Category Archives: Energy

Reorienting National Security Priorities

Below is my plan for reorienting American security priorities, which I think are currently misaligned, often conflicting, and outdated.  This is not a plan for innovation, or financial reform (which is one of the most pressing national issues), or for progressivism.  It’s a plan to increase the long-term durability of homeland security.

Politics, as I’ve learned in my brief 2 years here in DC, is something too complex for me to understand within the realms of my attention span.  What may seem like a good (or even easy) idea to implement has to be palatable to the seething mass that is Congress, and must please interest groups, and must come at an opportune time.  The horse trading, budget proposals and approvals, and distortions that are involved in any federal level issue are over my head.  That alone is part of the reason I’m inclined to start up a small business one day and avoid such bureaucratic nightmares.

Also with regards to politics, President Obama’s style appears to be to go out of his way to allow affected parties to kibbitz and argue and debate an issue until consensus is reached.  This is frustratingly evident for the Commander-in-Chief’s wait-and-see attitude towards the Afghanistan run-offs and having Afghanistan as a credible partner before deciding what to do next with troop levels.  It should not take a national debate to know that 1) any general in charge will press for continued war in Afghanistan and 2) Afghanistan is the graveyard of empires.

My thoughts on President Obama’s style are that his job as an executive is not to dither (as Cheney would say), but to be a decider (as Bush the Younger would say). (that said, Cheney could have benefited from being more of a ditherer while Bush the Younger could have been more thoughtful in his decidering)

President Obama’s waiting can be seen as weakness, lack of certitude (does he really need to consider whether gays should serve in the military openly?), and lack of leadership.  Leaders lead through making tough decisions quickly, firmly, yet cool-headedly.  In the military, we were taught as sergeants and even as junior enlisted that making a bad decision is better than making no decision at all.  President Obama is coming up on 9 months in office and the people are getting impatient.

After having witnessed how DC works, I’ve noticed that when an Administration puts its weight behind a policy, or puts more funding into a certain area, businesses and non-profits react swiftly and with commitment.  If President Obama said tomorrow we are moving to solar power, even energy companies would play ball.  Scouts would immediately be hitting the phones and pavement to come up with the best contract proposals to win that money.  The argument that the nation has to be “ready” for change seems more obstructionist than realistic to me.  America is and always will be an unabashedly capitalist country that passionately desires chasing and obtaining the money.

Complaints that an active executive branch seems like a command economy/government  are crying wolf — companies and non-profits have no problem immediately shifting priorities.  Why should the government be less adaptive, less competitive?  So this gives me hope that an executive who makes forthright decisions would succeed in implementing this plan, regardless of the politicking that would follow it.

With these things in mind, I’ve tried to think of ways in which a current President could push through using executive powers a plan that would be hard for even Congress to stall.

1) Gays in the Military. First, the Commander-in-Chief should dictate that LGBTs (Lesbian, Gay, Bisexual, Transgender) must be allowed to openly serve in the military.  This is justified to the Jacksonians by saying that we need all the talent and strength and volunteers we can get to fight today’s wars.  Once the word comes down, the heads of each service will find a way to implement the policy.  The “problem” of how to integrate LGBTs is not a reason to delay equal treatment of citizens willing to fight. [note:  it would be up to states to decide whether to allow gay marriages, correct?]

2) Universal Human Rights. Allowing gay servicemembers provides a well-publicized opening for which President Obama can reaffirm the American Dream for all people by promoting the spirit of the Universal Declaration of Human Rights, sure to please the Wilsonians (who are concerned with equality) and Jeffersonians (who are concerned with preserving individual freedoms and federalism).  Abroad, a nation that pugnaciously defends, once again, taking in your tired, your poor, your huddled masses, as the Statue of Liberty shouts forth, will be a siren call the way it used to be for people all over the world who believe in the idea of freedom and opportunity, of life, liberty, and happiness.

3) Ending “Wars”. The Commander-in-Chief should withdraw all occupation military forces from Iraq and Afghanistan, thanking the military publicly for its professional service, but stating that America’s mission has changed and that he bears full responsibility for such a decision and no one else.  Programs and celebrations to re-integrate oft-deployed servicemembers back into society will strengthen long-stressed military families.

4) Drug Legalization. The President should legalize all drugs and fund rehab missions for addicts, heavily regulating drugs instead, including imports filtered from Afghanistan and south and central America.  This will cut the knees off drug cartels (Sinaloa, Juarez, La Familia) and enforcer organizations (Los Zetas) in Mexico, who are raising havoc for the Mexican government.

