 | | The Daily Reckoning | Thursday, September 22, 2011 |
- Op Twist...and the cost of keeping the game going...
- A breakthrough technology that is “reinventing the wheel”...
- Plus, Bill Bonner on embracing collapse as a viable economic solution, and more...
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|  | | | On Thin Ice | | Operation Twist and More Ways to Throw Money Down the Drain | |  | | Joel Bowman |
Reporting from El Calafate, Argentina...
Last we checked, the world of money was still falling apart, breaking off one chunk at a time. And, just as might be expected, those trying to “fix” it were still busy hastening its demise. Some people never learn. More on that in a moment. First, a none-too- subtle analogy...
Your editor spent much of the past week trekking around Los Glaciares National Park, down in the Santa Cruz province in Argentine Patagonia. Our folks are in town from Australia, catching up with their walkabout son and his gypsy girlfriend. There’s not a lot of glacier parks back on the “sunburned continent,” so we thought a few days in crampons and thermals, hiking over the freezing ice pack, might make for a fun little excursion. Besides, nothing clears your mind quite like a sub-zero gust fresh off a snowy peak.
The Perito Moreno glacier is one of a small handful of glaciers in the world still thought to be growing. It’s gained approximately 700 meters in length since some intrepid adventurers discovered and mapped it sometime in the late 1800s. Top to bottom it measures roughly 200 meters in thickness, although only about one sixth of that can be seen above water. The “front” of the glacier, where all the calving takes place, is nearly five kilometers from side to side. There is something rather humbling about watching a chunk of ice the size of an apartment block fracture, break off from the main body, and tumble into the icy waters below.
Standing atop the Perito Moreno glacier itself, you can see the snow-capped mountains of the Austral Andes rise up spectacularly on either side, as the glacier underneath you creeps down the river in between, moving quickest in the middle, where there is less resistance, and slowest at the edges, where it clings to the shallow banks. It’s this difference in speeds — as well as in pressure, tension, depth, friction, etc. — that cracks and splits the glacier, giving it that spiky, other-worldly kind of look, full of crevices and drain holes that disappear into a deep blue abyss beneath the surface. Hold that thought...
Scanning the headlines this morning, it looks as though nothing major has changed in the world of finance and economics. There are daily announcements, of course, incidentals, talking points and chin-wagging “power lunches,” but the larger, more important trend is already underway...and it ain’t changing course. That trend, as we keep saying, has to do with debt...and the slow, painful march toward correcting it, breaking it up, destroying it.
Greece, for example, is as broke today as when we left it. Maybe more so. The yield on its 2-year government bonds is now over 134%. Well, that was yesterday...who knows what it is today? Who cares? The Greeks are going under. The market is expecting a default. It will get it. And Spain, Portugal and Italy are not far behind. All have their hands out for more funding. All are clinging to the continent for dear life. But all will have to reckon with their debts eventually, one way or another...chunk by chunk...
“A deepening crisis of some kind is certain,” opined Eric Fry in yesterday’s reckoning, “especially because the US economy is still reeling from the credit crisis of 2008. Fearing a repeat of ’08, the US Federal Reserve is springing into action, which pretty much guarantees a repeat. Earlier today, the Fed christened the launch of “Operation Twist” — a scheme to buy up a bunch of the long-term Treasury bonds...
“Operation Twist,” continued Eric, “is simply a new form of Quantitative Easing, which was simply a new form of printing money out of thin air. (The Fed says it will pay for its new purchases with proceeds from the sale of the short-dated Treasuries it already owns. We don’t believe it. By hook or by crook, the Fed’s balance sheet will probably grow over the next few months. We will be watching). Op Twist, therefore, is merely the next illogical step in a regrettable progression toward dollar debasement. After Op Twist, look for Operation Contort, Operation Zig-Zag, Operation Bait-and- Switch, Operation Capital Control and ultimately, Operation Devalue.”
“Op Twist,” we now learn, is to be a $400 billion dollar effort — much bigger than the market was expecting. Why “more action” is the order of the day, we don’t know. The economy is in tatters, even after trillions of quantitatively eased dollars were pumped into the system. The Fed even said so itself. Its own statement noted “significant downside risks to the economic outlook, including strains in global financial markets.”
If these magic elixirs are so helpful, so desperately needed, so critical for economic health and vitality, then why the soggy outlook? Fellow Reckoners already know the answer. There are no magic elixirs. No potions. No panaceas. No “free lunches.”
Investors, for their part, appear to be finally catching on. Just as they “re-re-discovered” Europe today, they also “re-re-learned” that the US Federal Reserve can do nothing to reverse the laws of economics; not with twists...not with zigs...and not with zags. Worldwide, markets are down big time. Measures in London, France and Germany were all off by about 5%, as was Hong Kong’s Hang Seng. Indonesia’s Jakarta Composite Index fell by 9% overnight!
In the US, too, trading screens are bleeding red. The S&P500, Dow and Nasdaq were all lower by about 4% as of this writing.
