Author: Jerome a Paris

A group of professional people posed this question to a group of 4 to 8 year-olds, “What does love mean?” The answers they got were broader and deeper than anyone could have imagined. See what you think:

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Update [2005-11-2 2:14:21 by Jerome a Paris]: Thanks to all for the feedback. I think you will all agree that this diary should be dedicated to Wolverine Writer and his family – they are going to need a lot of love to go through the near future. Let’s make sure our community’s is around them.

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“When my grandmother got  arthritis, she couldn’t bend over and paint her toenails  anymore.

So  my grandfather does it for her all the time, even when his hands got arthritis too. That’s love.”

Rebecca- age 8

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“When someone loves you,  the way they say your name is different.

You just know that your  name is safe in their mouth.”

Billy – age 4

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“Love is when a girl puts  on perfume and a boy puts on shaving cologne and they go out and smell  each other.”

Karl – age 5

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“Love is when you go out to  eat and give somebody most of your French fries without making them give  you any of theirs.”

Chrissy – age  6

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“Love is what makes you  smile when you’re tired.”

Terri – age  4

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“Love is when my mommy  makes coffee for my daddy and she takes a sip before giving it to him, to  make sure the taste is OK.”

Danny –  age 7

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“Love is when you kiss all  the time. Then when you get tired of kissing, you still want to be  together and you talk more. My  Mommy and Daddy are like that. They look gross when they  kiss”

Emily – age 8

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“Love is what’s in the room  with you at Christmas if you stop opening presents and  listen.”

Bobby – age 7

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“If you want to learn to  love better, you should start with a friend who you hate,”

Nikka – age 6

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“Love is when you tell a  guy you like his shirt, then he wears it everyday.”

Noelle – age 7

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“Love is like a little old  woman and a little old man who are still friends even after they know each  other so well.”

Tommy – age 6

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“During my piano recital, I  was on a stage and I was scared. I looked at all the people watching me  and saw my daddy waving and smiling.

He  was the only one doing that. I wasn’t scared anymore.”

Cindy – age 8

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“My mommy loves me more  than anybody .

You don’t see anyone else  kissing me to sleep at night.”

Clare – age 6

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“Love is when Mommy gives  Daddy the best piece of chicken.”

Elaine-age 5

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“Love is when Mommy sees  Daddy smelly and sweaty and still says he is handsomer than Brad Pitt.”

Chris – age 7

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“Love is when your puppy  licks your face even after you left him alone all  day.”

Mary Ann – age 4

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“I know my older sister  loves me because she gives me all her old clothes and has to go out and  buy new ones.”

Lauren – age 4

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“When you love somebody,  your eyelashes go up and down and little stars come out of you.”

Karen – age 7

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“You really shouldn’t say  ‘I love you’ unless you mean it. But if you mean it, you should say it a  lot. People forget.”

Jessica – age 8

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And the final one — Author  and lecturer Leo Buscaglia once talked about a contest he was asked to  judge.

The purpose of the contest was to find the most caring  child.

The winner was a  four year old child whose next door neighbor was an elderly gentleman who  had recently lost his wife.

Upon seeing the man cry, the little boy went into the  old gentleman’s yard, climbed onto his lap, and just sat there.

When his  Mother asked what he had said to the neighbor, the little boy said,

“Nothing, I just helped him cry”

Again, I’ll use the wee hours of the night (in the US) to remind you not to miss Fran‘s indispensable European Breakfast threads over at the European Tribune. It’s a full press review, commented and amplified by the ET regulars, and it’s pretty damn comprehensive. Together with Soj‘s EuroPDB threads on weekdays, you won’t need to read papers anymore.

And today, Fran unearthed this must read article in the Independent: Real Life: Ten very surprising things about Iran.

This is the reality-based community: things are not always black and white.

So what unexpected facts can you bring us today to make us reconsider our views?

Use as an open thread.

An important day today in the diplomatic manoeuvers around Syria, with the joint presentation at the UN Security Council of a very tough resolution on Syria  by the USA and France.

Below, I will try to make some sense of what happened, how we got to that point, why France is working hand-in-hand with the USa there and what it means in terms of likelihood of a war with Syria.

title edited from earlier “Syria @ UN: regime change on the cheap and why France is cooperating” which was too long to fit in

UN meeting to put more pressure on Syria over Hariri death

Foreign ministers will meet in New York today for a highly charged meeting of the United Nations Security Council, increasing international pressure over Syria’s alleged involvement in the murder of Rafiq Hariri, former Lebanese prime minister.

Diplomats said a US-French call for a financial freeze and travel ban on individual suspects, and a more general threat of sanctions if Syria does not co-operate with the international investigation, could garner sufficient support to pass without any veto.

The most recent indications this morning is that the resolution will pass, as it will garner the necessay 9 votes, and that neither China nor Russia will put their veto for the time being.

But let’s go back a few months:

• On 14 February this year, Rafik Hariri, a former Prime Minister of Lebanon and a harsh critic of Syria’s domination of his country, is killed in a massive truck bomb (which also kills another 17 people).

• Very quickly afterwards,  pretty much unanimous calls are made at the UN for an independent enquiry in this assassination, as well as for an immediate application of an earlier joint US-French resolution (n°1559, voted in September 2004) calling for less Syrian interference on Lebanese affairs. In fact, this time, calls are explicitly for the departure of Syrian troops from Lebanon.

• Under massive international and huge demonstrations in Lebanon, Syria takes its troops out of that country in March.