5) New Immigration Policy and Improved Border Security. President Obama, with fewer forces deployed, can focus his Department of Homeland Security and border resources towards an immigration policy that encourages highly-skilled immigrants to come to study, research, work, and live, and which allows more poor immigrants in than before, but with improved documentation.  The President should divert resources freed from Iraq and Afghanistan into helping secure Mexico both through a relaxed drug policy and through cooperative security to arrest drug cartel members.  Mexico is the soft underbelly of American superpower status and its well-being as a successful, secure, happy nation is in our national interest.  The Minute Men, who constitute a Jacksonian tradition in the southwest, should be lauded for their efforts in helping to watch the border, but with improved border security and accountability, their services won’t be needed as much and they can return to their normal lives.

6) Naval and Space Dominance. The Commander-in-Chief can re-assert the nation’s priority towards maintaining naval dominance.  The Commander-in-Chief and the President can look to the Earth’s orbit to assure future American dominance of outer space satellites and future space command platforms.  Much of the reason the US has gained global power is through its taking over full control over the seas from the British.  In the future, control of space will be of utmost importance to US commerce, intelligence, and security, as we are and will be heavily reliant on satellite observation and communication.  Hamiltonians will enjoy continued open-seas security for free trade, while the defense sector will enjoy moving into outer space for improved national security.  The US military will have a lighter footprint in sovereign nations, decreasing the threat of intractable insurgencies.

7) Downgrading Terrorism’s Priority. Terrorism as a long-term priority is not ranked high for the US internally, given the lack of proximity to terrorist-supporting failed nations.  However, its threat should be even more reduced once troops are redeployed from Iraq and Afghanistan, both of which are considered backyards for the global insurgency.  Lacking a near enemy in the US, insurgents will turn to civil war and/or a problem for Iran, Russia, the Stans, India, and Pakistan.  Al-Qaeda will lose much of its rallying cry.  Just think:  could we return to days before the TSA security theater where we have to remove shoes, belts, and dignity at airports?

8) Energy Independence. American energy independence will further mollify Al-Qaeda’s support base.  Pouring money into solar power in particular, which comes to us in an infinite supply, must be our way forward.  Reduced reliance on foreign oil weans us off OPEC and in particular Saudi, an apostate kingdom as Al-Qaeda would refer to it.  Al-Qaeda sees Saudi as being propped up by America in order to be raped for its oil.  US independence from Saudi whim removes the US from the least-braindead of Al-Qaeda anti-American animus.

9) Make New Friends or Strengthen Old Friendships. Returning to being that of a more honest diplomatic broker of peace, the US can step up efforts to ally itself with key regional pivot powers like Iran, Japan,  and Turkey, who constitute influential geopolitical power upon large swathes of the globe.  Pakistan, where the real terrorist threat is, can be more of a priority for American security and diplomacy, since foreign fighters have been long supported by the Taliban and the Pakistani ISI.  It is in the US’s interest to decouple these organizations from Al-Qaeda, while at the same time helping Pakistan to secure its nuclear arsenal from political and physical instability.

The end result of all these moves is that we have a larger, more diverse population base of productive Americans and a fresh stream of immigrants to contribute to the innovation economy.  We have safer borders and a stronger base in North America.  We have fewer albatrosses around our neck so that walking softly and carrying a big stick, being an arsenal of democracy, will be in line with our modern national security priorities.  By downgrading terrorism as a priority, we force other nations to deal with their near-border insecurities, while improving our response to naval superiority, domestic terrorist investigations, immigration policy, and a decreasing drug war threat.

Is this possible politically?  The main problem is that these steps above, taken individually, would not make much sense.  But under an integrated strategy, these steps would make sense to all the political schools of thought that exist within the US.  The only people who would stand to lose from these moves are of course incumbent interests, such as defense contractors who profit from foreign wars, and the Republican party, which has lost its philosophical moorings and which functions right now as nothing more than obstructionists wanting President Obama to fail.

The irony is that the strategy above would actually appeal to fiscal conservatives and to social libertarians, since the wars would end, homeland security would reach less into our private lives, and federal agencies wouldn’t be so stressed for funding from supporting failing drug/terror/border security/diplomacy policies.  The conservatives would find their voice backed up by national policy.

And of course the progressives would benefit because they’ve also ended wars, reduced the pressures of the drug war in Mexico on immigration and jailing for drugs, and ensured a rhetoric of equality for all human beings.

As for the companies and Republicans, well, both will do what they’re supposed to do:  they will re-form around where the profit, financially and politically, is.

