US GDP probably declined in Q2

US GDP figures are due to be released at 12.30 UTC 31-July-2008. I'm willing to go out on a limb and predict that the Q2 2008 (April-June) saw the economy contract.

The reasons for my opinion are:

1. The housing market has continued to decline markedly (see here).
   
2. A number of banks have failed (see here).
3. Mortgage rates are rising, even though the Federal Reserve has slashed interest rates (see here).
4. Economic activity in Q4 2007 and Q1 2008 were low - around 0.9% growth each - and were probably stimulated by Ben Bernanke's interest rate slashes (see here). A fiscal stimulus plan has only just been passed in congress. In between the monetary stimulus and fiscal stimulus is Q2 2008.
5. Unemployment in Q2 2008 has increased markedly from 5.0% in April to 5.5% in May and June (see here).
   
6. The Philadelphia Fed state coincident index - a measure of economic activity based on state economic output - has cliff dived (see here), thus giving very clear evidence of a national recession.

Actually, it is the coincident index which is probably the best measure - the others are merely anecdotal and are more like possible indicators. Previous attempts to predict the future on my behalf have been based mainly on the anecdotal ones and the coincident index shows quite clearly that economic activity in Q3 and Q4 2007 (the two quarters I wrongly predicted economic decline) were not declining in any massive way. Of course there was a biggish market slump and collapse of the dollar around August-September 2007 but that was not felt in GDP figures at the time.

The unemployment figures for Q2 2008 are also indicative. The rate bumped up 50 basis points in one month. That's a big jump and indicates some major economic problem.

Update 12:41 UTC:
GDP grew in Q2 by 1.9%. I may have some egg on my face for this prediction... however revised figures showed that the US economy contracted during Q4 2007. Moreover, had I been reading around market predictions I would have discovered that analysts predicted a 2.3% Q2 growth, which means that today's news is quite bearish. I'm reading the official BEA release at the moment, which can be downloaded directly from here (pdf 328kb).

Update 12:55 UTC:
One of the more spectacular revisions is in Q1 2007, which was originally published as 0.6% growth but is now 0.1%. Q2, however, has been pushed up from 3.8% to 4.8%. All in all, 2007 GDP figures show that the US economy grew by 2.0% that year, down from 2.2% in previous estimates. (BTW - lags in GDP estimates are common, and sometimes recessions don't become statistically correct until later. There's every chance that today's figures will be revised upwards or downwards 1 month from now when the next GDP release will occur).

Update 13:04 UTC:
Bloomberg is reporting that the Q4 2007 figures indicate that a recession is probably in progress.

Update 13:12 UTC:
I have a feeling that Q2 2008 GDP figures will be revised downwards in the next three months. Tanta at Calculated Risk has a post up about how weekly unemployment claims have hit a 5 year high. This may be a correct prediction after all. Back in January I said this: GDP data often gets revised and I think that in the months to come, we'll see that Q4 2007 actually saw an economic decline.

Al Gore Places Infant Son In Rocket To Escape Dying Planet

EARTH—Former vice president Al Gore—who for the past three decades has unsuccessfully attempted to warn humanity of the coming destruction of our planet, only to be mocked and derided by the very people he has tried to save—launched his infant son into space Monday in the faint hope that his only child would reach the safety of another world.

"I tried to warn them, but the Elders of this planet would not listen," said Gore, who in 2000 was nearly banished to a featureless realm of nonexistence for promoting his unpopular message. "They called me foolish and laughed at my predictions. Yet even now, the Midwest is flooded, the ice caps are melting, and the cities are rocked with tremors, just as I foretold. Fools! Why didn't they heed me before it was too late?"

Al Gore—or, as he is known in his own language, Gore-Al—placed his son, Kal-Al, gently in the one-passenger rocket ship, his brow furrowed by the great weight he carried in preserving the sole survivor of humanity's hubristic folly.

"There is nothing left now but to ensure that my infant son does not meet the same fate as the rest of my doomed race," Gore said. "I will send him to a new planet, where he will, I hope, be raised by simple but kindly country folk and grow up to be a hero and protector to his adopted home."

As the rocket soared through the Gore estate's retractable solar-paneled roof—installed three years ago to save energy and provide emergency rocket-launch capability in the event that Gore's campaign to save Earth was unsuccessful—the onetime presidential candidate and his wife, Tipper, stood arm-in-arm, nobly facing their end while gazing up in stoic dignity at the receding rocket, the ecosystem already beginning to collapse around them.

In the final moments before the Earth's destruction, Gore expressed hope that his son would one day grow up to carry on his mission by fighting for truth, justice, and the American way elsewhere in the universe, using his Earth-given superpowers to become a champion of the downtrodden and a reducer of carbon emissions across the galaxy.

"Perhaps he will succeed where I have failed," Gore said.

Despite the child's humble beginnings, experts predict the intergalactic journey may have some extraordinary effects on Kal-Al's physique, eyesight, and, potentially, his powers of quiet, sensible persuasion.

"On his new planet, Kal-Al's Earth physiology will react to the radiation of a differently colored sun, causing him to develop abilities far beyond those of mortal men," political analyst Sig Schuster said. "He will be faster than a speeding Prius, stronger than the existing Superfund program, and able to leap mountains of red tape in a single bound. These superpowers will sustain him in his never-ending battle against conservatives, wealthy industrialists, and other environmental supervillains."