• The UN report on the assassination (which can be downloaded here (pdf) from the BBC website), prepared by Detlev Mehlis, a German diplomat, came our earlier that month and strongly suggests that Syria was involved:

KEY UN FINDINGS (box)

• Assassins had considerable resources and capabilities
• Evidence suggests both Syria and Lebanon were involved
• Crime was prepared over several months
• Hariri’s movements and itineraries were monitored
• Highly unlikely Syrian or Lebanese intelligence were not aware of assassination plot

The names of close collaborators to Syrian President Bashar el-Assad were “mistakenly” released, and they turned out to be Assef Shawkat et Maher Assad, respectively the President’s brother-in-law and brother…

 For a skeptical take on that report, see Soj’s take on it.

In the background, there has been a lot of military action on the Iraqi-Syrian border, which is seen as one of the main routes into Iraq for terrorists or guerilla combatants or their supplies, and which US forces have difficulty securing. There have been various bits of information about skirmishes between US and Syrian forces near the border or even inside Syria, and much speculation about the desire of the backed-in-a-corner White House to start a new war to switch attention from Libby, Miers or the now widely shared perception of incompetence post Katrina.

So the current resolution is a pretty harsh one, and an obvious step towards making Syria an international pariah and a legitimate target for the use of force. Among other things, it includes:

(from the above BBC link)

The draft resolution calls for a travel ban and the freezing of assets of those suspected of involvement in the assassination.

The text also calls for Syria to detain those named by investigators and to allow witnesses and suspects to be interviewed outside the country.

And it threatens further measures such as economic sanctions if Damascus fails to co-operate.

The call for suspects to be detained and sent outside of the country is especially harsh as the two named suspects are close members of El-Assad’s family and leaders of his tribe, the Allawis, which are a minority in Syria but  have traditionally held the power in the country. Le Monde, quoting a Lebanese editorialist effectively calls this a 45 day ultimatum on El-Assad, with two impossible options: sacrificing close allies, or becoming an international pariah and facing stiff sanctions.

As Le Monde indicates, El-Assad’s strategy is likely to play for time, and count on two things: (i) protection form Russia, including a veto against any threat of military action, and (ii) the unwillingness of most to add more tension to an already pretty volatile region.

But the interesting thing is France’s active participation in the process so far.

This article in Le Monde (behind subscription wall, I’ll email its content to anyone who asks me) provides a good run down of what’s going on:

• France is first and foremost interested in the stability of Lebanon, and in getting rid of Syrian influence there. That’s the main goal for France;

• the second goal was to improve relations with Washington. The country was seen as a good topic to mend fences with the Bush administration, and France approached Washington with the proposed UN resolution. both the resolution and the French demarche were obviously welcomed by Bush, and resolution 1559 passed in September 2004.

Beyond this, Washington is obviously more interested by the regional context (and the Iraq War) than the situation of Lebanon, and their willingness to mend fences with Paris may not be strong enough to balance other strategic or tactical goals in the neighborood. France’s fear is that there will soon be calls for military intervention or “regime change” which it would not support.

So far, the resolution does not include that, and both countries can still pretend to have the same objective, but that may not last. France will not support anything that could lead to another military action. Even hints of “fighting terrorism” would not be welcomed in Paris.

I’ll finish on a slightly optimistic note, quoting a joint NYT/FT article on the current resolution:

Ms. Rice and other American officials have said they do not seek “regime change” in Syria but rather “behavior change.” As an example, they point to Libya, where Col. Muammar el-Qaddafi decided in 2003 to admit the existence of his weapons programs, agree to dismantle them and thereby start to shed his country’s pariah status.

Even for those wishing to see Mr. Assad’s removal, there is a fear that his successor could come from the ranks of either his family or cronies in his government of Allawites, a minority Muslim sect, or from the fundamentalist Muslim Brotherhood, the most popular organization among Syria’s majority Sunnis.

“For the first term of his presidency, the Bush administration had a long list of complaints about Syria that got longer after Iraq,” said Flynt Leverett, a Middle East specialist at the Brookings Institution who worked in the White House at the start of this presidency. “Since the second term started, I think they’ve been moving toward an undeclared policy of regime change, as long as it doesn’t require too much effort by the United States,” Mr. Leverett added. “It’s regime change on the cheap.“

So this points to the grownups in the Bush administration recognising that doing more than what is on the table today would require ressources unavailable today, and thus that tough diplomacy, backed by France, stands a chance to meet some policy objectives.

But again, focusing on policy is never very wise with this administration. Will domestic US politics make them reconsider this relatively reasonable approach? Today’s resolution will certainly not close the door on that.

Christopher Caldwell, the conservative – but sane – senior editor of the Weekly Standard, comes up with another interesting column in this week-end’s Financial Times, where he discusses the economic merits of a minimum wage, which he claims are unconvincing, but nevertheless ends up supporting an increase in such minimum wage for social and political reasons.

His arguments make a lot of sense, and show exactly what the Dems should fight for:

Christopher Caldwell: Social logic of a living wage

The economic case for a higher minimum wage looks strong at first glance. In the US, it was last raised in 1998. The minimum now pays only one-third of the average salary, at a time of rising energy and healthcare prices. As Mr Kennedy noted, a year of minimum-wage work leaves a single mother with two children thousands of dollars below the poverty line.

In fact, the economic arguments for a higher minimum wage are weaker than they look. But the political arguments are strong enough for leaders to cross them at their peril. Mr Kennedy’s dramatic statistics do not capture the social reality of the minimum wage. Among those who get it, single-income families are a distinct minority. Half of minimum wage earners are under 25, according to US Bureau of Labour statistics, and one-quarter are teenagers. Many people have to take minimum-wage jobs; it is less clear that many have to stay in them. A person who spends six months loading the dumpster at a superstore, showing up on time, being polite, acquires a record for reliability that is a marketable credential. Removing that first rung on the career ladder could certainly spur unemployment.

