Dana Blankenhorn

Where the Next Boom Will Start

Think of this as Volume 11, Number 43 of A-Clue.com, the online newsletter I've written since 1997. Enjoy.

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Every economic recovery is different. What worked before may recover but it's never the same.

That said, note that every new boom starts slowly. Growth is never uniform, not between industries or within an economic cycle. Recovery will be slow. It will take years. But its pace will accelerate and at some point we'll forget again what hard times felt like. That's when we'll be ready for another bust.

Let me start by looking at previous booms I have lived through:

• The 1970s happened in the oil patch. I was in Houston then and it was a lot like Dubai has been the last few years. One bank put up what looked from the air like a huge green dollar sign. That's how things were. After the crash, which was hard, there was finally a recovery, but it was never the same as it had been.
• The 1980s happened on Wall Street. I was a business reporter then and I watched as supposedly brilliant people took apart companies, then put them back together to reveal value. Everything else went up in sympathy. After the crash the Wall Street game changed. You still read about the "heroes" of that era, like Carl Icahn, but it's not the same. Nor will it be.
• The 1990s  happened on the Internet. I was an Internet reporter. I started warning of the crash in 1997, but the boom happened despite me. The bust took down a ton of companies, and I was out of work completely for over two years. But it did come back. Amazon and eBay came back. Other sites came back. Google barely existed at that time. But, again, this decade, online, has been mainly about consolidation and steady change, not revolution.
• The 2000s were all about housing. Whether the boom was real or artificial, the product of lax regulation or an attempt to cover up for the Iraq War's costs, is irrelevant right now. We created enough Confederate Money to paper the world, backed by houses that were only worth a fraction of what we paid for them, and it will take years to unwind that. When housing does "come back" it won't be the same. It can't be. But, in time, it will come back.

Big Threat to the War Against Oil

There is an enormous threat developing to the War Against Oil we all need to conduct in order to save the planet.

Low oil prices.

The price of crude on world markets has been cut in half over the last few months, as the recession we started with our Confederate Money spreads around the world. While the U.S. has responded appropriately, injecting new liquidity to partly make up for what has been lost, the world has yet to respond. The dollar is up against the Euro as a result.

Why is a lower oil price bad? If you spent the last year working on a plan to develop solar or geothermal or hydrogen energy, based on a price equivalent of $100/barrel oil, your project is now dead in the water. Your investors have pulled out and that energy won't be produced.

So long as energy prices are subject to the instant fluctuations of hedge funds and day traders, it is impossible to plan for new supplies.

The solution is simple, and it's time we went for it. As I have stated here many times, that solution is to set a floor price for oil.

Where I Am To Obama's Left

It's the War Against Oil.

Sen. Obama has couched his energy policy solely in terms of energy independence, specifically "independence from MidEast oil."  Since a lot of our oil comes from outside the Middle East (Nigeria, Venezuela and Mexico are all major suppliers) this makes his10 year  goals truly modest.

More important, Obama is not committed in his rhetoric to really fighting hydrocarbons. He and his running mate, Joe Biden, talk at length about "clean coal," which is a sop to Appalachian coal producers, not a working reality. They talk about "clean ethanol," but ethanol is not clean, nor is it really green. Even cellulosic ethanol systems, using non-food crops as feedstocks, are years away from coming onstream. Heck they're blind enough to support natural gas and offshore drilling, which is a sucker's game because it maintains our dependence on foreign suppliers, keeping their game going longer.

Then there is nuclear. Forget about the arguments over its efficacy. It is undisputed fact that a nuclear plant is most dangerous in its early years of service and its later years of service. Nuclear plants take years to permit and build, even in the best circumstances. You can't get much lift from this in the near term, and the danger from these new plants will be at a maximum just as existing plants enter their most dangerous phase of life.

When it comes to The War Against Oil, Sen. Obama is very much a conservative.

The Key To The War Against Oil

The key to winning the War Against Oil will lie in the appointment of a new Energy Secretary.

The Department of Energy has been moribund practically since the day it was born, in part because the President who created it, Jimmy Carter, became so discredited he wasn't even asked to speak at his party's convention this week, despite two Nobel Peace Prizes.

It was designed to implement an industrial policy, but instead it became a political dumping ground, staffed by businessmen under Republicans and party hacks under Democrats.

