Category Archives: Politics

The Fall of the Berlin Wall, Saudi Arabian Oil and the Role of November 9th in German History

Today is the 20th anniversary of the fall of the Berlin Wall.

Do you want to know what roles the U.S. and Saudi Arabian oil played in the collapse of the Soviet Union?

Learn more about this highly interesting story and the the important events that happened on November 9th in Germany during the 20th century.

11/9: turning points

http://www.whatmattersweblog.com/2009/11/09/119-turning-points/

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Washington D.C., Philadelphia, New York City

This video features photos from my trip to the U.S. in summer 2009:

In mid-July I spent one week in Barcelona, Spain, before I headed to Washington D.C. and New York City for a two-week conference. During the conference I visited several international institutions such as the Worldbank in D.C. and the United Nations headquarters in New York, as well as the U.S. State Department, the Saudi Arabian embassy and American University amongst others. After the conference I stayed in NYC for two and a half more weeks before heading to Hawaii in mid-August where I spent one month. Before returning home I made brief stops in San Francisco and New York.

check out my new blog: www.whatmattersweblog.com

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2009: year of change, challenges and chances

2008 just ended and will be remembered as the year when the financial crisis rooted in risky mortgage lending turned into a global economic crisis. In today’s globalized world, the crisis spread from the U.S. housing market to almost all parts of the world. The global financial system went crazy, banks were collapsing, governments around the world injected hundreds of billions of dollars into financial markets and shabby banks. Things went from bad to worse on September 15th, when the U.S. investment bank Lehman Brothers filed for bankruptcy protection – it was the largest bankruptcy in U.S. history. The fall of Lehman sparked anxiety in the financial industry as the U.S. government didn’t intervene to prevent a collapse. Following the liquidation of Lehman Brothers, a global panic sellingof bank shares set in which also contributed to the failure of other financial institutions. Hypo Real Estate, a German property lender, suffered from the consequences of the Lehman failure as inter-bank lending dried up and the Munich-based company needed to be bailed out.  Just days after Lehman had declared bankruptcy, the insurance giant AIG was nationalized. Less than two weeks earlier, the U.S. government had bailed out the mortgage giants Fannie Mae and Freddie Mac. They were taken into public ownership.

Apart from the financial sector, the car industry is among those hit hardest by the international crisis. After record-high gasoline prices had hammered car sales in the first two thirds of 2008, sales plunged further due to the lack of confidence among consumers and tight credit in the last third. The Big Three car makers from Detroit – GM, Ford and Chrysler – are in the worst situation in  their history. Whether these companies survive depends pretty much on the decisions the next administration is going to take. The American auto industry is largely responsible for its demise as they missed the market trend and continued producing poor-quality gas-guzzlers at high labor costs. In the last decade, the management failed completely. Detroit’s car makers were outflanked and outsold by more innovative competitors from Japan, Korea and Germany that had better engineering and more long-term concepts for success. (more on this: How to save the American auto industry? No time for baby steps) However, even the new #1 car maker Toyota, which successfully build up a green image over the last few years, was hit hardly by the crisis in the auto market. Actually, this is not surprisingng. Though Toyota has sold more than one million units of its Prius hybrid car since it went on sale more than a decade ago, the majority of the slightly below ten million cars sold in 2008 has a less impressive fuel economy. (Check out Dec. 24th’s post)

All industrialized countries as well as many emerging nations will be in recession in 2009. Consumer spending is falling rapidly as economic uncertainty spreads, unemployment rises as companies slash their workforce to respond to lower demand, unavailability of credit and a bleak outlook for the next quarters.

