A Torrent of Darkness, Part I
The Daily Reckoning PRESENTS: It’s no secret that China is booming. Everywhere you look in Shanghai or Beijing, you see construction – that is, if you can make anything out through the haze of pollution. Whiskey and Gunpowder’s Byron King explores…
A TORRENT OF DARKNESS, PART I
“The air was so thick that I thought I was choking,” she said. “The pollution was just unbelievable. All the locals wore surgical masks, and so did almost everyone in our group. I would get back to the hotel room and I had black lines of soot all over my face. I would cough up black phlegm all evening. I grew up in Pittsburgh in the 1950s and 1960s and I never saw anything like it before.” The speaker was a close acquaintance who visited China about two months ago.
Out came the photographs from Shanghai and Beijing. There were the usual scenic shots of boats near the wharves of the Huangpu River and the Bund of Shanghai. There were pictures of the visit to Tiananmen Square in Beijing, and, of course, the obligatory trek to the Great Wall. Above everything in the photos, however, was the haze.
There were more photos. The panoramic shots from the windows of the upper stories of my correspondent’s skyscraping hotels, where she stayed while in China, were like photos from the inside of an airplane flying through a dark cloud. The Earth was a map of fuzzy images, obscured by the gray atmosphere. And this shade of sky was instantly recognizable to anyone who grew up in the U.S. industrial Rust Belt during a certain era.
“Yes,” added my friend, “there was economic growth everywhere. China is booming. People have money. I have never seen such concentrations of construction cranes. There were hundreds of cranes, and it seemed as if everyplace we visited was under construction. The streets were crowded with well-dressed people, and the stores were packed. But what good is it if you can hardly breathe?”
It may be the case that my acquaintance had the misfortune of traveling to China during a particularly bad spell. On June 11, 2006, The New York Times filed a report from China that amplified the observations of my friend:
“One of China’s lesser-known exports is a dangerous brew of soot, toxic chemicals, and climate-changing gases from the smokestacks of coal-burning power plants.
“In early April, a dense cloud of pollutants over northern China sailed to nearby Seoul, sweeping along dust and desert sand before wafting across the Pacific. A U.S. satellite spotted the cloud as it crossed the West Coast of the United States.
“Researchers in California, Oregon, and Washington noticed specks of sulfur compounds, carbon, and other byproducts of coal combustion coating the silvery surfaces of their mountaintop detectors. These microscopic particles can work their way deep into the lungs, contributing to respiratory damage, heart disease, and cancer.”
China has burned coal since prehistoric times. There are references in ancient Chinese literature to “the rock that burns.” Right now, coal makes up about 65% of China’s primary energy consumption, for both electricity production and as boiler fuel in factories and space heating in housing stock, and China is both the largest consumer and producer of coal in the world. China’s coal consumption in 2003 was more than 1.53 billion short tons, or 28% of the world total. Even this figure may be on the low side, because there is much unlicensed, unregulated coal mining and usage in China that is not reported or reflected in national statistics. Thus, the Chinese government has made continuous upward revisions to its published coal production and consumption figures over the past few years.
According to The New York Times, China today burns more coal than the combined consumption of the United States, the European Union, and Japan. China has increased its coal consumption by about 14% in each of the past two years, and will continue to do so. Every seven to 10 days, another coal-fired power plant begins to operate somewhere in China, with generating capacity sufficient to serve all of the households in a city the size of Tampa or Seattle.
At the level of basic production, however, China’s coal mine fatalities exceed 5,000 a year (more than 100 per week, or about 15 fatalities per day), giving that nation the dubious distinction of holding the record as the world’s deadliest coal producer. The national government is attempting to reduce the numbers of mining fatalities by cracking down on small, and often illegal, mines in the country. But it is an unfortunate fact of economic life in that vast nation that local authorities in mining districts often collude with mine operators to cover up unlawful and hazardous operations. Many private and state-owned mines have been documented as flagrantly violating China’s rather lax safety regulations.
