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News & Analysis
Carbon Traders Deny Sub-Prime Crisis Brewing
Saturday, November 07, 2009 – by
Staff Report
Carbon traders have refuted claims that the European emissions trading market is "the next sub- prime crisis", after a report by Friends of the Earth called for the system to be abolished. The environmental charity said not only does the current system of trading permits fail to tackle climate change, it is also financially dangerous. Currently only Europe has an emissions trading scheme, where companies can buy and sell permits giving them the right to pollute the atmosphere with carbon dioxide. Sarah-Jane Clifton, author of the report, said the growth of a secondary market in carbon trading involving "financial speculators and complex financial products, carries a risk that carbon trading will develop into a speculative commodity bubble". This could "provoke a global financial failure similar in scale and nature to that brought about by the recent sub-prime mortgage crisis", she said. But Patrick Birley, chief executive of the European Climate Exchange, which runs the trading forum based in London, said the comparison between carbon markets and sub-prime style finance was "misguided", claiming the system is highly regulated and transparent. – Telegraph
Dominant Social Theme: Why attack a useful market?
Free-Market Analysis: We have a bit of problem with carbon trading to begin with. We just can't bring ourselves to believe in global warming – which carbon trading is supposed to address. That this concern now includes "climate change" has not appreciably elevated our enthusiasm. Having confessed we see no reason, therefore, for a carbon market or even for carbon traders (whatever they are) we believe we have provided you with the sort of conflict-of-interest alert that even the Washington Post's omnibudsman would find appropriate if not laudatory.
And having made our confession, we would now like to point out that Sarah-Jane Clifton is absolutely right, though probably not for the reasons that she thinks. Clifton strikes us as one of those really concerned environmentalists, one who is peeved not at the idea of yet another economic "crisis" but at the uncanny ability of the market to manufacture profit-making products. Clifton, in fact, as other parts of this article make clear, doesn't much like financial types anyway, and she doesn't believe that carbon trading is the way to address the catastrophe of global warming (or is it climate change).
Clifton is right because if central banks succeed in re-inflating the Western bubble economy, carbon credits will inflate too. It is all a function of printing too much money. If Clifton had made the case that central banking would certainly ruin the carbon market as it generally ruins every other market it touches (over time anyway) we would be behind her one hundred percent. But, again, we don't think this is the point that Clifton is making. She knows, somehow, that the sub-prime crisis is a bad thing, and has decided to link "sub prime" to the "carbon market" in the hopes that others will also think, going forward anyway, that the carbon market is bad because it is "sub prime."
The carbon trading market is "bad" for a number or reasons, in our humble opinion, though Clifton would doubtless not agree with our analysis. The carbon trading market is bad because it solves no problem since there is no problem to begin with. And it is bad because it will inflate along with other asset bubbles if central bankers are indeed able to fully re-stimulate. This means we will be subject to a spate of articles at some point pointing out that if we had just bought carbon credits when they were "cheap" we could retire by now. Ah, the magic of the market!
Conclusion: We have floated the idea before, and we still believe it has merit so we will refloat it here: There is one reason to create a carbon market, and only one. It is to take the place of a gradually reducing currency market that will shrink as the monetary elite does its best to combine currencies and move toward one global currency. Those who align themselves with the monetary elite need very large markets in which to play. If the world can be convinced of the need for securitized carbon sinks, the carbon market could be a large one indeed.
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Posted by Gary J. Mallast on 11/7/2009 1:46:01 AM
Having trouble understanding Keynes? Gee, I thought you folks were bright enough to understand anything. Anyway, if you can't understand Keynes, read Henry Hazlitt's "The Failure of the New Economics"(1959)in which Hazlitt performed the considerable public service of disassembling "The General Theory" paragraph by paragraph.