The drop in oil prices since July 2008 represents best the worsening of the world economy. Since the United States is by far the world’s largest oil consumer (a quarter of total global consumption), demand has been falling which caused oil prices to lose ground. Global oil demand is contracting for the first time in more than 25 years! The day when Lehman Brothers collapsed, oil fell below the $100 a barrel mark, when the U.S. reported the loss of half a million jobs on December 5th, oil slid below $40.  On the one hand, lower energy prices benefit large parts of the population at the moment. Gasoline prices are at a four-year low in many parts of the world. (take a look at my overview of gasoline prices worldwide) On the other hand, currently low oil prices delay urgently needed investments into oil fields and the oil infrastructure which will cause an unprecedented price-hike once the economy does better. Even the $ 330 billion investment that OPEC countries want to make until 2011 which was announced earlier this year were not even enough to maintain the current production capacity in the medium term. In fact, more than one trillion dollars were needed to be spent every single year to maintain the current global oil output until 2030. (see my article on the World Energy Outlook 2008)

The turbulent times might still continue for several months. Though there is hope that towards the end of this year, the economy might begin to recover. 2009 should be seen as chance for a fresh start. On January 20th, Obama will take office as the 44th president of the United States. He’ll also be the first African-American president. This is undoubtedly a historic year. People in every corner of the globe and especially in the  U.S. are full of expectations. Obama stands for change and hope. Great leadership will be necessary to rebuild the nation and steer it out of the economic crisis. Pessimists predict a “lost decade” for the U.S. as Japan has experienced, others forecast the beginning of the recovery in fall. Barack Obama is likely to put all of his energy into solving the financial and economic problems the U.S. is facing right now. As soon as the economy allows him to focus on foreign policy, he is expected to work towards a new multilateralism.

Despite the calamity of the moment, the day will come when the economy thrives again. This is the time to push forward some necessary, fundamental and painful changes which will be the foundation for future growth. Given that Obama will be in power soon and that the U.S. has always been known for the flexibility of its economy, there’s plenty of reason to believe in a prosperous future. If the right action is taken, every crisis can be seen as a big chance. Especially at this point in history, where we are about to experience major changes in our daily lives due to the inevitable transition that is to take place in the energy sector over the next decade, there have seldom been more opportunities.

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How to save the American auto industry? No time for baby steps!

update: Today, a few newspapers trying to interpret Obama’s remarks on the auto industry make me feel like the President’s auto task force is planning to do exactly what I wrote on November 30th, 2008. Searching Google News you’ll find numerous articles claiming that Obama wants to split General Motors into a “good company” and a “bad company”.

->>>> WHAT MATTERS WEBLOG

The United States, Europe and Japan are in recession at the same time. This has never happened since WWII. The global financial crisis, sparked by the housing slump in the U.S., is eroding consumer confidence. In addition to tight credit markets and rising unemployment, car sales slumped to a 25-year low. First, it was sky-high gasoline prices that curbed car sales, now it’s the ailing economy.

However, it’s not just the current crisis that makes Detroit’s Big Three look ill. It’s rather a structural crisis of the entire auto industry, worldwide but particularly in America. The chief executives are already begging Congress for a bailout, but for understandable reasons, Congress first demands GM, Ford and Chrysler to outline their plan of how to return to profitability. President-elect Barack Obama has repeatedly said that his administration will not build a “bridge to nowhere” for the American auto industry. Just pumping money into the inefficient car giants would just delay bankruptcy. Instead, there’s need to make a bold step into the right direction. Further baby steps would mean nothing but wasting taxpayer money.

I am convinced that there is a way for the American auto industry to survive and rise as a phoenix from the ashes. But before thinking about what is the right way to tackle the industrywide crisis, it is important to get an idea of the scope of the problem.

What do you know about the Port of Longbeach, California? Yes, it’s one of the world’s largest shipping ports. But these days the second largest port in the United States is rather a giant parking area packed with brand-new luxury cars from Mercedes-Benz, Toyota and Nissan which currently appear to be unsalable.