If China cannot find a way to clean up its coal plant emissions, to include the tens of thousands of factories and millions of housing units that burn coal, air pollution of every sort will accelerate to the point of causing as yet incalculable damages. For example, Chinese government statistics indicate that just the sulfur dioxide produced from coal combustion poses an immediate threat to the health of China’s people, contributing directly to about 400,000 premature deaths a year. Sulfur dioxide also causes acid rain that poisons lakes, rivers, forests, and crops in a nation that is already chronically short of fresh water and arable land.
According to The New York Times article, the increase in carbon dioxide and other gases associated with global warming from China’s coal use will probably exceed that for all industrialized countries combined over the next 25 years. This will swamp, by a factor of five, the reduction in emissions that was envisioned in the Kyoto Protocol of the 1990s. While China’s carbon dioxide is chemically no different than that emitted by the industry of the United States, or Europe or Japan, it is the rate of China’s increase of emissions that is worrisome.
Carbon emissions into the Earth’s atmosphere, from China or from any other industrialized nation, are no minor issue to the future of mankind. A recent article in the Los Angeles Times entitled “Global Warming Threat Is Seen in Siberian Thaw” (and summarizing a study published in the authoritative journal Science) detailed the results of a joint U.S. and Russian study of the permafrost of Siberia.
In an area of more than 400,000 square miles, there is an immense amount of organic carbon matter frozen in and under the Siberian permafrost. This carbon is the frozen legacy of literally millions of years of accumulation of flora and fauna that never decayed in the cold climate of that region. Even a slight increase in the Earth’s average temperature, caused by the effects of carbon dioxide buildup in the atmosphere, could potentially unleash billions of tons of carbon dioxide into the atmosphere.
To illustrate the point, if the permafrost continues to thaw and releases heat-trapping carbon dioxide, it could release as much as 500 billion metric tons of carbon dioxide that is currently locked up in the permafrost. This would be a relatively sudden and dramatic increase over and above the 730 billion metric tons already in the atmosphere. In such a case, we would all live on another planet, certainly not the Earth as we have known it throughout mankind’s recorded history.
NASA climatologist James Hansen has researched ice cores from Antarctica dating back almost 500,000 years, which provide a detailed record of the composition of the Earth’s atmosphere through several glacial and interglacial cycles. According to Hansen, it is possible to make a direct correlation between levels of methane and carbon dioxide in the Earth’s atmosphere and average global temperatures. The average global temperatures, in turn, correlate directly with glacial and interglacial periods. That is, the more “greenhouse gases” are present in the atmosphere, the warmer the Earth. A warm Earth means melting glaciers and rising sea levels. A colder Earth means expansion of glaciers and falling sea levels.
At the present time, according to Hansen, the Earth is within a fraction of one degree centigrade of being as warm as it has been at any point in the past 400,000 years. Whoops.
The implications of the relatively high average temperature are already visible in the abnormally high rates of melting in the Greenland ice sheet and the distinct evidence of accelerated ice melting in Antarctica. According to Hansen, the Earth may be near a “tipping point” at which melting of ice sheets in Greenland and Antarctica could accelerate to a scale that will have almost immediate impact on humanity via rising sea levels.
It is, according to Hansen, theoretically possible for a large amount of the Greenland ice sheet to melt within 50 years, which would steadily raise average world sea levels by about 25 feet, or six inches per year if you assume linearity of melting rates. So, if you thought that losing New Orleans to Hurricane Katrina was a disaster, wait until the entire coastline of every continent and island on Earth begins to feel the inundation.
And if the Antarctic ice sheet melted over the next century or so, it could raise average world sea levels by as much as 225 feet, or over 2 feet per year on a linear basis of melt rate. By way of comparison, about 3 billion of the world’s population lives within about 200 feet of sea level, including entire island nations and vast swaths of populous nations like China, India, Indonesia, and the U.S.
