Tuesday, February 24, 2009

Depression or Recession? Too soon to know

I have posted a number of examinations of our present economic situation that raised the possibility that we might beheaded into an depression. I also have suggested that i lack the wisdom to determine if that were in fact the case. We have witnessed the collapse of a speculative bubble in the American Housing market. It would appear that this speculative bubble was accompanied by secondary bubbles in the energy and construction materials markets. The collapse of the latter bubble appears to have had little consequences, but the collapse of the housing bubble, appears to have destroyed numerous financial institutions, and to have had vast and disturbing ramifications that are still being worked out.

It is clear that President Bush's economic team was frightened in the fall of 2008, and believed that they needed to act decisively in order to avoid a collapse of the banking system, and indeed the whole economic system. We can assdume that what the Bush economic team feared was something far worse that an economic recession. if we look at what has happened in iceland e can see what the Bush team feared. The entire national banking system of Iceland has collapsed last October. Outside charities have acted to assure that food was avaliable for people whose finances were devistated by the banking collapse. The government of Iceland has defaulted on its bonds. Unemployment and prices are both rapidly increasing in Iceland.

Despite the apparent disaster to the Islandic economy the drop in the GNP is only 10%, enough to qualify as depression range if sustained. What happened to the japanese economy during the last 3 months of 2008, was even worse, loosing almost 13% of its economic activity if adjusted to an annual basis. The contraction of the American economy was not been that great yet, but the cost so far has been breathtaking. So far the downturn has cost Americans:

• An $8 trillion negative wealth effect from declining home values.

• A $10 trillion negative wealth effect from weakened capital markets

The misery is international. Stock markets around the world have collectively taken a terrific hit. The following stock markets data was published by The Economist (21 Feb. 2009) which shows the extent of the fall since Dec 31st 2007:

US (NAScomp) - 44.7%, US (DJIA) -43%, US (S&P 500), Japan (Nikkei 225) -41.3%, China (SSEA) -55.1%, Hong Kong (Hang Seng) -52.9%, Canada (S&P TSX) -53%, Australia (All Ord.) -61%, Britain (FTSE 100) -55.8%, Euro area (FTSE 100) – 59.5%, Euro area (DJ STQxx 50) – 58.7%, France (CAC 40) -56.1%, Germany (DAX) -55.3%, Greece (Athex comp) -73.7%, Italy (S&P/MIB) -63.1%, Netherlands (AEX) -60.4%, Norway (OSEAX) -64%, Denmark (OMXCB) -55.2%, Sweden (Aff.Gen) -57.7%, Russia (RTS, $ terms) -77.1%, Turkey (ISE) -70.3%, India (BSE) -64.9%, South Korea (KOSPI) -62.6%, Taiwan (TWI) -50.5%, Brazil (BVSP) -53%, Argentina (MERV) -56%, Mexico (IPC) -52.9%, Venezuela (IBC) – 55.6%, Saudi Arabia (Tadawul) -56.8%, South Africa (JSE AS) – 54.1%.... WORLD all (MSCI) -51.2%.

In addition to the loss of wealth we have rising unemployment.

It is clear then that the continuing economic disaster of 2007-2009 will have a long term effect on human society. Typically the economic down turn caused by a recession is over after a few quarters. After a a year or two of economic pick up, lost wealth begins to be recovered, as the price of homes and stocks begins to go back up. This does not seem likely under the present circumstances. The impact of such a significant loss of wealth seems likely to belong term, and to negatively impact the standard of living both in the United States and world wide.

Nuclear Green is an energy blog, not an economics blog. Yet the fact is that future energy projects both in the United States and World Wide are linked to the fate of the national and world economy. One of the assumptions which motivated me to start Nuclear Green was that post-carbon energy solutions have to be low cost yet must provide abundant, reliable and sustainable energy. To me this seems obvious, but many of my energy blogging peers are completely oblivious to the questions of cost. I do not for one moment think that I am smarter than they are, but for some reason and despite my limitations, I appear to be a step ahead by asking questions about energy costs, and the impact of the downturn economy on the future of the of energy.

My contention is that the future of energy, that is the future of post-carbon energy belongs to the technology that can deliver reliable, sustainable energy at the lowest cost. i believe that LFTR technology has the inside track to do that, but confirmation of my views cannot rest on my work alone. I lack the technical skills to make that case, although i can certainly point in the directions I think the case should take.

2 comments:

donb said...

Charles Barton wrote:
One of the assumptions which motivated me to start Nuclear Green was that post carbon energy solutions have to be low cost yet must provide abundant, reliable and sustainable energy. To me this seems obvious, but many of my energy blogging peers are completely oblivious to the questions of cost.

The question of cost is very important. I like to say that wealth is at the margins. That is, what additional money I have to save or invest is that left over after I pay for necessities. So only a some fraction of my income is available for increasing my wealth. That fraction is small enough that an increase in energy costs can quickly devour it.

For decreasing energy costs, in the long run history is on our side. As mankind has added energy sources (wood, coal, oil), the energy has become less expensive. However, in the short term, disruptions and high costs have occurred (e.g., in Europe as the wood ran out but before coal took over).

Now we are in the curious situation where we have a vast, inexpensive source of energy almost at our fingertips, but are held back by those too fearful to reach for it.

Jason Ribeiro said...

Charles, while I've not focused on costs of nuclear vs other sources of energy, I have repeated the message that the costs are being looked at from the wrong perspective. When comparing mWh's produced over the lifespan of a nuclear plant, the amortized investment pays off very well compared to renewables and coal.

The anti-nukes favorite club, lately, is cost. Trying to deflect that with only one good argument is not good enough for a crowd that's generally impossible to please. Then again, I'm not trying to reach the impossible crowd.

The latest google techtalks video you posted makes a huge case for LFTR. We need more of this type of presentation to make the necessary impressions.

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