Although Gore and his wife voiced regrets that they could not accompany their son on his journey, they tried their best to equip Kal-Al for life on his new planet, providing the infant with a Keynote slide-show presentation of all human knowledge, a self-growing crystal fortress from which to monitor glacier shrinkage, and a copy of Al Gore's 1992 bestseller, Earth In The Balance.

The baby was also wrapped in a blanket emblazoned with the Gore family crest, which, because it is made of Earth materials, will be invulnerable on the new planet. It is hoped that one day it will be fashioned into a colorful costume for the boy to wear while fighting wrongdoers.

"In brightly hued tights, it will be harder for people there to ignore him when he takes on his new planet's lobbyists, auto manufacturers, and enemies of justice," Schuster said. "A bold and eye-catching unitard will give Kal-Al, last son of Earth, a formidable tool for protecting his new planet, a power more awesome than any his father could have dreamed of: the power of charisma."

(Shamelessly stolen from The Onion).

Some really really horrible graphs

Here's a few from Calculated Risk on Homeownership and Vacancy Rates in the US, based upon latest figures. Here's the first really frightening one:

New home sales in the US has dropped horribly. Current sales have dropped to levels not seen since 1992. This is a huge drop. The graph may look bad because we're looking at final figures rather than, say, a percentage drop. So let's work it out. Look at the 1973 peak - around 800,000. And that drops down to 400,000 in 1975 which is a 50% drop. Similarly, look at the 1979 peak at around 875,000 which drops down to around 375,000 in 1982 which is about a 55% drop. Now look at the 2005 peak of 1,400,000 which has dropped to 500,000 which is about a 64% drop. In other words, this is most certainly the biggest fall in house sales - percent wise- since at least 1963. This is bad, bad, bad news. Now for graph #2:

This is, of course, a corollary graph showing "months of supply". If I take this rightly, this is an indication of housing supply as determined by demand. This is not based upon a total number like the previous graph, and can be used to compare periods in history. As you can see, the amount of supply has increased quickly and suddenly to recession-type levels. Now for another yuck:

This graph measures homeownership. In other words, it measures the percentage of home owners. As you can see, since the peak in 2005, less people own their own homes. And now for the biggy:

This is probably the most concerning graph of all and is actually from the Naked Capitalism blog site. This graph measures the total credit market debt as a percentage of GDP. As you can see, there is something very, very disturbing about debt levels rising as quickly as they have. Interestingly, this began back in the early-mid 1980s under Reagan, taking off especially in 1985 under Reagan and continuing with Bush I. Debt levels paused slightly under Clinton (but didn't drop either) before expanding again in the years before Bush II and then continuing under Dubya until today.

You might wonder if such a graph actually indicates something terrible or not. To me it shows something very, very unsustainable. I'm not suggesting that credit and borrowing is somehow bad - it isn't - but I would say that at some point such a process becomes dangerous and unsustainable. With too much money lent out and too much money owed - and this is what the graph represents since it directly compares debt with GDP - something has to eventually give.

One of the ways in which the housing market was seen to be unsustainable was when house prices were growing faster than household wages. In theory, if house prices increase at the same rate as income, it means that the buyers have a reasonable chance of repaying the loan. The fact that house prices rose so high above wages indicated a bubble in progress. The graph above from Naked Capitalism looks at the entire US economy and checks to see whether national wealth (GDP) is enough to sustain the debt it has accrued.

If my own modest economic knowledge can be relied upon, I would say that this graph pretty much proves my "perfect storm" prediction to be wildly optimistic. There is a confluence of highly damaging shocks now assailing the US economy. The housing shock is definitely one of them - the other is a vastly overextended credit market that looks like it will collapse.

And this all seems to prove the point I have been making for a while now - the US needs to stop spending and start saving, it needs to stop consuming and start producing, it needs a painful period of austerity in order to rebalance itself.

Ajantha Mendis

Okay, this guy is the next big thing in world cricket. He is a 23 year old Sri Lankan spin bowler and he has just helped Sri Lanka defeat India by a massive innings and 239 runs in Colombo.

Muralitharan won the player of the match award for match figures of 42-7-110-11. Mendis, in his debut match, provided a perfect foil with match figures of 45.5-8-132-8.

What makes Mendis so special? He's an Iverson type spin bowler. Instead of spinning the ball like a traditional leg-spinner, he flicks it with his middle finger while he bowls it out of the back of his hand. Since the finger is almost impossible for a batsman to see, there is no way to judge which way the ball is spinning - thus a batsman can only read it after it pitches.

In the end, there are only three sorts of deliveries a spin bowler can deliver - one which spins towards leg, one which spins towards off, and one which goes straight on. If a batsman cannot judge which way the ball is going and is forced to read it off the pitch, only back-foot shots can be played with any form of confidence.

To the right is Jack Iverson's grip, which I assume is similar to what Mendis is able to do. So far Mendis' career has been short but brilliant:

• 20 first class matches with 119 wickets at 14.68
• 8 One Day Internations with 20 wickets at 10.25
• 27 List A Matches with 57 wickets at 11.03
• 7 Twenty20 Matches with 6 wickets at 20.33
  

I am really excited about this guy. I think he is going to turn international cricket on his head and hopefully produce some more Iverson type spinners.

Update:
Read this article by Cricinfo about Mendis. They point out that it has been over 20 years since India was decimated by spin bowling. Moreover, only three times in history have 2 bowlers taken 19 wickets in a test.

This is a good thing

Obama in Berlin.

See more here.

This is an example of what the world can still feel about America. It's not really about Obama at all, but about what people hope for.