So much money...so heavy an opportunity cost...so much do-gooding and fixing, tinkering and world-improving. And for what? To delay the inevitable? To worsen the crisis that must eventually come due? Seems like a waste of time to us. Besides, what’s wrong with a little creative destruction from time to time? Why not stand back and allow some much needed debt destruction in the US? How about a fierce round of currency calving in Europe? Why not let nature take its course? Why not, as Bill suggests below, “give collapse a chance”?
In the end, it probably won’t matter whether the Feds “allow” collapse or failure to happen. Our money says, they’ll get it either way.
One man who is no stranger to a bit of “creative destruction,” and the immense profit opportunities this vital process can bring, is Ray Blanco, the forward-looking editor ofTechnology Profits Confidential. He has today’s guest essay, below...
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| | The Daily Reckoning Presents | | Reinventing the Wheel for Greater Energy Efficiency | |  | | Ray Blanco |
With fuel prices edging ever higher, engineers are scrambling to find new ways to improve the energy efficiency of vehicles. We’ve already seen a few attempts on the market. Hybrid automobiles — vehicles that combine electrical and internal-combustion powertrains — are becoming commonplace. Pure electric vehicles, such as those in development by Tesla Motors, are expected to be seen on the road in the next few years.
Unfortunately, the weakest link of all-electric powertrains is the energy storage medium: batteries.
Even with the best technology available, batteries are expensive and bulky and have a low energy density. The result is more-expensive vehicles with lower range between fill ups. Since batteries can’t be topped off in a few minutes like fuel tanks can, the ability to easily extend range also suffers.
Innovators are taking a look at some of the oldest-known technologies as alternatives to batteries. In a sense, they are reinventing the wheel — the flywheel, that is.
The flywheel idea is an old one that dates back to the potter’s wheel: A heavy wheel was used to store rotational energy so that the potter could form symmetrical shapes out of clay.
Unlike batteries, which are a chemical form of energy storage, flywheels store energy mechanically in a rotating device. Flywheels can store more energy than batteries in a package a fraction of the size.
Flywheels were used as a form of energy storage in Swiss “gyrobus” electric buses of the 1950s. Developed for use on bus routes where overhead power lines weren’t available, gyrobuses charged their mechanical “batteries” at passenger stops or terminals.
At these stops, the buses would connect to an electric power source and a motor would spin the flywheel at speeds up to 3,000 revolutions per minute. Upon leaving the stop, the motor would act as a generator instead, using the stored spin energy to deliver electrical power to motors driving the wheels. On a full charge, gyrobuses could travel 3.7 miles at speeds of up to 37 miles per hour.
Unfortunately, flywheel energy storage has had its shortcomings. Energy losses from friction limited the utility of the concept. Older flywheel designs used mechanical bearings and conventional materials, which curtailed the speed at which the wheels could be spun. Since the flywheel housings themselves weren’t vacuum sealed, there were also significant friction losses from spinning against atmospheric gases. However, new technologies are addressing these problems, and there is a resurgence of interest in the concept.
Formula One racing teams, for example, have been using a flywheel- based Kinetic Energy Recovery System (KERS) since 2009. KERS uses a flywheel to recover deceleration energy lost through braking. When the F1 race car exits a sharp turn into a straightaway, the energy, stored in a flywheel, can be released for higher acceleration. The driver has a special boost button he can engage whenever he wants an extra burst of power.
The original 2009 design, named Flybrid, was made of a steel/carbon fiber composite rotating at 60,000 rpm inside a vacuum chamber. The unit is good for 80 horsepower over a period of 6.67 seconds per lap and can decrease the time spent on a lap by up to four-tenths of a second. Four-tenths of a second is make or break in the highly competitive sport. Furthermore, since there is no energy conversion loss as in battery-based recovery systems (which must convert kinetic energy to electrical and then back again), the system is inherently more efficient.
Flybrid and Torotrak PLC, which is the licenser behind much of the technology in the F1 KERS system, is partnering the technology with major automakers. Volvo, for example, is looking at taking flywheel energy storage beyond the race circuit and into everyday automobiles.
Thanks to advanced materials technology, the flywheel Volvo is testing weighs a mere 13 pounds and has a diameter of only 7.8 inches. It also spins in a vacuum to minimize friction losses.
Volvo believes it can be produced at a much higher volume than the battery-based energy recovery technology used in today’s crop of hybrid vehicles. Knowing what we do about resource constraints (whether real or politically caused) affecting the mass production of rare earth permanent magnet motors and lithium-ion batteries, this is a big deal.
According to Volvo, flywheel technology has the potential to deliver double-digit gains in fuel economy and makes a four-cylinder car feel like a six-cylinder.
You may have played with friction-motor toy cars as a child. I had one with a flywheel you would wind up with a zip cord. Once set down on the floor, it would zip to the opposite end of the room. These days, the concept is expanding into more practical uses. Volvo plans to demo a flywheel-enhanced vehicle this fall, and in a few years, your next vehicle might feature the technology.
