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Second Stimulus Package Update

Seems like there’s been a lot of interest lately in a second stimulus package to get the U.S. economy back on its feet. On July 15, I talked about how House Speaker Nancy Pelosi met with several economists and announced afterwards that:

We will be proceeding with another stimulus package.

On July 22, Reuters reported:

The U.S. Congress is discussing a second economic stimulus bill that could include nearly $15 billion in infrastructure spending, a senior member of the House of Representatives told Reuters on Tuesday.

Rep. James Oberstar, a Minnesota Democrat who chairs the Transportation and Infrastructure Committee, said a stimulus package could include “accelerating” pay-outs of $9.5 billion from the federal trust fund dedicated to road construction and maintenance…

The money would go to funding more than 2,600 projects, he said. States would receive full federal funding and then have a few years to pay back any matching funds.

Richard Cowan, John Crawley, and Lisa Lambert noted:

Congressional aides have discussed infrastructure elements to the plan, but have not provided cost estimates or other details. The timing of any second stimulus bill remains up in the air.

The Senate Appropriations Committee on Tuesday postponed consideration of its version of a second stimulus plan until September, said Robert Byrd, the panel’s chairman and a West Virginia Democrat.

President George W. Bush has indicated he wants to see how effective the first stimulus package is before looking at another one.

The idea of a second stimulus package hasn’t been lost on U.S. presidential candidate Barack Obama. According to the Star Tribune of Minneapolis-St. Paul yesterday:

Back from a nine-day overseas trip, Sen. Barack Obama made a point of turning to domestic concerns, calling a meeting Monday to solicit advice on reviving the economy and lifting wages.

Obama’s 2 1/2-hour economic forum, which was closed to the media, included some of the top economic policymakers of recent Democratic and Republican administrations. Among them were Robert Rubin and Paul O’Neill, Treasury secretaries in the administrations of Presidents Bill Clinton and George W. Bush. Billionaire investor Warren Buffett took part by phone.

Obama said the economy needs short- and long-term fixes, including another “stimulus” from Congress…

The group agreed with Obama’s call for a second stimulus plan, although there was some debate about the size.

Obama wants to inject another $50 billion into the economy. Laura Tyson, who headed Clinton’s Council of Economic Advisers, said, “There were people in the room who felt it should be more.”

Sources:

“Infrastructure could spur new stimulus: Rep”
Richard Cowan, John Crawley, and Lisa Lambert
Reuters, July 22, 2008

“Obama gains support from economic team for a second economic stimulus plan”
Star Tribune, July 29, 2008

Weekend Videos

Just got back to blogging late Friday evening. Had to entertain my relatives from Canada who are in. Like the Irish a couple of weeks ago, they shopped liked it was Christmas in July to take advantage of the weaker dollar. I know one thing for sure. Foreigners sure love our “strong dollar” policy…

“Oil Crisis”
Becky Quick
CNBC, July 18, 2008

From the CNBC website:

The House may vote on releasing oil from the strategic petroleum reserve, with Senate Majority Leader Harry Reid and CNBC’s Becky Quick.

You can view the 3 minute 18 second video here.

Note to Congress- there is no quick-fix for the energy crisis. I’m starting to consider donating funds to Jim Puplava’s proposed program, “No Congressman Left Behind.”

Apparently, it’s a non-issue now anyway, seeing that after oil prices suffered their biggest weekly drop ever, Yahoo! Finance asks tonight, “So is it time to declare the energy bubble popped?” By the way, the Associated Press is reporting that terrorists are trying to enter the United States with European Union passports. Good thing Congress wants to deplete oil stockpiles meant for a national emergency. Like a major terrorist attack, for example. If you think 9/11 was a one-off event, I have a bridge that spans the East River out in NYC that I can sell you for a really good price…

“Is government clueless about economy”
Jim Jubak
MSN Money, July 18, 2008

From the MSN Money website:

Washington is talking us into a deeper crisis. Neither the President nor Congress gets it: When you owe as much as the US does, keeping your overseas creditors happy is the most important thing, says Jim Jubak.