It is the American DNA to be fleet, adaptive, innovative, and competitive.  This is the security strategy to encourage that.

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Interesting Economic Datapoints

So I’m done with this semester and I was just watching C-SPAN2, which was covering the Senate vote on the automaker bailout.  The vote failed 52-35 or so.  Dow futures were down -325 around the time of the vote.

I am still cash but am getting a bit more antsy to buy than I was before.  I have an “I know it when I see it” approach to bottoms and tops, so I’m waiting for that feeling again.

But it’s clear that the economic outlook is not good, with record unemployment numbers, commodity and energy shocks, and real bloodshed within the old American industries like media, auto, and finance.  Tech and internet has not been immune, but their companies are still announcing improvements and new products…

AMZN

I bought AMZN at 36.5 one day but got shaken out at the end of the day by climax selling.  Since then, AMZN rallied and touched 54-55 as the market bounced off fresh lows a few weeks ago.  What a pain that was to watch.  The rally came off Obama’s announcement of the next economic team, but it’s unclear whether there’s correlation there.

AMZN should announce the next Kindle soon, and it has been opening up its web services platform up even more.  The next generation of Kindle will suck people like me in to buying digital books (and probably be the last time I buy actual books en masse) and any increase in consumer demand will grease all of AMZN’s cloudy wheels.

TED Spread

The TED spread tracks the spread between inter-bank loans and US treasury bills and is a measure of liquidity in the credit markets — if there’s a high spread, then banks aren’t lending because it costs too much to do so.  Here’s the chart:

08_12_11_ted

After the initial credit shock when Bear Stearns folded in Augustish, 2007, you can see that the spread spiked up to about 200 basis points.  From then, the market stabilized until Septemberish of this year, when all the Fannie, Freddie, Lehman, AIG, etc. crap happened.

The market was on the brink of collapse until the Fed and Treasury decided to do whatever it took along with a massive finance bailout.  Until the public money was sure to flow in, the TED spread spiked up to 450 basis points — essentially no money was flowing anywhere within the private banking sector.

The spread then fell and has stabilized as the market’s continued to sink.  Now 200 basis points seems to be an agreed-upon number, but note that it is only back to where we were after the first credit shocks.  The normal TED spread was well below 100 basis points up until 2007.

In other words, there’s still substantial risk and unwillingness to lend.

[Note:  On Tuesday, Dec. 17th, the Fed cut rates essentially to 0%, which should reduce the usefulness of looking at the TED spread since the Fed is essentially acting like another lender…]

Treasury Bills

On Tuesday, for the first time ever, three-month treasury bill interest rates went negative!  This means that, for a brief period, people were willing to PAY the government to hold their money instead of seeking a return elsewhere.  That is, people didn’t even want a return ON their money; they just wanted a return OF their money!

Later, the government managed to sell $30bil worth of T-bills at 0% interest.  Which is still ridiculous.  Here’s the chart:

08_12_11_tbills

From The Sun's Financial Diary

These are rare times…we keep seeing records being broken, aberrances being observed for the first time, red-flag indicators going off everywhere.

Iceland

Iceland’s finance-dominated stock market completely collapsed.  Here’s the chart:

08_12_11_iceland

Icelanders are devastated.  There’s pretty much nothing left.  But to add insult to injury, the index, which had been hovering in the 600’s, just plunged down to the 300’s this week after another major bank failed.

Oil

Here’s the thing about oil.  Everyone who’s been predicting peak oil soon and all these ridiculously paranoid and apocalyptic scenarios were made to look like experts over the summer when oil prices spiked to the $140’s and gas hit $4/gallon.  A lot of financial risk management and analysis reports were written up until now, assuming continued high oil prices.

Of course, oil has since crashed.

08_12_11_oil

In other words, these knuckleheads don’t know what they’re talking about, or where oil prices are going next.  The term “black swan”, I should add, really pisses me off.  Geez.  Enough with Taleb!

Certainly the shock of oil prices has everyone rattled.  The instability of prices along with Obama being elected will hopefully be enough to spur long-term energy innovations to get us out of this fucking mess.  The time for US energy independence is now.  Especially if we really believe in protecting national security, not to mention national (and global) stability.

My position on oil is that its days are numbered as the major energy source, but it will still be needed for many products and as one of many sources of energy, even after we’ve converted heavily away from petroleum.

I also do not believe peak oil is soon.  I believe oil bedevils much of our foreign policy and is tied to our adventures with Israel and the Middle East and South America.  I believe we have in our own hands the ability to rid ourselves of these albatrosses.

