Energy
by
charleshughsmith
Executive Summary
- Will profit-chasing bring corporate capital back to the U.S.?
- China's dwindling T-bill leverage
- The decline of dependence on Mid-East oil
- Autarky may be the best investment for the U.S. (and similar nations)
If you have not yet read Part I: What If Nations Were Less Dependent on Another? available free to all readers, please click here to read it first.
In Part I, we sketched out a framework for evaluating the trade-offs implicit in autarky; i.e., national self-sufficiency. In Part II, we’ll explore a few potential ramifications of America’s declining consumption of energy and increasing ability to replace foreign-supplied capital, resources, energy, and expertise with domestic sources.
The core issue of autarky boils down to: What are the risks and costs of exposing the nation to the vulnerabilities of dependence for the convenience and profitability of remaining dependent on foreign providers?
Of the potential consequences, let’s focus on several high-visibility possibilities:
- China’s ownership of U.S. Treasury bonds possibly giving it leverage that amounts to blackmail-type veto power over U.S. policies.
- The dependence of U.S. corporations on foreign sales and the weak dollar for profits
- The decline of oil imports changing the calculation of U.S. interests in the Middle East and other oil-exporting regions
Profits as Priority
As I have often noted, the stupendous profitability of U.S.-based corporations is largely the result of non-U.S. sales and the profits reaped from a weak U.S. dollar. When the euro was at parity to the dollar a decade ago (1 euro = $1), U.S. corporations reaped $1 of profit on every euro of profit gained from sales in the European Union. Now the same one euro in profit generates an additional 35% in dollar-denominated profits due to the exchange rate.
I have also noted that the enormous importation of goods made in China has generated remarkable profit margins for U.S. corporations such as Apple, while the Chinese suppliers are eking out net profits in the 1% to 2% range for the privilege of manufacturing goods that generate gross margins of 50% to 60% for U.S. corporations.
In other words, the Chinese did not impose this trade on U.S. companies – the U.S.-based corporations extracted maximum yield on capital invested by moving production to China, not just in terms of lowering manufacturing costs but also in the enhanced proximity to the world’s great consumer-profit opportunities in developing Asian nations.
In other words, while other nations may focus on self-sufficiency, the American priority is profitability and maximizing return on capital invested. If and when profitability is threatened, capital pulls up stakes and relocates to whatever locale makes the best financial sense.
That the locale that makes the best financial sense is the U.S. is a new thought for many…
The Consequences of American Autarky
PREVIEW by charleshughsmithExecutive Summary
- Will profit-chasing bring corporate capital back to the U.S.?
- China's dwindling T-bill leverage
- The decline of dependence on Mid-East oil
- Autarky may be the best investment for the U.S. (and similar nations)
If you have not yet read Part I: What If Nations Were Less Dependent on Another? available free to all readers, please click here to read it first.
In Part I, we sketched out a framework for evaluating the trade-offs implicit in autarky; i.e., national self-sufficiency. In Part II, we’ll explore a few potential ramifications of America’s declining consumption of energy and increasing ability to replace foreign-supplied capital, resources, energy, and expertise with domestic sources.
The core issue of autarky boils down to: What are the risks and costs of exposing the nation to the vulnerabilities of dependence for the convenience and profitability of remaining dependent on foreign providers?
Of the potential consequences, let’s focus on several high-visibility possibilities:
- China’s ownership of U.S. Treasury bonds possibly giving it leverage that amounts to blackmail-type veto power over U.S. policies.
- The dependence of U.S. corporations on foreign sales and the weak dollar for profits
- The decline of oil imports changing the calculation of U.S. interests in the Middle East and other oil-exporting regions
Profits as Priority
As I have often noted, the stupendous profitability of U.S.-based corporations is largely the result of non-U.S. sales and the profits reaped from a weak U.S. dollar. When the euro was at parity to the dollar a decade ago (1 euro = $1), U.S. corporations reaped $1 of profit on every euro of profit gained from sales in the European Union. Now the same one euro in profit generates an additional 35% in dollar-denominated profits due to the exchange rate.
I have also noted that the enormous importation of goods made in China has generated remarkable profit margins for U.S. corporations such as Apple, while the Chinese suppliers are eking out net profits in the 1% to 2% range for the privilege of manufacturing goods that generate gross margins of 50% to 60% for U.S. corporations.
In other words, the Chinese did not impose this trade on U.S. companies – the U.S.-based corporations extracted maximum yield on capital invested by moving production to China, not just in terms of lowering manufacturing costs but also in the enhanced proximity to the world’s great consumer-profit opportunities in developing Asian nations.
In other words, while other nations may focus on self-sufficiency, the American priority is profitability and maximizing return on capital invested. If and when profitability is threatened, capital pulls up stakes and relocates to whatever locale makes the best financial sense.
That the locale that makes the best financial sense is the U.S. is a new thought for many…
by
David Collum
Every year, friend-of-the-site David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. Moreover, he has graciously selected PeakProsperity.com as the site where it will be published in full. It's quite longer than our usual posts, but worth the time to read in full.