You can view the 4 minute 7 second video here.

Jubak said in the segment:

The Saudi government has gone into serious discussions about taking its currency off the dollar peg.

“Christmas In July”
The Dandy Warhols, “Little Drummer Boy” (1995)
YouTube Video Link

How Irish Tourists Saved The U.S. Economy

“There’s someone I want you to meet this weekend,” my girlfriend told me in June. Her relatives were coming in from Ireland for a family reunion in Chicago. “He’s travelling with his wife and her sisters. Maybe you guys could hang out and talk some football [soccer].” I met Connor that Friday night at the Water Tower Place in Chicago (from what I could understand, he wasn’t married, yet he did travel with a young lady and her sisters). While the conversation revolved mostly around the “beautiful game” and my plans for the “Great Escape” the next day to watch some of Euro 2008, he happened to mention that since he’d been in United States, he and the “Walsh girls,” as they came to be known by reunion participants, had shopped, shopped, and shopped some more. It seemed that every time I asked about Connor’s whereabouts, “he and the Walsh girls went shopping” was the response I got. On Sunday, the reunion shifted to Arlington Park Racetrack for thoroughbred racing. I saw the Irishman at the start of the day after he had just won a race, but didn’t see him later on. More shopping, perhaps? In the days that followed, my girlfriend joked to her sister that the Walsh girls single-handedly saved the U.S. economy. She also mentioned that she felt bad for Connor, as did I, as he was forced to endure the seemingly-endless spending sprees at the Chicagoland malls. However, this remorse was short-lived when her sister informed her that Connor bought just as much stuff as the Walsh girls did.

Robin Sparkles, “Let’s Go To The Mall”
YouTube Video Link

Anyway, I read a blog post by CNN’s Jack Cafferty earlier today that reminded me of our “economic rescue” by these visiting tourists from the Emerald Isle. Cafferty provides commentary and insight for CNN’s political program “The Situation Room.” He wrote:

The U.S. dollar just isn’t what it used to be. In fact, the dollar has been declining in value for 6 years now against other major currencies.

And, if you look around, it’s hard not to see the signs: hordes of vacationing Europeans are picking up bargains in the U.S., while Americans traveling overseas are hit hard with sticker shock. Canadians now flock here for shopping bargains, instead of the opposite. A Belgian company is attempting a hostile takeover of Anheuser-Busch, the largest brewer in the U.S. If the takeover goes through, it might be the first of many foreign takeovers of American companies.

While everything made in the U.S. is so much cheaper to foreigners, Americans are paying more for imported goods, while most are also grappling with rising food and energy costs. Since oil is bought and sold in dollars, the devalued dollar makes gasoline that much more expensive for Americans.

Some even suggest the continued decline of the dollar could one day lead to it being replaced by the Euro as the so-called “primary reserve” currency. There are stores right here in New York that now accept euros as payment.

Meanwhile, the message from Washington doesn’t seem to change much. President Bush has often talked about his support for a “strong dollar”, just last week saying “We’re strong-dollar people in this administration.” Really, Mr. President? You have presided over the most precipitous drop in the value of our currency in our nation’s history.

Source:

“Concern about sharp decline of dollar?”
Jack Cafferty
CNNPolitics.com, July 2, 2008

Congress Approves National Colosseum

Not really. But Capitol Hill politicians might as well allocate funds to build one, complete with chariot races and gladiators to keep us happy, considering the way they’re pandering to the masses these days. When Congress only has a 20% approval rating (Gallup), what else would you expect? Something like what happened today. Hoping to sooth the economic pain (and gain the electoral support) of Joe Six-Pack and Suzy Soccer Mom, both the U.S. Senate and House of Representatives, in a direct challenge to President Bush, voted to temporarily halt the shipment of thousands of barrels of oil a day into the government’s emergency reserve. The Strategic Petroleum Reserve, a system of underground salt domes on the Gulf Coast, was created by the U.S. government in the seventies as a precaution against major interruptions of oil supplies. With 701 million barrels in storage, it is currently 97% full, yet the equivalent of only two months of oil imports.

