China as a Leader

Tom has a pretty good post on China’s role in restarting the global financial system. Just as America stepped in to help Europe after the end of World War II, China is able to help America now.

China will be a leader in more things than just finance. The quest to build electrical cars — and free ourselves from foreign hydrocarbons — will be largely financed by China, not just as investor, but as consumer:

Will China be the new Electric Car mecca? It has to – AutoblogGreen
Electric vehicles are striving to have a beneficial impact on the world’s economy and are stirring interest from specialized and general media outlets. Forbes, for example, has just published an article on how China is going to become or, we should say, needs to become the mecca of the Electric Car.

There has been a lot of news regarding EVs and China: a nationwide network of recharging stations, an array of hybrid and electric models (some a little bit odd). According to the Forbes editor, moving to EVs is more a necessity than some sort of inspirational eco matter. China is expected to have 700 million cars on the roads by 2050. That’s three times as more as the number of cars on U.S. roads now. Even with efficient powertrains, China would need 20 million barrels of oil per day to fuel its transportation sector, which in turn will emit about 3 billion metric tons of CO2 per year. This is unsustainable and unstable. A significant chunk of these vehicles need to use another type of energy – and electricity is what they have handy right now.

Between the Olympic War (which reminded us what Gap states do when oil prices are high) and the financial crisis (which show how the Core stands together in times of trouble), we’ve gotten back-to-back reminders of the importance of China in our world.

Presuming China survives this storm without some sort of collapse, we will have a good opportunity to reevaluate the constructive role that China can play in South Asia, South-East Asia, the Western Pacific, Western Eurasia, and Central Asia.

The Next South Ossetia: Crimea

Though South Ossetia is only recognized by Russia and Nicaragua, it has still allowed Russia to extend its influence by attacking neighboring states. South Ossetia, along with Abkhazia and Transnistria, are puppet entities supported by Russia.

The next puppet state may well be Crimea, which is part of Ukraine:

World Briefing – Europe – Ukraine – Concern About Russia – NYTimes.com
Foreign Minister Bernard Kouchner of France said Tuesday that Moscow had been issuing Russian passports in Crimea, a region in southern Ukraine where Russia’s Black Sea fleet is based. “We all know that they are handing out Russian passports over there,” Mr. Kouchner said in an interview with Kommersant, a Russian online newspaper. The government of Ukraine has said it wants the fleet to leave the Crimean base in Sevastopol when its lease runs out in 2017. But the Russian naval authorities have indicated that they want to retain the base. Mr. Kouchner said Russia might try to make advances in Crimea after the success of its military operations in Georgia in August.

Gap regimes such as Russia rise and fall with hydrocarbon prices. The lower we can keep the price of oil, the less Russia will be able to create this kind of trouble.

Mandate Flex-Fuel Vehicles

Flex fuel vehicles are capable of runnign a blend of 85% ethanol, 15% gasoline. Flex fuel / E85 technology allows us to substitute gasoline (which is a foreign hydrocarbon) with ethanol (which comes from a variety of courses).

A recent comment by Purpleslog made me aware of Robert Zubrin, and his plan to make all new vehicles sold in America flex-fuel vehicles.

Changing the game: Breaking OPEC’s grip on oil (OneNewsNow.com)
Energy expert Robert Zubrin says in this worsening economic crisis, Congress must take an essential step to get the United States off its dependency on foreign oil from countries that want to do America harm.

Dr. Robert Zubrin is the author of Energy Victory: Winning the War on Terror by Breaking Free of Oil. He believes the Organization of Petroleum Exporting Countries, or OPEC, is deliberately restricting the production of oil in the face of growing world demand in order to drive the world into a recession. He adds while opening up areas like the vast Arctic National Wildlife Refuge (ANWR) to drilling is a good idea, it will not break OPEC’s stranglehold.

“Drilling is certainly a good idea, but it’s not sufficient to beat them. OPEC’s got a 40-percent share of the world oil market; we’ve got eight [percent]. If we opened up some additional areas for drilling, we could have nine, maybe ten [percent],” he contends. “They still have the winning position as long oil is the game. What we have to do is change the game.”

And according to Zubrin, that requires Congress to pass flex-fuel legislation, mandating that all cars sold in the United States be able to operate on gasoline, ethanol, and methanol. “This feature only adds a hundred dollars to the cost of a car,” he explains. “If we made this the American standard, it would effectively become the international standard because the foreign car makers would have to switch over to comply.”

