relatively low value inputs which are then subject to value-added processes at the centre where most of the profit is therefore made and retained. At this point, the centre is truly productive and growth is real. The greater the degree to which the perifery can be expanded (ie the more local economies which can be brought within its sphere of influence on its own terms), the greater the potential for the concentration of wealth (and power) at the centre.
However, the cost of doing business at the centre also rises over time as wealth, and therefore bagaining power, trickles down the socio-economic scale and leads to the formation of a middle class. As the efficient accumulation of capital comes with a social price to pay in terms of friction due to growing socio-economic disparity, the efficiency of capital accumulation may be limited initially by political constraints due to the temporary bargaining power of the middle classes, but those political constraints can eventually be weakened as the power of the centre continues to grow relative to the middle class. At this point, the positive feedback process can be expected to accelerate.
A post-mature capitalist centre is hollowed out (devouring its own middle class in the process) as the value-added aspects of the economy migrate away from the centre. This process can sow the seeds for the rise of new centres, altering the balance of power. The original centre can, however, sustain itself and continue to accumulate wealth so long as it maintains some control over the means of extracting and repatriating profits made from those value-added processes, wherever they are physically located.
At this point the growth of the centre could be described as virtual as it has little substance from the point of view of most of those who would previously have expected to benefit from being part of the centre (ie the middle classes). The original centre's control over wealth accumulation becomes increasing tenuous. (I would argue that the US is currently in this position.) This is analogous to the operation of a pyramid scheme, and destined to end the same way in my view - with the implosion of the centre.
The implosion of the original centre has an adverse impact on the rise of new centres for a time, but those new centres can subsequently go on to develop and compete for supremacy. If a new hegemonic power becomes dominant (I think it will be China), the cycle begins again (access to energy supplies permitting as the whole process of projecting power at a distance is energy intensive).
2) The second assumption: "The US dollar price is not only a requirement that currency be paid in dollars, but that this requirement is the primary reason why countries hold dollars."
I agree with you that countries do not hold dollars primarily in order to pay for oil and that the importance of the dollar as global reserve currency is based on the long-term ownership of dollar-denominated assets. Whether or not that ownership will continue to be long-term is the issue for the future of the dollar in my view. I would argue that it will not be as the US ceases to provide profitable investment opportunities for foreign-held dollars (see the Dollar Crisis by Richard Duncan), and the role of consumer of last resort is eventually reliquinshed (thereby killing the export markets that sent so many dollars overseas in the first place).
I agree with you that the Iranian bourse is likely to charge a dollar-based price merely converted into euros, at least initially. At some point, however, this type of construct could be used to shift to a euro-based price if the dollar implodes, which I would expect it to in the not-too distant future. This potential seems to be ringing alarm bells.
3) The third assumption: "Role of the US dollar is key component of US strength and the ability of the US to protect itself is economic distress by inflation."
I agree that the dollar is a key to US hegemonic power.
What do you think the response of the bond market would be if the US deliberately and persistently attempted to debase its currency by printing dollars? For a nation so dependent on being bankrolled by foreigners, I would have thought this a very dangerous strategy. Who would chose to hold dollar-denominated assets for the long-term, which you recognize as important, under those circumstances?
I realized that I did not address this point: "if a country wants to dump dollars, it'll buy another foreign currency and not trade it to its own. That way an unwanted appreciation of self currency is avoided."
I do not think this is accurate. Say, country A sells country B's currency and buys country C's. It currency will go up against B and down against C. You could say that there is no net appreciation of the currency (ie. against B + C), however this is not relevant in most cases.
Turning to the real world, if China is country A, the US is B and Europe is C. You may be able to make the argument that China's currency is stable against the US and Europe. But there is no doubt that the Yuan will appreciate against the dollar. Since China's primary customer is the US consumer, the dollar exchange rate is paramount.
Whether the transaction is done by going from Dollars to Yuan to Euros or just from dollars to Euro, doesn't make much difference.