It's not that "the world" support the Democrats, it's that this particular candidate seems to embody what is good about America. After the dark years of Bush, an Obama presidency has the potential to heal many deep wounds.

Unless, of course, he completely stuffs it all up. Which is entirely possible.

Trouble Brewing

Courtesy of the Oil Drum is this interesting graph:

So, what is causing high oil prices? Easy - there's not enough (black) stuff being produced. End of story.

News Limited wheels out another unqualified climate sceptic

Yes, that's right. News Limited, the media company that brought you unassailable evidence of WMDs in Iraq, has now wheeled out yet another unqualified climate sceptic to add to the echo chamber of lies and ignorance that prevent any meaningful discussion on the issue.

David Evans, a man with impressive qualifications in fields that are not climate science, has written an article in today's Australian newspaper entitled "No Smoking Hot Spot".

Evans' claim to fame is that he worked for six years for the Australian Greenhouse Office in determining some mathematical equations used for the carbon accounting model called FullCam. He therefore sounds exactly like the person sceptics need - someone from the inside of the climate change cadre who has bravely spoken up for truth, justice and the American way in the midst of grant-demanding leftist scientists who want to destroy the world's economy.

I suggest you read the article first before reading my response. In any event, I am confident that climate sceptics will take his word as being true and will take little time in closely examining his argument. Thus Evans' article, despite being scientific rubbish, will travel around the echo chamber and add to the fiction that there is a debate among scientists when the reality is that there is a consensus.

So, for those who are interested (ie those who have brains and the ability to reason) I present some of my arguments against his article thus:

1) David Evans has impressive degrees in Mathematics, Physics and Mechanical Engineering. He does not, however, have any formal qualification in climate science. While Evans' opinion and logic may be respected (he is obviously smart), he does not have the scientific knowledge or experience to be viewed as an expert on the subject. His work for the Australian Greenhouse Office was mainly in creating FullCAM, which he describes thus: FullCAM is used by the Australian Government to calculate its land-use carbon accounts for the Kyoto Protocol. FullCAM models forests and agricultural systems and their exchanges of carbon with the atmosphere. In other words, his job was not in researching global warming, but in creating mathematical models for carbon sequestering. In short, he is like a Radiographer telling us that we don't have cancer while the Oncologist is.

2) Evans argues that land-based temperature data is fatally flawed because it does not take into consideration the "urban heat island" effect. Thus he can easily argue that there is no evidence of global warming because the only reliable data (satellite data sourced since 1979) doesn't seem to show it. Unfortunately for Evans, he is dead wrong about the Urban Heat Island. The NOAA released information recently which proves categorically that the urban heat island effect has not rendered land-based measurements useless at all. Essentially Evans' argument is that the data used by non-sceptics is flawed and can't be trusted. Scientists have proven Evans wrong.

3) The other arguments that Evans uses invite no basic form of backup. He states, for example There is no evidence to support the idea that carbon emissions cause significant global warming. None, yet never once tries to prove it. He is simply saying something as being fact and then leaving it. This indicates that his article was not written with scientists or informed amateurs in mind - he is simply using a rhetorical tool (baseless repetition) to make climate sceptics happy. In other words, his article is written with sceptics in mind, and will do wonders for their misplaced confidence in believing the lies and rumours that typify the sceptics source of data.

4) One of Evan's main arguments is the lack of a "Hot Spot". He says The signature of an increased greenhouse effect is a hot spot about 10km up in the atmosphere over the tropics. We have been measuring the atmosphere for decades using radiosondes: weather balloons with thermometers that radio back the temperature as the balloon ascends through the atmosphere. They show no hot spot. Whatsoever. He then goes on to outline the current scientific debate about this issue and uses phrases like radiosonde thermometers and wind shear. I don't fully understand this but I'm certain that the readers Evans is aiming for know even less. To them its all gobbledegook and Evans plays on this - reducing a complex scientific debate between climate scientists about the accuracy of temperature measurements into the veiled insult "If you believe that you'd believe anything". Thus Evans, who is not a climate scientist, puts himself above a climate science debate and judges them all to be a bunch of idiots. Evans knows better than they, even though he's not an expert.

Put simply, Evans has managed to probably get himself a good job as a Climate sceptic shill. You can tell, because the tactics of such people are simple:

1) Cast doubt upon the evidence.
2) Depict your opponents as money hungry fools.
3) Reinforce the opinion of your readers rather than challenge them.
4) When writing about something complex, be so complex in your writing that people will think you're an expert.
5) Create the impression of balance.

Of course, if you look at those points above you could probably argue that I and other non-sceptics are guilty of the same thing. After all, I've just described Evans as getting a good job as a shill and pretty much told you he's an idiot, so I am guilty of number 2.

The problem is, though, whether these assertions are true. The evidence should always be what drives us - and if we don't have the ability to process the evidence then we have to, by necessity, rely upon the expertise of those who do.

And who should these experts be? Climate Scientists. Not Electrical Engineers or Mathematicians or Physics professors. And it is the overwhelming consensus of climate scientists that we should listen to.

In fact, this whole "debate" proves yet again Okrent's law:

The pursuit of balance can create imbalance because sometimes something is true.

Thus by providing an alternative viewpoint to the scientific consensus on global warming, Evans and other sceptics merely create imbalance and promote ignorance by providing an alternative that only exists in people's minds. When the sea levels begin rising and millions begin dying, I would really like those people to "debate" the issue with those affected by it and see how they go.

