Tag Archives: futurism

The Shape of the Global Economy Will Fundamentally Change

The Shape of the Global Economy Will Fundamentally Change – By Mohamed El-Erian | Foreign Policy.

Who would have thought just 18 months ago that a member of the eurozone, the most elite club of economies in Europe, could have a worse credit rating than Pakistan? And yet this is the case for Greece today, perched on the verge of a debt restructuring; two other eurozone countries (Ireland and Portugal), meanwhile, are already in Europe’s intensive care unit, receiving large bailouts.

And who would have thought that a rating agency would dare question the sacred AAA credit rating of the United States, the sole supplier of global public goods such as the international reserve currency (the dollar) and a financial system that serves as the nexus of international capital flow? Still, that’s exactly what Standard & Poor’s has done: In August the agency downgraded the United States’ AAA status to AA+, citing policymaking uncertainty in Washington and the country’s lack of a long-term plan to deal with its fiscal problems.

And who would have thought that the same country, which is renowned for its flexible labor markets and dynamic entrepreneurship, would experience a persistently high unemployment rate? Well, this is the case for the United States, where unemployment is stuck at around 9 percent, unemployment among 20-to-24-year-olds is a staggering 14.5 percent, and the related joblessness problems are becoming increasingly structural in nature.

There are, of course, several bespoke reasons for these developments. But together, they speak to major realignments that are fundamentally changing the character of the global economy and how it functions. Three things in particular have had a significant influence, and they will continue to shape the world we live in for years to come.

First, too many advanced economies face problems rooted far below the surface, in their balance sheets and in the structure of their economies. This is not just about the unemployment crisis and the rapidly deteriorating public finances that, in cases such as Greece’s, have reached alarming levels. It is also about malfunctioning housing markets, a continued breakdown in bank credit intermediation, and weak political leadership in the midst of messy party politics.

Second, rather than deal with these structural problems, policymakers have preferred to kick the can down the road. As a result, the problems have festered and become more entrenched, and the risk of adverse contagion has risen.

This is most obvious in Europe, where a liquidity approach — involving piling new debt on top of already crushing obligations — has repeatedly been applied to Greece’s debt solvency crisis. This has also transferred massive liabilities from the private sector to Greek and European taxpayers and contaminated previously healthy institutions such as the European Central Bank. It is also the case in the United States, where unprecedented stimulus spending has failed to sufficiently reignite growth and job creation.

Third, several emerging economies have hit their developmental breakout phase, largely undeterred until now by the misfortunes of the developed world. You see this in Brazil, China, Indonesia, and several other countries. In the process, they have gone from strength to strength, so much so that their economies have started overheating at a time when more established countries are languishing. This is new territory for the global marketplace, one in which the less mature countries are more robust and resilient than their advanced peers and are able to grow sustainably at high levels while also strengthening their balance sheets.

Absent a major policy mistake — a lurch toward protectionism, disorderly defaults, or disruptions to the international payment and settlement system, for instance — we should expect these global realignments to continue.

It will take several years for the advanced economies to fully rehabilitate their balance sheets and restore the conditions for high growth and employment creation. In the meantime, income and wealth distribution will become even more skewed, morphing from an economic issue into a sociopolitical one.

The combination of stretched balance sheets and disappointingly slow growth also means that the advanced countries will opt for a mix of approaches to deal with recurrent debt concerns as they continue to de-lever from the age of credit and debt-entitlement. Some, such as Britain, will rely primarily on years of budgetary austerity. Others, like Greece, will succumb to debt restructuring.

Then there is the United States, the economy that anchors the core of the global economic and financial systems. It will initially opt for financial repression — essentially a hidden taxation of creditors and depositors — and attempt higher inflation to address its balance sheet issues. With time, however, it will likely be forced into greater austerity amid noisy political posturing and bickering.

The messier this transition, the greater the risk of undermining the international standing of America’s global public goods. This in turn will challenge a global monetary system built on the assumption that its core — the United States — remains economically strong.

This is an important qualifier for what otherwise would be a far more encouraging outlook for much, though not all, of the emerging world. Look for these countries to continue to close the income and wealth gaps vis-à-vis the advanced countries. In the process, they will pull millions more out of poverty, providing them with greater economic opportunities and better access to education, health care, and nutrition.

As they continue to grow, emerging countries will push for greater accommodation on the part of a global economy that is still overdominated by the advanced economies. Global governance issues will come to the fore. International institutions will be pressured to reform more seriously. And multilateral negotiations will need to be more respectful of the growing strength of the emerging countries.

All this translates into an unusually fluid global economy — and a world in which many established parameters will instead become variables. The sooner we prepare for it, the greater the chance that we are beneficiaries of the transformations taking place, not their victims.