About two thousand miles further in the North East, billions of dollars in losses are accumulating in Detroit. In the last quarter, General Motors lost $6.9 billion and Ford $7.7 billion. In need of cash, Ford sold its 20% stake in the Japanese car maker Nissan for about half a billion dollars. GM failed to turn its headquarters, the Renaissance Center in Jefferson Ave, Detroit into cash. Besides, there appears to be no one wanting to buy the Hummer brand which symbolizes the demise of the Big Three which actually started after the first oil crisis in the early 1970s. 

Despite the extremely bleak outlook for the car industry, Bob Lutz, vice chairman of General Motors, still tries to spread optimism about the future of the 100-year old auto industry giant.  Though the oldest manager in the car industry alive – who has already worked for Ford, Chrysler and BMW – does not really consider global warming as a fact and loves muscle cars, he still wants to remain within the company until the much anticipated semi-electric Chevrolet Volt, that should save GM, hits the market in 2010. The Chevy Volt is also aimed at improving the public perception of GM that looks old-fashioned in comparison to Toyota which managed to greenwash its image due to the success of the hybrid car Prius. 

At this moment, however, it’s uncertain whether General Motors has enough liquidity to survive until Barack Obama takes office in January. And no further stimulus or bailout can be expected before his administration takes over control. Analysts are discussing the advantage of pre-arranged bankruptcy. Others highlight the merits of a real bankruptcy arguing that it would give GM enough flexibility to get rid of some of its 8 car brands, get rid of its debt load and shrink its extensive dealership-network. 

On the other hand, GM seeking for bankruptcy protection would mean huge job losses in the Midwest and it would affect many suppliers. Moreover, Chrysler and Ford were likely to follow rather quickly as all of them are running short of cash. A merger between GM and Chrysler were probably the worst scenario, as Chrysler is in worst shape and GM already hast too many brands. Therefore, a merger would mean an accelerated demise. A part nationalization is not either of advantage, as it would limit the company’s flexibility and cost enormous amounts of taxpayer money. Though there is a scenario in which Detroit’s car makers could return to profitability within two years (http://money.cnn.com/2008/11/28/news/companies/auto_rebound/), but to me, this appears to be rather unlikely as this is a structural weakness. All three car makers have the wrong product line-up, have to pay higher wages than their competitors and are packed with debt.

In my view, there’s just one way that bears the possibility of a glorious future for the American auto industry. In order to make American cars competitive again, it takes a comprehensive transition of the corporate concept, a fundamentally different approach. In my opinion, the most cost-effective and  promising way is to divide GM into a “good company” and a “bad company” just as could happen to the struggling Italian flag-carrier Alitalia. The “good company” would produce, equipped with money from investors and the government, electric cars as well as other efficient cars and become a technology leader in this field while the remaining “bad company” would go through bankruptcy. This is the only way I see the possibility of a recovery as the necessary fundamental restructuring could be done. Of course, such a step would mean a gigantic job loss at first, but nothing could avert the collapse without cutting jobs. However, not all jobs would be gone forever. The car maker that is the first to produce electric cars on a grand scale for the mass market will thrive and earn a fortune in the coming decades. The days of the inefficient combustion engine are numbered and electric cars are becoming more competitive every single day as battery technology advances. The “good company” could become the #1 in electric cars in the short term and the largest and most profitable car maker in the world in the medium term. The new company could be called “GMnext” and ensure that the U.S. holds a big stake in the green tech sector which will rise to the main engine of growth for the next quarter century at least. Rick Wagoner, CEO of GM, already said

“We’re committed to leading our industry on the most important issue we face over the next generation: The development of alternative fuel propulsion.” and “we’re reinventing the automobile” on the occasion of the company’s 100th birthday a few months ago. (check out “We’re reinventing the automobile” – Rick Wagoner, CEO and chairman of GM on the occasion of the grand old car maker’s 100th birthday). This shows that he is aware of what needs to be done and where future growth can come from. But obviously, there’s no chance for a technological breakthrough to come from a company that might face bankruptcy in the matter of weeks.

