Depleting Resources, Leaping Population

The immigration debate is a hot-button issue – to say the least. Byron King points out, in the essay below, that if this debate wasn’t so tied up in terms of race and focused more on resource depletion – perhaps we would make some headway.

A story in USA Today reports that “The U.S. population will soar to 438 million by 2050.” Most of the population growth will be driven by immigration and live births to immigrants. How depressing. And it ought to make you mad, so that you want to “do something” about it… like build a wall or something.

Really, why is it that the so-called “immigration debate” in the United States is often tied up with terms of race and seldom tied into the discussion of depleting resources and declining infrastructure? If the immigration debate was framed in the latter terms of resource depletion and infrastructure, people would focus on the point that the nation is “full.” The irrefutable fact is that the U.S. resource base is fast-depleting and the infrastructure system is overloaded. There is no more room at this inn. It’s time to hang out the equivalent of the “No Vacancy” sign for very some practical reasons.

The United States is already a net food-importer, yet the nation will now – according to the Pew Research study – grow its population from 300 million to 438 million within the next 43 years? In what soil will the food grow? How much food will be imported, and from where, and how will the nation pay for it? With the national credit card, that is now broken?

And while we are discussing eating, let’s wash it down. Water is in critical shortage in many regions of the United States, so what will all of these “new” people drink? For that matter, what will the existing population drink? At the other end of the alimentary canal, the U.S. infrastructure of sewers and pollution control systems has long been inadequate. Water and sewer system construction has traditionally lagged population growth even in the best of times. It is both expensive and politically difficult to gain approvals even for replacement sewage systems, let alone new build construction. Really, who wants a sewage treatment plant in their back yard? C’mon…raise your hand.

Let’s think about energy. The United States is already the world’s largest oil-using nation (21 million barrels per day) and the largest oil importer (13 million barrels), so again… how much more oil will these new immigrants consume? While we are at it, the electricity system is strained to its limits in several regions. Each year, the system requires more and more juggling and wheeling of power just to remain up and running. (For example, within the U.S. power companies move electricity from Montana to California; from North Dakota to Illinois; from Tennessee to South Florida.) From where, and from what power plants (few are being built), will the nation obtain its electricity?

As things stand, the world is at the cusp of long-term oil depletion and output decline (and the high grade coal reserves have been dug and burned as well). Thus the existing U.S. population base will have its work cut out just to maintain some semblance of an energy-based lifestyle for the current numbers. That is, the United States should expect the volumes of oil available on world markets to shrink. There will be less and less oil available to import, and at higher and higher prices. Ditto with coal. And as for “alternative” energy sources? Hey, these are great present investments. But they are lousy overall solutions to the future energy problems of 300 million people, let alone 438 million. Something is going to have to give.

Let’s think of some other resource constraints in the United States as well.

Have you tried to find a parking space? The major cities are full-up, surrounded by sprawling suburbs and built-out exurbs. Roads are packed and traffic congestion is chronic. Yet few new roads are being built anywhere – for lack of space, let alone the NIMBY-ism that permeates the culture. The nation is having trouble maintaining its existing road and bridge infrastructure. Yet won’t “another” 138 million people need a few more paved roads, bridges, tunnels and exit ramps within the next 40 years or so? Who will build those structures, and how will the nation pay for them?

Where would these roads go in any case? You can already get to most places that you want to go, using a highway or road – in some state or repair or another. But when you arrive at your destination you typically find that much of the formerly rural landscape has been transformed into development and track housing, all of which uses energy and water in wasteful ways that will be untenable in years going forward due to scarcity and high costs. While we are at it, for some strange reason, most of the U.S. population wants to live within 200 miles of a coastline. So let’s add the majority of those 138 million new bodies to the existing coastal bands. Tell me when you feel crowded.