The Senate voted 97 to 1 in favor of suspending the shipments, which average about 70,000 barrels a day, until the end of the 2008. Only Senator Wayne Allard of Colorado voted against the measure. Presidential hopefuls Barack Obama and Hillary Rodham Clinton also voted to halt the shipments as well. John McCain was not present for the vote. Mirroring the same bipartisan support as in the Senate, the House voted 385 to 25 in favor of halting the program.

For some time now, Congress has wanted to tinker with the SPR, jawboning on and on about how curbing deliveries to and/or drawing from the emergency reserve (by the way, what part of “emergency” don’t you get?) can ease tight oil supplies, curb market speculation, and possibly lower crude oil prices. Case in point. MSNBC’s John Schoen wrote back on May 19, 2004 (that’s right, 4 years ago):

With oil prices stuck above $40 a barrel, attention has turned to the U.S. Strategic Petroleum Reserve, a vast stockpile of oil stored underground that the U.S. continues to add to. While Democrats call for releasing some of those reserves to help ease oil prices, President Bush Wednesday repeated his long-standing position that the stockpile should only be used in the event of a critical cutoff of fuel needed to maintain the country’s national defense…

“Since the price of oil is so closely tied to inventory levels, filling the SPR under these market conditions both depletes private sector inventories and pushes up prices for America’s consumers,” said Sen. Carl Levin, D-Mich., in a floor speech in April defending an amendment to defer SPR purchases.

More recently, New York Democratic Sen. Charles Schumer has introduced an amendment to draw 1 million barrels a day from the reserve for the next 30 days.

“Joey, do you like movies about gladiators?”

And Congress’ assertions that curbing shipments to and/or drawing from the SPR could help with our supply problems, dampen speculation, and lower oil prices? Wrong, wrong, and wrong, according to the experts (or, at least, people who know what they’re talking about). Regarding the supply problem, the 70,000 barrels that are being sent to the reserve on a daily basis represents only 0.3% of the 20 million barrels consumed by Americans each and every day. 0.3%? Can anyone tell me how this could possibly help alleviate tight supplies? Regarding the perception that high oil prices are caused by speculators, legendary energy investor T. Boone Pickens told attendees at the Oklahoma State University’s Energy Conference on April 23:

Only 5 percent of oil is in the commodity pool. If you did run it up, it would be briefly. Speculators cannot move it that much.

He would know. Finally, a number of politicians believe (or want us to believe) that halting shipments and even drawing from the SPR will somehow lower oil prices. CNN Money’s Steve Hargreaves wrote today:

A statement from Speaker of the House Nancy Pelosi, D-Calif., said it could bring down gas prices by as much as 24 cents a gallon.

Or so she claims. The CNN Money staff writer also wrote:

The U.S. Energy Information Administration predicts oil prices would fall by only about $2 a barrel - or shave 4 to 5 cents a gallon off the price of gas - if the president suspended deliveries to the SPR.

“It’s a very small amount” of oil going into the reserve, said EIA oil market analyst Doug MacIntyre. “And it’s very transparent to the market.”

Should I believe House Speaker Pelosi or the EIA? Tough call, right?

Here’s something to think about. A possible explanation for the high price of crude oil is that global demand is running at 87 million barrels per day, while the global oil supply is at 85 million barrels per day. Furthermore, while older oil fields are starting to go dry, no suitable replacements are being found. Finally, even though the U.S. economy is slowing, for every 1 barrel of reduced American demand there are 14 barrels of increased demand from developing countries like China, India, and Brazil.

Oh, but this just in…

“Middle East Oil Cut Off By Coordinated Attacks Throughout Region” and “Gulf Oil Infrastructure Destroyed By Category 5 Hurricane”

Well done. Thanks for saving me that nickel.