On another point, I think Petrov's treatment of the US exit from the gold standard is flawed and self-serving. The classical gold standard ended with WWI. The US returned to the gold standard in 1919 with GB, Switzerland, France and Scandinavian countries restoring it by 1928. However this was a facade version of the standard, which collapsed in 1931. After WWII Bretton Woods was convened to create exchange rate stability. It created a "Gold-exchange standard" in which the US dollar was marked to gold and all other currencies to the dollar. This was fated to fail as claimed by Robert Triffin's "Triffin Paradox", which said that this would force the US to run a balance of payments deficit.
It seems he was right and the Bretton Woods system struggled with France trying to cash out in the early sixties, the US and IMF making a series of adjustments and finally the US expansionary monetary policy, which made the whole thing untenable. Nixon did end the standard in 1971. This did benefit the US by reducing its obligation. However, Petrov's comparison with bankruptcy is overstated. A "haircut" or debt reduction would be more accurate.
I do agree that the current US monetary position resembles that of 1971 and that a comparison of the current prospects of inflating out of debt with the 1971 refusal to honor the gold standard is apt. However, the background is far more complex and the actors involved far more broad-based than Petrov would have you believe.
My source for this is a textbook International Financial Management, Eun/Resnick, McGraw Hill. However it is fairly standard stuff. You can also see: http://en.wikipedia.org/wiki/Bretton_Woods_system
Turning to the real world, if China is country A, the US is B and Europe is C. You may be able to make the argument that China's currency is stable against the US and Europe. But there is no doubt that the Yuan will appreciate against the dollar.
Allow me to disagree. The euro would appreciate against the dollar, but not the Yuan. Since the Yuan is pegged to a bundle of other currencies it might appreciate a bit, otherwise the amounts of Dollar and Yuan available would stay the same.
As for Petrov's article, I think that his first premise is a bit forced, that foreign taxing is a somewhat flawed. But remember that what drives economic growth is energy consumption.
I do not agree with you on the last point. Foreign countries benefit from holding dollars in the sense of mantaining energy purchase power. This need generates a world demand for dollars, that in the long run benefits those who buy it.
If in the long run the dollar won't rise you're not benefiting. I see the IOB more like the trigger, than the cause of a serious dollar fall.
P.S.: Sorry for this delayed answer, I don't have internet at home, so over weekend I can't read TOD.
My kid brother <ie. smartest living guy in the world (MBA London School of Economics) and 200,000+/- air miles racked up between SFO and PEK in 2005> ... is 89.9% convinced, but he also believes in the existance of "economic dark matter". They see the effects in the unexplained resilience of the USD, but can't quite exactly put their finger on its magnitude or from where it originates. This article may begin to explain where that "dark matter" comes from, but I'll have to ask him about that.
STARE at something long and hard enough, and it will begin to swim before your eyes. Economists have been scrutinising America's current-account deficit for years now, and they are no closer to agreeing on what they are looking at. Now two economists at Harvard doubt whether the deficit even exists. Ricardo Hausmann and Frederico Sturzenegger first put this claim in a working paper* released last November. Your correspondent has blinked twice since then, but the claim has not gone away. On the contrary, it is gathering moss†.
This is great.
This is wonderful.
We Americans now have increased proved reserves in returns on foreign investments.
I just knew the Invisible Hand would come up with a new wave of itself and by itself to disprove what even our lying accountants have been telling us, namely, that America is running a huge trade deficit.
One just has to have faith in the Invisible Hand.
It always provides the answer.
This Economic Dark Matter answer sounds too good to be true and therefore it must be true.
He said, "NO", and that, "I DON'T get it." I didn't understand anything after that except for the parts about buying CHF and how eliminating M3 will make it impossible to ever find out if the dark matter effect is increasing or decreasing in magnitude. Your ball.
This Sunball looks like an interesting product for small domestic applications.
It also illustrates a fundamental trade-off when dealing with solar, wind, or wave power. The trade-off essentially boils down to high collection efficiency coupled with high complexity and high cost, versus low collection efficiency coupled with relative simplicity and low cost.
The Sunball clearly falls into the former category, as it provides high collection efficiency via concentration of the sunlight into a more intense beam and also has a tracking feature that allows it to maintain an optimal orientation to the sun at all times. The opposite approach would be to simply attach fixed flat solar panels to your more or less south-facing roof.