This is a fair summary of the main arguments on that topic: the minimum wage is so low that it is not even enough to take peoplee out of poverty (which is undoubtedly true); but if it is only a first step into the labor market, making the step higher will keep some people out (harder to say if it is true, but the argument is certainly used).

Caldwell then goes on to shoot some of the anti-minimum wage arguments, by pointing out the contradictions in them:

Not that attacks on the minimum wage are particularly impressive on economic grounds. Claims that modest hikes would cost jobs – such as were made in the US during the Clinton rise, and in the UK when the minimum was introduced in 1999 – have been overblown. There is something self-contradictory about the twin rationales of the minimum wage’s opponents. They see the minimum-wage workforce as minuscule for the purposes of measuring the gains (money for poor people) and vast for the purposes of measuring the costs (bankruptcies and job losses).

But he then goes for the big picture in a way which is pretty unusual for a conservative, in that he acknowledges that the current economy is becoming increasingly tough for the middle class, and is encouraging a growing divide between the “winners” of globalisation, and the losers

 There is a larger narrative about how people are compensated in today’s economy. It is recounted in a fascinating way by Frank Levy and Richard J.?Murnane, the Massachusetts Institute of Technology economists, who have long studied the gap between the well and poorly paid. In The New Division of Labor, just out in paperback from Princeton University Press, they examine the role of computers in creating that gap. For Mr Levy and Mr Murnane, computers are best at carrying out “rules-based tasks”. Computers enhance the value of those engaged in “expert thinking” (thinking outside the box) and “complex communication” (interpreting information). But they drive down the demand for people engaged in the rules-based work that used to support much of the lower middle class. The results are a “hollowing out” of income distribution and increasing inequality. Low-paying rules-based  jobs – various secretarial, computational and manufacturing posts – are candidates for either automation or outsourcing.

(…)

The authors find John F.?Kennedy’s remark that “a rising tide lifts all boats” inapplicable in today’s economy. The same processes that increase demand for skilled workers reduce demand for unskilled ones. One possibly dangerous consequence, they fear, is that the “haves” of the new economy may use the political clout that money buys to accelerate these processes. But that could set off a destructive reaction. “Our market economy,” Mr Levy  and Mr Murnane write, “exists in a framework of institutions that requires the political consent of the governed. People doing well today have a strong interest in preserving this consent. If enough people come to see the US job market as stacked against them, the nation’s institutions will be at great risk.”

In short:

• globalisation and technological progress are indeed hollowing out the middle classes, by empoverishing its bottom half, whose jobs can be automated or outsourced, and who are left with only menial, low paid jobs (and, I may add, in competition wiht the traditional holders of such jobs, i.e. recent immigrants;

• this can be a politically self-sustaining, and self-reinforcing process, as the “winners” vote to defend the status quo and protect their advantage, and the losers get disinfranchised from the political world (or are distracted by cynical politicians focusing on “external enemies” like immigrants, gays or Arab terrorists);

• this will however reinforce the feeling of exclusion from society, and may ultimately lead to a wider delegitimisation of today’s politics and institutions.

There is evidence of just such a perception of a stacked job market. America now has a strong grass-roots political movement that is claiming a level of compensation that cannot be justified by the laws of supply and demand. Last November, a Florida referendum to raise the state’s minimum wage to a dollar above the federal one got 71 per cent of the vote. The Association of Community Organisations for Reform Now was instrumental in the initiative. The group, which many dismissed a decade ago as a remnant of 1970s progressivism, is once again a force after campaigns in dozens of cities and states to pass “living wage” laws. One-third of states now have minimum wages above the federal level.

This is not an economic but a political victory. It does not mean that, say, wrapping hamburgers is worth a dollar an hour more than we thought it was. But it may mean that social peace is.

This means that a smart conservative like Caldwell recognises that the political pendulum has switched so far in favor of the moneyed and/or educated and/or globalised classes and to the detriment of the working class that there is a real risk that the reaction could be very violent.

Thus lies a very simple lesson for the Democrats and the left in general:

if even conservatives can recognise that the economy is becoming increasingly unequal and unfair, why aren’t they making a bigger stink about it? Why leave this to grassroot organisations? This is a political winner that can be easily be grasped: THE ECONOMY IS INCREASINGLY UNFAIR.

The left needs to make more noise about this, so that the politicians can go and fight for incremental improvements – for social justice, to save the political compact, democracy, and to stave off the implicit threat of major social unrest.

Is this a dream? Can it be done? The minimum wage (“living wage”) is certainly a good place to start.

Greenspan had a big speech on oil (via the Energy Bulletin) two days ago.

Journalists focused mostly on his upbeat pronouncement that higher oil prices would have a real, but limited, impact on growth.

I would like to focus on some ignored parts of his speech which deserve a new countdown diary, despite the lack of headline-generating spot oil prices.
The key paragraph of his speech is the following:

In early August, prices for delivery in 2011 of light sweet crude breached $60 per barrel, in line with recent increases in spot prices. This surge arguably reflects the growing presumption that increases in crude oil capacity outside OPEC will no longer be adequate to serve rising world demand going forward, especially from emerging Asia.

To parse the Greenspeak, that means that non-OPEC oil supply increases will be unsufficient in view of demand growth. It’s not exactly peak oil for all oil production; it’s not even peak oil for non-OPEC producers (as he talks about inadequate “increases”); but it is still an important acknowledgement: supply from the non-OPEC world cannot keep up with demand. Call it the weak version of peak oil, maybe, but it’s there.

The other interesting point to note is that Greenspan flags a very important price indicator, which is usually ignored by the press.