Next to existing companies in the car business, new players from outside the car industry are likely to start producing electric cars in the future. The most important part of an electric car is the battery pack. The driving range is still a hindrance to the breakthrough, due to a limited battery capacity. Battery manufacturers are therefore the core element on the way to mass production of electric cars. The rest is not too complex. Electric motors are efficient and very simple. There’s not much technological know-how necessary to make an attractive car once there’s a powerful battery. Especially emerging countries like China and India could see the advantages of electric cars soon. Chinese car companies could never catch up with Western competitors making cars with combustion engines whereas they would already be capable of producing an electric car. On top of that, more electric cars would mean that thease countries could stop spending billions of dollars on gasoline subsidies. Another point is that electric cars have zero tailpipe emissions which would have a positive effect on the intense pollution in Asian cities.

It’s not only American car companys that are struggling. European and Japanese auto makers have also slipped into the red, even though they produce cars with a much better fuel economy. This can be attributed to traditionally high gasoline prices in much of Europe and also in Japan. High taxes make European drivers pay a few times more per gallon of gasoline than U.S. drivers have to. When Americans were feeling the pain of gasoline prices above $4 a gallon in July, drivers in many European countries had to pay more than $10 per gallon.

That’s why Europeans have no reason to pride themselves for having a bit more efficient cars than Americans have. It is rather shocking that despite high gasoline prices for decades, nothing had been done about the way we drive. If America had had $10 a gallon for a long time, alternatives to gasoline-driven cars would probably be avaialble in large numbers. 

In the meantime, almost all car makers in the world are working on electric cars. Just have a look at some of my posts and you’ll have a good overview. For example BMW, known for luxury sedans, is experimenting with an electrified version of its Mini. 500 Mini Coopers running on nothing but electricity will be tested in California through a leasing program. I’ll write more on that in the next few weeks.

Next time, I’ll give you an overview of the development of gasoline prices in the U.S., Europe, China, India and some other places. In a recent comment, I was asked to give information about the development of gasoline prices outside the U.S. If you also want to learn something particular having to do with energy, the economy, international politics, etc., let me know.

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/28/AR2008112802505.html

Electric vehicles are competitive with gasoline-diven vehicles

This car is hot! – Tesla Motors’ electric sportscar

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WORLD ENERGY OUTLOOK 2008 – “What we need is nothing short of an energy revolution”

world-energy-outlook-2008

Energy is the topic of our times. Energy issues have an effect on every part of this planet and on every person inhabiting it. We need energy to run our cars, heat and cool our homes, use our computers, illuminate houses and streets and to do lots of other things we either cannot forgo or do not want to. We depend on energy. Consequently, rising energy prices hurt us. Most of the energy we use derives from fossil fuels. When we burn fossil fuels, we emit carbon dioxide gas into the atmosphere. This drives global warming. Climate change will have a devastating effect on many regions of the world. We are already seeing extreme weather events. Sea levels are rising and therefore threaten entire countries. The Maldives are at risk of being inundated in this century. Therefore, the new president of the island nations seeks new homeland for his people. He plans to set up a fund to buy new land on the shores of the Indian ocean.

On Wednesday, the International Energy Agency (IEA), an intergovernmental organization founded by the OECD (Organisation for Economic Co-operation and Development, its 30 members are almost only developed countries) in the aftermath of the 1973 oil crisis, released its World Energy Outlook 2008, an annual report containing energy analysis and projections for the medium and long term. The IEA which has a reputation for being rather optimistic and understating the scarcity of oil reserves sounded the alarm bells that oil’s days are numbered. Between the lines, they acknowledge that Peak Oil is not so far anymore, though they prefer to refer to Peak Oil as “plateau”.

Here’s the opening paragraph: (from the executive summary on http://www.worldenergyoutlook.org/docs/weo2008/WEO2008_es_english.pdf)

The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable – environmentally, economically, socially. But that can – and must – be altered; there’s still time to change the road we’re on. It is not an exaggeration to claim that the future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy; and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply. What is needed is nothing short of an energy revolution. This World Energy Outlook demonstrates  how that might be achieved through decisive policy action and at what cost. It also describes the consequences of failure. 