Which is better? Well that depends on the relative cost, operability, and long-term reliability. Where space constraints are not an issue, and if the costs were the same, I'd be inclined to favor the physically larger, simpler, but lower efficiency system. It is well to remember that efficiency and cost-effectiveness are not the same thing.
What they don't want you to know about the coming oil crisis
Doesn't exactly qualify as good news, though.
Below I give a list of seven european countries that have one thing in common. They consumed in 2004 less oil than in 1994. And no, they are not east european countries and they have not experienced some kind of economic collapse. The numbers are in thousand barrels per day and you can check for yourself the BP's Statistical Review of World Energy 2005 at http://www.bp.com/genericsection.do?categoryId=92&contentId=7005893
Denmark: 209/189
Germany: 2880/2665
Italy: 1920/1871
Norway: 212/209
Sweden: 354/319
Switzerland: 272/258
United Kingdom: 1777/1756
(saying that the situation is much worse in Germany than 1994 however is an exaggeration - the main problem is that it just never gets better)
So, among economic stagnation, moving traditionally energy intensive manufacturing to China, switching off Commie factories, and moving to Russian gas, this reduction is not any kind of policy achievement.
Also it should be remembered that several of these factors also make it quite easy for certain European nations to fulfill Kyoto requirements, without taking any 'courageous and daring' measures.
http://www.acceleratedcomposites.com/p_aptera.html
The Aptera - 330MPG diesel/hybrid car.
Cost less than $ 20,000.
0 to 60 mph in 11 seconds.
Yeah, this one has been making the rounds over the past couple of days.
On the surface it looks kind of cool.
The downside is that they haven't even built a prototype yet. For that matter, the design itself isn't even complete. The company doing this says they have made breakthroughs in building things out of composite, but as best I can tell they don't have any automotive experience. They are still looking for 'angel investors' to help pay for the prototype.
They plan to use off-the-shelf components (so they won't be building engines themselves), and I am sure there are many other parts they can just buy as well.
I guess my point though is that there may be subleties to things like getting the suspension and steering working so that it feels right, and these are things that they probably won't be able to buy.
It is classified as a motorcycle - this helps evade much of the crash safety testing requirements.
They aren't the only people thinking along these lines, however. Volkswagen had a similar project - they had a turbodiesel two-seater with a carbon fiber body. Theirs was only rated for ~260 mpg, and this was something that they did build and field test. They didn't have any hybrid technology in there though.
They called it the '1-liter' car, meaning it would burn one liter of fuel to go 100 km. They did unfortunately abandon the project:
http://www.greencarcongress.com/2005/04/vw_abandons_its.html
The problem for VW was the cost:
I gather that the carbon fiber was the deal-killer here. You need it to make the vehicle lightweight, but the stuff is expensive.
Now if this company (Accelerated Composites) has come up with a way to reduce the cost of making carbon fiber components, there could be value here if they were to simply license the technology to someone like VW who has sufficient experience to make an entire car.
Judging by the lack of content on the website, it's understandable that our project doesn't seem further along than it is. Lots more photos, photos of our destructive composites testing, our white papers, simulations (CFD, FEA, et al), status of our patent applications, and more recent pictures of the prototype will be posted as time permits.
Thanks for all of the input.
Steve
AC
very good article on the proposed iranian oil bourse and an articulate explanation of how selling oil in dollars keeps the american empire propped up.
This article is very good. There's something here very important to note, if a country wants to dump dollars, it'll buy another foreign currency and not trade it to it's own. That way an unwanted appreciation of self currency is avoided.
Petrov says that a part of the dumping may occur overnight. I'm not convinced of that, I believe in a more slow change, were a country buys commodities with dollars and sells other goods accepting only euros (or other non-dollar foreign currency).
The most important issue raised by Petrov is the impossiblity of a long term cohabitation of two currency standards (gold and dollar). If true, we're really headed to a hard road.
Even another twist for an interesting March is the Israeli preparation for an attack on Iran...
Dec 11, 05
http://www.timesonline.co.uk/article/0,,2089-1920074,00.html
Excerpts from the article:
ISRAEL'S armed forces have been ordered by Ariel Sharon, the prime minister, to be ready by the end of March for possible strikes on secret uranium enrichment sites in Iran, military sources have revealed.