Let's take better care of our rare earth elements

Let’s take better care of our rare earth elements – tech – 15 February 2011 – New Scientist.

Despite their name, rare earth elements are not especially rare. So how come we are so worried about them running out?

THE periodic table is a thing of beauty, yet we seem to be quite happy to exhaust parts of it before we’ve fully realised its potential. Helium will probably run out within the next 100 years. Gallium and indium are running low. Phosphorus, too, may soon become an “endangered element”.

The latest part of the table to arouse such fears is a block of 17 metals known as the “rare earth elements”. China, which produces most of the world’s supply, is increasingly protective of its deposits, sparking concern over their future availability.

Both the US and European Union have set up initiatives to look at these strategically important metals. The UK’s Royal Society of Chemistry is making them a focus of its activities during the 2011 International Year of Chemistry. It is good to make a fuss – but the issue isn’t one of absolute scarcity, it’s about how we manage resources.

The rare earth elements – or as chemists call them, the lanthanides plus scandium and yttrium – might not be household names, but they are common in every household. They are used in a wider range of consumer goods than any other group of elements due to their unusual electronic, optical and magnetic properties. Rare earth elements are an ever-present part of our lifestyles and in many cases difficult to replace in terms of functionality.

Without lightweight magnets made from alloys of rare earth elements, computer hard-drives and iPod headphones and speakers would be impossible. They colour our liquid crystal displays, darken our sunglasses and provide phosphors for low-energy light bulbs and LEDs. They are a vital ingredient in lightweight alloys for aircraft and in catalysts to process crude oil and clean exhaust emissions. Industry uses them in lasers for high-precision manufacturing; hospitals use them for medical imaging. The list goes on.

Rare earth elements are also expected to play a big part in the future. It turns out they are indispensable for a range of urgently needed green energy technologies such as wind turbine generators, low-energy lighting, fuel cells, rechargeable batteries, magnetic refrigeration and hydrogen storage. If any of these technologies is implemented on the scale required to significantly reduce carbon emissions, demand for certain rare earth elements will almost inevitably exceed current supply – and quite probably known reserves.

Which brings us back to the topic of scarcity. Despite their name, rare earth elements are not especially rare – they are thus called because there were few known concentrated deposits of their ores, or “earths”, when they were first discovered. Cerium, the most common, is similar in abundance to copper and more abundant than lead, tin, cadmium, boron, tantalum, germanium and numerous other commonly used elements. Even so, rare earth elements are in short supply.

Of course, elements can’t be made or destroyed except in nuclear processes, so we can’t “run out” of them. Scarcity is largely a political question due to the fact that at least 95 per cent of the global supply originates in China. Accurate data on how much it has and produces is difficult to obtain, but the country is becoming increasingly protective of its resources. At the turn of the year the Chinese government announced that it was drastically reducing exports of the rare earth elements.

What is the rest of the world to do? Economists will argue that the market will correct itself: as the price goes up then lower grade ores become viable. This already appears to be happening. The world is scrambling to open up new sources and reopen old ones, such as Mountain Pass Rare Earth Mine in California which used to supply the majority of the world’s demand but has been mothballed since 2002. But it takes several years to start or restart a mine and demand for several rare earth elements – notably neodymium, europium, terbium and dysprosium – is forecast to outpace supply in the near term, according to a 2010 report by the British Geological Survey.

The economic argument also ignores the environmental cost of accessing lower grade ores, which may outweigh the benefits delivered by the end uses. In any case, price isn’t always a good indicator of scarcity.

The real problem is the way we obtain, use and discard rare earth elements. In our linear economy, getting hold of them depends on finding sufficiently concentrated sources. We then smash the ores out of the ground, expend huge amounts of energy purifying them, use them and then discard them. The concentration of rare earth elements and other precious metals in our waste streams is often higher than in the ore.

We need a different approach to managing the elements: better mining and extraction, more efficient production, sustainable use and planned recovery. The principles of reduce, replace and recycle must be applied at every stage to ensure we utilise rare earth elements efficiently, substitute more common materials where possible and design products to be dismantled and recycled. It may eventually be necessary to reserve key materials for vital applications rather than for short-lived lifestyle goods.

Many industries already carefully recycle their valuable “waste” materials – photographic silver and catalysts from the fine chemicals industry are good examples. We need to adopt those approaches everywhere.

Ultimately, the scarcity of rare earth elements comes down to our own short-sightedness and the apparent low cost of business as usual – dig it up, use it, discard it. If we value modern society and want to build a better future, business as usual is no longer an option. We must treasure our rare resources.

Mike Pitts is the sustainability manager for Chemistry Innovation based in Runcorn, UK, which promotes innovation and knowledge transfer in the UK’s chemistry-using industries