Global Cooling

Apologies to Mark Twain.

Not so long ago, Goldman Sachs introduced us to the BRIC thesis as the potential model for the future of the world’s economy over the next one hundred or so years.  BRIC being an acronym for Brazil, Russia, India and China, it is hypothesized that these four countries possess the potential to become the world’s most dominant economies by the year 2050.  Vast natural resources, large supplies of cheap labor and political regimes that are embracing capitalism should, as the story goes, combine to form dynamic global powerhouses and the engines for the world’s growth.  The upshot of this line of reasoning, of course, is that the United States, especially, along with the EU and Japan, will lose their prominence at the top of the world’s financial system as expanding social programs, declining currencies and dwindling manufacturing bases work together to undermine their previously powerful status.  In fact, in this vain, as the US has fallen on hard times over recent months there has been a good deal of discussion amongst academics and traders over the concept of “decoupling;” the idea that the rest of the world, and especially the BRIC sphere, is not as dependent on the US economy as it once was and that global financial markets may no longer catch a cold when Wall Street sneezes.

While it is hard to argue against a firm with such international prowess as Goldman, this might be a good time to push aside the hysteria, catch our collective breath, and reconsider just what we are talking about here.  For 2007, the IMF lists the GDP of the US at $13.8 trillion, the EU at $16.8 trillion and Japan at $4.3 trillion (we’ll call these the “UEJ” countries.)  This same list puts the BRIC countries at $1.3 trillion, $1.3 trillion, $1.1 trillion and $3.2 trillion, respectively.  As a whole, this puts 2007 UEJ GDP at over five times that of BRIC.  Of course, trailing GDP is not what the pundits are looking at and, obviously, growth is easier to attain in developing economies versus established stalwarts.  However, it must be taken to heart that knocking the big boys off the porch is no chip shot. 

The US Dollar has been in a sort of free fall over a multiyear period now.  Once the reserve currency of the world, its woes have shaken the international financial status quo and encouraged central bankers and institutional investors, in both burgeoning and established economies, to reconsider just what they should hold in reserve.  Weak leadership, a poor domestic fiscal policy, poor international relations, a globally unpopular military campaign, enormous trade and spending deficits, a financial crisis triggered by the housing bubble, rampant commodity inflation and simple arrogance have combined to severely weaken the status of the United States in international financial circles.  In the face of this, China has certainly made gargantuan strides in bringing itself to the forefront of global trade and is beginning to flex its new found muscle on the world political scene.  Brazil, Russia and India are experiencing significant trend growth and represent vast markets with the potential for tremendous wealth. 

Replacing the US Dollar as the world’s reserve currency, and thus replacing the US as the world’s lead economy, as BRIC enthusiasts tend to speculate, entails nothing short of redirecting global savings away from an economic and political system with long-term stability, into the hands of substantial, yet still developing economies whose political identities remain in flux, though with a bias towards state ownership of the most profitable industries.  While institutions play the primary role in directing international investments, their funds originate with individual citizens and “global savings” really means the personal net worth of the billions of people who constitute the world’s consumers.  While there are sure to be significant returns to be had in developing markets, ask yourself whether you really want your “savings” to be invested in BRIC?

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Simply type the words “warming” or “climate change” into Google, hit enter, and you are sure to reap interesting results.  Below are a couple of articles that make the point. 

The first is an AP story related to a new study which, contrary to popular delusion, proposes that there is no correlation between increases in hurricane activity and global warming.  The author of the study is a warming proponent and, notably, his findings are in sharp contrast to findings by other scientists on the subject. 

The second article is much more fun.  This study by a team from no less than the prestigious London School of Hygiene and Tropical Medicine has concluded that fat people are harmful to the environment.  It seems the researchers have determined that the obese consume more calories and, as a result, require more energy intensive farming to support their diets.  In addition, as these people simply weigh more than the average person, more fossil fuel is required to transport them.  There is hope, according to the researchers, that people around the world will make an effort to get in shape and lose excess weight, thus reducing their carbon requirements.  But that leads us to a quandary, after all, exercise is also a danger as human breathing alone adds significantly to carbon emissions and exertion produces higher breathing rates than inactivity. Perhaps rather than promoting economic prosperity and greater availability of protein to the world, we should, as a global community, target the sub-Saharan economic model which, though it leads to starvation, also results in extremely low Body Mass Index ratios and is quite easy on the environment as compared to Western models? 

