Thoughts on America's Energy Future

Rolling blackouts, $5+ a gallon gasoline, and increasing dependence on foreign countries for our energy needs is the inevitable result of current energy policies.

I can't say it any better than these people:

John Hofmeister

Obama Administration Shutting Down Oil and Gas Exploration in the West

http://money.cnn.com/2010/11/12/news/economy/offshore_drilling_moratorium/index.htm?iid=EL

http://money.cnn.com/2010/12/01/news/economy/gulf_drilling_ban/index.htm

Obama funds offshore drilling...in Brazil

China- The Land of Opportunity?

This unfortunately is ringing true to way too many people in this country:

http://www.infowars.com/steve-wynn-takes-on-washington/

Why I'm Not a Liberal

"There is no virtue in compulsory government charity, and there is no virtue in advocating it. A politician who portrays himself as caring and sensitive because he wants to expand the government's charitable programs is merely saying that he is willing to do good with other people's money. Well, who isn't? And a voter who takes pride in supporting such programs is telling us that he will do good with his own money— if a gun is held to his head."
PJ O'Rourke

Smart People, Good Intentions, Unstainable Plans, Collapse

Smart people with good intentions, start with some promising ideas and initial good returns...after selling the ideas to the public and/or investors, the truth is slowly revealed that the idea isn't a silver bullet and the promised results prove elusive.  Unwilling to admit that their ideas and/or management is flawed, pride and arrogance prevent them from admitting defeat and they push on.  Unfortunately when the chirade is finally impossible to continue, millions are hurt and the biggest financial disasters of the past decade remain:  Global Crossing, Enron,Worldcom, Madoff, Subprime mortgages.  In the coming years, the new Health Care schemes will join the ranks of the scams that were unrealistic and unsustainable.  They will cost investors billions.  Instead of private investors this time...the American government and taxpayers will be hurt.  It will be ugly.

The numbers just don't work.

In the late 90s and early 2000s, a bunch of guys found that trading energy futures inside an oil and gas pipeline company could create incredible short term returns.  They decided to realize the value of the good ideas immediately by taking the future earnings now in return for the wealth of investors to whom they sold the idea.  When they discovered that the returns and growth could not be sustained, they started to book bogus revenues and hide account issues in off balance sheet entities.  After the company, Enron, collapsed- we as Americans determined to get wiser.

Unfortunately, another super smart guy who found that he could get incredible returns in the market, started to offer his services to others.   What was probably started as a great way to help his friends and charities get some good returns on their investments, became the world's biggest Ponzi scheme.

The biggest Ponzi scheme going right now is called Social Security.  Government bonds is a close second.  New social programs and misguided healthcare schemes are only hastening the collapse.  Not sure when it will end, but the numbers dictate that end it must.

On the Brink

I've been reading Hank Paulson's book, On The Brink and I now know why the Wall Street bailout happened.  Hank was a Wall Street guy who thought the world rose and set on spreads and the capitalization of large banks.  If you are a deal maker with a Wall Street centric view, the world ends when the banks get into a jam.  He called anyone who disagreed with him an idiot.  He brought even more government power,  fear and panic over an apocalyptic economic collapse, and as many of this Wall Street friends as possible to achieve his ends.

Now I'm not so naive as to suppose that the collapse of a major bank or an insurance giant wouldn't have far reaching impacts on the economy as a whole, but I believe those shocks fix systemic imbalances.  Americans and their economy are resilient.  The whole TARP and stimulous has simply kicked the can down the road and delayed the day of reckoning.  I believe despite his tireless work, and belief in what he was doing, history will not judge him well. 

In the future, if you don't want a one-trick (M&A), Wall Street centric government, don't hire an ex-investment banker to be Secretary of the Treasury.  As an interesting aside, the current administration power players: Obama, Geitner, Bernake, Pelosi, Reid, Frank and the Chinese all seemed to be more prominent players than anyone in the Bush administration, who Paulson supposedly worked for.