We can't afford that now.

The Department of Energy must deliver research and policy to guide public and private investment toward a hydrogen economy. Since people really began recognizing the priority we have seen scam-after-scam-after-scam get funding, get publicity, and get power.

1. Ethanol is a scam. It raises food prices, and costs more in energy to produce than it delivers.
2. Clean coal is a lie. The technology does not exist, yet. It might one day, but until it does new coal investments are counter-productive.
3. T. Boone Pickens is a fraud. He wants government power, and subsidies, to turn West Texas into his own fiefdom, stealing and selling its water, running roughshod over property rights with special eminent domain laws.
4. Wind efforts are being wasted. Power lines lose half the power getting it to market. There is, as yet, no infrastructure to turn that power into hydrogen and get it to market.

That's not all. Nuclear power is making a comeback, even though we still don't know what to do with the waste, or even how to protect it against dirty bomb makers. Drill here, drill now advocates threaten to seize the capital we need to make the future and re-enslave us to the past.

I have a very simple plan for the next Energy Secretary:

Government's Role in The War Against Oil

Government should have a limited role in The War Against Oil:

1. Set rules and enforce the law. I've suggested a floor price for energy as the lightest-possible regulation. But there are many laws on the books concerning fraud, and patent rights, which deserve good enforcement, especially now.
2. Watch carefully and be alert for scams. We need honest advice on what's real, what's just someone looking for a hand-out, and what's an out-and-out scam. Oversight of the industry is absolutely vital, not just to stop scams but to point people into potentially-profitable directions.
3. Support basic research.  Corporations are great at applying basic research, but few have the wherewithal (or the talent) to do the basic stuff. They can support it, however. And so should the government. By supporting basic research government assures that the results go out to everyone.
4. Cheerlead and lead. Government at all levels offers a bully pulpit, which should be used. But government can also take the lead in increasing efficiency and providing a market for new energy ideas.

The Big Danger in The War Against Oil

Volatility.

It's just what I wrote last month. All new energy is a long-term investment. Whether you're drilling for oil and gas, trying to squeeze oil out of coal, building an ethanol plant, or trying to make a bundle on solar, wind, or geothermal power, you need both money and time for your plans to work.

Volatility kills time.

Let's say that last month you had a great plan for solar power, based on a price of $130 per barrel of oil. You're underwater now. But chances are you never got funded, because everyone knew that, while there was a chance oil might climb to $180/barrel, it might also fall to $120/barrel.

The Next Boom

Some days every economist gets teh stupids.

Paul Krugman got a bad case today, in writing about the horrid state of the economy:

The Onion, as usual, hit the nail on the head with its recent headline: “Recession-plagued nation demands new bubble to invest in.”

But we probably won’t find another bubble  —  at least not one big enough to fuel a quick recovery.

Paul Krugman doesn't know a bubble when it's being blown up in front of his face. (That's Tom Noddy doing his bubble magic thing above.)

The next bubble is already here. It's called alternative energy. It's called The War Against Oil. Why do you think Boone Pickens is blowing so much hot air? What is turning Al Gore into an important venture capitalist?

Just as with the Internet 13 years ago, no one is sure in what direction this will go. It was just obvious back then the money was out there. That's why companies like Netscape and Yahoo had ginormous valuations before they got a dollar in revenue. Netscape failed, and Yahoo is failing, but that doesn't mean there wasn't a there there.

Ask the Google guys.

Al Gore and The War Against Oil

I disagree with some of what Al Gore said today, but I welcome it nonetheless.

Let me start with my points of disagreement:

• The Apollo Program is not the model. The Manhattan Project is the model. Apollo implies a win-win-win we can watch on TV. In World War II we gladly taxed ourselves and lent the rest to the government knowing our lives were at stake -- as they were.
• A carbon tax, used to cut payroll taxes, won't pass. Businesses won't wear it. A price floor, which can be adjusted downward for alternative fuels as they come on-stream (and their costs decline), is a better way of getting where we need to go. What solar, wind, and geothermal companies need most is the assurance of a market for long-term investment.
• Government intervention must be minimized, not expanded. Set the rules and let the best technology win. We can't afford to let goobers like Boone Pickens hijack this thing and use it as an excuse for subsidies.