I believe the chart above correlates extremely well with the “war” in Iraq, starting in 2003.  I am not sure what happened this summer in 2008.  I know that the Status of Forces agreement started hitting Iraqi politics around the same time but the massive oil spike could have been a climax of worldwide fear.  I don’t know.  The Iraq “war” seems to be all but over now that the SOFA passed and Obama is in, and I think oil is pricing that news in.  Oil has always correlated well with foreign wars.

What Next?

It’s amazing what we as Americans are willing to inflict upon ourselves.  All of this is solvable, and we know approximately what the causes are.  Until Obama got elected, we refused to acknowledge it.  Here’s hoping that Obama can translate a good plan into action. But it will be hard to generate political action when so many interests are set against it, even if it means saving our economy.

In the meantime, the economy and financial markets are still a mess, even after a bunch of layoffs have helped companies streamline.  Will those frictionally unemployed turn into structurally unemployed?  With little emphasis on job re-training, and a prolonged recession, one might think so.

Something does not feel right at all out there in my gut, making me suspicious to put my money forth, and we have yet to deal with the next big financial bomb:  consumer credit.  What happens when people, many of whom have lost jobs and have lost a safety net because of Republican idiocy, run out of money to pay back creditors?

[60 Minutes just did a report on the upcoming 2nd mortgage shock:  option arms resets.  They will balloon homeowners’ monthly expenses and look to be as bad as the first shock.  Watch the entire video for more.

07-10-24d_mortgage-resets-comprehensive

The light-green reflects the damage we’ve dealt with already, and the light-yellow and yellow are what’s still to come.  Sobering.]

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Hawai’i Trying to Be a Better Place

[NOTE:  Some of the stats used in this article are outdated but I think they still capture the depth of Hawai’i’s energy risks.]

Hawai’i wants greater energy independence and is taking active steps and forming policies to do so.

This has fascinated me since this summer when I went to visit my brother on O’ahu.  I stayed with him for a few days in Honolulu and we got a good chance to catch up, since Hawai’i and DC are quite far apart.  I went to Hawai’i to attend the International Achievement Summit on the Big Island (my write-up here).

My brother, who is a programmer for a project for NOAA, is always particularly well-informed.

We were driving to the airport and he was telling me how much the oil price crisis was hurting Hawai’i, back when oil was heading for $140/barrel.  The impact of higher oil prices is particularly significant to Hawai’i, since most of its imports must be petroleum from Alaska and the Pacific Rim to support its own economy (I was unable to find the exact percentage of the total trade balance spent on petroleum imports, but oil costs them $7bil/year to import).  My brother told me the taxi drivers were hurting in particular, but also anyone in the logistics and transportation sectors.  Even here in DC, there was a $1 surcharge on all cab rides to account for higher gas prices — they only recently removed it again after oil prices dipped into the $40’s.

Hawai’i in other words is highly dependent on energy imports, moreso than any other state in the union.  Petroleum in particular takes up 90% of all energy usage, 40% being imported from Alaska.  Hawai’i’s demand is highly inelastic for energy since it is a basic requirement for economic operations there.  However, in looking at the stats in depth, most of that oil demand comes from jet fuel and military operations.  Around 60% is used for transportation purposes, and about 1/3 of that oil is used on jet fuel alone, according to some sources.

A Better Place?

So when I read an article yesterday in the NYTimes describing Hawai’i’s electric company and government endorsements (whatever that means) of Better Place (press release here), a new automotive energy infrastructure start-up, I was excited but skeptical.

Better Place is a company started by an amazing salesman, Shai Agassi.  He recently had a long write-up in Wired Magazine (which, I should add, should be a must-read for anyone — it posts all its magazine articles online for free, but subscriptions run super-cheap).  And I saw Mr. Agassi speak on a panel for an electric car conference in downtown DC over the summer, featuring a Tesla Roadster and Jim Woolsey.  Agassi is considered to be (fairly over-optimistically) the leader in pushing for the future of automotive energy.

His plan for Better Place is to build an infrastructure of charge-up stations and battery-swapping stations using existing gas station infrastructure.  Combined with electric cars, which he sees as appealing to car companies because his company can separate the battery and energy production from the car design itself (which will allow car companies to execute on what they know (or should know) best), people will be able to drive longer distances and just swap out batteries interchangeably with ones at the stations.