2013 Year in Review
by David CollumEvery year, friend-of-the-site David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. Moreover, he has graciously selected PeakProsperity.com as the site where it will be published in full. It's quite longer than our usual posts, but worth the time to read in full.
by
Gregor Macdonald
Improbably, the global economy has returned to growth over the past four years despite the ravages of a deflationary debt collapse, a punishing oil shock, ongoing constraint from debt and deleveraging, and stagnant global wages. The proof of this growth comes from the best indicator of all: the growth of global energy consumption.
What Happened to the Future?
by Gregor MacdonaldImprobably, the global economy has returned to growth over the past four years despite the ravages of a deflationary debt collapse, a punishing oil shock, ongoing constraint from debt and deleveraging, and stagnant global wages. The proof of this growth comes from the best indicator of all: the growth of global energy consumption.
by
Gregor Macdonald
Executive Summary
- The growing risk of disinflation
- Why instability in the U.S. is accelerating
- The danger of social rifts emerging in the near future between economic classes
- Why environmental constraints and social instability may trump energy issues going forward
If you have not yet read What Happened to the Future?, available free to all readers, please click here to read it first.
If this is the case, it echoes the realization now dawning on economists in the U.S. that an acceleration in the economy, which many expected, is simply not going to arrive. As was discussed in previous essays, OECD GDP growth appears to be converging once again at a level below 2.00%. The U.S. is on track to achieve only 1.6% GDP growth this year. This is a primary reason why inflation, again – outside of natural resources – has still not broken out, or even appeared. Moreover, the U.S. and the OECD could once again be on the verge of disinflation.
One notable and important piece of the disinflation puzzle is the continued growth in inequality. As income growth narrows to a tiny vanishing point among workers, it’s become increasingly difficult to mount economic growth across many industries. Demand for goods from the 1% is robust. Demand from the rest of the populace continues to dwindle. It may be hard to believe, but policy makers, politicians, and – gasp! – even economists and financiers used to be deeply concerned about wealth inequality. Today, it’s as if enough time has passed for an entire generation to forget the destructive structural damage that long-term inequality can wreak on an economy.
For those of you who remember, one of the more severe cases of wealth inequality for many decades was the country of Brazil. Tellingly, it was not until Brazil elected a reformer, Lula, that the country left behind its days of boom-and-bust, debt crises, inflation, and general instability and embarked on its current path as a more balanced, sustainable economy. Coincidence? Not likely.
But what’s really scary is…
Why Social & Environmental Imbalances Are Becoming the Biggest Risks
PREVIEW by Gregor MacdonaldExecutive Summary
- The growing risk of disinflation
- Why instability in the U.S. is accelerating
- The danger of social rifts emerging in the near future between economic classes
- Why environmental constraints and social instability may trump energy issues going forward
If you have not yet read What Happened to the Future?, available free to all readers, please click here to read it first.
If this is the case, it echoes the realization now dawning on economists in the U.S. that an acceleration in the economy, which many expected, is simply not going to arrive. As was discussed in previous essays, OECD GDP growth appears to be converging once again at a level below 2.00%. The U.S. is on track to achieve only 1.6% GDP growth this year. This is a primary reason why inflation, again – outside of natural resources – has still not broken out, or even appeared. Moreover, the U.S. and the OECD could once again be on the verge of disinflation.
One notable and important piece of the disinflation puzzle is the continued growth in inequality. As income growth narrows to a tiny vanishing point among workers, it’s become increasingly difficult to mount economic growth across many industries. Demand for goods from the 1% is robust. Demand from the rest of the populace continues to dwindle. It may be hard to believe, but policy makers, politicians, and – gasp! – even economists and financiers used to be deeply concerned about wealth inequality. Today, it’s as if enough time has passed for an entire generation to forget the destructive structural damage that long-term inequality can wreak on an economy.
For those of you who remember, one of the more severe cases of wealth inequality for many decades was the country of Brazil. Tellingly, it was not until Brazil elected a reformer, Lula, that the country left behind its days of boom-and-bust, debt crises, inflation, and general instability and embarked on its current path as a more balanced, sustainable economy. Coincidence? Not likely.
But what’s really scary is…
by
Chris Martenson
Environmental analyst Lester Brown has made a lifetime career of tracking declining supplies of global resources. He is the founder of the Earth Policy Institute and author of the book Plan B 4.0 Mobilizing to Save Civilization, both of which provide massive data sets on the precipitous drop in key natural resources as well as urgent policy recommendations for addressing them.
In today's podcast, Chris and Lester discuss the global depletion themes that concern Lester most greatly, including population growth, water usage, limits to food production, and climate changes. In many of these areas, the picture painted by the data is alarming. Our future choices are quickly being limited to when these constraints will limit our way of life, not if.