How else can people move about? Not on trains. The U.S. rail system is essentially maxed out with trains hauling freight shipments, hence there is no room in or near any urban area to acquire new railway rights of way. So rail and light rail – which very few Americans currently use in any case – will not grow in any big sense in future years.

Other U.S. public infrastructure – such as the hospital and public health system, court system, public schools and higher education system – are similarly maxed out. The United States can barely serve the population base of 300 million with the existing sets of buildings and personnel. In many jurisdictions, the fact is that the public IS NOT being served in any adequate sense. And in many locales, people are being treated, served and/or allegedly “educated” in trailers, for lack of space in the “real” buildings. Many of the “real” public buildings in the United States are aged and long-past replacement. (In Pittsburgh, for example, no new public high school has been constructed since 1923.)

This does not even address the profound national issues of “borders, language and culture” that will be affected by new waves of mass immigration. 438 million? That number is just too many to allow any sort of society to function on half a continent, mostly near the coastlines. But one could also focus on the “depletion” of the traditional American concepts of national boundaries, or the decline of the nation’s common English language and some semblance of an “American” culture based on a shared history. No, if you focus on that kind of thing, people will think that you are talking about immigration in terms of race.

So better just to focus on the fact that an increased U.S. population – from whatever source – will lead to massive shortages of food, water and energy. And the public infrastructure will simply break down. Vast swaths of the country will become unrecognizable slums filled with broken-down housing, bad transportation, and hungry and thirsty people living on the squalid edge of human survival.

Now, let’s talk about building that wall…

Byron King
for The Daily Reckoning
February 12, 2008

Scarcity of resources is something that our resident energy expert is well-versed in…so much so, he recently launched his latest investment and research letter on that very subject. In Energy & Scarcity Investor, Byron not only shows his readers how to protect themselves during a time of rising energy prices, but how potentially to profit as well.

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. Byron is also co-editor of Outstanding Investments, and editor of Energy & Scarcity Investor.

It was all quiet on the Western front yesterday.

The Dow gained a couple of yards. Oil gained $1.82. The CRB hit a new record high (which it seems to do everyday). Gold went up another $4.40 to $926.

At the G7 meeting it was revealed that subprime losses could reach $400 billion. So far, only $120 billion have been acknowledged. Where are the rest?

Either the G7 estimate is wrong…or there are some new shocks waiting. Banks…hedge funds…investment firms – many of them could be hiding losses…or not even aware (as was the case with the Societe Generale) that they have any losses.

As we said yesterday, war always produces surprises. And the battle between inflation and deflation is no exception.

There have already been big surprises in the soft commodities market.

“I can’t believe it,” said our French neighbor, Pierre. “We’re getting more than twice as much for wheat this year. Everybody is planting all he can. Farmers always do that, of course. We have very short memories. We’re going to buy new tractors…plant a lot more…and then the price will go down.”

The latest data from the CFTC shows that speculators are taking more and more long positions in wheat, corn, soybeans and sugar. Greed clearly has the upper hand in these markets.

Of course, you already know the background for this story. The world’s financial authorities are alarmed by the danger of a global slowdown. They’re fighting it by making money and credit easier to get. Speculators are encouraged to borrow – especially now that they can get money at rates scarcely above the rate of consumer price inflation. After the Fed’s latest rate cuts, its key-lending rate is below the inflation level.

The 10-year T-note yields only 3.61%. The CPI is over 4%. You do the math.

But what can borrowers do with the money? Not buy a house! House prices are falling nearly 10% per year. Add the cost of money and maintenance and a house investor is likely to be down 20% in a 12-month period.

Stocks are no sure thing either; so far this year, they’re down in almost every market.

But commodities are soaring. If you look at a chart of wheat prices, for example, you will see a very frightening picture. Wheat was selling for less than $4 a bushel in 2005. It went over $10 a few weeks ago. And yesterday, top quality MGE March spring wheat hit an all-time high of $16.13. Minneapolis spring wheat has traded over $21 a bushel.