The crisis is set to come to a head in early March, when Mohamed El-Baradei, the head of the IAEA, will present his next report on Iran. El-Baradei, who received the Nobel peace prize yesterday, warned that the world was "losing patience" with Iran.
"Defence sources in Israel believe the end of March to be the "point of no return" after which Iran will have the technical expertise to enrich uranium in sufficient quantities to build a nuclear warhead in two to four years."
http://www.econbrowser.com/archives/2006/01/strange_ideas_a.html
One highlight:
"...the notion that the U.S. dollar is currently "backed by oil" is so nonsensical that it is difficult even to fathom what that phrase is intended to convey."
The Petrov article is an excellent platform for discussing the Iran Bourse - both because it is the most careful documentation of the argument and because the author makes no bones about his claim that it is among the primary threats to US power. Petrov calls the IOB the ultimate "nuclear" weapon, says it will "precipitate the demise of the dollar" and cause the US to take drastic actions that could include sabotage, launching coups, unilateral nuclear strikes and unilateral total war.
It not going to surprised anyone that I am going to escalate my own argument by calling the IOB the greatest conspiracy theory of the year. Below is an atttempt to deal with the issue at the level of first pricipals, since an fairly elaborate structure has been build on what I feel is a shaky foundation.
Petrov's article contains in near equal measure bold assertions that I disagree with, underlying economic concepts that I do agree with, and utter speculation about the future, which I'll leave alone.
Because the "bold assertions" recur and underpin the ongoing argument, let me start my stating my interpretation of the foundation of the "IOB as kryptonite" argument and where I differ. Fundamentally, whether you can accept the IOB premise seems to depend on whether you can accept the three claims below:
1. The foundation of US economic growth and strength is "extraction" or taxation of others, rather than creating value.
The belief that the US has a productive economy that has been growing near 3% a year because of high levels of productivity is fairly well documented. Greenspan and the US Fed focus intensely on measuring the growth in the productivity rate in the US economy because this is the key factor underlying the continuing strength of the economy. There is no tracking of "extraction rates", "taxation of economically subject nations" or trends in theft.
The extraction claim seem only to be supported by a circular argument that the US economy is based on taxing others, which is proven by the claim that the dollar as trade currency enforces it, which is in turned proven by the extraction argument. But maybe I am wrong and someone provide a factual basis for the claim that US economic strength is based on extraction of value from others by force. I am waiting.
2. The US dollar price is not only a requirement that currency be paid in dollars, but that this requirement is the primary reason why countries hold dollars
As discussed before the dollar price of oil is just a price tag. If an EU country wants to buy Iranian oil and Iran wants to hold Euros, they currently have two ways to make this happen:
a. First the EU country exchanges Euros for dollars, then transfer dollars to Iran for oil, finally Iran exchanges back into dollars. This can essentially occur instantaneously, so the time that the assets are held in dollars is so brief as to be meaningless. The beneficiaries are currency exchanges who gain a commission on both side of the deal - although the Euro/$ bid-ask spread is very small.
b. Just make the transfer in Euros at the rate based the Euro dollar exchange rate. If this is really done - as I suspect - this argument alone proves the Petrov point is wrong.
Both of these methods are no different than if I sold you a car, which I had priced at $1000. If you had Euros, you could convert to them to dollars five minutes before we met, then hand them over. I could then convert into Euros five minutes later if I wanted. In this case, it would be easier for me to just accept your Euros at the exchange rate times the price.
The IOB arguments seems to claim that the dollar police would come and hit me on the head, or blow up the cars, but again, I feel this is utter speculation. Since this is such a crucial assumption of the IOB argument, I think someone needs to document how these transactions take place. If the second method I describe above can be done, what is the use of the IOB. If it can not be done - why not?
A counter argument to this could be that by converting at the time of the transaction - rather than holding dollars - the buyer bears currency risk. But this is not really accurate. First, the same risk would exist if the transaction were conducted over an exchange such as the IOB. Second, the oil price fluctuations take into account the trade weighted average of the currencies it is procured in. There is no advantage that can accrue based on the currency oil is purchased in that can not be gained by mere speculative holdings of the same currencies.