Lester Brown: The Sobering Facts on Global Resource Scarcity
by Chris MartensonEnvironmental analyst Lester Brown has made a lifetime career of tracking declining supplies of global resources. He is the founder of the Earth Policy Institute and author of the book Plan B 4.0 Mobilizing to Save Civilization, both of which provide massive data sets on the precipitous drop in key natural resources as well as urgent policy recommendations for addressing them.
In today's podcast, Chris and Lester discuss the global depletion themes that concern Lester most greatly, including population growth, water usage, limits to food production, and climate changes. In many of these areas, the picture painted by the data is alarming. Our future choices are quickly being limited to when these constraints will limit our way of life, not if.
by
Gregor Macdonald
Executive Summary
- As goes Japan’s efforts to rescue it’s economy, so will go the U.S. and E.U.
- Japan’s options:
- Outsource its manufacturing base
- Replace as much human labor with automation as it can
- Rush to trade its depreciating currency for hard assets around the world
- What Japan is telling us about the Keynesian endpoint
If you have not yet read Part I: Abenomics’ Dismal Anniversary, available free to all readers, please click here to read it first.
Japan Is Reflecting the Future of Western Economies
While many observers continue to follow Europe as the proxy for post-growth dynamics in the OECD, it’s actually Japan that merits the closest analysis.
Much farther along in its post-growth phase, bloated with government debt and having tried a number of big-bang initiatives over the decades, Japan – not the U.S. or Europe – is leading the way. The country has never really recovered from the gigantic property and stock bubble over twenty years ago.
As proof, just consider the biggest trading story of the past 12 months. Was it the Federal Reserve’s intention to taper? How about the chaos in emerging market currencies in countries like India and Indonesia? Or perhaps the continued economic depression in peripheral Europe, as countries like Spain, Portugal, and Greece re-run the 1930s, with mass unemployment and people burning wood from forests to say warm? No, not even such dramatic suffering in Europe was enough to move markets or the EUR currency much this past year.
Instead, it was Abenomics and the front-running (and then chasing) of wildly huge moves in both the Nikkei and JPY that helped drive liquidity and speculative juices across all markets. It is not a coincidence that the peak of this frenzy in May heralded the peak in many markets.
But Japan has more than a financial problem. Despite the hand-wringing about Japan’s debt, the world has ignored for some time now Japan’s debt-to-GDP, GDP on an absolute basis, and Japan’s low cost of capital. Japan borrows. Japan prints. Japan devalues. But the world doesn’t care.
An issue the world may finally begin to care about, however, is that Japan has failed to launch itself out of deflation and is making very little progress in its struggle now. Indeed, Japan has a demographics problem and a resources problem that far outweigh its financial problems. To this point, instead of launching into recovery, Japan is running with the resources Red Queen, as every step of its currency devaluation is met with rising costs to import the raw materials Japan uses to make its goods…
We’re All Turning Japanese
PREVIEW by Gregor MacdonaldExecutive Summary
- As goes Japan’s efforts to rescue it’s economy, so will go the U.S. and E.U.
- Japan’s options:
- Outsource its manufacturing base
- Replace as much human labor with automation as it can
- Rush to trade its depreciating currency for hard assets around the world
- What Japan is telling us about the Keynesian endpoint
If you have not yet read Part I: Abenomics’ Dismal Anniversary, available free to all readers, please click here to read it first.
Japan Is Reflecting the Future of Western Economies
While many observers continue to follow Europe as the proxy for post-growth dynamics in the OECD, it’s actually Japan that merits the closest analysis.
Much farther along in its post-growth phase, bloated with government debt and having tried a number of big-bang initiatives over the decades, Japan – not the U.S. or Europe – is leading the way. The country has never really recovered from the gigantic property and stock bubble over twenty years ago.
As proof, just consider the biggest trading story of the past 12 months. Was it the Federal Reserve’s intention to taper? How about the chaos in emerging market currencies in countries like India and Indonesia? Or perhaps the continued economic depression in peripheral Europe, as countries like Spain, Portugal, and Greece re-run the 1930s, with mass unemployment and people burning wood from forests to say warm? No, not even such dramatic suffering in Europe was enough to move markets or the EUR currency much this past year.
Instead, it was Abenomics and the front-running (and then chasing) of wildly huge moves in both the Nikkei and JPY that helped drive liquidity and speculative juices across all markets. It is not a coincidence that the peak of this frenzy in May heralded the peak in many markets.
But Japan has more than a financial problem. Despite the hand-wringing about Japan’s debt, the world has ignored for some time now Japan’s debt-to-GDP, GDP on an absolute basis, and Japan’s low cost of capital. Japan borrows. Japan prints. Japan devalues. But the world doesn’t care.
An issue the world may finally begin to care about, however, is that Japan has failed to launch itself out of deflation and is making very little progress in its struggle now. Indeed, Japan has a demographics problem and a resources problem that far outweigh its financial problems. To this point, instead of launching into recovery, Japan is running with the resources Red Queen, as every step of its currency devaluation is met with rising costs to import the raw materials Japan uses to make its goods…
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