Their figures from an analysis of more than 800 oil fields around the world shows that demand will severely outstrip supply in the future. The report highlights the urgency to take action as the growth outlook for global oil production was reduced compared with earlier WEOs.

The IEA projects that even if demand for oil remained the same as today, we would need 4 new Saudi Arabias by 2030 to meet demand.

Though the report says “global oil production is not expected to peak before 2030, production of conventional oil […] is projected to level off towards the end of the projection period”, this means that we are extremely likely to see an oil-supply crunch by 2030 or even earlier unless we discover a few gigantic new oil fields and/or reduce our consumption decisively.  The IEA expects that $26 trillion need to be invested by 2030, and most of that money is needed just to maintain the current production capacity. The aging energy infrastructure is extremely vulnerable. If nothing is done about that, it will keep rusting away. Besides, the IEA anticipates a massive contribution to future oil output from Canada’s tar sands and Venezuela’s huge reserves of extra heavy oil which cannot yet be processed economically. Sure, Canada’s reserves are gigantic, but to get high quality crude oil out of these sands, it takes lots of energy first what makes oil from Canada quite expensive. Another point is that with oil prices having plunged to below $60 a barrel for delivery in December, reduced investments in these tar sands will delay the grand-scale availability of new oil resources. The oil output estimates in the WEO are also based on the widespread use of enhanced oil recovery (EOR) techniques. This means that either gas or chemicals are injected into the ground in order to get more oil out of the wells. Finally, a considerable share of future oil production should come from yet undiscovered fields. In other words, if anything does not work out perfectly, the crunch will happen much earlier than 2030. The IEA’s assessment of the future development of global oil supplies is not as honest as it should be. With the reliance on sky-high investments, sensational discoveries and expensive new drilling techniques, the IEA estimate is a best case scenario.

More realistic are the figures on output decline. Output from oil fields that already reached their peak decline at an average rate of 6.7% annually. Just imagine what the impact will be when the Ghawar oil field in Saudi Arabia, the world’s largest known oil field reaches its peak! Ghawar is currently producing about 6.25% of the global output.

ghawar-oil-field-google-earth1

The problem is that the output decline at existing fields nullifies the contribution from all new discoveries. Unfortunately, most of the new fields are very small in comparison with the few gigantic fields that have been in production for more than 40 years and small fields tend to be declining much faster than bigger ones, once they reach their peak. Moreover, it takes much more energy to extract oil from fields recently discovered, as they’re often offshore or deeper in the ground. Thus, oil from new fields is inevitably much more costly.

You can take a look at the oil production chart on page six from the press conference: http://www.iea.org/Textbase/speech/2008/Birol_WEO2008_PressConf.pdf 

Obviously, the point in time when currently producing oil fields reach their peak is right about now. To maintain current levels, oil from fields yet in development and non-conventional oil will have to fill the gap.

Massive investment is needed to stabilize supplies at the current level, but given the impact of the financial crisis, many investments could be delayed, with severe consequences:

“In fact, the immediate risk to supply is not one of a lack of global reserves, but rather a lack of investment where it is needed.” As soon as the economy recovers, oil prices could go up to record levels again. Shortages could occur unless the adequate investment of more than $1 trillion per year is made. Another threat is that renewable energy projects are also delayed due to falling energy prices.

Now, let’s take a closer look at the IEA’s “reference scenario”:

They expect a 1.6% per year demand growth between 2006 and 2030. This would mean a 45% increase at the end of the projection period. Half of that increase will come from China and India. The Middle East also is likely to have a strong demand growth. The bottom line is that 87% of the increased demand will come from non-OECD countries. Back in 2005, non-OECD countries overtook OECD countries in terms of oil consumption.

As most emerging nations need any source of energy available, coal’s share in global energy generation will also increase from 26% in 2006 to 29% in 2030. This is exactly how we can help climate change to feel comfortable and stay.