Monetary Policy and Economic Shocks

Poor Ben Bernanke. You gotta feel for the poor guy. Faced with a whole bunch of economic problems all occurring at once he took the only option that seemed to be open to him - which was to create more money and postpone the inevitable.

In my famous (at least famous to me) 2005 "Perfect Storm" prediction, I gave four reasons why the US economy was heading for disaster:

1) Higher oil prices caused by Peak Oil.
2) An asset price bubble in the housing market that will pop and devastate the housing market.
3) A high current account deficit caused by an overvalued US dollar that will eventually fall.
4) High levels of Federal government debt caused by budget deficits.

With all these shocks hitting the US at once, what could have been done in the last 12 months to soften the blow? Would there have been any fiscal or monetary policy that would have worked?

No - not in my opinion. Moreover there is no point trying to limit the damage because the tools at our disposal to limit the damage can't handle the current crisis. We are in a crisis similar to that of the 1970s - whichever solution we choose the result will be bad.

One of the big problems with these four crises hitting now (and they will continue to hit for years to come) is that their effect upon monetary conditions is not uniform. Consider:

Peak Oil - inflationary
Housing Bubble - deflationary
US Dollar devaluation - inflationary
Public Debt - inflationary

If we were able to remove the housing bubble from the equation, then the solution to the crisis looks very much like raising interest rates - yet the housing bubble is very much the issue currently destroying wealth in the US. The other problems are certainly present, but their impact is not as strong. Not yet, anyway.

Yet it might be tempting for people to argue that "well, if the housing bubble popping is deflationary, the surely the inflationary effects of high oil prices will actually help".

But, as Milton Friedman told us, "Inflation is always and everywhere a monetary phenomenon." If one economic shock causes inflation and another economic shock causes deflation, the fact that each cancels out the other's monetary effects really means nothing - it just means the economy collapses without any inflationary or deflationary effects at all.

I've been trying to scour my mind for an image or an illustration that explains this. This is the only one that has come to mind:

Imagine you own a house on a flood plain. One day, your house catches on fire. At exactly the same moment, a massive rainstorm hits upriver and causes a flood. You look at your burning house and think "Thank goodness, some water to put the fire out". But the flood is only one metre deep - enough to cause major damage to the bottom half of your house. Meanwhile the top half of your house burns away and no fire engine can get to you to put it out. So the top half of your house burns up while the bottom half rots away underwater.

The fact that the housing bubble is deflationary does not mean that inflation caused by high oil prices fixes it. After all, it is quite possible that house prices will fall greatly while everything else in an economy rises horribly. No, instead we have multiple shocks hitting the economy and no way of mitigating them. The property bubble popping may have flooded your house, but the high oil prices are burning up the roof.

Many econ-bloggers have firm opinions of what is going on. Mish argues for a deflationary hit and pooh-poohs the idea of a stagflationary environment. Not many others seem to adhere to an inflationary or stagflationary point of view. The deflationists (such as Mish and PGL at Angry Bear) argue for standard monetary and fiscal stimulation.

Since I've spent time discussing the problem of monetary policy, I should also make a few points about fiscal policy and its limits. If the US government (under Congress and Bush) had actually been fiscally prudent since 2001, any fiscal stimulation plan would have some teeth to it. But since net public debt is now so high in the US (60% of GDP if I remember rightly), any attempt to run even larger deficits by the federal government will be met with even higher interest rates over the medium term, along with more current account blowouts which will shake even further the confidence that investors have in the US Dollar. That is why I have labelled "Public Debt" as having an inflationary effect earlier in this article.

Think back to the 1970s and the problems we had with inflation back then. Ian Macfarlane, the former governor of the Reserve Bank of Australia, helpfully pointed out in a series of lectures that inflation was starting to be a problem far earlier than popularly thought. He pointed out that inflation became a problem in the mid 1960s and was not caused by the oil shocks that hit the world economy in the 1970s. This, of course, is meaningful, because it shows that inflationary pressures were being generated by an overheating world economy and were thus what we would identify now as a normal part of the business cycle (high growth, low unemployment, rising inflation). Of course, when the oil shocks hit, they destabilised most industrialised nations. By themselves they caused an economic downturn along with higher levels of unemployment. But, as all former lovers of the Phillips Curve lament, the inflationary effect of the shock confused policy makers in trying to work out the best solution. In the end, fifteen years of inflation and multiple recessions was brought to a very painful close by Volcker's interest rate hammer.

As I pointed out back in 2005, the "Perfect Storm" which is now happening is likely to plunge America - and the world - into a protracted recession. There is a chance that this may be the worst economic downturn since the great depression. Yet I would argue that the problem will not be the quickly rising unemployment rates, nor quarterly GDP in minus figures, nor losses reported by corporations, nor plunging share prices - all those things will happen, but they happen in all recessions. What will typify this particular recession will be felt not now nor in the next 6-12 months but in the next 3-5 years. It will be felt in the rise of long term unemployed, it will be felt in stagnant GDP growth quarter after quarter, it will be felt in corporations releasing less than impressive balance sheets and in share prices sitting around doing nothing. It will, in the words of Paul Krugman, end up being an "L-ish" phenomena rather than a "V" shaped recovery.

With this before us, what can we do? Monetary and fiscal tools are pretty much powerless to stop the downturn or even limit it. Moreover, if Bernanke and Congress use them unwisely they may make things worse. In the end, therefore, the only thing I think is a viable solution is for monetary policy to be used simply to control inflation and not be concerned much with economic growth - which will, by ignoring it, be the best thing to help promote it. Using monetary policy to stimulate the economy because a recession is underway is no excuse when inflation is already too high. For fiscal policy the only real solution is to limit the deficit in the short term and erase it in the medium-long term. This won't help now - but it will help to make things better later. This, of course, is counter-intuitive, but I would argue that to increase public debt when debt levels are already unsustainable will make things worse over the long run.