As the numbers provided on this page make clear, markets are expecting prices to remain in the 60$/bl range for the next 5-6 years. This is VERY different to what you had in the past when, irrespective of what the short term price (driven by events and volatile) was, the long term prices would gently come back to what was then the long term expectation for oil prices, around 18-20$/bl. No longer. The market does not believe that we will “go back to normal” any time soon (“normal” being what happened since the mid-80s, which is the experience span of most traders at best).

The fact that Greenspan flags this price means that he understands pretty well what’s going on, it’s simply, as usually, well dissimulated in obtuse language behind a few easier to digest soundbites for the general public.

Let’s see what else is hidden in his speech:

How did we arrive at a state in which the balance of world energy supply and demand could be so fragile that weather, not to mention individual acts of sabotage or local insurrection, could have a significant impact on economic growth?

This seems like a banal acknowledgement of recent news. It is really more than that. He is stating that there is no supply cushion and that small events have direct macro-economic consequences. This is a big deal.

Although the production quotas of OPEC have been a significant factor in price determination for a third of a century, the story since 1973 has been as much about the power of markets as it has been about power over markets. The incentives to alter oil consumption provided by market prices eventually resolved even the most seemingly insurmountable difficulties posed by inadequate supply outside the OPEC cartel.

Here, he renews his faith in the markets to solve the problem. I note the adjective “seemingly unsurmountable” to describe the situation in the 70s and, implcitly, today. It took a pretty big economic crisis for the “markets” to solve what was an artificially created supply crisis. Today, the crisis is not artificial (no supply surplus avialable anywhere), so any “pure” market solution (i.e. price driven and not regulation-driven) will likely be more painful than in the 70s. Of course, we’ll find substitutes to 600$/bl oil. But can we find substitutes to 30$/bl oil or even to 60$/bl oil without economic pain? That question is not answered.

the opportunities for profitable exploration and development in the industrial economies are dwindling, and the international oil companies are currently largely prohibited, restricted, or face considerable political risk in investing in OPEC and other developing countries. In such a highly profitable market environment for oil producers, one would have expected a far greater surge of oil investments.

Again, Greenspan is acknowledging what many of us doomers and gloomers have been saying: “the opportunities are dwindling”. Reserves are running out is, again, what it means. BigOil is running out of places where to invest. Their record profits are the swan song of a dying industry.

because of the geographic concentration of proved reserves, much of the investment in crude oil productive capacity required to meet demand, without prices rising unduly, will need to be undertaken by national oil companies in OPEC and other developing economies. Although investment is rising, the significant proportion of oil revenues invested in financial assets suggests that many governments perceive that the benefits of investing in additional capacity to meet rising world oil demand are limited. Moreover, much oil revenue has been diverted to meet the perceived high-priority needs of rapidly growing populations. Unless those policies, political institutions, and attitudes change, it is difficult to envision adequate reinvestment into the oil facilities of these economies.

So, no investment from the OPEc countries either… They don’t see any benefit to do so? Why would that be? I suppose he suggests that they think that oil prices will go down as demand is cut by greater efficiency and that surplus capacity would be unneeded, but he also leaves the door open to simpler explanations, notably that they don’t need to produce more oil to get more income as prices are inexorably rising.

But the point is – Greenspan is saying that oil production will not increase because nobody is investing in the sector near enough to what would be needed, oil majors because they cannot, and oil countries because they won’t (they “have other priorities”, maybe…)

We can expect similar increases in oil efficiency in the rapidly growing economies of East Asia as they respond to the same set of market incentives. But at present, China consumes roughly twice as much oil per dollar of GDP as the United States, and if, as projected, its share of world GDP continues to increase, the average improvements in world oil-intensity will be less pronounced than the improvements in individual countries, viewed separately, would suggest.

After repeating many times that energy efficiency will allow us to live with these dwindling supplies, Greenspan drops his last bombshell, in the above paragraph: the simple fact that China, an inefficient energy user, is growing a lot faster than the West, means that the average energy-efficiency of the world economy is going to decline, even if all countries improve their individual efficiency

This is a fundamental insight. Basically, it says that China’s demand for energy is growing. Even if it grows slower than its economy (thanks to efficiency), that demand is growing, and, as China becomes a bigger chunk of the world economy, the absolute size of that increase is world-significant. Even if we all make efforts, the simple fact that China is on a high growth trajectory means that oil demand will keep on growing, thus putting unbearable pressure on the market.

In fact, the only way to balance the markets, as suggested by Greenspan, would be a collapse of Chinese growth, an event which would likely have massive repercussions within China and outside of China.

So yes, get ready for 100$/bl oil and more. Even Greenspan implicitly ackowledges it.

Earlier “Countdown Diaries”:
Countdown to 100$ oil (13) – Katrina strikes / refinery crisis
Countdown to 100$ oil (12) – Al-Qaeda, oil and Asian financial centers
Countdown to 100$ oil (11) – it’s Greenspan’s fault!
Countdown to 100$ oil (10) – Simmons says 300$ soon – and more
Countdown to 100$ oil (9) – I am taking bets
Countdown to 100$ oil (8) – just raw data
Countdown to 100$ oil (7) – a smart solution: the bike
Countdown to 100$ oil (6) – and the loser is … Africa
Countdown to 100$ oil (5) – OPEC inexorably raises floor price
Countdown to 100$ oil (4) – WSJ wingnuts vs China
Countdown to 100$ oil (3) – industry is beginning to suffer
Countdown to 100$ oil (2) – the views of the elites on peak oil
Countdown to 100$ oil (1)

I have been spending the past two days in Portugal to visit a windfarm that my bank financed. I’d like to show you what it all looks like.