My main problem with Gore for a long time has been his making global warming into a partisan divide, and despite his talk about national security this speech maintains that trend. Getting an introduction from Bernie Sanders is nice, but it's partisan.

It's counter-productive.  The War Against Oil must be non-partisan in fact, not just rhetorically.

Boone Pickens is a Communist

Wall Street is agog over T. Boone Pickens' "plan" for alternative energy.

But read it. Read it closely. Know what it is?

It's Communist. Not "let's start a commune and grow organic produce" communist. Stalinist 5-year plan Communist. My way or the Gulag Communist.

Here it is, at the end of his Wall Street Journal piece in Pickens' own words. This is his proposition. I just used some boldface so you would see what he's really saying:

The government must mandate the formation of wind and solar transmission corridors, and renew the subsidies for economic and alternative energy development in areas where the wind and sun are abundant. I am also calling for a monthly progress report on the reduction in foreign oil imports, as well as a monthly progress report on the state of development of natural gas vehicles in this country.

In other words, "Subsidize what I'm already doing. Override any objections to my plan for big windmills and ginormous transmission lines hundreds of miles long. Give me control, and guarantees. Make me Wind Czar and put all your eggs in my basket."

This is why Communism fell, because they bought 5 and 10 year plans from goobers like Boone Pickens. He has claimed all his life to be an anti-communist, but this plan reveals him for what he is. He's not a businessman. He's another lobbyist with his hand out. For Siberia read West Texas.

There's a better way.

The Iraqi Danger in The War Against Oil

Victory.

That's the big danger Iraq poses in The War Against Oil.

Victory will be as the Bush Administration has always defined it, even while they were putting out cover stories about democracy. Victory will mean accessing Iraq's oil reserves. That process has now begun. (In the map to the right, from Nun of the Above, the oil reserves are inside the orange circles.)

Why is victory defeat? Because Iraq has a huge pool of oil, very close to the ground, and very close in turn to the world's markets. The oil companies now starting to work there estimate they can add 1 million barrels per day to the world's supply, each year for five years. With supply and demand balanced on a knife edge, this is enough to send prices plunging.

How far? No one can imagine those numbers now any more than they could imagine the numbers now being paid a year ago. Most people are lacking in imagination.

Why is that bad? Low oil prices reinforce our dependence on foreign oil. They transfer our wealth -- all of it -- to the Middle East, and leave nothing for the Middle West. And by the time prices start rising again it will be too late to do anything about global warming. The tipping point will have been passed, the destruction of Florida (and New York, and all the world's other low-lying cities) will be irreversible. The population of the Earth will decline by billions during this century, which means your children will probably die young, and their children, and their childrens' children.

What is at stake in the real war we must fight is the Earth itself. Lose the Earth and mankind has no home. Men will butcher one another, starve one another, fight one another to the death for the highest peak, the last bit of food, and civilization will perish in the process. Armageddon. Mass suicide through mass genocide.

The people pushing this Iraqi policy know nothing of any of this, but scientists are very clear on it. Questioning the science of global warming at this point is just like questioning evolution, which may be why policy advocates who know better do that, too. But science is not a question of belief. You can accept its verdicts or ignore them and suffer the consequences. There is no such thing as ignoring the verdicts of science and the consequences not coming.

Why are conservatives doing this? Because dominance of extraction industries means dominance of all policy by those within the extraction industries. It's all about control, control by the current money power, the current political order, the current oligarchy. It's truly conservative in that it's a fight against change, a fight to retain existing status and privilege.

The present crisis represents a once in a generation opportunity to break this cycle of dependence. It's a cycle which runs through Saudi Arabia, through Dubai, and through New York and Houston as well. Americans pretend to be the dog in this cycle of dependence, but they're now the tail, wagging the dog. We've become low-level pushers of the oil drug on our own people, street dealers pretending to be big bosses. The new capital of the world is Dubai.

What the last five years of war have done is establish a new pecking oil among those taking the lion's share of the proceeds. More will now be Shia. Fewer will be Sunni. And with Shia gaining in wealth through Iraq, and American oil technology, the Iranian government will come around to the same technology, adding more supply. The Russians will add their voices to the chorus, and you will never get off the oil drug, ever. It will kill you, and your children, and you won't have any grandchildren.

It's a clear and present danger. But there is an alternative.