Looking for the Next Bubble

The powers-that-be, from the banksters to worried politicians, must be desperately seeking the next bubble. How else will the former get rich(er), quick? (I think we can safely rule out the idea that many of them want to get rich the old-fashioned way: slow and steady through building something of real value. Or that they think they already have ‘enough.’ Surfing the bubble is the latest way to get rich, and it is much easier if you have a hand in creating the bubble.) And the latter must be concerned that the current recession appears unwilling to end – and probably permanent thanks to high oil prices. But from what can a bubble be made? I have an uncomfortable feeling it’s going to be one or more of:

• Ethanol
• Carbon trading
• Nuclear power
• Green energy
• Railways

Any area of the economy that grows continuously is a bubble, and eventually must pop. The dotcom boom-and-bust was a prominent example, where investors poured money into marginal ideas, causing massive overvaluation – that was corrected sharply and painfully. The housing bomb that recently exploded caused a worldwide recession as prices rose to levels beyond the reach of many – but who were given mortgages anyway.

A continuous growth economy is also a bubble that must eventually burst; nothing can grow forever on a finite planet, and we are pushing the limits of what is possible given the availability of energy (peak oil) and ‘biofeedback,’ meaning the planet is about to eat us through climate change, resource depletion, and so on.

The Ethanol Bubble

Ethanol has already seen substantial investment. Despite corn-based ethanol being a net energy loser, “farmers” have received massive subsidies. (“Farmers” here generally means giant agri-businesses.) Ethanol doesn’t really have the potential to be a big bubble, because there simply isn’t enough land in the United States – or world – to grow crops for ethanol and food. Planting too many acres to ethanol crops would drive up food prices, making it a self-limiting venture.

However, agri-businesses will continue to milk the U.S. government for subsidies for as long as the people let them, and will make a few billion in the process. In this case, “make a few billion” means “waste,” because the money could have been put to far more productive use than enriching giant agri-corporations to produce a net-energy-losing product that drives up the cost of food.

Carbon Trading

Goldman Sachs and cronies are already drooling over the possibility of a trillion-dollar carbon market. And about the only thing you can count on is that such a market will benefit Goldman Sachs and a select few other banks.

I have said previously that carbon trading (and carbon taxes) will not work, not because they cannot work, but because our governments are too corrupted to implement them properly. The European implementation did not go well and has not produced the expected emissions reductions.

However, when one is talking a trillion-dollar carbon derivatives market, you can bet the banksters will be pushing hard for it. Basically, the Wall Street money boys are going to be trying to get the government to throw money at things they can swingle to their advantage, and to create rules that allow them to profit from any and all new initiatives. It will be interesting to see who has more pull in Washington: the banksters, who are all for creating a carbon market, or the fossil fuel crowd, who are against any penalty for polluting.

Nuclear Energy

Obama has already announced some funding for nuclear, though very little. By “very little,” I mean enough for one plant; it was still a big pile of cash: $8.5 billion. Well, what used to be a lot of money, anyway. Nuclear has issues, however, and not simply with image.

The link provides a good pros and cons summary, and ultimately nuclear faces certain insurmountable problems. (Which does not mean we won’t pour billions into a nuclear bubble.) Cost and cost overruns are one, leaks another. The government, meaning you and I, must provide loan guarantees to get them built and absorb all risk, literally and financially, as private insurance companies won’t touch them.

Nuclear plants run on a non-renewable resource, either uranium or thorium. (If we do build nuclear plants, they should be thorium: much safer, less waste.) Eventually the fuel will run out, although reprocessing would keep the reactors going for a long time – at the cost of producing material suitable for making nuclear bombs.

There is intense lobbying going on to get nuclear started up again, and the techno-miracle crowd is fond of saying only nuclear can save us. At the moment it seems the Obama administration is not putting enough into nuclear to create a full-blown bubble, but at some not-too-distant time in this post-peak oil world, governments will be strongly tempted to pour a lot of money into energy generation.

Green Energy

Not all bubbles are bad; they sometimes get useful things built during the expansion, and those things are left after the bubble pops. If a green energy bubble gets us a lot of green energy generation capability built, that will be a good thing. Unfortunately, there is a lot of ideological and lobbyist opposition to green energy, including from fossil fuel companies. Whether this can be overcome remains to be seen, but at the moment the United States and Canada are distantly behind Europe and China.

As mentioned earlier, at some point in the near future as the supply of oil dwindles and prices skyrocket, there will be intense pressure to find substitutes. Of course, only ethanol will keep the cars, trucks, tractors, ships, and possibly aeroplanes moving; building nuclear plants or wind turbines does not solve America’s problem with an infrastructure and economy entirely wrapped around oil.

However, that brings us to the final potential bubble, which can run on electricity.

Railways

The U.S. and Canadian rail systems are in a sadly neglected state. As rail is the most efficient means to transport goods and people, and as trains can be run on electricity rather than oil, there may well be a big move to resuscitate rail. (At one point, Warren Buffet was investing substantially in rail companies.)

Growing non-bubbles

Green energy and rail are examples of areas of potential growth that may not necessarily turn into bubbles, as we do need to grow both areas. We could easily increase wind manufacturing and generation capability by a few thousand percent, for example, without overshooting our needs.

Almost everyone wants to ‘get the economy growing’ again. (I think a move to a stable economy would be wiser.) However, there are the Wall Street wizards to content with. They want growth, and lots of it. So do politicians, who want to put people back to work so those same people will turn around and vote for them.

Unfortunately, it’s a lot easier to make money shuffling paper than by actually building useful things; guess which the banksters have much more experience with? This means that we are more likely to end up with another bubble that bursts than with useful infrastructure.

Suggested books if you want to learn more

The books below discuss in much more detail some of the ideas mentioned in this post.

The first and last books (from left-to-right) deal with economic bubbles and the problems they cause.

The second book is by Herman Daly, the father of the steady-state economy.

The third book covers green energy and ‘green tech’ solutions that are likely to be hot investment opportunities.