I find it quite surprising that despite the recent renaissance of carbon-free and inexpensive nuclear power, the share of nuclear power of the total global energy consumption will be lower in 2030 than it is today.

To no one’s surprise, renewable energies are anticipated to grow faster than any other source of energy – at an average rate of 7.2% annually until 2030. Solar, wind, geothermal and marine (tide and wave energy) are on the rise. I assume that the IEA experts didn’t consider the enormous progress that is being made in the solar industry and in other alternative energy areas. Thin-film solar panels, more efficient technology and mass-production will result in falling prices and a quicker spread of solar technology. Energy storage systems will also help to drive up solar energy generation much more quickly and cheaper than the energy experts from the IEA probably expect.

In the IEA scenario, most of the oil production increase should come from OPEC countries. as non-OPEC production is “at plateau” – I’d call it peak as it will decline fast, just as reported. By 2030, more than 50% of the global oil output will be controlled by the OPEC cartel. The oil fields which are declining the slowest are also located in the Middle East while those fields whose output is dropping fastest are in the North Sea. This should be a reminder to the Western world to make efforts to get away from oil as soon as possible  – without spending too much attention at how long we could afford lazing and doing nothing. The Middle East and the OPEC are set to become even more influential in the future and will be able to dictate prices. After all, alternative energy means money spent at home and jobs being created at home.

Natural gas is no powerful alternative either – as the reports wants to make us believe – because more than 56% of global gas reserves are in the hands of Russia, Iran and Qatar. They’re already considering to start a gas-OPEC to make sure they’ll be making a killing.

IEA figures suggest that proven oil reserves are between 1.2 and 1.3 trillion barrels (including 0.2 trillion barrels of non-conventional oil). These so-called “proven reserves”  more than doubled since 1980 and in most OPEC countries, oil reserves are a state-secret and some experts say that the official reserves are vastly exaggerated. Based on the numbers they obtained, the energy experts from the International Energy Agency say that the world has “enough [oil] to supply the world […] for over 40 years at current rates of consumption.” Even if this is true, it doesn’t mean that oil will be affordable for so long. The IEA chief economist Fatih Birol expects highly volatile prices and hefty fluctuations. Their price assumption for 2030 is $200 per barrel in nominal terms. They also say that the inevitable price hike will have “serious adverse implications for the economies of consumer countries.” Another adverse trend is that the largest share of oil reserves is in the hands of national government-controlled and inefficient oil companies who lack the skills and equipment necessary.

Sure, but who says that the United States, Japan and Europe will be that dumb and keep consuming expensive, unsustainable oil from a cartel that is looking forward to terrorize the Western economies in conflict situations?

As can be seen on the “fact sheet”, three quarters of the demand growth will come from the transport sector. Despite an improving fuel economy, more and more gasoline is consumed in cars since the global car fleet is rising from 650 million vehicles in 2005 to about 1400 million vehicles in 2030. The IEA says that they do not expect a shift away from conventionally -fuelled vehicles before 2030. That’s bullshit! A fundamentally wrong estimate. Gasoline prices will inevitably rise globally soon. Drivers in emerging countries are struggling to afford driving anyway. Without hefty government subsidies, the number of drivers in these countries were much lower.

In 2007, Iran and Russia both subsidized energy with more than $50 billion to artificially keep domestic energy prices down. China, Saudi Arabia, India and Venezuela also subsidize gasoline with enormous amounts of money for the same reasons. Altogether, more than $310 billion were spent in the 20 largest non-OECD countries in 2007. These subsidies must be removed to prevent artificially high oil demand and emissions. (take a look at China, India and other countries subsidizing gasoline to keep domestic prices down are forced to embrace electric cars)

The World Energy Outlook 2008 also calls for urgent action to combat climate change. The IEA projects a 45% rise in CO2 emissions given the global climate policy of inaction. Co-ordinated action is urgently needed. At the Copenhagen conference in 2009 where a post-Kyoto framework is to be established, emerging nations must be included as 97% of the increase in carbon dioxide emissions will come from non-OECD countries. That’s also the reason why the 2007 G8 summit in Heiligendamm, Germany, remained effectless. The G8 nations cannot bring about major changes anymore unless they’re pushing in the same direction with China and India.