Regards,
Ray Blanco,
for The Daily Reckoning
Joel’s Note: Ray is constantly exploring technologies that are at the forefront of innovation for his Technology Profits Confidential subscribers. This flywheel story is just one fine example. In fact, he and co-editor Patrick Cox have put together a brand new presentation, detailing 4 companies that could change the world...and why only 62 other people know about it. Click here now, and become number 63.
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| | | | Bill Bonner | | Give Collapse a Chance | |  | | Bill Bonner |
Reckoning from Buenos Aires, Argentina...
A big sell-off yesterday. The Dow down 283 points. The 10-year T- note yields only 1.87%. And the price of gold barely budged.
In our opinion all three should be going down. Because the world is edging towards a global depression...
..with the US consumer unable to spend...
..the Chinese economy slowing down...
..and Europe preparing for defaults...
Assets should be going down. Except for US Treasury debt...which should be going up. That’s what happens in a depression.
All of which is making our “solution” to the financial pile up of ’08-’09 look better and better all the time. You’ll recall that we promised to tell you how you could fix the problem in our last exciting installment. This must have left you on the edge of your chair. It sure left us on the edge of our chair; we had to think of a solution overnight!
But it is really very simple: give collapse a chance.
Remember how desperate officialdom was to “prevent a catastrophic collapse?” Both in Europe and America. The European banks bailed out their speculators. Then the governments bailed out their banks. Then, they bailed out the countries that had bailed out their banks.
In America, the government bailed out the banks...the insurance companies...the automakers... About the only industry that wasn’t bailed out was the financial publishing industry. Guess we didn’t send them enough campaign contributions...
Then, the Europeans and the Americans bailed out each other.
And they’re still bailing. The US is running a budget deficit so large that we’ve lost track of it...was it $1.5 trillion? $1.8 trillion?
And the Europeans are preparing another big bailout for Greece...Italy...and who knows who else.
And every bailout makes the world poorer. Because it’s clearly bad money after good. Greece does not suddenly become a good credit risk just because you lend it more money. And Americans won’t be made richer because the feds offer them more debt at an even cheaper rate!
The problem is that doing more of something that doesn’t work is not a good idea. When you lose money on every sale you can’t make it up on volume! Nor is it a good idea to put more money into an investment that isn’t paying off....or to allocate more resources to an industry that stopped producing real benefits a generation ago.
Yes, that’s when the education industry turned sour — in the 1970s. Since then, it’s gotten sourer and sourer...with more and more money spent on education but not a bit of progress to show for it. The youngsters are as dumb as ever.
And the oldsters are even dumber. They want to continue to bailout, subsidize, give credit where it isn’t due, and otherwise funnel huge amounts of money to worn out, unproductive institutions. And for what? So they can avoid “a catastrophic collapse.”
Well, here at The Daily Reckoning we say ‘bring it on.’ Let’s have that catastrophic collapse and get it over with. Better now than later. It will only be worse if it is postponed.
And more thoughts...
But seriously, how would we ‘fix’ the situation? Well...that is how we’d fix the situation. We were being serious. We’re always serious. And earnest. And trying to do our best to help.
But that’s not all we would do. The problem really has two parts to it.
One part is natural, inevitable...it can’t be fixed. When you borrow too much money, you have to pay it back. Or default. Better to do it as soon as possible.
Likewise, if your company isn’t profitable...if your industry can’t take resources and add value to them...then you should go broke. Again, the sooner the better.
In these cases, the ‘fix’ is obvious. Bite the bullet.
But there’s more. There is also the zombie factor. This is something that can be fixed easily. As institutions age — including private industries — they attract parasites. The next thing you know you’re meeting with lawyers and working with regulators. There’s an agency hounding you about one thing...and a department on your tail for another.
And there are taxes up the kazoo. And debt. And extra costs.
You pay for stamps and handicapped parking places. You pay for well- meaning kids to offer advice to hardened heroin addicts...and lobbyists can get a break in the next tax bill. You pay for goons to frisk you are airports and hit squads to take out “insurgents” in cities you never heard of.
Oh, and don’t forget the kid who takes out loans so he can get a degree in the Emotional Life of Fruit Trees...and then defaults on his student debt. And the slob who uses Medicaid and disability to avoid having to go to work.
It’s all part of the picture of a society in need of a revolution...or a kick in the pants.
We propose one or the other.
How? Easy peasy. First, allow businesses and nations to go broke. No subsidies. No bailouts. No below-market loans. Just let them crash and burn. It will be fun to watch.
Second, cut taxes to 10%. That’s all. Just 10%. Like a tithe. With no deductions. No ifs...ands...or buts. Russia already has a tax like this. And it is booming.
And prohibit borrowing. Or money printing. These measures would solve the US debt problem overnight. They would protect the dollar. They would reassure investors, businessmen and householders.
They would also reduce the total US budget from about $3.6 trillion today down to less than $1 trillion. We don’t much care what the feds do with the money. They will surely waste most of it. But so what? A flat 10% tax rate would cut out most of the zombies. Freed from the dead hand of zombidom the private sector could get back to work.
Give it a whirl. Let us know how it works out.
Regards,
Bill Bonner
for The Daily Reckoning |
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