All pictures were taken by me, including this one:

(warning, several hundred kb below the fold)
This is what most of the wind farms in the region (and I counted at least 100 turbines in a 30 mile area) look like:

All the wind farms are on ridges, and are thus visible from pretty far away. However, with an object like a wind farm, it is pretty much impossible to have an idea of their scale from any distance. So they are there, clearly visible to all. If you think they destroy the landscape, I suppose there is little that can be said to convince you otherwise.

This is taken from within the windfarm, i.e. on one of the access roads that are used by maintenance vehicles to get access to the turbines.

Now this gets interesting… This is taken from the very top of one of the turbines. You can get access to the nacelle of each wind turbine by climbing within the monopile. Some are equipped with small lifts: otherwise you simply need to climb us a vertical stairwell against the side of the pile. It’s very secure, all movements within are done with harnesses and failsafe security systems during the climb. Up there, the nacelle (especially in the models of this manufacturer) are surprisingly large:

(there is a lot of room because this manufacturer does not use a gear box: it uses a rotor/strator technology to generate the power directly, without using a generator to convert the mechanical energy)

There’s a trap and a winch to bring equipment up, and a trap to have a look from the top (that’s where I took the picture above, and the one below:)

This next picture may give you an idea of the size of the blades: the diameter at the base is 2-3 yards at least, and the length is above 30 meters. It’s just as big, and as precisely designed as the wing of a (big) airliner.

Back to the ground, i can confirm to you that these wind turbines are absolutely silent, even when you are standing right under them. There’s barely a “whisshhh” as the blades fly across.

Now, that’s all for the wind farms. For those that are suspicious of my motives, I am not trying to sell anything here on dKos, but I am happy to show you the concrete results of my work, and I thought I’d also show you a little bit more of the region where these wind farms are located, and other highly visible pieces of spectacular engineering.

The region is pretty spectacular, and is located along the Douro river. This is actually the region where most of the port is produced. It is a mix of high plateaus, narrow valleys and steep hills, with vineyards on terraces almost everywhere.

This is as seen from the top

and this from the bottom:

Now, there are a lot of spectacular bridges. That one was in the city where we stayed; the picture is taken from theexact same location as the above one, looking at the other side of the river:

The next city has some also spectacular bridges, with a twist:

As you can see, bridge technology has made many strides over the years, and is also invading the landscapes. The new freeway linking the region to Porto was build with a number of spectacular bridges and tunnels. Are they ugly? pretty? A necessary evil? An unaldulterated evil? iy seems to be discussed much less thna the impact of windfarms, in any case.

Of course, you can also find some charming old bridges (sorry for the poor quality):

So. What sacrifices our current living standards are worth?

This diary is inspired by an insightful exchange by mstein in yesterday’s diary, where he had the following scenarios:

the worldwide economic imbalances have gotten so extreme that the eventual “reversion to the mean” cannot come with a “soft landing”.  The sensible but optimistic inflationist probably sees something like the 70’s, a pessimistic one sees another Weimar Germany.  The sensible but optimistic deflationist probably sees another 90’s Japan, the pessimist another Great Depression.

Let me make the pessimist case here, on the basis of the document we discussed and a few others from my archives.
The pessimist starts with the fact that today’s economy is running only on debt, as the following graphs show:

(from Puplava (Financial Sense – June 2004 – The Unraveling))

(from Marc Faber (Quamnet – October 2005 – Why the Fed has no alternative than to print money)

Nobody denies that debt has reached new highs, but several arguments have been used to say that this is not so worrisome:

• the increasing sophistication of financial markets has allowed more players to take more debt in cheap and convenient ways, and this only reflects the fact that we all manage our money better;

• a part of the bulge is due to the temporary phenomenon that the baby-boomer generation, a demographically unique generation in that it is bigger than both the generation before and after it, is in its peak earning years and thus has been able to borrow more easily in the last 20 years

• the success of the central banks’ fight against inflation has brought interest rates to record lows and made debt cheaper than at any other time.

But these arguments do not hold water:

(from Puplava (Financial Sense – March 2005 – Let’s get fictional))

The debt burden is the highest ever – and this despite the record low interest rates, i.e. it is becoming increasingly difficult for households to pay for it, despite the attractive price of that debt; there is simply too much of it.

As to the argument about the baby-boom generation, it could easily be flipped: that generation is precisely at the age when it should be saving the most: having paid for its home, it can now use its high income to save for retirement years. Well, this is not happening.

Instead, that generation, instead of paying for its homes, has taken on more debt, and has basically stopped saving:

(from the Hoisington study)

The house wealth is an illusion: houses are worth more, but households actually own a decreasing fraction of that wealth, because they have been busy drawing equity from them:

That mechanism goes as follows:

• the Fed has pumped cheap money in the financial economy via ultra low rates
• households and investors can borrow more cheaply and thus afford to pay more for assets like homes (and financial assets as well)
• house prices increase
• consumers feel wealthy, borrow more money backed by the pumped up value of their house, and spend
• the economy grows.

The problem is, of course, that the economy is not growing. A Freddie Mac study quoted in the Hoisington note suggests that house equity withdrawals made up 31% of personal consumption expenditures since 2000. Other studies suggest that a very high fraction of the jobs created in the USA in recent jobs come only form the construction sector and the financial sector. Corporate profits in the USA come more and more from the financial sector (as noted in this article in the Economist last February, profits from the financial sector went from 4% of the total in 1982 to 40% today).

As noted by bonddad in his various diaries, outside the construction sector, the situation is pretty dire, with declining real wages, significant job losses (leading to a much lower employment ratio overall, down from 66.7% in 2000 to 65.2% last year).

And of course, you have this:

House prices have become so crazy in a number of  places (covering a significant portion of the population) that, despite the availability of more debt, houses become simply unaffordable, or affordable only with “exotic” time-bomb-like financial instruments, such as no down-payment, interest-only loans for amounts higher than the (current) price of the asset.

