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Economics - Feb 2

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Butterfly effect could cause financial chaos

Charlie Fell, irishtimes.com
EDWARD LORENZ, a professor of meteorology at MIT, delivered a paper to the US National Academy of Sciences in 1972 entitled Predictability: Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?.

Lorenz’s work on the mathematical modelling of weather patterns suggested that microscopic differences in the initial conditions of dynamic non-linear systems can trigger a chain of events, such that “slightly differing initial states can evolve into considerably different states”.

The so-called “butterfly effect” led Lorenz to conclude that even the slightest imprecision in initial conditions made long-range forecasting virtually impossible.

His observations unleashed a scientific revolution, and chaos theory has subsequently affected virtually every field of scientific study...
(29 Jan 2010)


Coal and Treasuries

Gregor MacDonald, The Oil Drum
It was the best of times for the developing world, and the worst of times for the developed world. In the developing world, they built savings. In the developed world, they groaned and sagged under the weight of debt. In a world where the credit of developed nations had always been believed, the serial monetizations and bailouts set loose an emerging incredulity–driving developing nations into gold, commodity currencies, and land. In the aftermath of the financial crisis the developing world, measured at about 4.5 billion people, lumbered forth with its insatiable demand for energy. Mostly coal.

In the developed world? They replaced their lost demand, lost credit, and the loss of cheap energy the best they knew how: with paper.

OECD demand growth for oil faltered years ago, as far back as 2004 when oil went above the “unthinkable” price of 40 dollars a barrel. In the developing world, the escalating price of oil did not as much delay, as divert, energy demand to the powergrid. To an extent that’s hard to measure, but certainly evidenced by power generation buildout and growth in electrified transport, the rising price of oil sent a confirmatory signal to the Non-OECD: stay on your coal trajectory. Of course, overall demand for all types of energy in the developing world took off ten years ago. Indeed, in 2008 for the first time ever, energy demand in the Non-OECD eclipsed by a hair all energy demand in the OECD. Roughly speaking, we can think of the OECD as the oil users, and the Non-OECD as the coal users...

The problem for the OECD is that energy demand in the Non OECD does not translate well to demand growth for US Treasuries or UK Gilts. Coal prices are strong however because US utilities may not require more coal but pan-Asian utilities continue to build capacity, and the trajectory higher continues.

In January 2009 I asserted that the 27 year bull market in US Treasuries had ended in the blow off panic spike (in prices) just that December. I maintain that view now. And, while Washington may at times entertain thoughts of choosing a deflationary pathway out of the crisis–call it a liquidationist urge, if you will–the voices that beckon to inflate our way out of the crisis will always win out in the end...
(2 Feb 2010)


Carbon Currency: A New Beginning for Technocracy?

Patrick Wood, Canada Free Press
Critics who think that the U.S. dollar will be replaced by some new global currency are perhaps thinking too small.

On the world horizon looms a new global currency that could replace all paper currencies and the economic system upon which they are based.

The new currency, simply called Carbon Currency, is designed to support a revolutionary new economic system based on energy (production, and consumption), instead of price. Our current price-based economic system and its related currencies that have supported capitalism, socialism, fascism and communism, is being herded to the slaughterhouse in order to make way for a new carbon-based world.

... This paper investigates the rebirth of Technocracy and its potential to recast the New World Order into something truly “new” and also totally unexpected by the vast majority of modern critics.
Background

Philosophically, Technocracy found it roots in the scientific autocracy of Henri de Saint-Simon (1760-1825) and in the positivism of Auguste Comte (1798- 1857), the father of the social sciences. Positivism elevated science and the scientific method above metaphysical revelation. Technocrats embraced positivism because they believed that social progress was possible only through science and technology. [Schunk, Learning Theories: An Educational Perspective, 5th, 315]

The social movement of Technocracy, with its energy-based accounting system, can be traced back to the 1930’s when an obscure group of engineers and scientists offered it as a solution to the Great Depression.

The principal scientist behind Technocracy was M. King Hubbert, a young geoscientist who would later (in 1948-1956) invent the now-famous Peak Oil Theory, also known as the Hubbert Peak Theory.

... Considering the sheer force of global banking giants behind carbon trading, it’s no wonder analysts are already predicting that the carbon market will soon dwarf all other commodities trading.
(26 January 2010)


Why we’ll pay for China’s car obsession

Stuart Fagg, ninemsn (Australia)
The world’s most populous country has caught the car bug, and we’ll be picking up the tab.

By 2020 there will be around 140 million cars in China and according to Chinese government estimates there will eventually be 250 million cars traversing China’s rapidly growing network of highways. There are currently 25 million cars in China.

In the western world, car ownership boomed in the 1950s. Mass production drove prices down and cities were planned around the private motor car. As Japan emerged from the ashes of World War II, it too was planting the seeds of global car market domination.

Back then, if you’d suggested that China would one day be the world’s biggest car market you’d more than likely have been carted off to the local loony bin.

But as we enter the second decade of the 21st Century, China has just overtaken the US as the world’s number one buyer of cars. And they’re buying big, western cars, helped in part by the Chinese government, which has been subsidising sales of SUVs and pickups as part of its economic stimulus package.
(29 January 2010)

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