To summarize, what Keynes basically did was to re-tread a bunch of hoary crackpot inflationist theories going as far back as John Law (1671-1729)in the language of functional calculus. Pretty much all of them can be refuted by the old expression "You can't eat a dollar bill." (Or Euro, or Pound, or Yen, or even a gold coin for that matter.)
Real wealth comes from real production. Say's Law, which Keynes allegedly refuted, is basically a law of the primacy of production. As Hazlitt points out Keynes couldn't refute it and, in fact, he mis-stated it--Reference in Hazlitt, editor, "The Critics of Keynsian Economics," Jean Baptiste Say, "Of the Demand or Market for Products."
Real wealth consists in "the luxuries and necessaries of life." If there were nothing to buy or sell, all the gold coins or banknotes on earth would be worthless. As you rightly point out, inflation (monetary expansion) causes malinvestment as the new money goes through the economy over time causing over-inestment in some sectors and under-investment in others as well as a short-term shift from consumer to capital goods by making some lines appear profitable which are not.
The malinvestment has to be liquidated and production redirected where the market says it should be for recovery to occur. The largest capital expenditure (using Karl Menger's definition of "capital" as goods used to produce other goods) is in labor so it is logical labor takes the biggest hit when the malinvestment becomes manifest--often with tragic effects. In my own case, years of futile job hunting and destittuion in spite of five degrees, over 10 years work experience, and being a published author--albeit of a highly specialized book.
There is economic wreckage all around me. Foreclosed homes in good neighborhoods, for example. At job fairs I have stood in line for an hour just to hand in a resume and do a two-minute "interview" along with engineers, project managers, machinists, etc., who could design and build anything. The whole world is poorer for their being idled rather than productive. But only the market can define "productive" not blathering politicians or arrogant bureaucrats and central bankers.
Reply from the Daily Bell:
Good points. Actually, in our clumsy way, we were trying to be a bit tongue-in-cheek. But have you ever tried to read Keynes' General Theory? Here's a tiny sample:
"If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing." (p. 129)
Posted by Henk-2 on 11/7/2009 2:20:24 AM
It's good for the working class to let them know who is boss.
Reply from the Daily Bell:
Then they know,
Posted by Gul on 11/7/2009 8:23:42 AM
Re US Unemployment:
The Peter Principle theorizes that at some point, previously competent and productive employees are promoted to a position in which they are no longer either. Having peaked in their own usefulness and ability, they reach their level of incompetence.
The US Government has reached their level of incompetence or is there more incompetence in the District of Corruption, commonly known as D.C. (Washington, that is)
Reply from the Daily Bell:
Did the US government not fulfill the Peter Principle long ago?
Posted by Skip Robinson on 11/7/2009 8:53:08 AM
I believe that the unemployment numbers do not take into consideration those that are not eligible, like myself and many others I know, that where self-employed either as small business owners operating in an individual capacity or independent contractors. Additionally some people are collecting unemployment compensation and either working part or full time under the table.
Add in those people whom are employed and have taken drastic pay cuts and you can surmise that the unemployment numbers do not tell a very accurate story and that the true numbers are probably much higher.
Mortgage brokers, title and insurance, appraisers, home inspectors, surveyors, developers, etc. and you get some idea of the potential numbers. The number of multi-level and such other work at home scams circulating about, gives us a further indication that many people that very disparate, are willing to take advantage of the many others that are disparate.
Reply from the Daily Bell:
Well put. There is only so much you can fit in one article. We are on record as writing that the unemployment rate in the US is closer to 30 percent than 10 percent - some 60 million plus individuals unemployed or underemployed.
Posted by Dave Anderson on 11/7/2009 11:36:06 AM
If you would like to see what the future may hold, check out johntitor.com
Reply from the Daily Bell:
A time traveler. Interesting! Understanding business cycles helps, too, Dave, in our opinion.
Posted by Kevin on 11/7/2009 11:47:53 PM
Ha! I'll have my people call Murdoch's people in the morning.
hehehehe
Reply from the Daily Bell:
Good luck.
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