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An interesting Article appeared in the New York Times that points to a debt crisis in 2012. In fact, the maturing of US government debt, corporate bonds, and paybacks that were put off due to the 2007-9 financial crisis will put a severe squeeze on the US financial markets.
Will this cause another recession, cause a domino of bankruptcies, or prolong our current problem of debt-laden companies that continue to waste billions of dollars without entering bankruptcy?
 The Chinese economy is simply growing too fast, and characterisc of economies in the past that have had rapid growth, there will be a steep decline, rather than a consistent gradual increase. In fact, the Shanghai Composite Index of stocks jumped 80 percent last year and property prices rose at the fastest pace in almost two years in February, helped by a record 9.59 trillion yuan of new loans in 2009.
China has pegged the yuan to the dollar since July 2008 in an effort to help it weather the global recession. The Chinese central bank buys dollars and sells iyaun to prevent the currency from strengthening, driving foreign-exchange reserves to a world- record $2.4 trillion as of December 2009.
Exports dropped 25% in 2009, but yet the Chinese economy continues to grow by double digits. Foreign investment in the Chinese economy has skyrocketed. The stimulus that the Chinese government was one the largest in modern history, more than three times the size of the US’s stimulus bill by GDP.
Chinese lending has been pretty liberal. As the financial crisis took many European and American banks out of the market–China has been filling the role–making all sorts of risky investments. Furthermore, Europe has been investing in Africa for hundreds of years and have not yet been successful in getting a large return on their investment. Do you think China’s spending spree in Africa will change anything? There’s also a large trade war looming between the US and China. You’ll either see a new cold war or a massive burst in the bubble. Either way, it is good for the US economy. Enjoy your high flying Chinese stocks while it lasts!
Peak Oil is Here! The oil bubble has burst and the US reserves in Alaska and the gulf will last less than 10 years at current production rates. Mexico pumped nitrogen in their oil fields to salvage them. Dubai is out of oil. What is happening? It is plausible to think that OPEC countries are claiming more reserves than they have to gain bargaining power on the world stage. Let’s face it, oil reserves are in decline worldwide.
But that’s not all. China and India are consuming more and more oil each day, likely to eventually surpass the United States. Global electricity consumption will double in the next 25 years
What’s the alternatives?
- Biomass
- Wind, Solar, Tidal, Geothermal.
- Coal
- Natural Gas
- Ethanol From Plants
- Nuclear
In the short term, Coal will likely become the dominate fuel. The United States has the largest coal reserves in the world and will likely use the coal to make gasoline and other fuel. Natural Gas will continue to be a strong player, but it is relatively difficult to turn methane into gasoline.
Most ethanol in the world comes from oil. It is unlikely that ethanol from plants will be nearly as cost effective.
Solar costs a lot and requires a lot of factory smoke to produce those solar cells, so solar is out. Wind is intermittent
and is costly to maintain. Do you think environmentalists will let geothermal plants to be built on volcanoes? probably not.
That leaves coal and nuclear energy as the dominate providers of energy in the United States.
New Nuclear fission reactors, and thorium-based reactors with accelerator-based systems can operate at sub-criticality, reducing the saftey risk, should theoretically be attractive options. Fusion power may become viable in 20 years, depending on the sucesss of ITER.
Companies that will dominate these segments are usually not traded on the stock exchange, therefore our options are rather limited to these companies:
Nuclear Stocks: Cameco (CCJ), USEC (USU), General Electric (GE)
Coal: North American Coal (NC), Headwaters (HW), Rentech (RTK), National Coal (NCOC)
In Europe, plans to break up banks in the United Kingdom to limit risk and promote competition were approved. But what about the United States? Isn’t this the place where all the financial turmoil started in the first place?
Thomas Hoenig, president of the Kansas City and Fed Richard Fisher, president of the Dallas Fed think so. These are two prominent members of the federal reserve system that think the “Too big to fail” banks should be broken up in the United States. These corporations receive an unfair government subsidy. Furthermore, an international agreement must be reached to allow loans to be given by banks not on American soil and to break up large too big to fail banks that pose a risk to the entire industry if one fails.
During the great recessions, one thing is sure.. Banks are what hampers recovery. Alternatively, during the severe downturns (including the Great Depression), when many small banks don’t have enough capital to make loans the government could theoreticly use their power to force the big banks to make loans and provide capital–but has that worked now?
If banks are broken up and they become more competitive between one another they will have more incentive to make loans and insolvent banks could simply go bankrupt without having to spend billions of taxpayer money. The toxic assets disappear without having to prop of a huge company that uses these risky investments for a significant portion of their profit, like AIG.
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