Malcolm Turnbull - idiot or misquoted?

From the department of it bodes ill for Malcolm if this was accurate:

The Opposition has blamed the Government's alcopop tax for pushing up inflation.

Figures released today show that inflation surged ahead in the June quarter to stand at 4.5 per cent for the year, well ahead of economists' forecasts.

Mr Turnbull says the tax increase on pre-mixed drinks, is adding to the rising cost of living because CPI figures show the price of spirits rose by 6.1 per cent in the June quarter.

"One thing the Government could have done was choose to not put up the price of alcohol but it did and it has flowed into the inflation numbers," he said.

The Government imposed the tax in what it said was an effort to curb binge drinking.

Mr Turnbull says planned increases in the cost of luxury cars and changes to the Medicare levy will also push up inflation.

"How can you be fighting inflation when you're putting up the price of alcohol, putting up the price of health insurance, putting up the price of motor cars?" he said.

If Malcolm Turnbull thinks that putting a tax on a small segment of alcoholic drinks is somehow responsible for pushing inflation up to 4.5% he's an idiot.

Ha Ha Funny

This is an actual radio conversation between the American Aircraft Carrier USS Nimitz with Irish authorities off the west coast of Ireland in October 1985.

IRISH: American vessel, please divert your course 15 degrees south to avoid a collision.

NIMITZ: Negative. Recommend strongly that you divert your course 15 degrees to the north to avoid the collision.

IRISH: American vessel, it is urgently recommended that you divert your course 15 degrees to the south to avoid the collision.

NIMITZ: Negative. Recommend again strongly that you divert your course 15 degrees to the North.

IRISH: No. I say again, divert your course!

NIMITZ: This is the USS Nimitz. We are carrying 34 F-14 Tomcat Fighters and 28 A-6 Intruder Bombers. We also have 13 Destroyers and 5 Heavy Cruisers. We DEMAND that you change YOUR course north 15 degrees otherwise you will enter our zone of exclusion and we will take appropriate measures.

IRISH: This is the Croaghaun lighthouse on Achill Island. Your call.

(pause)

NIMITZ: You f**** Irish think you're so damn good! Coming to our country and running the police and fire brigades. I'm f**** sick of it all! If you don't like America then go home!

IRISH: I am home. This is Ireland, not America. Why don't YOU get out of our territorial waters and go home?

NIMITZ: Well... because... um...

IRISH: Hah! You can't get out of this one yank! I'd like to see you and your pretty warships try to sail through an island!

NIMITZ: USS Arkansas, are you listening in on this?

ARKANSAS: Yes Nimitz.

NIMITZ: Please launch nuclear attack upon Irish Lighthouse at 53.981° North, 10.204°West. 10 Megaton yield.

IRISH: Hold on a second!

NIMITZ: Set warhead for groundburst.

IRISH: No wait!

ARKANSAS: Roger Nimitz, missile launched. May God have mercy on their petty souls.

And that's the story of how Croaghaun lost its lighthouse and why there's a massive hole where it used to be:

Myths of the Marshall Plan

Just checked the Marshall Plan at Wikipedia. Some interesting facts are:

1) The country with the most money given for reconstruction was Great Britain ($3297 million).
2) The next highest amount was given to France ($2296 million).
3) The third highest amount was given to Germany ($1448 million)
4) No money was given to Japan. Not one cent.

I always thought that the Marshall plan was responsible for the economic giants that both Germany and Japan have become. In reality, Germany and Japan pretty much became economic giants through sheer hard work and good economic policy. The fact that Britain got the bulk of the money but lagged behind both France and Germany up until the 1980s indicates some pretty poor policies being put into place.

Japan was, of course, reliant upon the US for its national defence and its post war constitution, so we need to acknowledge them for that.

Another 15 minutes

The LA Times mentions some awful jokes I wrote about Peak Oil.

I hope Brad Pitt or Johnny Depp reads them and gives me $1 million for being so damn good. Until then I will continue to work as a casual teacher and blog.

Gore challenges America: 100% Carbon free electricity by 2020

From the department of pipe dreams only work when lots of pipes are built:

Former Vice President Al Gore said on Thursday that Americans must abandon electricity generated by fossil fuels within a decade and rely on the sun, the winds and other environmentally friendly sources of power, or risk losing their national security as well as their creature comforts.

“The survival of the United States of America as we know it is at risk,” Mr. Gore said in a speech to an energy conference here. “The future of human civilization is at stake.”

Mr. Gore called for the kind of concerted national effort that enabled Americans to walk on the moon 39 years ago this month, just eight years after President John F. Kennedy famously embraced that goal. He said the goal of producing all of the nation’s electricity from “renewable energy and truly clean, carbon-free sources” within 10 years is not some farfetched vision, although he said it would require fundamental changes in political thinking and personal expectations.

“This goal is achievable, affordable and transformative,” Mr. Gore said in his remarks at the conference. “It represents a challenge to all Americans, in every walk of life — to our political leaders, entrepreneurs, innovators, engineers, and to every citizen.”

The Oil Drum, which is full of people based on reality, has checked to see whether this is possible:

The short answer is: while 100% is probably unrealistic, it's not unreasonable to expect to be able to get pretty close to that number (say, in the 50-90% range) in that timeframe, and it is very likely that it makes a LOT of sense economically.