Sources:

“Senate votes to halt oil reserve shipments”
H. Josef Hebert
Associated Press, May 13, 2008

“House votes to stop adding to oil stockpile”
Tom Doggett
Reuters (UK), May 13, 2008

“Debate flares over strategic oil stockpiles”
John W. Schoen
MSNBC, May 19, 2004

“Oil stockpile a drop in the bucket”
Steve Hargreaves
CNN Money, May 13, 2008

“Pickens: Oil to go to $150 a barrel”
Jerry Shottenkirk
Journal Record, April 24, 2008

Housing Bailout Latest

This morning I received an e-mail from the powers-that-be behind Stop The Housing Bailout! According to STHB:

• Readers against a housing bailout should contact U.S. Senator Richard C. Shelby. He can be reached by telephone at (202)224-5744, and by e-mail at Senator@shelby.senate.gov. STHB stated, “He is going to run the show from the Republican side of the aisle.”

• You may want to check out the Wall Street Journal article “Democrats Face Rescue Backlash.” According to STHB, “A nice little piece about the Bailout Backlash!”

President Bush is vowing to veto a bill the U.S. House of Representatives passed last week that would, among other things, allow certain homeowners to refinance loans through a government agency if lenders agree to take less than the full amount borrowed. The U.S. Senate is expected to take up the issue this week.

Latest On Housing Bailout

Even though I am still on hiatus, I just wanted to pass this along to you from Stop The Housing Bailout!:

Bailout Alert! According to this article, Bush says he will veto the Frank-Dodd bailout bill.

Please call or email the White House to voice your support of a veto of the any housing bailout bill:

Ph: 202-456-1414 or 202-456-1111

Just say, “I am calling to ask you to veto any housing bailout that comes out of Congress.”

Bank Of Central Banks: Stagflation Risk For U.S. Economy

Malcolm Knight, the general manager of the Bank for International Settlements, told Reuters’ Brian Love last week that stagflation might occur in the United States, with weak economic growth lasting well into 2009, if not longer. According to Investopedia, stagflation is “a condition of slow economic growth and relatively high unemployment- a time of stagnation- accompanied by a rise in prices, or inflation.” The BIS is an international organization which fosters international monetary and financial cooperation and serves as a bank for central banks around the world, including the Federal Reserve. Established on May 17, 1930, it is the world’s oldest international financial organization.

Reuters’ European economic correspondent wrote:

“I see a certain amount of scope for stagflation in a number of economies and that usually tends to result in subpar economic growth performance for an extended period of time, which could go well into 2009 or even longer,” said Knight, a Canadian who worked for more than 20 years at the International Monetary Fund.

“I think the U.S. economy is likely to experience weakness this year and in much of 2009,” said Knight, speaking to Reuters at BIS headquarters in Basel, Switzerland.

“Stagflation is a definite risk.”

Love noted that Knight’s outlook contradicts the White House’s assertions that the U.S. economy will rebound later in the year as the result of economic stimulus initiatives.

Source:

“U.S. risks stagflation: BIS chief”
Brian Love
Reuters, April 29, 2008

Dave Barry On Economic ‘Stimulus’ Payments

Well, it looks like the first of the economic ‘stimulus’ payments are arriving in the mailbox (and being spent at the gas pump). The other day I noticed that Dave Barry had added his two cents on the tax rebate checks. For those of you who aren’t familiar with Dave Barry, he is a humor columnist whose work appeared in more than 500 newspapers in the United States and abroad for 25 years. In 1988, he even won the Pulitzer Prize for Commentary.

Barry wrote in the Miami Herald on April 13:

…this year, filing taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a smidgen.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn’t that stimulating the economy of China?
A. Shut up.

Source: Hong Kong Tourism Board

Source:

“Dave Barry: How your taxes turn into manure”
Dave Barry
Miami Herald, April 13, 2008

Who’s To Blame For The High Price Of Oil?

I read the following the other day in a grocery store publication on Chicago’s northwest side. Regarding the high cost of oil and gasoline, the bureau chief of the paper wrote:

Whew! What is the answer? I think we should contact our elected officials, both state and national, and let them know we, the taxpayers, need some relief. Yes, I know about Bush’s economic stimulus package that is on the way- but I don’t want to put it all in my gas tank.