Barack Obama supports this plan. John McCain is more skeptical towards ethanol.

CNBC Welfare

CNBC is on its big-government kick again, the first real drive for the socialization of risk and the privatization of profits since the Bush-Pelosi Bailout. The subjects in the last half hour ranged from bailing out those who have mad mortgages, bailing out banks who gave bad mortgages, and also bailing out GM because they are too big to fail.

As Tom says in his latest post, controlling the knee-jerk left will be Obama’s biggest challenge, if Obama is elected President. Mortgage bail-outs can be one example. There are a lot of ways to increase affordable housing (such as subsidizing urban light rail and mass transit, which would allow more people to have apartments in the city and commute to work, without having an expensive car), and help the auto industry (such as heavily subsidizing alternative-fuel vehicles).

The other approach is to just write checks, which CNBC and many in the Democratic Party support.

If Obama wins, I hope he’s up for the challenge.

After the Gap’s attack on the Seam

After Russia invaded Georgia, some criticized me for focusing too much on ways to minimize Rusisa’s power. These critics came in two broad camps. One thought that Russia was the superior force in Europe, that the West was basically helpless, and that the wise way forward was to accept a reconstitution of Russia’s near abroad and otherwise get on with life. Another camp argued that Russia, even is weak, was the natural partner for the U.S. in this situation, that Russia and the United States would rise and fall together, and that opposing Russia’s invasion amouned to a civil war within the West.

Now, a season later, it’s clear that Russia was oil-mad, that Russia is in a state of deep decline, and that dropping oil prices are the quickest way to get Russia to sober up and minimize their meddling in the Core.

Here are some links from the blogosphere which do a good job of describing Russia’s weakened state, and how low oil prices will help:

Catholicgauze:

The days of credit given to those who cannot handle it sure shook the world. Economies in recession led to markets slowing down. The big under reported story of this downturn is the falls effect on oil prices. As of late October oil prices were trading below $65 a barrel. For the last several years dictatorial countries like Russia, Venezuela, and Iran managed to expand their operations with gas profits. Will these powers slim down their operations or will they fall like the Soviet Union under pressure from their growing monetary demands.

From Tom:

The one place I really worry about is China. I don’t think their current leadership is up for much (remember, it’s 4th Generation homebodies) other than pulling in their heads and hiding in their shell. Maybe a bit more from India, and hopefully more from Brazil. Another upside is that the air is deflating in Moscow’s big head, so enough of that nonsense.

And courtesy Mark and Lex:

How likely is it that Russia will face serious economic problems? Although high oil prices are ensuring a steady flow of money into the state treasury, there have been signs of economic vulnerability. The cost of living is rising sharply, with inflation reaching 12.6 percent in January 2008. Owing partly to lax lending standards, consumer and corporate credit is increasing rapidly—by 50 percent a year. A surge in external borrowing by Russian banks to fund credit expansion has aroused concerns about a crisis of liquidity in the banking system if access to foreign borrowing is curtailed. Moreover, according to Anatoly Chubais, Russia’s current account surplus is declining to the point where it could disappear in just a couple of years. There has been a marked slowdown in the growth of Russia’s oil output, resulting from the failure to invest in oil extracting capacity. Income from oil and gas may not be sufficient to cover future imports.

After Russia invaded Georgia, there was a not of hyperventilation in the blogosphere. Now it is possible to see it in context, as a Gap state invading a Seam neighbor. Imagine Venezuela shelling a province or Colombia, or Iran annexing part of Azerbaijan, and the basic story wouldbe the same.

The Anti-Core

The Economist has a good article on Iran, Russia, and Venezuela, which is called by the teaser an “anti-West.” But a better term than anti-West would be anti-Core: three countries that are hostile to the international system, do not create wealth, and exist primarily by converting the Core’s economic wealth into geostrategic instability.

The silver lining of the financial crisis is that it is disrupting the efforts of this “anti-Core,” giving the Functioning Core an opportunity to rally. Let’s hope it does.

One Hundred Billion to Help America, the Core, and the Gap

Calculated Risk has an interesting post titled “The Oil Cushion.” The article describes how a $1.50/gal drop in the price of gas (say, from $4.00 to $2.50/gal) amounts to a $900 check to every American. This is essentially a large stimulus package, that takes money that would have flowed out to petrostates (Russia, Venezuela, Iran, Saudi Arabia, etc) and puts it in Americans’ politics.