One of the reasons why so many people think "green power" won't work is because it is somehow economically unviable. Wind and Solar power technology has been coming down in price dramatically in the last few years, and it seems more politically, economically and environmentally responsible to build them than ever before.

Cuba's reforms

From the department of not a communist country:

Cuba is to put more state-controlled farm land into private hands, in a move to increase the island's lagging food production.

Private farmers who do well will be able to increase their holdings by up to 99 acres (40 hectares) for a 10-year period that can be renewed.

Until now, private farmers have only been able to run small areas of land.

...

President (Raul) Castro, who took over from his ailing brother Fidel in February, considers reducing costly food imports as a matter of national security.

Since the 1959 revolution, some Cubans have been allowed to run small family farms. But most agriculture has been placed in the hands of large, state-owned enterprises.

...these (enterprises) have proved highly inefficient - half the land is unused and today Cuba imports more than half its needs. Rising world food prices will cost the country an extra $1bn this year.

The presidential decree was published in the country's Communist Party newspaper, Granma.

This is good news. I think it was me who argued that the reason communism was so successful in Cuba was because it wasn't communism. Of course, there is nothing in this that suggests long-overdue democratic reforms - but it does allow some level of economic freedom. I guess Raul Castro weighed up the advantages of increasing food production with the disadvantages of allowing a spread of market capitalism and worked out that food triumphed blind ideology.

The history of communism is very useful for us all to remember. Blind adherence to ideological dogma was based upon the assumption that Marx, Engels and Lenin were 100% correct in what they said, thus elevating them to demigods and their writings as inerrant and pure. But, as time went by, it became obvious that adherence to ideology did not result in the outcomes that were needed, namely a growing standard of living for all segments of society. Cuba, like China, has chosen the path of measured economic reform while maintaining a strong, authoritative government.

Raul Castro has obviously discovered that there is something good to be learned from capitalism. We who live in market-friendly capitalist economies also need to learn that there is something good to be learned from communism.

Victorian bloke plays for England

Darren Pattison is not a name I have heard before., but last night he made his Test match debut for England against South Africa.

He was born in England but lived in Victoria for most of his life. At the age of 28 he made it into the Victorian team. This year he played county cricket for Nottinghamshire and has taken a swag of wickets. He was picked for the Test squad and made it in when another player failed a fitness test.

Others in the England team from foreign nations include:

Andrew Strauss (South Africa).
Kevin Pietersen (South Africa).
Tim Ambrose (Australia. Born about 400m away from where I sit)

TEOTWAWKI

Saw some interesting end-of-the-world information just now.

Firstly,

11 standard deviation event hits some shares:

In a TheStreet.com($) story with the (TEOTWAWKI) headline, Doug Kass noted that the price increase in the Financial Select Sector SPDR was 13%, an 11 standard deviation event.

According to Kass, the odds of an eleven standard deviation event is equivalent to the world ending – between three and four times.

From what I can gather (the details seem to be in advanced financespeak and unintelligible to ordinary people), some Depository Receipts are undergoing such changes that previous risk calculations are proving to be incorrect. That both indicates a lack of proper risk management and the desperately painful state of the financial market .

Secondly,

Paul Krugman - L-ish Economic Prospects:

Home prices are in free fall. Unemployment is rising. Consumer confidence is plumbing depths not seen since 1980. When will it all end?

The answer is, probably not until 2010 or later. Barack Obama, take notice.

It’s true that some prognosticators still expect a “V-shaped” recovery in which the economy springs back rapidly... On this view, any day now it will be morning in America.

But if the experience of the last 20 years is any guide, the prospect for the economy isn’t V-shaped, it’s L-ish: rather than springing back, we’ll have a prolonged period of flat or at best slowly improving performance.

I would agree with Krugman here - there are too many exploding bombs here to expect a "V" recovery. An "L" shaped one - a decline followed by a long, painful, trough - is what I have been predicting for a while.

Thirdly,

High school dropout rate in California has reached 24%:

Deploying a long-promised tool to track high school dropouts, the state released numbers Wednesday estimating that 1 in 4 California students -- and 1 in 3 in Los Angeles -- quit school. The rates are considerably higher than previously acknowledged but lower than some independent estimates.

The figures are based on a new statewide tracking system that relies on identification numbers that were issued to California public school students beginning in fall 2006.

It's amazing how one of the most dynamic states in the world's biggest economy has such an terrible dropout rate. This sort of statistic indicates that America's woes are going to continue decades into the future as unskilled workers keep flooding the market, depressing America's future economic performance.

I find the 1 in 3 in LA interesting though - you would have thought that LA would be the worst place in California for high school students but obviously not. Considering that LA has a large black community, it seems as though African Americans in LA are not as badly off as the rest of California. 1 in 3, though, is still incredibly tragic and dangerous.

Hilarious

Some American lefties - as well as Obama - are all upset about this cover. It's meant to be ironic. It's overstating the case and completely ludicrous. If some lefties can't handle it they need to get a sense of humour.

Wilkins Ice Shelf about to collapse

Okay, this is a rather serious issue. Climatologists about ten years ago said that one of the indications of global warming would be the collapse of the Wilkins Ice Shelf in Antarctica - and that it would probably go within thirty years. Of course, the fact that it is about to go now after only ten years is an indication that things are speeding up.

An Ice Shelf is a floating block of ice. An ice shelf is the result of ice from glaciers going out onto the ocean's surface. The melting of an ice shelf is not going to have any direct impact on sea level rises.