There’s no use arguing with most Americans over who’s to blame for high oil and gasoline prices. In their minds, “Big Oil” is the culprit, with a dash of President Bush, his oil buddies, and every level of government sprinkled in for good measure. But before you forward on that e-mail about a “gas station holiday” to five of your friends, consider this: Could it be possible that the high price of crude oil is mainly due to the basic principle of supply-and-demand? Just a thought. Bloomberg’s Mark Shenk wrote today:

China, India, Russia and the Middle East for the first time will consume more crude oil than the U.S., burning 20.67 million barrels a day this year, an increase of 4.4 percent, according to the International Energy Agency in Paris.

And here in the good old US of A?

U.S. demand will contract 2 percent to 20.38 million barrels daily, the IEA says.

Shenk noted that economic growth in China and India of more than 8%, coupled with increasing car ownership among the countries’ combined populations of 2.45 billion people, will more than compensate for declining demand in the United States. According to the IEA, global oil use will increase 2% this year largely because of emerging market growth.

Regarding the topic of car ownership, China’s passenger car sales jumped 22% to 6.3 million units sold last year. Reuters’ Joe Mcdonald reported on the Chinese auto sector today, and wrote:

Auto sales in China are booming, with analysts and automakers forecasting growth at 15-20 percent this year. But demand for the biggest vehicles is even stronger, with sales of luxury cars and SUVs expected to surge by 40-45 percent…

“Chinese buyers typically like bigger cars and they have the resources to go for them,” said Tim Dunne, J.D. Power’s director of Asia-Pacific market intelligence.

Source: China Daily

Mike Wittner, head of oil research at Societe Generale SA in London, told Bloomberg:

Does the U.S. matter anymore? Has the U.S. mattered for the last few years? It is debatable. As far as the oil market is concerned, demand growth is going to be continued to be driven by China and the Middle East.

Still feel like contacting your elected officials?

Sources:

“Emerging Market Oil Use Exceeds U.S. as Prices Rise (Update2)”
Mark Shenk
Bloomberg, April 21, 2008

“Gas guzzlers a hit in China, where car sales are booming”
Joe Mcdonald
Reuters, April 21, 2008

Why Jefferson Is Rolling In His Grave

Information is the currency of democracy.

-Thomas Jefferson (3rd President of the United States. 1743-1826)

I’m not aware of the context in which Thomas Jefferson said this. However, the governing body which Mr. Jefferson helped establish should take a cue from this statement. Mark Lieberman, senior economist for the FOX Business Network, wrote earlier today:

The government has come up with a novel solution to the steady drumbeat of bad economic news: Reduce funding for the agencies which produce and publish the data.

According to the economist, the Bureau of Labor Statistics has been forced to terminate all hours and earnings data reported for local areas, as well as payroll employment for 65 small metro areas. In addition to wiping out some local data, the Bush Administration’s 2009 budget proposal that was submitted to Congress in February ignores a request for funding to update samples for the housing portion of the consumer price index (CPI). Housing represents about 40% of the CPI, which, among other things, is used to determine the annual cost of living increase for Social Security recipients. Lieberman said that the BLS, which compiles CPI, uses a housing sample based on the 1990 census, and will continue to do so as the result of budget constraints.

So, why should you care? The former manager of economic analysis and research at Washington Mutual wrote:

There could be an ulterior motive to the funding cuts, according to Dean Baker, an economist and co-director of the Center for Economic Policy Research, who suggested the updated CPI sample would show more rapid inflation.

… and that Social Security recipients may be getting stiffed on their cost of living increases.

According to the BLS website:

The quality and quantity of some BLS data will be diminished, as fewer resources are available to collect and review data or to perform data analysis. This will result in lowered response rates, fewer published estimates, and a loss of detail in many data series.

The National Association for Business Economics (NABE) added:

With the economy in or on the brink of recession, everyone from Wall Street to Main Street is focused on reports of current economic indicators. Just when reliable and timely indicators are needed most, resources devoted to their production at our federal statistical agencies have been cut, requiring the termination of data series or a reduction in sample sizes used to produce the data.