I think it has been clearly established that there can only be one price for oil and that the IOB can only translate that price into Euros. If there are two different prices, everyone would only buy from the cheaper provider until prices equalized. If anyone disagree with this let me know.
3. Role of the US dollar is key component of US strength and the ability of the US to protect itself is economic distress by inflation.
I have no dispute with this line of argument. In fact I have used it myself in showing that the US is far less at risk from its overseas debt that it appears. I do think that if foreign economies stop sell or stop buying US dollar assets, the US can and will inflate itself out of the problem. It is not nice and does hurt the US too. But is a powerful tool and an economic reality.
However, my claim, which I have laid out in my entertaining earlier discussion with lads on the same topic (http://www.theoildrum.com/story/2005/12/27/232238/03 [scroll down]) is that this has nothing (or very little) to with prices tags or the currency used in transactions. The foundation for the predominance of the dollar is the long term holdings of dollar denominated assets, which is done voluntarily as part of a strategy of managing returns and exchange rates.
CONCLUSION:
My impression is that Petrov and his conspirators have started with a conviction that the US is an empire based on extraction of resources from others enforced by military might. The IOB argument is an attempt to reverse engineer reality to explain how it all works.
He ignores two key facts:
1. The US economy creates value rather than steal it
2. Other economies voluntarily hold US dollars because they also benefit
I contend that the position that one takes on these two points determines whether they will see the IOB as kryptonite or conspiracy.
Finally, one point that I find very strange. Iran has a real weapon that can harm or destroy the world economy: energy. Why try to trace such as convoluted path trying to believe they have a different one?
I dont think anyone can truly say whether the IOB will matter until after it begins operation. But if I was an Iran who wanted Euros over Dollars I'd make sure people got a better deal by giving me my desired currency. And when you get a better deal with Euros over Dollars for the worlds number one commodity, well, who needs dollars anymore. Of course the US administration knows of this possibility, and truthfully, what other reason to set up a Euro denominated exchange? Just for the fun of it? No -- its to say FU USA.
And I think its pretty speculative to say that USA actually increased productivity. Comes off more like USA corporations improved productivity on paper by becoming even better externalizers than yesterday. I dont think real Americans are any better off. More in debt and less savings than ever.
And I also agree that some part of what is measured as increased productivity is just on paper - due to outsourcing and the like. So I guess I'm doubtful that the increase in worker productivity really makes other countries want to hold USD.
The Econbrowser piece Jack recommends is worth a read. I especially enjoyed Prof. Hamilton's conclusion:
A non-conspiratorial reason why there is so much global demand for U.S. government debt is that you can get a better interest rate compared with other governments' debt.
I agree with your central point: the IOB will not directly cause huge problems for the US $ or economy.
But when it comes to whether it might be a perceived reason for an attack on Iran it is difficult to know if the US regime thinks so. After all, their logic seems to be pretty flawed at times. Ultimately it is their perception that matters.
I do think it will undermine holdings of US$. Although any currency can be converted at time of oil purchase there is a logic in holding stocks of $ if you know you are going to need them in future to buy oil. That's hedging for you, in its most basic form. I don't expect this to be a significant effect, in the short term at least.
My belief is that US GDP figures are artificially high, mostly due to the way inflation is treated. I would say that real US GDP growth is between 1.5% and 2% lower than is stated in the official statistics. US manufacturing is certainly a pale shadow of what it was 20 and more years ago, how useful or robust the majority of the US economy will be when contraction begins we will soon find out.
If you look at the oil price in detail over the last couple of years you would see that it is surprisingly insensitive to changes in the $ value in relation to other currencies. The IOB is likely to contribute to a decoupling of $ and oil and hence, if the $ declines - as I expect soon, the $ price of oil is likely to rise more than other currencies' price of oil.
While these effects are likely to be relatively small they will probably reduce the demand for holdings of US treasury debt. That will be problematic for the US while its trade deficit remains so high, and climbing, and will climb further as the $ price of oil increases.
Do you not see the possibility of vicious circles here?
1) The first assumption: "The foundation of US economic growth and strength is "extraction" or taxation of others, rather than creating value."