However, there are causes for concern.

The first thing is that this potential collapse will occur in winter. During any polar winter, the low temperatures are such that there is a seasonal increase in the amount of ice present. Yet this collapse is occurring at the coldest time of the year. This indicates that the water around this part of Antarctica is not cold enough at present to prevent any disintegration from happening. In other words, despite the fact that the conditions are helpful to prevent the ice shelf from collapsing, it is still in the process of collapsing. If the water temperature is still too warm even in the perpetual darkness of a polar winter, then that is not good.

The second thing is that, while the melting of an ice shelf is not going to do anything directly, it will expose Antarctic glaciers directly to liquid water. These glaciers and ice sheets are not floating on water - they are located above sea level on land. The combination of (comparatively) warm water and warm air will begin to melt these massive reserves of ice.

The world's sea levels have been rising for quite a long time. In recent years they have risen at a faster rate. Currently sea levels are rising 2.4 - 3.8mm per year. Most of that rise is, I believe, due to glacial melt from Greenland. While the collapse of the Wilkins Ice Shelf will only result in a slight increase in glacial melt by itself, its collapse is a harbinger of what is possibly to come, namely faster increases in sea level rise.

And the faster it gets, the harder it will be to stop.

El Nino seems to be reappearing

Forecasting weather for me can often be as error-prone as forecasting the market. Nevertheless I wish to show here some rather unsettling graphs.

The first is the El Nino Southern Oscillation Index:

This graph (courtesy of the Australian Bureau of Meteorology) is one tool used to predict and determine El-Nino or La-Nina conditions. Any result above 5 indicates La Nina favourable conditions and any result under 0 indicates favourable El Nino conditions. The number used in the index is the difference in Air Pressure between Tahiti and Darwin. A positive number means that the air pressure in Tahiti is greater, while a negative number means that the air pressure in Darwin is greater. Lower air pressure is associated with more rainfall. The fact that the index has moved into negative territory means that Air pressure in Tahiti is dropping below that of Darwin. This means that there is less likelihood of rain in South-Eastern Australia, which matches an El-Nino event.

But the ENSO graph above is not the only one to look at. Here's another important one:

This graph shows temperature throughout the equatorial region of the Pacific Ocean. You can see Papua New Guinea there in the West. If the graph went East more you would see Peru. What is important is the bottom graph which shows temperature anomalies. As you can see, the temperature of seawater in the Eastern Pacific near South America is heating up above normal. Warm seawater is more likely to produce rain while cool seawater is not.

Let me just put this simply, the conditions that we see here are typical of a developing El Nino weather pattern. This means more dry weather for South Eastern Australia, which will probably turn into the worst drought in Australia's history. Not good.

From the Onion

From here.

French rail makes massive profit

From the department of government run businesses will always fail because they are inefficient loss makers NOT:

The rail renaissance in Europe is racing ahead like a 320kph TGV yet Guillaume Pepy, head of SNCF, sees risks as well as opportunities as he celebrates the centenary of the reborn Mont Blanc Express aboard one of its six new electric traction trains.

Last weekend saw the start of the French summer holiday season and 1.3 million people thronged Paris's stations as they headed for the mountains and sea. The elongated twin-set TGVs pulling out of the Gare de Lyon virtually every five minutes are packed with up to 1,000 passengers. The concourse and platforms are so crammed with anxious families and international backpackers it's surprising they all get on board on time.

Even in the driving rain sweeping through the French Alps, accompanied by thunder and lightning, drenched walkers and climbers rush to join the "express" linking St Gervais with Vallorcine on the Franco-Swiss border and offering stunning views of the Mer de Glace.

Pepy, SNCF chairman and chief executive (PDG) since February, says that, unlike his predecessors who had to manage a railway recession, he is presiding over an accelerating boom. The state-owned SNCF delivered a net €1.1bn (£875m) profit last year and first-half figures, due next week, are said to be sparkling. Pepy envisages up to 80m extra passenger trips this year or an increase of around 8%.

My goodness. Rail making a profit? Perhaps oil companies and auto companies should start investing.

And they're electric too.

Oil will hit $150 soon

That's my prediction - some time in the next 3 weeks. It's $146 now so it may not be long.

The inevitable result of Islamophobia

From the department of publishing what people want to hear:

The Sun newspaper has come over a bit modest. Following a Channel 4 documentary about media reporting of Muslims, the paper accepts some of its stories were "distorted". But they're not doing themselves justice. They weren't distorted – they were entirely made up. For example, a story about a Muslim bus driver who ordered his passengers off the bus so he could pray was pure fabrication.

But if reporters are allowed to make up what they like, that one should be disciplined for displaying a shocking lack of imagination. He could have continued, "The driver has now won a case at the Court of Human Rights that his bus route should be altered so it only goes east. This means the 37A from Sutton Coldfield will no longer stop at Selly Oak library, but go the wrong way up a one-way street and carry on to Mecca. Local depot manager Stan Tubworth said, 'I suggested he only take it as far as Athens but he threatened a Jihad, and a holy war is just the sort of thing that could put a service like the Selly Oak Clipper out of business'."

Then there was a story about "Muslim thugs" in Windsor who attacked a house used by soldiers, except it was another invention. But with this tale the reporter still claims it's true, despite a complete absence of evidence, because, "The police are too politically correct to admit it." This must be the solution to all unsolved crimes. With Jack the Ripper it's obvious – he was facing the East End of London, his victims were infidels and he'd have access to a burqua which would give him vital camouflage in the smog. But do the pro-Muslim police even bother to investigate? Of course not, because it's just "Allah Allah Allah" down at the stations these days.