Recent Reads

I read Paul Krugman's The Return of Depression Economics.  To summarize my thoughts, in order of recording them:

• I liked his use of simple models, especially the Washington babysitting cooperative
• I found he was dishonest in a key point, why the cooperative ran into its recession.  While he talked about money supply, he purposefully neglected the reasons for the loss of liquidity in the market: some innovative babysitters who stockpiled their coupons.  I believe he did this because it would be easily apparent to the reader that the solution would be to encourage the "rich" baby sitters to use their coupons...This is essentially supply side economics which he disagrees with.
• That said, I still found that I agreed to some degree with his arguments for monetary policy, a strong contrast to the arguments of Ron Paul in End the Fed.
• I found it interesting that the U.S. / IMF / World Bank policies force debtor nations to undertake austerity measures when highly leveraged speculators force foreign currency devaluations. This is the exact OPPOSITE of what happens in the U.S.  When the U.S. has economic recessions, we loosen credit.  Why is this interesting?  Because it allows U.S. investors to make a killing at the expense of these 3rd world countries in 2 ways:  U.S. lenders are protected and speculators make off with fortunes, both at the expense of the citizens and governments of these debtor countries.  It is morally repugnant.
• I found the psychology aspect of both Latin American and Asian crisis in the late 90s oddly reminiscent of the 2008-9 American recession.  It is hard to get investment and growth when everyone is predicting doom and gloom.  I believe the Democratic negative campaigning in 2007 and 2008 was a big contributing factor to the severity of the economic downturn.
• I found it interesting that hedge funds and highly leveraged investments were a culprit in these earlier meltdowns...the same groups that contributed to the latest meltdown.
• I like how he talked about the moral hazard of loose lending.  (p. 68-69)  This was a big contributor to the market meltdown of 2008.
• I realized a number of Mr. Krugman's analogies had a zero-sum analogy that wasn't applicable in many economic scenarios.  I think abundance mentality vs. zero-sum game is a very common conservative vs. liberal mindset difference.  Unfortunately zero-sum mindsets prevent most win/win scenarios and justifies interventionist policies, more regulation, and wealth redistribution.
• Finally, I liked how Mr. Krugman admitted at the time of the book's 1998 printing the superiority of capitalism when he stated, "Who can propose socialism with a straight face?" (p. 5-6).  He also noted how regulation and nationalism failed in Argentina (p. 46).  He concluded that capitalism helps everyone (p.18)

I also read The World is Flat by Thomas L. Friedman.  Unfortunately, it is already sadly dated.  It talked about things like outsourcing, in sourcing, supply chain efficiencies, the amazing capabilities of Google, iPods, VOIP and other technologies.  As a business and technology consultant, I had been making these things happen in the 2000-2004 period.  While it would have been fun to see my efforts finally getting mainstream attention in 2005, in early 2010, reading about these "new trends" that are now such common occurances seem funny.  In fact, when he talks about the incredible abilities of a new company called Skype that allows you free voice calls over the Internet, I have to laugh since my 6 year old was using the free Skype video conferencing serve to talk to her grandparents on a mission in Spain when she was 2 1/2.  I also thought it was interesting to read that oil at $25 a barrel was "the ideal range for sustainable global growth." 

I did like the significance of 9/11 versus 11/9 (the day the Berlin Wall fell).  The discussion of the Golden Arches or Dell Theories...that is countries with interwoven supply chains (or economies) are less likely to go to war.  I also agreed with his assumption that we are generally better off with free and open international trade.  I also liked how he emphasized the importance of culture in economic success.  He noted the difference between Dubai and Saudi Arabia...a difference that resulted in palpable security and economic disparities. He also noted the differences between Mexico and China.  These differences are why Mexico is rapidly descending into a drug civil war and China is miraculously growing in a global recession.

Finally, I felt his insight about dreams vs. memories was important.  America needs to get back into the business of knowing what we have done well...preserving freedom and offering dreams.  He mentions "hope" as a defining factor of the middle class. I think Obama read this book before running for office.  Once we've forgotten those basics, we are in danger of losing our position as the beacon for the world.

I am now reading Henry Paulson's book On the Brink...and I'm off to alarming start...reading how he planned to ambush Freddie Mac and Fannie Mae with a takeover in September of 2008 to avoid having the CEOs of these huge companies making calls to their powerful friends in congress and stalling the process.  A scenario that he believed would destroy international confidence in U.S. markets and the dollar.

Random Thoughts

I have had some wonderfully thoughtful debates on Facebook in recent days.  I have had a number of thoughts that I wanted to capture.  I don't have the time elucidate, but I wanted to capture the thoughts for a future post...

The dichotomy between the tea-party conservatives and socialist leaning liberals.  The extremists emerging from both camps leave little room for compromise or thoughtful discussion.

The world views America as an oddity.  We are highly religious, technological advanced, fiercely independent, and incredibly nationalistic.  They have criticized that culture incessantly for the past 50 years and it seems in recent to the point that some Americans have begun to think these points are valid.

Universal literacy and shared Christain values among the founding fathers.  I believe this was a prerequisite condition for the democratic republic made up of citizen legislators they founded.  The fact that this does not exist in many areas of the world today and we are losing this in today's America put our system at peril.