As I noted back on February 17, this doesn’t appear to be the first time the government is trying to hide bad economic data. As Lieberman concluded:

Changing the measuring rod, it seems, is easier than fixing what has to be measured.

Source:

“Economic News Too Negative? Just Cut Funding for Data”
Mark Lieberman
FOX Business Network, April 21, 2008

Give Credit Where Credit Is Due, Mr. President

I caught the following from Reuters this morning:

The U.S. government has already taken “very effective” action to help boost the slumping U.S. economy, President George W. Bush said on Friday in a speech to a U.S. business group.

“We saw this coming … and so we took some action. And I do want to thank members of the Congress, members of the Chamber, for working on what I believe is going to be a very effective pro-growth stimulus package,” Bush said.

We saw this coming? Doubtful. Maybe a few people did in Washington, but certainly not the majority of economists, analysts, and other “experts” serving the White House in some official capacity. Unless, that is, they actually did sense danger, yet didn’t want to rock the boat. And who could blame them? After all, the White House has always been the economy’s biggest cheerleader.

It’s one thing to take actions in anticipation of an economic recession. It’s another to resort to a bailout (bailouts?) and other measures in hopes of thwarting a financial crisis, which is what we are seeing now. I don’t know about you, but I can’t remember the White House ever sounding the alarm for an economic crisis. Therefore, Mr. President, please give credit where credit is due. For years now, a number of individuals have warned that the United States was heading towards a major financial crisis. Looking at a bookshelf in my home office as I write this, I notice works by Eric Janszen, Michael Kosares, Michael Panzner, Robert Prechter, Jim Rogers, Peter Schiff, to name a few. And even while they presented their evidence and stated their case, few listened. Some ridiculed. And now, with the economic picture clearly worse, some are even taking credit for their foresight.

Source:

“Bush says U.S. has acted to boost economy”
Reuters, April 18, 2008

Twin Deficits, Twice The Pain

It was all bad news today with the release of the latest data on the “twin deficits”— the U.S. budget and trade deficits. The Associated Press reported Thursday that the federal deficit through the first half of the budget year is at an all-time high. The U.S. Treasury Department said Thursday that the budget deficit through the first six months totaled $311.4 billion, which is up 20.5% when compared to the $258.4 billion deficit through the first six months of 2007. The previous record of $302 billion was set in 2006.

Back in February, the Bush administration was projecting that the deficit for the whole year would total $410 billion. The Associated Press wrote today:

However, private economists are forecasting a much bigger deficit, reflecting the country’s current economic problems and a $168 billion stimulus package that Congress has passed in an effort to jump-start growth.

While the trade deficit data released by the U.S. Department of Commerce today didn’t set any records, it wasn’t much rosier. MarketWatch senior reporter Greg Robb wrote:

The U.S. trade deficit widened unexpectedly in February, painting an even gloomier picture for the economy.

The 5.7% increase wasn’t even caused by the two factors usually cited as culprits — imports of oil from the Middle East and imports of inexpensive goods from China. Rather, the widening of the deficit came about as a result of record imports of food, industrial supplies, capital goods and consumer goods.

The nation’s trade deficit expanded to $62.3 billion, broader than the revised figure of $59.0 billion for January, the Commerce Department said.

February’s gap is the largest and the biggest one-month worsening in the deficit since November.

Sources:

“Mid-year budget deficit at all-time high”
Associated Press, April 10, 2008

“U.S. trade gap widens unexpectedly”
Greg Robb
MarketWatch, April 10, 2008

Treasury Secretary: U.S. Economy Has ‘Turned Down Sharply’

Earlier today, U.S. Treasury Secretary Henry Paulson said the U.S. economy has “turned down sharply.” This follows the comment on April 2 by Fed Chairman Ben Bernanke, who said, “Recession is possible.” MarketWatch’s Greg Robb wrote:

These comments are his most downbeat description of the economy to date. Paulson has avoided saying the word “recession,” fearing that it could further weaken investor and consumer confidence.