I have no politically correct notions that demand that I ignore racially motivated violence. I know that minority racial groups can often give rise to racially motivated violence - like Lebanese men in Sydney gang-raping white women.

What I can't tolerate is when the media, in order to capitalise on this fear, creates stories out of thin air in the same way in order to gain financial rewards (more newspapers sold, more advertising space sold). In this sense, the market rewards the media for distorting facts rather than reporting facts.

Much of our current debate about terrorism since 9/11 has been based upon fear and ignorance. While Islamic terrorism is certainly on the rise it has yet to impact us (since 9/11) in the West any worse than, say, the IRA bombing campaigns in Britain or radical leftist groups like the Red Army Faction.

And this means, of course, that 9/11 in the light of history is now appearing to be an exceptionally unusual event rather than the beginning of a new pattern of terrorism.

Cold is good

Here in Newcastle we are shivering. It is currently 11.4°C (52.5°F) at 11.30am. This will probably be the coldest day of the year.

If you live in a place where the temperature gets colder, yes I know that I have no idea what cold is like. I have never lived in a place where it snows regularly (except on a three week holiday in Northern Scotland in January 1991).

People often say that we put on weight in winter. That may be true for some, but the reality is that we are more likely to lose weight in winter.

The reason is that our body temperature remains constant throughout the year. Whether it is in the middle of a frozen winter or a burning summer, our body remains at 36.8°C (98.2°F). This temperature can change, but the difference is only slight (±0.7°C / ±1.3°F). If our body temperature rises or drops below this rate for any extended period of time, our body tends to get a bit sick (hypothermia/heat exhaustion).

Therefore, in order for our body to maintain optimum temperature, our metabolic rate adjusts accordingly. The colder it is, the more our body increases our metabolic rate to remain warm. Conversely, the warmer it is, our metabolic rate decreases.

And, of course, any increase in the metabolic rate means that our fat reserves are more likely to be used.

Here in the western world, however, we have so many warm clothes and heaters and so much good food (carbohydrates can increase our metabolic rate) that winter doesn't affect us as much as it used to. Culturally, therefore, it is quite possible that winter does see us put more weight on simply because we like comfort foods when things are colder.

Woman's house now worth US $2

From the department of a taste of what is to come:

The worry of falling house prices has been taken to a whole new level for one resident of small Norfolk village Happisburg this week. As home owner Jane Archer learnt her 3-bedroom bungalow with uninterrupted sea views was valued at just £1 ($2).

Estimated to be worth in excess of £80,000 ($157,000) based on similar local properties, 'chronic costal erosion is to blame' for making the home virtually worthless.

When the Mum of three originally purchased the property for £20,000 ($39,000) in 1987 it sat over 400 metres from the striking coastline. Now just 60 meters of land separates her bungalow from the sea. This leaves her faced with the prospect that after 20 years of mortgage payments her family home is now worth less than a loaf of bread.

I have to say, as sea levels rise, this will be the experience of a multitude.

Space 1999 - The Dorks

Tony's attempt to create a Margarita doesn't impress Koenig.


Men in Beige - protecting the universe from alien dorks.


The crew of Moonbase Alpha are huge fans of Fox commentator Bill O'Reilly.


In the 21st century, unisex hair designs make it difficult to discern gender.


Maya has an acid freakout after being hit by a green spotlight.


After her acid freakout, Maya needs cocaine.


Little did this man know that his grandson would play cricket for England.


Red alert is announced, and a red light flashes for everyone just in case they forgot.


Moonbase Alpha's plumbers get ready just in case the base septic system overflows.


As the base is attacked, overweight Alphans rush to protect the bases' donut stores.


Alphans reel in horror at the sight of a bright, reddish-white hot thing blocking the corridor.


In the confusion of being attacked, Tony punches Frank for making a pass at Maya.


As the battle progresses, Koenig falls asleep.


Koenig continues to sleep as the aliens stop their attack.


The alien leader gives her gang sign to frighten the Alphans. The Moon, along with most of Inglewood, now belong to the Crips.


Strangely enough, Judge Dredd is helping the Crips take over Alpha.


Carter does his "hello boys" routine to confuse the aliens.


The lights are on, but no one's home.


"Help me! I'm trapped behind this wall!"


Maya enters the alien Hair Salon. The hairstylist in the background assures her everything will be fine.


The hairstylist reels in horror at her creation.


Maya is unhappy with her do.


Koenig "presents" himself as a way of getting Maya back.


What we were after now was the old surprise visit. That was a real kick and good for laughs and lashings of the old ultraviolence.


"Welly, welly, welly, welly, welly, welly, well. To what do I owe the extreme pleasure of this surprising visit?"


Koenig admires the man's uniform. "I must get one of those" he thinks "Helena would love it".


"No time for the old in-out, love. I've just come to read the meter."


"You needn't take it any further, sir. You've proved to me that all this ultraviolence and killing is wrong, wrong, and terribly wrong. I've learned me lesson, sir. I've seen now what I've never seen before. I'm cured! Praise Bog! I'm cured!"


"So, what are doing now that the show has been cancelled?"


"Cancelled? Nooooo!!!! Is this the role I'll be remembered for? You have to be joking! Where's the Producer? I'm going to kill him!"


"And then I saw Catherine Schell chasing him with an axe..."

Space 1999: The Dorcans. (This'll be the last one for a while).