The IEA suggests a “decarbonisation of the world energy sources” in order to prevent a catastrophe and irreversible damage to the global climate. “Governments have to put in place financial incentives and regulatory frameworks that support both energy security and climate-policy goals in an integrated way.”

As a conclusion, the last paragraph of the executive summary:

“The energy future will be very different.

For all the uncertainties highlighted in this report, we can be certain that the energy world will look a lot different in 2030 than it does today. The world energy system will be transformed, but not necessarily in the way we would like to see…[W]hile market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over…It is within the power of all governments, of producing and consuming countries alike, acting alone or together, to steer the world towards a cleaner, cleverer and more competitive energy system. Time is running out and the time to act is now.”

IEA WEO 2008 fact sheet  IEA WEO 2008 executive summary  IEA WEO 2008 press conference

Check out the following posts for more information:

OPEC’s plan to cut oil output to keep prices from falling emphasizes the urgency for the western world to get independent from the cartel

Our prosperity hangs by a thread as it is based on a limited resource – oil

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Capitalism will survive: Why America will remain the #1 global superpower

growth-graphic

[take a look at the updated version of this article on http://www.whatmattersweblog.com/2009/02/27/capitalism-will-survive-why-america-will-remain-the-1-global-superpower/]

Who’s to blame for the current economic crisis and anything else which is in a mess right now?

Exactly! Corrupt bank managers, investment bankers and generally all the people who are involved in finance. That’s a growing sentiment supported by politicians who prefer calling greedy CEOs responsible for all the mess to working out solutions in order to solve the problems.

Though some Wall Street executives acted irresponsibly and took too much risk, it’s primarily the politicians’ fault who didn’t counteract the looming disaster. In fact, many politicians welcomed excessive private and public debt. Debt fueled economic growth for decades as it supported excessive consumption. People have gotten used to living beyond their means. Low interest rates usually create bubbles in the medium term. Now, we face the challenge of how to turn off the debt spigot and stabilize the financial system without sending the economy in a deep recession.

Politicians around the world are calling for more regulation and government-control. The point is that simply more regulation – as could be seen after the burst of the dot-com bubble – won’t help much and could make things even worse. Besides, nationalizations are no good choice either, as government officials tend to manage businesses even worse than the dumbest managers. In Germany, e.g. it was the partly state-owned banks that burned the most money and fell victim to the crisis earliest. Generally, we should beware of overly eager politicians who want to save the world, like the French president Nicolas Sarkozy who called for a European “economic government” and obviously aims at getting control of the (still) independent European Central Bank.

Capitalism and globalization have lifted hundreds of millions of people out of poverty around the word in the last decades. Reversing it would send millions back into poverty again, reduce wealth in the West and create social instability in emerging nations. Consequently, politicians should not support anti-capitalist sentiment, but come up with thought-through solutions.

Another thing that stands out is that most of the people who lost their money due to the market melt-down, lost their money primarily due to a lack of basic economic knowledge. For sure, many financial advisers didn’t explain all the risk involved to their customers and issued credit to those, who could never afford to pay back. But this wouldn’t have been possible, if the average citizen had more economic basic knowledge.

With the crisis having its roots in America, a whole bunch of populist politicians hoped to see the U.S. lose its influence and power. However, now disappointed leaders in Russia, Iran and Venezuela are seeing that America’s power is not diminishing. Quite the opposite is the case. We didn’t see a shift of power to Arabia or China. In contrast, especially oil -exporters Russia, Iran and Venezuela struggle with lower oil prices. China still has robust growth rates, although they dipped decisively due to falling demand from America. Now, China has to turn to its gigantic domestic market for growth. Actually, capital is flowing into the United States and the value of the USD is rising. People around the world are buying dollars as the value of their currency is plunging. This is happening in South America as well as in Eastern Europe. Obviously, people rather rely on America’s recovery than on politicians who want to save the world by tightening their grip on the economy and society.