Well, the crazy mechanism above, which has already lasted much longer than all reasonable observers predicted, is coming to an end:

House equity withdrawals have stopped. Thankfully, one might say – at least the increase in debt will slow down. The problem is that this will have an immediate impact on consumption. Remember the number above from Freddie Mac: 31% of consumption came from these artifical props.

Now hit with the triple whammy of massively increasing energy prices, doubling minimum payments on credit cards, and lower home equity withdrawals, US consumption can only plummet.

This brings us in a reverse cycle, as described by mstein in the above exchange:

I believe this is the potential source of a possibly very vexing problem in the future; the next “conundrum” if you will.  To wit – the coming slowdown in the US economy will result among other things in a reduction in imports, most specifically a reduction in imports from China. This means a reduction in the the volume of dollars flowing into the Chinese central bank.  Dollars that are used to buy huge amounts of US treasuries.  At the same time, the supply of treasuries will increase as the budget deficit increases (less tax revenues and automatic increase in expenditures from unemployment benefits, war in Iraq, rebuilding NOLA etc).  Increased supply, lower demand – economics 101 says lower prices (higher rates).  In other words, in the coming slowdown, once the Fed starts to lower short term rates, long term (real) rates may remain stubbornly high or even increase due to the supply/demand situation.  This has the potential to start a very vicious, counterintuitive cycle where high/higher (real) long rates slow the economy more which forces (real) rates ever higher.  A very ugly  scenario and one for which the Fed has few if any options.

This is the reverse scenario, where all the excesses of the past years are paid for, compounded. Call it depression, call it deflation, it will be painful. And this time, the feedback loop from the Chinese will work against the USA, instead of in favor:

• US consumption falls, thus Chinese exports take a hit
• China has fewer dollars, and stops buying US Treasuries
• that buying trend, which had the effect of lowering interest rates, is now replaced by a neutral, or a selling trend, which pushes long term rates up
• debt becomes more expensive, adding, for those that do not have fixed rates, to an even higher debt service burden, and thus lower consumption

Now China may decide to react to that situation in two ways:

• one, helpful, would be to encourage domestic spending, invest locally, increase wages inside the country; this would fight deflation globally and increase world demand; it might also create inflation inside China and social unrest as inequalities increase.
• the other, dangerous, would be to push the mercantilist policies up a notch, slash prices on the back of their workers to keep exports going. This would increase worldwide deflationary pressures and/or could lead to a (increasingly justified) protectionist backlash form the West against that competitive pressure.

All in all, you can expect, in these scenarios:

• lower house prices
• higher long term interest rates, even if short term rates are lowered
• lower consumption in the US
• a nasty recession, which could quickly become worldwide.

The worst part is that it is not certain that such a crisis would be enough to bring energy prices down. The inertia in demand (including much stronger growth in countries like India and China) is likely to be sufficient, even in a recessionary environment, to keep pressure on the stretched supply side.

This is admitteldy a very gloomy scenario, but when you look at the above graphs, you see that there are so many imbalances in the world economy today, which have been exacerbated by Bush policies in every way, that it appears hard to avoid.

and remember one thing: most of that bubble wealth profited only to the very richest Americans. It will be essential to ensure that they pay as much as possible of hte cost of the mirror downturn that they caused. This will be the political fight of the coming decade, together with the energy crisis.

We have been having a pretty intense discussion on poverty over at the European Tribune, in this thread, which I can only encourage you to read if the topic is of any interest to you.

One of the most interesting comments came from afew, with the following graph, which I will comment below:

click on any graph to have a bigger version

Poverty is usually defined as having less than 50% of median income of the population (the 2004 threshholds can be found here). Many of you are undoubtedly familiar with the difference between the median income and the average income.

• The median is the level at which half the population is above, and half is below.

• The average income is the sum of all incomes divided by the number of people.

To simplify: median levels tell us how the middle class does. If only the rich get richer, then the average will increase, but the median will not move. If the poor get richer, both will increase.

So, how has median income done?

(from http://www.census.gov/prod/3/98pubs/p60-200.pdf)

So, so… It’s been basically stagnant since the lates 60s, in fact. This page provides more recent numbers. They are not directly comparable to those in the graph above (in 2003$ vs 1997$ – about a 15% difference), but you can tell that median income increased until 2000 and then declined – back to the 1997 level in 2003). More interestingly, this graph (from from here) details what’s happened:

Male median income has been declining steadily, but has been complemented by growing female income. However, for young people, neither male nor female incomes have been growing for the past 20 years, which suggests that female income growth is going to stagnate now that female work participation has reached close to maximum possible levels.

But back to poverty. Poverty numbers seem to follow median income pretty closely:

(from http://www.census.gov/hhes/www/poverty/poverty04/pov04fig03.pdf)

The most recent numbers are pretty damning though: poverty numbers are increasing despite the economy officially being out of a recession (and median income is still declining. How is that possible?). Note thatthis happened under BOTH Bush presidencies…

How about – because inequaility is rising – as this graph from the Census bureau demonstrates)

And if you wonder why, here’s a reminder:

The income of the top 1% is growing, but not that of others, and the Bush tax cuts have only reinforced this:

(from http://usa.usembassy.de/etexts/econ/eop/2004/eop-ch1.pdf)

Post tax incomes grew faster than pre-tax incomes – but guess for who?

Which brings us back to our initial graph:

the left-hand number represents the percentage of children in households under the poverty line, before social and fiscal transfers, i.e. on the basis of income. The right hand number represents that same percentage after such transfers – i.e. on the basis of actual living standards. The percentage change refers to the change in the left hand number between 1991 and 2000. See afew’s comment for more detail

Poverty levels in the USA and Europe are not too different to start with, but what government does is starkly different: it does a lot in Europe, and pretty much nothing in the USA. And Bush is clearly worsening things.