Meanwhile, the U.S. Department of Agriculture tells us that inventories of wheat are at their lowest levels since 1947.

Whenever a chart has a line going straight up it is only a matter of time before it has a line going straight down. Nature prefers symmetry. When she takes her time building something up – whether it is a company, a market, a city, or an empire – she generally takes her time tearing it down. But when a fire burns hot…it burns fast…and burns itself out quickly.

Right now, the commodity markets are on fire – and nowhere does the blaze burn hotter than in the wheat fields. We don’t know how high soft commodities will go. But we have confidence in the world’s farmers. Practically every one of them is now buying extra equipment and more land…draining…clearing…plowing…planting…and praying that he can get $16 per bushel of wheat later in the year. Prices may rise in the face of all this frenetic farming, but not forever.

Speculators may be in for a surprise, in other words. So might we all. That’s why we keep our “Crash Alert” flag flying. Stocks are only down about 8% so far this year.

Another bit of bad news…and they could crash another 10%…20%…or more. What would it take? Maybe the sudden discovery of those $280 billion of missing subprime losses? Maybe an awkward number from the Labor Department? A clumsy move by the Pentagon…or Iran?

Who knows? All we know is that this episode is likely to claim many, many victims before it is over. Some will be killed by inflation. Some will be shot down by deflation. We just want to be sure we’re not among them. So we keep our heads down. We do not speculate. Instead, we stick to our principles: find good investments, good businesses, good houses, good husbands and wives – and hold onto them.

*** Warren Buffett is bullish on the United States. “It is not a smart thing to sell the United States short,” he told an audience in Canada.

We do not like to contradict the greatest investor who ever lived. But selling the U.S. short has been a pretty good investment for the last eight years. Against the euro (EUR), the American I.O.U. dollar has gone from about 90 cents to $1.45 – a loss of about 60%.

Against gold…well, you know the numbers…the U.S. money has lost about 15% per year. And U.S. companies, in real, inflation-adjusted terms, are down about 25%.

Since George W. Bush entered the White House, an investor would have been much better off in almost any other country – Brazil, for example…or Europe…or China.

But maybe the Sage of Omaha knows something we don’t know. Maybe he knows that the trend of the last eight years has now come to an end. Maybe the United States is oversold…and ready for a remarkable comeback.

Anything is possible, dear reader, anything is possible.

*** The smart money is going with Obama. That’s what the papers tell us. They say that the Clintons overplayed their hand…that by double-teaming Obama, they began to look like the evil side of a Worldwide Wrasslin’ match, slamming the underdog whenever the ref wasn’t looking.

Naturally, the crowds didn’t like it. And now it’s Obama who has the Big Mo.

If the commentators are right, it will mean an election contest in November between “Bomb, bomb, bomb…bomb, bomb Iran” McCain…and a man who is largely unknown and untested, with probable victory to Mr. Obama.

Mr. McCain has alienated many people in his own party who say they’d rather vote for Hillary than for McCain. The Republican candidate has just been given the “true conservative” tag from the president. But even the voters have caught on to George W. Bush; he’s the most activist president since Roosevelt, meddling in everything from medicine to Mesopotamia. He couldn’t tell a true conservative from a rutabaga.

But all the candidates have waged fraudulent campaigns…and there are bound to be many more deceptions tossed about before the final votes are tallied.

Mr. McCain will be the neo-cons’ man. And the neo-cons seem to control America’s only growth industry – the military. They won’t go gently into that good night. The way things are going, Americans are tired of military adventures in the Mideast. Instead, they’re worried about jobs and consumer prices. And they’re ready for a fresh face in the White House to help them deal with these problems. But it wouldn’t take much to turn their attention back to the War on Terror. Then, they might also turn to a proven military man…an old veteran, whom they could trust to protect them.

Anything could happen, dear reader.

Until tomorrow,

Bill Bonner
The Daily Reckoning

The Daily Reckoning