I would say that the point of capitalism in practice is to concentrate wealth at the centre at the expense of the perifery, either at small scale (urban vs rural) or large scale (rich countries versus poor countries), as efficiently as possible. As the system develops, its wealth permits its reach to spread in a virtuous circle of positive feedback (from the point of view of those at the centre), bringing more periferal regions into its shpere of influence in order to accumulate wealth transfered from larger and larger areas.
The growing perifery typically provides relatively low value inputs which are then subject to value-added processes at the centre where most of the profit is therefore made and retained. At this point, the centre is truly productive and growth is real. The greater the degree to which the perifery can be expanded (ie the more local economies which can be brought within its sphere of influence on its own terms), the greater the potential for the concentration of wealth (and power) at the centre.
However, the cost of doing business at the centre also rises over time as wealth, and therefore bagaining power, trickles down the socio-economic scale and leads to the formation of a middle class. As the efficient accumulation of capital comes with a social price to pay in terms of friction due to growing socio-economic disparity, the efficiency of capital accumulation may be limited initially by political constraints due to the temporary bargaining power of the middle classes, but those political constraints can eventually be weakened as the power of the centre continues to grow relative to the middle class. At this point, the positive feedback process can be expected to accelerate.
A post-mature capitalist centre is hollowed out (devouring its own middle class in the process) as the value-added aspects of the economy migrate away from the centre. This process can sow the seeds for the rise of new centres, altering the balance of power. The original centre can, however, sustain itself and continue to accumulate wealth so long as it maintains some control over the means of extracting and repatriating profits made from those value-added processes, wherever they are physically located.
At this point the growth of the centre could be described as virtual as it has little substance from the point of view of most of those who would previously have expected to benefit from being part of the centre (ie the middle classes). The original centre's control over wealth accumulation becomes increasing tenuous. (I would argue that the US is currently in this position.) This is analogous to the operation of a pyramid scheme, and destined to end the same way in my view - with the implosion of the centre.
The implosion of the original centre has an adverse impact on the rise of new centres for a time, but those new centres can subsequently go on to develop and compete for supremacy. If a new hegemonic power becomes dominant (I think it will be China), the cycle begins again (access to energy supplies permitting as the whole process of projecting power at a distance is energy intensive).
2) The second assumption: "The US dollar price is not only a requirement that currency be paid in dollars, but that this requirement is the primary reason why countries hold dollars."
I agree with you that countries do not hold dollars primarily in order to pay for oil and that the importance of the dollar as global reserve currency is based on the long-term ownership of dollar-denominated assets. Whether or not that ownership will continue to be long-term is the issue for the future of the dollar in my view. I would argue that it will not be as the US ceases to provide profitable investment opportunities for foreign-held dollars (see the Dollar Crisis by Richard Duncan), and the role of consumer of last resort is eventually reliquinshed (thereby killing the export markets that sent so many dollars overseas in the first place).
I agree with you that the Iranian bourse is likely to charge a dollar-based price merely converted into euros, at least initially. At some point, however, this type of construct could be used to shift to a euro-based price if the dollar implodes, which I would expect it to in the not-too distant future. This potential seems to be ringing alarm bells.
3) The third assumption: "Role of the US dollar is key component of US strength and the ability of the US to protect itself is economic distress by inflation."
I agree that the dollar is a key to US hegemonic power.
What do you think the response of the bond market would be if the US deliberately and persistently attempted to debase its currency by printing dollars? For a nation so dependent on being bankrolled by foreigners, I would have thought this a very dangerous strategy. Who would chose to hold dollar-denominated assets for the long-term, which you recognize as important, under those circumstances?
I realized that I did not address this point: "if a country wants to dump dollars, it'll buy another foreign currency and not trade it to its own. That way an unwanted appreciation of self currency is avoided."
I do not think this is accurate. Say, country A sells country B's currency and buys country C's. It currency will go up against B and down against C. You could say that there is no net appreciation of the currency (ie. against B + C), however this is not relevant in most cases.
Turning to the real world, if China is country A, the US is B and Europe is C. You may be able to make the argument that China's currency is stable against the US and Europe. But there is no doubt that the Yuan will appreciate against the dollar. Since China's primary customer is the US consumer, the dollar exchange rate is paramount.
Whether the transaction is done by going from Dollars to Yuan to Euros or just from dollars to Euro, doesn't make much difference.