Why are you around at a time like this? Working at night? Coming from a different time zone?

Do you know about our European Breakfast threads prepared daily by Fran over at Eurotrib?

How do you split your time between Booman’s and Eurotrib? Take the poll

Staying warm to cost up to 90% more

U.S. households can expect to pay sharply higher monthly heating bills this winter, with the increases ranging from 45% to 90% in much of the country, utility companies and weather forecasters warn. Surging energy prices, which have been climbing since spring, come at a time when many households are contending with higher mortgage-finance costs, higher taxes that accompany increased real estate assessments and property-insurance price increases the past two years.

John Tuccillo, former chief economist at the National Association of Realtors, says these creeping demands on household incomes will cut U.S. economic growth by three-quarters to 1 percentage point next year. Raphael Bostic, a professor of urban economics at the University of Southern California, says fixed-income and low-income households will be hardest hit.

Higher energy prices are now the No. 1 concern of most small and midsize business owners, a PNC Financial Services Group survey revealed Thursday.

Alabama

Alabama Power pondering temporary rate increase

After four hurricanes tore through Florida last year, three of the state’s five major electric utilities won temporary rate increases to help cover the cost of repairs and other expenses. With Alabama Power Co. now estimating its tab from Hurricane Katrina at a minimum of $70 million, the Alabama Public Service Commission will probably decide by year’s end whether to take a similar route, a spokesman for the state regulatory agency indicated Thursday.

Arkansas

The highs and lows of Katrina

Saturday, Sep 17, 2005

To the state’s three gas utilities, who are all asking for rate increases as state regulators warn that gas bills for residential customers will double this winter.

Those three companies, CenterPoint Arkla, Arkansas Western Gas and Arkansas Oklahoma Gas, have all by themselves changed Arkansas from a low-cost gas state to one where gas bills for residential consumers are now higher than the national average.

Those companies will be sending you a little note in the mail sometime soon telling you to either chill out during the winter or expect to pay a king’s ransom to keep warm.

California

Natural gas bills expected to rise 71%, PG&E says

KATRINA & RITA: Utility blames hurricanes for enormous jump in home heating costs

Saturday, October 1, 2005

Pacific Gas and Electric Co. warned Friday that Northern California home heating bills would leap 70.8 percent in October as hurricanes Katrina and Rita drive up natural gas prices nationwide.

The storms smashed through a thicket of offshore rigs that supply roughly one-fifth of the nation’s natural gas.

Americans dealing with record high gasoline prices caused by the hurricanes now also face the prospect of a painfully expensive home heating season. Utilities across the country are bracing their customers for increases ranging from 55 to 75 percent.

Katrina Hits Bay Area Pocketbooks Again

SAN JOSE — The economic heat on Bay Area resident is about to increase with Friday’s announcement by utility giant Pacific Gas & Electric that it will raise natural gas rates by 71 percent for October in the wake of Katrina’s damage in the Gulf.

The utility claims it has no choice after Hurricane Katrina damaged a major portion of the nation’s natural gas generating capabilities along the Gulf Coast. The rate increase will impact residents from Bakersfield north to the Oregon border.

The utility said for the average residential customer a 71 percent increase translates to $17.45 more for the gas portion of their bill this October compared to a year ago.

Colorado

Electric bills join natural gas boost

9 October 2005

Combined increases will raise cost to average consumer by 33%

Colorado consumers will get hammered with a major increase in electric bills – on top of soon-to-soar heating costs – under a price hike filed Wednesday by Xcel Energy.

Xcel asked state regulators to approve a 30 percent increase in monthly electric bills, effective Nov. 1. For the average residential customer, monthly electric costs would rise $16 a month, from the current $53 to $69. The price hike is a direct pass- through to consumers as a result of increased costs to Xcel.

Xcel further forecasts that winter heating bills for typical residential customers will increase by $44, from $127 last December to $171 this December.

The combined monthly costs for electricity and natural-gas heating this December would be $240, a huge jump of 33 percent from last year.

“It’s going to be bad, really bad for consumers,”

Florida

JEA Announces Another Rate Increase

JACKSONVILLE, Fla. – JEA has announced it is raising its rates again to cover soaring fuel costs.  The community-owned utility company raised its rates by an average of $7 in November 2004 and then again by $10 in April. Now, JEA wants to raise utility rates by another $12.

JEA officials said Hurricane Katrina’s impact on the Gulf Coast put such a squeeze on fuel prices that they have no choice but to raise their rates again.

“Two things are happening: Fuel has come up more than we predicted when we had the increase, and that was before Katrina,” JEA Vice President of Marketing and Strategies Randy Boswell said. “And after Katrina, they have gone up 30 to 40 percent.”

If approved, the latest increase could cost the average customer an additional $12 per month. Including the latest increases, JEA customers are paying an additional $29 more monthly on their utility bills. That’s an additional $348 per year.

Massachussets

Mass. utility to seek jump of 28 percent

Request called biggest in 25 years

Massachusetts Electric Co., the state’s largest utility, said yesterday it will seek to raise rates for its 1.2 million customers by 28 percent starting in November because of soaring global energy prices.

The rate increase is the biggest sought by an electric utility in the state for at least 25 years, regulators said, and would cost the average homeowner $17.50 a month. Larger businesses, which normally pay higher rates than residential customers, could see increases as high as 50 percent.

New Hampshire

Unitil asks for 60% hike

From school districts to shopping malls, Unitil Corp. is asking for an average 60 percent hike in electric rates for about 150 of its largest commercial and industrial customers because of rising fuel costs. Similar increases are possible in the coming months for both business and residential customers of Public Service of New Hampshire, according to an official with the Public Utilities Commission, which approves rate increases.

