Tag Archives: analysis

Is the world cracking up?

Is the world cracking up? | Daniel W. Drezner.

Posted By Daniel W. Drezner Share

[WARNING:  THE FOLLOWING IS A VERY PESSIMISTIC GLOBAL POLITICAL ECONOMY POST]

So, just to sum up the past week or so of global political economy events:

1)  U.S. government debt got downgraded by Standard & Poor;

2) Global equity markets are freaking out;

3) The eurozone appears to be unable to solve its sovereign debt problem

4) London Britain is burning;

5) The Chinese are pissed that they appear to be underwriting downgraded, debt-ridden train-wrecks… and this is on top of being pissed about their own train wrecks.

This all sounds very 2008, except that it’s actually worse for several reasons. First, the governments that bailed out the financial sector are now themselves the object of financial panic and political resentment. Second, the tools used to try and rescue the global economy in 2008 are partially to blame for what’s happening right now. Despite all the gnashing of teeth about the Fed twiddling its thumbs, it’s far from clear that a QE3 would actually stimulate anything besides a rise in commodity prices.

With both Europe and the United States unable to stimulate their economies, and China seemingly paralyzed into indecision, it’s worth asking if we are about to experience a Creditanstalt moment.

The start of the Great Depression is commonly assumed to be the October 1929 stock market crash in the United States. It didn’t really become the Great Depression, however, unti 1931, when Austria’s Creditanstalt bank desperately needed injections of capital. Essentially, neither France nor England were willing to help unless Germany honored its reparations payments, and the United States refused to help unless France and the UK repaid its World War I debts. Neither of these demands was terribly reasonable, and the result was a wave of bank failures that spread across Europe and the United States.

The particulars of the current sovereign debt crisis are somewhat different from Creditanstalt, and yet it’s fascinating how smart people keep referring back to that ignoble moment. The big commonality is that while governments might recognize the virtues of a coordinated response to big crises, they are sufficiently constrained by domestic discontent to not do all that much.

So… is this 1931 all over again?

There are three aspects of the current situation that make me fret about this. The first is the sense that developed country governments have already tapped out all of their politically feasible methods of stimulating their economies. This is the time when both politicians and voters start to ask themselves, “Why not pursue the crazy idea?”

The second is whether the Chinese government will do something to satiate their nationalist constituency. Neither Joe Nye nor James Joyner thinks this is likely, and I tend to agree that any effort at economic coercion will hurt China as much as the United States. When autocrats are up against the wall, however, then they might take risks they otherwise would never consider.

The third is this working paper on what causes societal unrest in developed economies (h/t Henry Farrell). The abstract suggests more trouble on the way:

From the end of the Weimar Republic in Germany in the 1930s to anti-government demonstrations in Greece in 2010-11, austerity has tended to go hand in hand with politically motivated violence and social instability. In this paper, we assemble crosscountry evidence for the period 1919 to the present, and examine the extent to which societies become unstable after budget cuts. The results show a clear positive correlation between fiscal retrenchment and instability. We test if the relationship simply reflects economic downturns, and conclude that this is not the key factor.

So… there are, unfortunately, numerous reasons to think that we’re headed down a bad road… which is the pretty much point of this post.

Readers are encouraged in the comments to offer counterarguments for why things aren’t as bad as 1931. I’ll be offering some thoughts about why 1931 won’t happen again later in the week.

EarthRisk crunches data to predict extreme weather

EarthRisk crunches data to predict extreme weather | Green Tech – CNET News.

The HeatRisk application gives trained meteorologists tools to analyze the weather patterns that lead to extreme heat weeks before these events occur.

(Credit: EarthRisk Technologies)

EarthRisk Technologies is mining years of weather data for profit.

The San Diego-based start-up today launched HeatRisk, a Web-based application designed to predict extreme heat events 30 to 40 days out. The target audience is meteorologists who work for energy companies or other organizations which need a long-range forecast to hedge their risk from extreme temperatures.

Over time, EarthRisk Technologies intends to design a product aimed at less technical users and investigate whether its research method can be applied to predicting extreme storms, according to President and Chief Science Officer Stephen Bennett. Its first product, released last year, is for analyzing the factors that lead to extreme cold events.

More researchers are tapping powerful computers and software able to present big sets of data to address environmental problems, such as air and water quality or extreme weather. EarthRisk Technologies originally began as a research project at the Scripps Institute of Oceanography in San Diego, but company founders saw there was a business opportunity buried in its research.

“We realized if we could write a software application around our research, it would increase the value of the underlying research tremendously,” said Bennett. “The (corporate sponsors) said if you can put together a good application and continue to do cutting-edge research, we will be the first to sign up.”

Three years ago, Scripps was approached by energy companies and hedge funds which deal in energy futures to see if there was a way to identify major weather events beyond the National Weather Service forecast. In addition to causing safety hazards, extreme weather throws energy markets out of whack by creating an imbalance between supply and demand.

A power generator, for example, could use HeatRisk to prepare for a coming heat wave by purchasing fuel for auxiliary generators to meet higher demand. Having a longer lead time than traditional forecasts gives energy buyers and traders an advantage, explained Bennett.

Right now, the people who use the software need to be skilled in meteorology and be comfortable analyzing atmospheric conditions directly. Eventually, the company hopes its software could be used by retailers, farmers, or municipalities which can use long-range forecasts to prepare for extreme temperatures, Bennett said.

Dominoes lining up
The accuracy of weather forecasting has improved over the past decade from supercomputers and simulation software, but the focus tends to be on shorter-term windows than what EarthRisk is doing, Bennett said. And rather than trying to forecast average temperatures, EarthRisk is seeking the factors that lead to specific extreme temperature events.

The company’s TempRisk platform uses historical weather data to isolate the factors that lead to extreme temperatures.

(Credit: EarthRisk Technologies)

To build the application, researchers analyzed weather data going back to 1948 to identify the patterns that led up to extreme cold or heat. Each pattern is sort of like a domino and when enough of them line up, the software can help identify the probability of an extreme weather event, Bennett explained.

In a recent example, a combination of a large high-pressure system over Scandinavia and a low-pressure system in the Atlantic, followed by another system over the Solomon Islands pointed to a heat spike in the U.S.

People can use the analytical application through a Web browser and pay a fee for using it during a season and specific regions. A forecasting application could be ready in about six months, Bennett said.

Using software to dodge weather risk is new so it’s still not clear there is a strong demand for it. But EarthRisk isn’t the only company to use cloud computing and large amounts of data to hedge against extreme weather. Earlier this year, WeatherBill launched a service that gives farmers insurance against the effects of extreme weather by continuously analyzing weather data.