Low prices for hydrocarbons (oil and natural gas) help our country by not exporting wealth to gap states that can’t handle it, help the Gap by warping their governments into resource-extraction corporations, and helps the Core by preventing bad Gap governments (Russia, Venezuela, Iran, Saudi Arabia, etc) from having undo influence.

Progress in this direction can be had by creating a geogreen stimulus package, as Thomas Friedman has recommended. Here are some details of how it might work:

The Democrats, with the blessing of Federal Reserve Board Chairman Ben Bernanke, are suggesting a stimulus package of about $200 billion. We should use at least half of that to move America away from our dependence on petroleum and reduce our carbon footprint on the planet.

Green Jobs for America Campaign, a coalition of environmental and labor groups, is calling for a $100 billion green stimulus program that would include a combination of tax credits, loan guarantees and public investment in environmental technology that it says will create roughly 2 million jobs over two years.

The program, outlined in a report written by the Political Economy Research Institute at the University of Massachusetts-Amherst and the Center for American Progress, calls for investing in new power sources, including wind, solar power and “next-generation biofuels.” It also recommends “expanding mass transit and freight rail,” “retrofitting buildings to improve energy efficiency” and “constructing ‘smart’ electrical grid transmission systems.”

If we are going to get “transformational leadership,” this would be a good place to start:

The public infrastructure portion of the program — upgrades to public buildings, public transportation and the electrical grid — could be enacted quickly, according to the report. But to do so would take a commitment to public works spending that the Congress and the executive branch have not demonstrated in more than a generation.

A geogreen stimulus is all the more important because the financial crisis have weakened the investment infrastructure that alternative energy research firms (focused on ethanol, solar, and wind power) use to grow. From CNET and CBS News:

Now some of the pillars underpinning green technologies are wobbling. Oil prices have plummeted more than 50 percent since the summer, making traditional energy sources look a lot more affordable than they did six months ago for businesses and consumers alike. And the global credit crisis that has sucked the wind out of the economy has done damage to the funding of alternative energy projects as well.

The hardest hit by a freeze or reluctant lending are renewable energies which are already commercial, or on the cusp of getting there. These aren’t cheap little startups we’re talking about: Constructing a biofuels plant costs upwards of a $100 million while connecting a solar power plant, capable of powering tens of thousands of homes, is in the range of $500 million and $800 million, depending on the size. In the current credit market, it’s tough to come up with that money.

But don’t write off clean tech as another casualty of the souring economy quite yet. Today’s clean energy field is a lot more resilient than in the days of the 1970s oil price shock for one simple reason – society’s priorities have changed since then. Climate change and energy security are front-page issues that still command the attention of consumers, businesses, and politicians, regardless of the economy.

This is a place for federal intervention:

More immediately, the world leaders’ reaction to the financial crisis could determine whether and how quickly clean energy technologies will make an impact on the energy business.

Governments may treat the economic crisis as a reason to backpedal on emissions reduction targets. Another school of thought is to make energy and environment an important part of government stimulus spending to upgrade infrastructure.

Many technologies – solar, wind, geothermal, cellulosic ethanol – can be scaled up today. Others, such as storing carbon underground at coal plants, need more active government involvement to make economically feasible, said Fulton of Deutsche Bank.

“We do indeed have many technologies that are in commercialization, or close to it, that can have significant impacts on the whole energy and electricity mix,” Fulton said. “But there are still some looming that need public and private capital to keep pushing them down the cost curve.”

If hope both Barack Obama and John McCain quickly endorse a geogreen stimulus.

The Europeanization of Kosovo

NATO membership action plans for Georgia and Ukraine and the Russia’s financial troubles may get the media attention, but one of the great silent stories: the integration of Kosovo into Europe. Of course all these stories overlap, and each is accelerated by Russia’s invasion of Georgia.

The rule of law mission in Kosovo has been a great success of European-American friendship. Kosovo is on track to join the World Bank and International Monetary Fund, and even is going to privatize a local telecommunications firm.

Meanwhile, Vojvodina is seeking greater autonomy from Serbia, though Kosovar soccer just took a setback.