“Agassi dealt with the battery issue by simply swatting it away. Previous approaches relied on a traditional manufacturing formula: We make the cars, you buy them. Agassi reimagined the entire automotive ecosystem by proposing a new concept he called the Electric Recharge Grid Operator. It was an unorthodox mashup of the automotive and mobile phone industries. Instead of gas stations on every corner, the ERGO would blanket a country with a network of “smart” charge spots. Drivers could plug in anywhere, anytime, and would subscribe to a specific plan—unlimited miles, a maximum number of miles each month, or pay as you go—all for less than the equivalent cost for gas. They’d buy their car from the operator, who would offer steep discounts, perhaps even give the cars away. The profit would come from selling electricity—the minutes.” (Daniel Roth, Wired)

Very ambitious.  And hard to get off the ground, apparently.

Electric Cars in Hawai’i:  The Holy Grail and a Prototype?

But Hawai’i poses a unique environment that might be perfect as an Agassi prototype.  This is the sort of shit that an international affairs grad student such as myself really enjoys analyzing.

It is a small collection of islands with a diverse ethnic composition of mainlanders and haolis, native Hawai’ians, and many Japanese and other Pacific Islanders.  It is one of the most progressive states in the union (probably second only to DC in unanimity in voting for Barack Obama in 2008’s election).  It is a major hub for civilian and military travel.  It has the largest protected natural reserve under monument status in the country, which is what my brother is working on for NOAA.  As said before, it is highly dependent on energy imports.

So it is a highly progressive state that exists somewhat outside of the rest of US politics, its budget made frail by reliance on energy imports, and is geographically suited for not only a small-scale electric car prototype project and to rid itself of continued energy dependence.

Caveats

Interestingly, Agassi’s first attempt to install a Better Place infrastructure has been Israel.  It also has interesting characteristics, being a highly-modernized nation dependent on oil, which it imports from its “enemies” (although it cuts deals with them all the time, normally) in surrounding Muslim countries.  It is essentially isolated by geography, and is small enough for electric cars’ limited ranges.

But in Hawai’i’s case, if much of its actual oil consumption is constituted by jet fuel, then Hawai’i is ages away from ridding itself of that energy hurdle.  Electric car models cannot be transferred to airplane models yet.  We won’t have “green planes” for a while.

So one has to be realistic about the ultimate impact switching to electric cars would provide to Hawai’i.  The other component is that electric cars will increase the demand for electricity production, which is also to some degree reliant on energy imports.

Hawai’i Policy

Hopefully the Hawai’ian government understands this with its more holistic solution for electric cars within a broader energy policy (read about it here).  It instituted the Hawai’i Clean Energy Initiative (HCEI) recently as an agreement with the local utilities as of October 20, 2008, to end up receiving 70% of its energy needs from clean alternatives by 2030 as opposed to the 92-95% dependence on petroleum as of now.

So there seems to be a lot of political traction right now.  My brother informed me that Lanai is trying to build large wind and photovoltaic farms and the islands are trying to unify their electricity grids, hopefully towards the smart grid that Agassi would like in order to distribute power and conserve it during peak times versus inactive times.  So the increase in demand for electricity could be off-set by a shift from dirty energy to clean, alternative energies, facilitated by Hawai’i’s policies and initiatives.

[My buddy Monkey Pope (just returning from O’ahu) in his comment below rightly pointed out that I left out the rail transit plan in Honolulu.  My brother mentioned this to me and said it was a highly-contested debate between people concerned about budget and environmental damage and people who want to remove the burden of cars on the gridlocked roads.  As it turned out, the last election day found that the rail plan passed a vote.  So this new railway may assist in removing pollution and energy burdens too.]

Politics

All of this is also interesting within the context of the automotive industry lobbying for a government bailout in DC.  Better Place and Tesla Motors are two companies started out of Silicon Valley circles of entrepreneurs and not out of Detroit.  Hawai’i and San Francisco have signed on to the Better Place project.  Tesla’s popular among the rich investors in California.  These projects may fail, but it’s sad that they receive so little support; in fact, the tech sector seems to be the only thriving source of innovation within the US right now save for its university research (pharma, auto, media, etc. are crumbling and are full of old minds that don’t understand why they’re losing) and if the US loses that, then we’re fucked.  On top of that, the Republican party and its masters and lapdogs make fun of the fags in San Francisco and Massachusetts and the cocktail-drinking elite in DC…all the people who are busy creating real value in this country instead of peddling old garbage in strip malls that no one wants to buy now that they’re having to pay off their overpriced mortgages and credit card bills.

Here’s hoping for an innovation commons promoted by Barack Obama (a Hawai’ian) that leads to more of these companies!

Thanks to my bro for getting me to think about this stuff.

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