On another point, I think Petrov's treatment of the US exit from the gold standard is flawed and self-serving. The classical gold standard ended with WWI. The US returned to the gold standard in 1919 with GB, Switzerland, France and Scandinavian countries restoring it by 1928. However this was a facade version of the standard, which collapsed in 1931. After WWII Bretton Woods was convened to create exchange rate stability. It created a "Gold-exchange standard" in which the US dollar was marked to gold and all other currencies to the dollar. This was fated to fail as claimed by Robert Triffin's "Triffin Paradox", which said that this would force the US to run a balance of payments deficit.
It seems he was right and the Bretton Woods system struggled with France trying to cash out in the early sixties, the US and IMF making a series of adjustments and finally the US expansionary monetary policy, which made the whole thing untenable. Nixon did end the standard in 1971. This did benefit the US by reducing its obligation. However, Petrov's comparison with bankruptcy is overstated. A "haircut" or debt reduction would be more accurate.
I do agree that the current US monetary position resembles that of 1971 and that a comparison of the current prospects of inflating out of debt with the 1971 refusal to honor the gold standard is apt. However, the background is far more complex and the actors involved far more broad-based than Petrov would have you believe.
My source for this is a textbook International Financial Management, Eun/Resnick, McGraw Hill. However it is fairly standard stuff. You can also see:
http://en.wikipedia.org/wiki/Bretton_Woods_system
Allow me to disagree. The euro would appreciate against the dollar, but not the Yuan. Since the Yuan is pegged to a bundle of other currencies it might appreciate a bit, otherwise the amounts of Dollar and Yuan available would stay the same.
As for Petrov's article, I think that his first premise is a bit forced, that foreign taxing is a somewhat flawed. But remember that what drives economic growth is energy consumption.
I do not agree with you on the last point. Foreign countries benefit from holding dollars in the sense of mantaining energy purchase power. This need generates a world demand for dollars, that in the long run benefits those who buy it.
If in the long run the dollar won't rise you're not benefiting. I see the IOB more like the trigger, than the cause of a serious dollar fall.
P.S.: Sorry for this delayed answer, I don't have internet at home, so over weekend I can't read TOD.
http://www.economist.com/finance/displaystory.cfm?story_id=5408129
It starts with this ...
STARE at something long and hard enough, and it will begin to swim before your eyes. Economists have been scrutinising America's current-account deficit for years now, and they are no closer to agreeing on what they are looking at. Now two economists at Harvard doubt whether the deficit even exists. Ricardo Hausmann and Frederico Sturzenegger first put this claim in a working paper* released last November. Your correspondent has blinked twice since then, but the claim has not gone away. On the contrary, it is gathering moss†.
This is great.
This is wonderful.
We Americans now have increased proved reserves in returns on foreign investments.
I just knew the Invisible Hand would come up with a new wave of itself and by itself to disprove what even our lying accountants have been telling us, namely, that America is running a huge trade deficit.
One just has to have faith in the Invisible Hand.
It always provides the answer.
This Economic Dark Matter answer sounds too good to be true and therefore it must be true.
Why heck, that's sound logic, pure and simple.
http://www.greenandgoldenergy.com.au/
I found this picture particularly convincing:
http://www.greenandgoldenergy.com.au/images/FullSizeCells.jpg
They are making solar look easy, it's even possible to imagine these things getting made and sold. Heres hoping for a better battery to go with it.
It also illustrates a fundamental trade-off when dealing with solar, wind, or wave power. The trade-off essentially boils down to high collection efficiency coupled with high complexity and high cost, versus low collection efficiency coupled with relative simplicity and low cost.
The Sunball clearly falls into the former category, as it provides high collection efficiency via concentration of the sunlight into a more intense beam and also has a tracking feature that allows it to maintain an optimal orientation to the sun at all times. The opposite approach would be to simply attach fixed flat solar panels to your more or less south-facing roof.
Which is better? Well that depends on the relative cost, operability, and long-term reliability. Where space constraints are not an issue, and if the costs were the same, I'd be inclined to favor the physically larger, simpler, but lower efficiency system. It is well to remember that efficiency and cost-effectiveness are not the same thing.