$450 Trillion is a Big Number

Some interesting articles for your perusal regarding the US economy, and the rather beat-up shape it’s currently in.

Mike Whitney has a thought-provoking article on the “Bush Financial Bust of 2008”. Mr. Whitney is obviously not a fan of the current administration, but at least his bias is out there in the open. Don’t let that keep you from reading this story, particularly the part about how the current mortgage crisis *may* just be a drop in the bucket compared to the possible unwinding of the financial derivatives complex. His notes on the FDIC and how they are updating their rules & procedures for handling bank failures should get peoples’ attention as well.

I’ve written about derivatives in the past, and like most people lacking Ph.D’s in economics I barely understand what they’re about. What I do know scares the crap out of me, though… especially about how it has jump-started the creation of private credit streams so large it boggles the mind. If derivatives start biting the dust, some analysts think the losses could be more than $450 trillion dollars. Consider that the total value of US household wealth in 2000 was around $44 trillion, and then you get an idea as to the scope of the problem.

Mr. Whitney thinks we’ll see more (& more visible) bank failures this year. Combine that with the news leaking out about how US banks may not be holding any reserves at all, and it could very interesting presidential election. It’s hard to promise hope for the future when the present is collapsing like a house of cards. Let’s not kid ourselves into thinking that such a crisis would force any of the candidates will start talking realistically about problems and solutions…

How Good are Biofuels for the Environment?

Another warning about rushing too fast into biofuels…

Ethanol and other biofuels will cause more environmental harm than good if the industries continue to expand rapidly, according to a new study by Minnesota scientists published Thursday.

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“If we keep moving to get large amounts of energy by growing it on newly-cleared land, which is what’s happening around the world, we’re going to be releasing much more greenhouse gas than the benefits we get from those biofuels,” said David Tilman, ecology professor at the University of Minnesota and one of the study’s authors.

 

This isn’t news to many readers here, I’m sure. These researchers are sure to draw more than their fair share of flak for this report, since the University of Minnesota is part of the corn belt, and ethanol production is a major part of our agricultural & economic policies in rural parts of the state. Bashing biofuels, especially corn ethanol, is almost an act of treason it seems.

The ethanol backers have already fired back, calling the report ‘overly simplistic,’ which is hilarious when you read their rebuttals. You can read the Strib article for a couple of their normal boilerplate defenses of their business. They aren’t refuting the scientists’ claims as much as they are rationalizing their industry. Yawn…

On a related note, here are two interesting links that have calculated the amount of corn needed to produce 1 gallon of ethanol at somewhere between 14 and 21 pounds. For my humble little 4-cylinder sedan, each tank fill would then require somewhere between 200 and 300 pounds of corn. I fill up my car on average about twice per month, so my yearly corn usage would be somewhere in the ballpark of 7200 pounds of corn, or somewhere around 1 acre of corn production. There are 144,000,000 or so automobiles in the USA… tell me again what percentage of gasoline usage we’ll be able to replace with corn?

Will ethanol and other biofuels play a part of our energy future? Yes. The situation will be such that we won’t be able to ignore any possible energy source, at least for a while.

Will ethanol and biofuels become the primary source of transportation fuel? Very, very unlikely in our current living arrangements. Cut the number of cars in America by 50% or more and maybe an argument can be made.