Want to insure 1000 rubles? It will only cost you 500 rubles

The question going forward is whether Russia burns through its foreign currency reverses first, or just goes directly to manufacturing another currency crisis:

Russia’s gold and foreign exchange reserves fell by $15 billion last week alone, its central bank said Thursday, to $515.7 billion from a total that had neared $600 billion in early August. This week’s rate of decline would drain it by an additional $150 billion if not slowed by the end of the year, and an official from one major Western bank predicted the central bank will spend even more this week. Another $70 billion is promised from the reserves to a bailout for Russia’s financial sector.

With the reserves falling, the cost of insuring Russia’s sovereign debt against default has hit records, with credit-default swaps now trading at distressed levels — above 1,000 basis points, meaning it can cost at least half the amount of the debt to insure it for five years, which is four times what it cost a month ago.

Some Western bankers say their Russian counterparts are cutting back cross-border lending in rubles to stem the outward flow of capital. Top central bank officials called in several heads of Western banks in Moscow last weekend to complain that they were sending rubles injected by the central bank out of the country, according to the Western bank official, who was briefed on the session. A central bank spokesman declined to comment.

Ruble’s Fall Puts Russia on Defense Amid Crisis – WSJ.com.

As I’ve mentioned, Russia is a cross between Portugal and Uzbekistan.  Putin is a real program who has to be faced, but we deal with a couple of these tinpot dictators every decade.

A Geogreen Stimulus

Global warming is a useful lie. The world is too cold anyway, and warmer temps probably would save lives. But it is important to reduce our use of foreign hydrocarbons (oil and natural gas), to prevent hydrocarbon-exporting Gap states like Russia, Iran, and Venezuela from interfering with the integration of the Seam and the Core. The sun and the wind, ethanol and biodiesel, and of course nuclear power and coal are all options for us.

With that in mine, here are the sensible parts of Tom Friedman’s latest, which call for the Economic Stimulus to include environmentally friendly spending:

Op-Ed Columnist – Bailout (and Buildup) – NYTimes.com
The 2 is back. Last week, U.S. retail gasoline prices fell below $3 a gallon — to an average of $2.91 — the lowest level in almost a year. Why does this news leave me with mixed feelings?

Because in the middle of this wrenching economic crisis, with unemployment rising and 401(k)’s shrinking, it would be a real source of relief for many Americans to get a break at the pump. Today’s declining gasoline prices act like a tax cut for consumers and can save $15 to $20 a tank-full for an S.U.V.-driving family, compared with when gasoline was $4.11 a gallon in July.

Yet, it is impossible for me to ignore the fact that when gasoline hit $4.11 a gallon we changed — a lot. Americans drove less, polluted less, exercised more, rode more public transportation and, most importantly, overwhelmed Detroit with demands for smaller, more fuel-efficient, hybrid and electric cars. The clean energy and efficiency industries saw record growth — one of our few remaining engines of real quality job creation.

But with little credit available today for new energy start-ups, and lower oil prices making it harder for existing renewables like wind and solar to scale, and a weak economy making it nearly impossible for Congress to pass a carbon tax or gasoline tax that would make clean energy more competitive, what will become of our budding clean-tech revolution?

This moment feels to me like a bad B-movie rerun of the 1980s. And I know how this movie ends — with our re-addiction to oil and OPEC, as well as corrosive uncertainty for our economy, trade balance, security and environment.

“Is the economic crisis going to be the end of green?” asks David Rothkopf, energy consultant and author of “Superclass.” “Or, could green be the way to end the economic crisis?”

It has to be the latter. We can’t afford a financial bailout that also isn’t a green buildup — a buildup of a new clean energy industry that strengthens America and helps the planet.

But how do we do that without any policy to affect the price signal for gasoline and carbon?

Third, an idea offered by Andy Karsner, former assistant secretary of energy, would be to modify the tax code so that any company that invests in new domestic manufacturing capacity for clean energy technology — or procures any clean energy system or energy savings device that is made by an American manufacturer — can write down the entire cost of the investment via a tax credit and/or accelerated depreciation in the first year.

Finally, if Congress passes another stimulus package, it can’t just be another round of $600 checks to go buy flat-screen TVs made in China. It has to also include bridges to somewhere — targeted investments in scientific research, mass transit, domestic clean-tech manufacturing and energy efficiency that will make us a more productive and innovative society, one with more skills, more competitiveness, more productivity and better infrastructure to lead the next great industrial revolution: E.T. — energy technology

The lower hydrocarbon prices go, the less influence that gap countries like Russia, Iran, and Venezuela have. And that’s a good thing.