The bottom line is that capitalism will always recover as it is based on the joined effort of the people in a free society.

Undoubtedly, the U.S. has to reduce its trade deficit and better balance its imports and exports by becoming more competitive. This can only be achieved in new branches of business. The car industry as we know it today, is far from becoming a contributor to new growth. Quite in contrast, the American car industry is in a life threatening crisis at the moment. The computer and Internet business has been creating jobs and revenue for a long time and the U.S. is still dominant in these areas of business, represented by global corporate giants like Microsoft and innovative service providers like Google and many other creative Silicon Valley corporations. But America cannot only rely on the IT industry for future growth. It is the energy technology sector that is most likely to become the #1 job and revenue generator of the future. The energy tech sector could quickly become the next key industry in the Western World. The drop in oil prices in recent months does not change the long-term energy outlook. Peak Oil is on the horizon. Global energy consumption is rising steadily. The sources of energy we have relied on for so long are first, inefficient, second, becoming more expensive, third, harmful to the environment and finally, mostly in the hands of unstable and hostile governments. Now is the time to come up with alternatives which will not only be more sustainable, but also cheaper in the medium-term. Electric cars are just one example. Electric cars are much more efficient than cars running on gasoline. Their driving range will inevitably be competitive in the matter of years. Alternative ways to generate electricity are essential to future prosperity and sustainability. For the Western world and the United States in particular, energy technology is a promising new industry that will generate tremendous amounts of money by meeting demand in the U.S. and especially in emerging nations. There will be a gigantic global market for sophisticated energy technology products and the technology leaders will be cashing in on that development.

Other articles on this or on similar topics:

on the global crisis

OPEC’s plan to cut oil output to keep prices from falling emphasizes the urgency for the western world to get independent from the cartel

Our prosperity hangs by a thread as it is based on a limited resource – oil

Electric vehicles are competitive with gasoline-diven vehicles

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Filed under Economy, Global Issues, Politics

History being made – a once in a lifetime election

Today’s election has definitely captured the attention of the whole world. There is a lot of excitement within and without the United States. Looking at the latest polls, it is likely that Senator Barack Obama wins with a comfortable lead over Republican John McCain, though polls can never be relied on. Nevertheless, I am sure that there won’t be anything like a “Bradley effect” this time. At this moment in history, there are issues that weigh more than skin color or party affiliation. The majority of early voters polled voted for Obama. If Obama wins tonight, he will be the first African-American president of the United States. But above that, he symbolizes a new era of politics. His message of change in line with his charismatic personality inspired millions of voters. He raised more than $600 million and his passionate supporters worked hard in all states to make potential voters register. Undoubtedly, Barack Obama is a magnetic figure and this gonna be a remarkable election. Thus, it’s no surprise that voter turnout is expected to be considerably higher than usually. In next few hours, the first exit polls could give a glimpse of who’s ahead. Obama is sure to get a boost from first time voters. Right now, I’m watching CNN newsanchors playing with their high-tech equipment on which they appear to be very proud of, most interesting a huge touch screen – very entertaining. To no ones’ surprise, the economy is still issue #1. This afternoon, the McCain campaign launched a final robocall especially in southern Florida in Spanish, warning voters that former Cuban leader Fidel Castro, amongst other rather socialist South American leaders like Hugo Chavez from Venezuela,  allegedly endorsed Obama. Even if this were true, I despise this action and I am convinced that this is completely irrelevant.

The bottom line is, by the end of this day, voters will have chosen a new president , giving the world’s most powerful nation new political energy and hopefully new optimism.

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Filed under Politics