It seems that it is only a matter of time until some environmental think tank or university team or activist group publishes the conclusion that population, in and of itself, is bound to destroy the earth’s climate via carbon emissions, and subsequently proposes that limits on population growth be implemented (actually, this has already been done.)  Let’s face it, more consumers equals more consumption equals more production equals more energy requirements. Period.  And let’s not forget the animal kingdom; as we save the whales and every other species, we are increasing nature’s own carbon footprint.  Every oxygen breathing animal exhales carbon dioxide all day, every day, for as long as that animal lives, the pet cat included.  Additionally, these animals consume plant and animal products, subsequently releasing into the air the carbon atoms that have been stored in such products for millennia.  More fauna equals more carbon dioxide.

The situation is hopeless.  Life alone produces carbon emissions.  If only there were no humans, the world would be a better place. Maybe Al Gore can save us!

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Here is an interesting article from Scientific American regarding a new study published in the journal Science, which hypothesizes how the Sahara Desert came to be the dry and desolate place which we now know.  Contrary to previous findings, this study suggests that the desert slowly transformed from a lush savannah landscape to its current form over several thousand years due to a dwindling supply of rainfall.
 

Though the article does not make the point, the only reasonable explanation for this decrease in rainfall some three or four thousand years ago would be that the earth’s atmosphere began to warm due to man-made activity.  The Egyptian empire, which was the dominant economic force of the time, maintained a disproportionately large carbon foot print due to their resource intensive farming operations along the Nile Delta, combined with their wholly unnecessary and grandiose building projects on the backs of slave labor, and in addition to their massive mining operations in their inexhaustible and greed-driven quest for gold.  As a nation, Egyptians consumed far more than their fair share of world food and energy (in the form of feedstuffs) supplies and selfishly maintained such a consumption pattern with no regard for their far poorer neighboring countries.  Further, the governments of Ancient Egypt devoted an inordinate portion of their GDP towards defense spending; maintaining large, standing armies that had to be fed, clothed and supplied along with the beasts of burden and war that accompanied such a force.  And, finally, one must note that many government officials, nobles and well-to-do subjects used chariots for transportation, sometimes drawn by more than one horse.  While it was obviously much more energy efficient to simply walk to one’s destination, these scoundrels purposely over-consumed, riding in vehicles with far, far more horsepower than necessary for any journey on which  they might embark.

In sum, the blame for the current state of Northern Africa’s disastrous environmental condition can be laid squarely on the shoulders of the Ancient Egyptian’s.  Without regard to the citizens of the world who suffered the fate of their actions, the Egyptian’s insisted on an overly high standard of living including more than adequate shelter, clothing and food. 

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According to a recent study, and in contrast to the daily mantra of the evening news, earth’s temperatures may experience a cooling trend over the next seven to eight years.  If true, and this science should be about as good, or accurate, as anything the warming alarmists are putting out, that is to say, unreliable, this news should prove quite disappointing to Al Gore, who has already blamed the disaster in Myanmar (“…it will always be Burma to me…”) on man-made global climate change.  Even more so, the news should come as a severe threat to those who manage Mr. Gore’s investment portfolio, which has seen a substantial increase as a result of the warming hysteria.  As we all know, over the past few years Al Gore has successfully transitioned his message from ”lockbox” to “warming” and he has benefited handsomely in the process, picking up a Nobel Prize and an Oscar in addition to growing his net worth from less than $2mm when he left office to over $100mm at present.  The Eric Hoffer quote seems applicable here:

“Every great cause begins as a movement, degenerates into a business and ends up as a racket.”

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