Consumerism ‘doomed’, investment forum told

Leo Lewis, Times
Western governments may not realise it yet, but consumerism as we know it is doomed and resource war with China inevitable, the world’s biggest fund managers were told yesterday.

The unsettling message, which focuses on the potentially destabilising shortfall of the rare “technology metals” used in everything from mobile phones to guided missiles, was issued in Tokyo yesterday at the close of one of Asia’s largest annual investment forums.

Jack Lifton, an expert in rare earth metals, said that many of the green ambitions of governments around the world — particularly ones involving wind farms and other high-tech responses to climate change — would be thwarted by upstream supply issues.

Particularly troubling, he said, is an impending inflection point that may arrive within the next couple of years when China becomes a net importer of rare earth ores.

…Mr Lifton told managers from BlackRock, Fidelity and some of the region’s largest sovereign wealth funds that it was a “fundamental mistake” to believe that the future rise in demand for rare metals would be met by the same market forces that have historically driven-up supplies of oil, copper, food and other resources.

China has already begun to demonstrate that, where critical technology metals are concerned, it is happy to dispense with the rules of free markets.

Beijing has reduced export quotas for rare earth metals every year for nearly a decade, and has become a ravenous consumer in its own right…
(26 February 2010)

A Titanic Budget in an Ocean of Icebergs

Jo Comerford, Tomgram
Send up a flare! The 2011 federal budget has sprung some leaks in the midst of a storm. Not sure there’s enough money for life rafts! Forget women and children first!

Buffeted by economic hard times, the 2,585-page, $3.8 trillion document is already taking on water, though this won’t be obvious to you if you’re reading the mainstream media. Let’s start with the absolute basics: 59% of the budget’s spending is dedicated to mandatory programs like Medicaid, Medicare, Unemployment Insurance, Social Security, and now Pell Grants; 34% is to be spent on “discretionary programs,” including education, transportation, housing, and the military; 7% will be used to service the national debt.

A serious look at this budget document reveals some “leaks” — two in actual spending practices and two in the basic assumptions that undergird the budget itself. Ship-shape as it may look on the surface, this is a budget perilously close to an iceberg, and it’s not clear whether the captain of the ship will heed the obvious warning signs.

Whose Security Is This Anyway?

In his State of the Union Address, given several days before the 2011 budget was released, President Obama announced a three-year freeze on “non-security discretionary spending.” This was meant as a gesture toward paying down the looming national debt, but it should also be considered an early warning sign for leak number one. After all, the president exempted all national-security-related spending from the cutting process. Practically speaking, according to the National Priorities Project (NPP), national security spending makes up about 67% of that discretionary 34% slice of the budget. In 2011, that will include an as-yet-untouchable $737 billion for the Pentagon alone.

Within the context of the total budget, then, so-called non-security discretionary spending represents a mere 11% of proposed 2011 spending. In other words, Obama’s present plans to chip away at the debt involve leaving 89% of the budget untouched. Only the $370 billion going to myriad domestic social programs will be on the chopping block.

What’s in that $370 billion? Well, for starters, programs that focus on the environment, energy, and science. In the 2011 budget, these categories combined are projected to receive $79 billion or 6% of total domestic discretionary spending. Though each of these areas could actually use a significant boost in funds, that’s obviously not in the cards — and this will translate into less money at the state level. New York, for example, is projected to receive $247 million in home energy assistance for low-income folks, down more than $230 million from 2010. These funds mean an energy safety net for our communities, and also warmth and jobs in a cold winter, which looks like “security” to most of us, no matter what our captain says.

…By now, danger flags should be going up in profusion because the second leak is so familiar, so George W. Bush. With each new bit of information, in fact, it sounds more and more like the same old song, the last guy’s tune. It’s clear that, as soon as the stimulus bump wears off later this year, we’re in danger of falling back into exactly the same more-money-for-the-military, less-federal-aid-to-the-states rut we’ve been in for years, despite strong statements from both President Obama and Defense Secretary Robert Gates decrying Pentagon waste.

…That projected 8.5% figure and all the projected freezes and cuts that go with it, don’t begin to address this reality. Think of that as leak three.
(28 February 2010)

Growth and Consumerism: Nature or Nurture?

Joel Magnuson, Mindful Economics
The Growth Imperative: Prosperity or Poverty
Generating a measurable rate of return for investors is the core element of any capitalist economy. Investors derive their income from percentage returns on stocks, bonds, or other business investments. If investors do not get these expected returns, they will sell their investments and seek returns elsewhere. By disinvesting, or cashing out, investors can drive down the book value of a company, which can ultimately cause the business to fail. To prevent this outcome, the prime directive of a capitalist business is to sustain robust returns and growth of financial wealth for their investors. This is the paramount goal of capitalist enterprise.

To provide these returns for their investors, businesses essentially have three choices. One would be to pay investors with money held in their business bank accounts. This choice, however, would amount to self-impoverishment, as businesses would make themselves poorer by drawing down their bank account balances just as a person would become poorer by trying to live on a savings account. Another choice would be to generate profits from sales growth gained by taking market share away from competitors. Although the threat of losing market share in a competitive marketplace can force an individual business to be innovative and create new cost-saving technology, one business’s gain is another business’s loss in a zero-sum strategy. This would ultimately be self-destructive to the interest of the capitalist class as a whole. The third and only viable, long-term choice would be for each business to generate its returns by producing and selling more goods and services for profit.

In other words, driven by the financial necessity of providing investors with a robust rate of return, capitalist businesses must also sustain a robust rate of growth in the production and sale of goods and services. Financial growth is the taskmaster that drives growth in real production…
(24 February 2010)