In the United States alone, according to statistics published by the U.S. Census Bureau and summarized in a publication of the National Geographic Society, more than 50% of the nation’s population lives in counties adjacent to the seacoast. So, global warming and concomitant rising sea levels have the potential to devastate the United States both physically and as a society. Most of the rest of the nations of the world, save the most interior, landlocked of nations, will fare no better. And some nations will simply vanish beneath the waves.
for The Daily Reckoning
June 27, 2006
P.S. Be sure to check out the conclusion of this essay in tomorrow’s issue.
Editor’s Note: Byron King will be discussing the subjects he looks at in the above essay – global warming, coal, and air pollution – at this year’s Agora Financial Wealth Symposium in Vancouver, British Columbia, July 25-28, 2006. Hurry and secure your spot now – space is limited!
Byron King currently serves as an attorney in Pittsburgh, Pennsylvania. He received his Juris Doctor from the University of Pittsburgh School of Law in 1981 and is a cum laude graduate of Harvard University. He is a regular contributor to the free e-letter, Whiskey and Gunpowder, which covers resources, oil, geopolitics, military history, geology and personal freedom.
“Central banks warn about inflation.” Thus the Financial Times, with gloomy satisfaction.
We don’t doubt that there is inflation – even the kind that makes headlines. What we doubt is that central banks, particularly our own, are serious about stopping it.
That they solemnly affirm the opposite in public tell us merely that a grand public spectacle is in progress. For, every great Public Spectacle begins with precisely such a lie, progresses into farce, and culminates in disaster. The investment markets furnish countless examples, especially suited to them. The financial industry, central bankers, and the free press all have one characteristic in common: all work together to deceive as many people as possible.
Why? Because in order for markets to function as they do, most investors must be wrong most of the time. Otherwise, they would second guess their own actions and stop history in its tracks. So, a developing bull market requires that most people disbelieve it. And a market top requires that most people be bullish at the very moment when bullishness is the least profitable sentiment to have. If they knew any better, the result would be a kind of sterile Spectacle Interruptus, with neither swagger nor slump. With no satisfaction. There would be no boom, nor bust, and we would be deprived of our daily amusement. All the future would stand discounted, marked to market, shrunk to a single moment: now. Time would stand still.
The fraud at the heart of this spectacle is central banking itself. In every other aspect of economic life, everyone knows that central planning doesn’t work. Price fixing by government officials we know is stupid and counterproductive. And fixing prices in the private sector we regard as a crime no less than taking a dive into a prizefight or rigging an election. Nonetheless, it is accepted without a squawk when officials collude to fix the single most important price in an economy: the price of credit.
How do central bankers know at what rate borrowers should borrow and lenders should lend? Should it be 5.75% or 6%? They have no idea at all. But they have hearts and brains as full of overweening ambition and vain scheming as the next guy. They are prey to every weakness to which flesh is heir and as prone to give in to temptation as the rest of us.
Thus, they are tempted to believe they can outdo even Jesus at Galilee. Jesus at least had water to work with. And, the only thing he did to the loaves and the fish was to multiply them. Central bankers, on the other hand, manage to conjure their money out of thin air, while assuring the masses it is the real thing. On this deception hangs the latest installment of our story.
You see, it is one thing for a Wall Street speculator to lose money. Easy come, easy go. No tears are shed. No petitions are passed around. No politicians gas about it. The speculator takes his losses like a man, gets drunk, goes home and kicks the dog.
But when the proles lose money, it is a big deal. In no time at all, politicians are gassing about “crosses of gold,” “debt relief,” “stimulating the economy.” There are not enough real speculators to elect a county sheriff, but the lumpen are another matter. They can do real mischief at the ballot boxes. So when they howl, politicians feel their pain.
And there you have the real problem with the fight against inflation. It would mean taking aim at voters in the middle and lower classes, who’ve come to depend on housing price inflation. These are people who’ve managed to acquire more ARMs than a Hindu god, but no legs to stand on. Already, they’re beginning to wobble. One trillion in ARMs will be reset this year, with payments 25% to 60% higher. Another $1.7 trillion are to be reset next year. Subprime borrowers – the most lumpen of the lumpen – can’t make the payments.
