Power Back Up

November 1, 2011

America’s Northeast was hit by a rare late October snowstorm that left a couple of million households without power.  Mine was just restored after a 69-hour interval without electricity, cable coverage, internet access and WiFi. 

It’s amazing how sweepingly international markets can change in fewer than two full trading days.  Compared to Friday closing level, the dollar has advanced over 3.0% against the euro, yen, Aussie dollar and kiwi.  It’s up 2.8% against the Swissie and 2.5% versus the loonie.  Sterling only rose 0.9% against the greenback, and the highly manipulated yuan has edged 0.1% lower.  The S&P 500 and Dow Jones have lost 4.8% and 4.4%.  British and Swiss share prices have fallen similarly, and the German Dax plunged 8.1%.  The U.S., German, and British ten-year sovereign bond yields have plummeted by 33 basis points, 41 bps and 40 bps.  Gold and oil are 1.6% and 2.0% lower.

Unusually foul weather has now been happening with such regularity as to create a whole new normal.  Weather extremes tend to depress economic activity and boost inflation, whether the deviation involves too much heat, bitter cold, excessive rainfall, drought, or squalls.  Seasonal changes can be monitored, estimated and standardized in reported data.  Raw data tend to be weak in winter when outdoor activities like construction are constrained.  When the climate itself is changing such as now, weather patterns present in more random fashion,  and the timing of shocks are not predictable in advance.  Reported data become less trustworthy as indicators of true conditions.

Weak growth in the advanced economies since 2000 has many causes.  An incomplete list includes excessive debt, unworkable political systems, the distraction of terrorism, and a high tech revolution that changes skill needs faster than skill supplies and that also endows developing nations with a clear advantage to compete in both manufacturing and high-end services against nations used to a higher standard of living.  To this list, one needs to add the effects of climate change.  This isn’t some imagined or real future restraint that is going to strike 5, 25, 50 or 100 years from now.  It’s already happening.  Nations continue to argue over whether climate change is manmade or part of a natural cycle.  Whatever one’s view on the debate may be, the threat of climate change requires a human response, just as do all the other factors that have been depressing growth.  Economic development that can be sustained over future generations requires consideration of the likely impact on more than profit.  The effects on planet and people are important, too, for separating good economic pursuits from bad ones.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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