Saturday, June 22, 2013

Frailty of Global Economy is Obvious

This week we have seen the signs that the global financial crisis (or "GFC" as it has become known after five years of familiarity) is far from over.  The US stock market lost more than two percent of its value on Thursday, the Australia market suffered similar losses, China is reporting that business purchasing for the year is much lower than expected, and here in New Zealand our own stock market was down 1% (on top of news that GDP growth is an anemic 0.3% for the March quarter instead of the predicted 0.6%).

What caused the market jitters?  Well, US Federal Reserve chairman, Ben Bernanke, made an announcement on Wednesday that set the cat amongst the financial pigeons.  Those of you who follow the US economy will know that the Federal Reserve has been 'printing' money and injecting it into the economy at a rate of $85 billion per month (that's a trillion dollars, or around $3000 for every man, woman and child in America, per year).  Ordinarily, printing money at that rate would produce fairly massive inflation but Bernanke, who is almost too clever by half, has been buying huge amounts of Treasury Bonds and mortgages (to the extent that the Federal Reserve is by far the largest purchaser of both), thereby keeping interest rates down and containing US Dollar inflation. 

Of course, all this money printing and economic sleight of hand can't go on forever.  You can't keep writing yourself cheques and expect everyone you buy stuff off to keep honoring them - well, not unless everyone else is completely stupid.  There have been signs recently that the world is starting to regard the US economy as much too risky and the US Dollar as something less than the iron-clad reserve currency it has been for many decades.  The reason the Federal Reserve has to buy all those Treasury Bonds is that China no longer wants them - not at the low interest rates the US Treasury expects to pay at any rate - and we're seeing the impact in the declining value of the US Dollar.

So what did Bernanke say that spooked the market?  Did he call an end to his trillion-dollar a year printing of money? Well, not exactly.  He signaled that he might start reducing it towards the end of this year with a view to ending it by the middle of 2014.  Hardly what you would call cold turkey, but enough for the markets to suffer their biggest fall this year.

I've been predicting in this blog that the world economy is going to get a lot worse before it gets better.  The economic situation in Europe is not improving and the US is plainly addicted to printing money.  There is no way out of this except for a major correction that restores equilibrium between the money supply and real market demand for capital.  Interest rates must go up signficantly to bring about this correction and that will force a corresponding correction in asset prices, particularly in major capital markets such as real estate and stocks.  This loss of equity will have huge flow-on effects for a while on on business investment.  In other words, before this is all over many more people are going to lose their savings, their houses and their jobs and we're all in for more pain before things get better.

Thursday, June 6, 2013

Increasing Desperation from the Climate Change Alarmists

I used to write and debate a lot about climate change but I haven't written about it in the last year or two.  Why?  Well, to borrow a hackneyed phrase from the man who has probably gained more financially from climate change alarmism than anyone else, Al Gore, "the science is settled."  The only problem for Gore is that it is settled on the opposite side of the argument to what Gore has spent his time promoting since his Vice-presidency.

There are very few scientists today who are prepared to state categorically that man is primarily responsible for global warming.  This is a marked change from 10, or even 5, years ago.  The reason for this sea change is pretty obvious - even as the global atmospheric carbon dioxide has continued to rise (passing through 400ppm earlier this year), average global temperature increases have stalled.  Since 1998 there has been no statistically significant increase in global temperatures.  Even the grandfather of AGW*, former Nasa scientist James Hansen, admits “the five-year mean global temperature has been flat for a decade.”

Of course, Hansen and others who have made their reputations (and in the case of Gore and many others, their fortunes) out of this end-of-times global hysteria aren't yet prepared to admit they are wrong, instead trying to explain away the global warming pause with fanciful theories such as China's smog (i.e. atmospheric carbon is apparently both the cause of the warming and the lack of it - as claimed in the Economist article linked above).

Some climate scientists such as the authors of this paper claim that Hansen et al have got the cause and effect wrong  - carbon dioxide levels in the atmosphere follow temperature changes, not cause them.  Others such as Dr Syun-Ichi Akasofu of University of Alaska and Dr Murry Salby of Macquarie University state that global temperature patterns are entirely consistent with the recovery from the Little Ice Age around 1600 and long-term cyclical trends such as the multi-decadal oscillation. 

The politicians and crony capitalists like Gore who have prospered from the global warming business are not easily deterred, however.  President Obama has cynically joined the envangelical, suddenly discovering climate change in his second inauguration address and in Britain, energy secretary Ed Davey continues to push the party line in a vain attempt to justify some of the highest energy prices in the world that cause misery and deaths every winter.

The cause for rational debate is not helped by studies like this recently published by Cook et al, which attempts to bolster the hoary old argument that 97% of scientific papers on the subject endorse AGW.  As prominent sceptical commentator Anthony Watts shows here a straw poll of the scientists whose papers were categorised as pro-AGW say their work has been mis-represented by the study's authors.

The real scientific consensus is as follows:
  • Global temperatures have increased modestly (about 1 degree in total) since the mid-19th Century
  • Atmospheric carbon dioxide levels are increasing on average around 3% per year, although the rate of change varies considerably by season (more in summer) and geographical location (more in highly vegetated areas and less in populated areas)
  • Mankind's carbon emissions roughly equate to the level of increase in atmospheric carbon dioxide but the increases are poorly correlated to seasonal (mankind's emissions are higher in winter) and geographical (more in populated areas) changes
  • There is an increasingly poor correlation between average global temperature and atmospheric carbon levels. 
All this means that mankind's carbon emissions are probably not primarily responsible for global warming, such as it is.

It seems to me the climate change lobby don't know when to concede defeat.  In years to come I am sure we will look back on the whole AGW scare as nothing more than a load of hot air. 

* Anthropogenic (i.e. human-caused) Global Warming