This week, the Bank of Ben Bernanke is expected to raise rates for the 17th time. He is testing to see how much ammunition he loads on the truck before the wheels fall off, while the whole world looks on. Maybe this week’s charge will be the last of it. Maybe, if things still look good, he will try for another quarter of a point in August.
But make no mistake, dear reader. This is not so that he will have firepower to fight inflation. It is so he’ll be ready to blast away at deflation when the crunch finally comes – and let inflation run wild.
More news from The Rude Awakening…
Eric Fry, reporting from New York:
“Half of all hospital beds in the world are occupied by someone suffering from a water-related illness. In the developing nations, 80% of all diseases stem from consumption of and exposure to, unsafe water.”
For the rest of this story, and for more market insights, see today’s issue of The Rude Awakening.
Back to London for more thoughts…
*** The big news comes from New York, where Warren Buffett joined Bill and Melinda Gates at the New York Public Library. Any meeting of the world’s two richest men is a source of interest to the press. What were they doing? Fixing prices? Colluding to corner a market? Joining forces to squeeze out rivals?
Alas, no. The two men were not doing anything against the public interest, it turns out. Instead, they were collaborating on an ambitious scheme to make the world a better place.
Long time Daily Reckoning sufferers will read that phrase with the skepticism it deserves. Almost always, when a man comes forward to improve the world, he most often aims to pick your pocket. One can reasonably expect to improve one’s own world – it is a matter of hard word, self-discipline, clear thinking and luck. Improving the world is most often an undertaking of fools, cads and miscreants.
But along come Buffett and Gates, not proposing to pick anyone’s pockets but their own. Buffett said yesterday that he would give $31 billion of his own money to Gates’ foundation – already the richest in the world. What will they do with all that money? Give it away. They aim to develop cures for major diseases, lift the poor out of their misery, and improve the quality of education. Thus do they join the great tradition of philanthropy begun by Andrew Carnegie and John D. Rockefeller.
Rich men often feel the need to “give back something.” They feel lucky. They feel like making a magnanimous gesture of gratitude and compassion. Even we, here at The Daily Reckoning, with our widow’s mite, feel very grateful to the gods who have given it to us. But unlike Buffett or Gates, we have no desire to give it back. We figure the gods will do that soon enough.
Buffett could give his vast wealth to his children. It is such an enormous pile, it would take a few generations to work it down. Or, he might undertake some vast new indulgence of his own – perhaps building a paradise island of his own in the South Pacific: Buffettville. Or, he could support charity efforts to make the world a better place.
One way or the other, the money is going to go from his hands into others’ hands. If it doesn’t go into his children’s hands, it goes into the hands of other peoples’ children. If it doesn’t go directly to a hospital endowed by Buffett, it might go there indirectly, passing first into the pockets of a riveter who helped to make a luxury airplane to ferry Buffett’s guests to his paradise island.
All water runs to the sea, all electricity runs to the ground, and all wealth runs back where it came from. The only question is how it gets there.
*** Today, walking down the street in front of us, we noticed a man with a slightly unusual gait. Then, we saw the reason: he was wearing cowboy boots.
It is fairly unusual for a man in London to wear cowboy boots. He was otherwise completely normal. Middle aged. Dark suit, white shirt and tie. But as we passed him, we realized that he was speaking French. Then, we understood him immediately.
There is something about business life that weighs on the soul. People all dress alike; they all speak the same language – business English – and worship the same god: Mammon. They all grub for money or for status, working the same hours, in the same offices with the same set of cubicles. Or rushing from one airport to the next. Laptops open, coffee in a paper cup – day after day, year after year. They study spreadsheets; they read reports, and daydream at meetings.
Our man on the street must have been daydreaming about the wide-open spaces. Montana…Wyoming…Arizona. He must put his boots up on his desk from time to time and dream, wishing he were back on the open plains, where never is heard a discouraging word and no memos and no meetings cloud the skies all day.