The former head of Goldman Sachs said in a speech to pension fund and endowment managers at a meeting of the Council of Institutional Investors that the White House is focusing on “things that can be done quickly” to counter the housing downturn. He told the audience that the $150 billion economic “stimulus” package “will make a real difference.”

Source:

“Paulson says U.S. economy has ‘turned down sharply’”
Greg Robb
MarketWatch, April 10, 2008

Are Americans Bio-Fools?

Anyone read Time? I have a gift subscription, and while my first choice of reading material these days is predominantly financial, when I saw the cover of the latest issue I felt compelled to pick up the magazine and take a closer look. On the cover, an ear of corn is pictured with leaves that have been replaced by $100 bills. The accompanying headline reads “The Clean Energy Myth.” Time’s Michael Grunwald states at the outset:

The Clean Energy Scam. Hyped as an eco-friendly fuel, ethanol increases global warming, destroys forests and inflates food prices. So why are we subsidizing it?

Ouch! The U.S. farm lobby must be going bananas right now. Grunwald explained the drawbacks of ethanol, whose viability as an alternative fuel is being increasingly questioned:

But several new studies show the biofuel boom is doing exactly the opposite of what its proponents intended: it’s dramatically accelerating global warming, imperiling the planet in the name of saving it. Corn ethanol, always environmentally suspect, turns out to be environmentally disastrous. Even cellulosic ethanol made from switchgrass, which has been promoted by eco-activists and eco-investors as well as by President Bush as the fuel of the future, looks less green than oil-derived gasoline.

Meanwhile, by diverting grain and oilseed crops from dinner plates to fuel tanks, biofuels are jacking up world food prices and endangering the hungry. The grain it takes to fill an SUV tank with ethanol could feed a person for a year. Harvests are being plucked to fuel our cars instead of ourselves. The U.N.’s World Food Program says it needs $500 million in additional funding and supplies, calling the rising costs for food nothing less than a global emergency. Soaring corn prices have sparked tortilla riots in Mexico City, and skyrocketing flour prices have destabilized Pakistan, which wasn’t exactly tranquil when flour was affordable…

But the basic problem with most biofuels is amazingly simple, given that researchers have ignored it until now: using land to grow fuel leads to the destruction of forests, wetlands and grasslands that store enormous amounts of carbon.

Deforestation accounts for 20% of all current carbon emissions. Grunwald used the example of the Amazon in Brazil. He wrote:

U.S. farmers are selling one-fifth of their corn to ethanol production, so U.S. soybean farmers are switching to corn, so Brazilian soybean farmers are expanding into cattle pastures, so Brazilian cattlemen are displaced to the Amazon…

…resulting in Paulo Bunyan

Apparently, there is hard science to back up Grunwald’s claims that biofuels are harmful. He wrote:

The environmental cost of this cropland creep is now becoming apparent. One groundbreaking new study in Science concluded that when this deforestation effect is taken into account, corn ethanol and soy biodiesel produce about twice the emissions of gasoline…

“People don’t want to believe renewable fuels could be bad,” says the lead author, Tim Searchinger, a Princeton scholar and former Environmental Defense attorney. “But when you realize we’re tearing down rain forests that store loads of carbon to grow crops that store much less carbon, it becomes obvious.”

Knowing all this, we must return to the question of why we are subsidizing it. The answer? Biofuels are politically-popular. Grunwald wrote:

Members of Congress love biofuels too, not only because so many dream about future Iowa caucuses but also because so few want to offend the farm lobby, the most powerful force behind biofuels on Capitol Hill. Ethanol isn’t about just Iowa or even the Midwest anymore. Plants are under construction in New York, Georgia, Oregon and Texas, and the ethanol boom’s effect on prices has helped lift farm incomes to record levels nationwide.

Someone is paying to support these environmentally questionable industries: you. In December, President Bush signed a bipartisan energy bill that will dramatically increase support to the industry while mandating 36 billion gal. (136 billion L) of biofuel by 2022. This will provide a huge boost to grain markets…

… and, quite possibly, global warming, the destruction of forests, and food prices as well.

Source:

“The Clean Energy Scam”
Michael Grunwald
Time, March 27, 2008