“The rate increase we’re seeing for Unitil customers is the largest increase we’ve seen in electric rates in the last 15 to 20 years,” said F. Anne Ross, the PUC’s consumer advocate. “It’s a warning signal and it’s certainly a sign to be careful about energy use going into the winter season.”

A PSNH spokesman doubted rates would surge as high as Unitil’s.

Granite State Electric, which serves the Salem area and parts of western New Hampshire, also is requesting rate hikes for 29 large New Hampshire business customers. The kilowatt-hour charge would change each month, rising 43 percent in November and by 81 percent in January, compared to current Granite State Electric figures.

Rhode Island

Narragansett Electric proposes 24 percent rate increase

October 9

PROVIDENCE, R.I. (AP) — Rhode Islanders are dealing with high gasoline prices. They may be facing high electricity bills soon, too.

Narragansett Electric has proposed increasing rates by 24 percent, which, if approved, would raise rates to their highest level ever.

The request was made yesterday to the state Public Utilities Commission, and would take effect on October First. It’s believed to be the largest increase made by Narragansett Electric in at least 25 years.

The proposal would mean a typical customer would pay 184 dollars more a year.

The utility says the increase is necessary because energy costs have risen sharply recently, partly because of Hurricane Katrina.

On top of that, New England Gas has asked the P-U-C to raise rates by 13 percent.

South Carolina

SCE&G seeks 50 percent gas rate increase

September 24, 2005

COLUMBIA, S.C. — Consumers would pay 50 percent more for natural gas this winter under rates South Carolina Electric and Gas has proposed.

SCANA, SCE&G’s parent company, is asking the Public Service to allow it to raise the portion of customers’ bills that pays for gas by 57 percent on average. That would boost the average charge from $121 a month to $172, or 42 percent.

The state Office of Regulatory Staff will review the rate increase request. “I’ve been in the business a long time and I don’t recall anything of this size,” agency executive director Dukes Scott said. “In the winter time, when people start getting the bills, we’ll hear from them.”

Texas

CenterPoint, Reliant plan double-digit rate jumps

Two local utilities plan to dish out increases in electric and natural gas bills.

A typical customer of Reliant Energy, the city’s largest power provider, can expect to see bills go up by 14 percent beginning at the end of October. Another hike is expected Jan. 1.

And for the second time in two months, a typical customer of CenterPoint Energy will see natural gas bills grow, this time by 11 percent.

The increases are being blamed on skyrocketing natural gas prices, which have climbed 98 percent since early July.

Reliant asked the Texas Public Utility Commission on Monday to let it increase the so-called fuel factor it charges customers beginning as early as the end of October. The increase is expected to be approved.

This would increase Reliant’s per kilowatt hour rate from 12.88 cents to 14.70 cents. A bill for a home using 1,000 kwh per month would grow from $128.80 to $147.

On Jan. 1, the per kilowatt hour rate is expected to increase again, to 16.04 cents, representing another 9 percent increase in that monthly bill.

Reliant could have increased the price to 16.04 cents earlier, but it reached an agreement with the PUC to phase the increases in two steps, said Jim Robb, vice president of retail marketing.

Washington

PSE natural gas rates set to jump

2005-09-29

Puget Sound Energy customers will see their natural gas rates rise next month by nearly 14 percent — $11.31 a month for typical households — boosting the average monthly residential rate to $96.48.

The new rates, which take effect Saturday, are the highest ever charged for natural gas in this state, according to the Washington Utilities and Transportation Commission, which announced its approval of the price hike Wednesday.

The increases are not related to recent hurricane damage in the Gulf Coast region, whose impact on natural gas prices here isn’t expected to be felt until next year.

Bellevue-based PSE, the state’s largest provider of natural gas, described the rate hike as a “pass-through” change, meaning that the company is not making any additional profit from charging the higher amount.

Dorothy Bracken, a spokeswoman for PSE, said the higher rate reflects what the utility company has been paying for the past six months to secure natural gas supplies from wholesale providers.

The cost for natural gas has been steadily going up for the past three years, Bracken said, attributing the price hikes to the “supply and demand phenomenon” in the energy market.

Wisconsin

WPS seeks 17% electric rate hike

Wisconsin Public Service Corp. on Thursday adjusted its 2006 request for an electric rate increase to 17.1 percent.

The Green Bay-based utility said the increase was prompted by higher natural gas prices. The natural gas in this case is used by Wisconsin Public Service and its suppliers as fuel for generating electricity, as opposed to the natural gas it distributes to people for heating their homes.

For a typical customer using 630 kilowatt hours, the monthly electricity bill would increase $11.19 per month.

The company added 5.7 percentage points to the earlier rate increase request.

And in Canada as well:

BC Utilities Commission approves October natural gas rate increase

September 15, 2005

The BC Utilities Commission approved a natural gas commodity rate increase today that will add about 13.3 per cent to the annual bill for a typical Terasen Gas residential customer in the Lower Mainland, Fraser Valley, Interior, North and Kootenays.
This works out to an annual increase of about $155 to $180 depending on consumption levels. The new rates take effect October 1, 2005.  Delivery rates are not affected by this increase.
Natural gas rates in Fort Nelson will increase 28 per cent. Propane rates for Revelstoke will increase 13.3 per cent while propane rates in Whistler will rise 5.7 per cent.
Vancouver Island, Sunshine Coast, and Powell River Squamish gas customers will see no rate change since they are covered by a different regulatory agreement.
Since June, natural gas commodity prices have risen more than 30 per cent, driven by increased demand brought on by a hot summer, the rising price of crude oil and disruptions to supply caused by Hurricane Katrina.