This has been an incredible two weeks here at Strong Towns. My apologies to our regular readers who are used to our normal format (long post on Mondays, shorter post on Wednesdays and the News Digest on Fridays), but I want to pause and welcome anybody new hanging around to check us out. We have a lot of fun here on Fridays, which is the day I give a Strong Towns glance at the news of the week. Glad you are here.
Our regular readers requested a deeper explanation of the Growth Ponzi Scheme and we responded with a five-day series that ran last week. The series was posted concurrently on the New Urban Network website (which normally syndicates this blog's Monday posts). Then, we were asked to do a shorter piece on the same topic for Grist, which ran on Wednesday. At the time of this writing, the Grist piece alone has been shared on Facebook over 700 times! Now, I find my email inbox is flooded and this site has been on tilt with traffic. Utterly amazing.
And to you, our readers, we say thank you. We truly are just three guys trying change the world, but you are the ones making it happen. Thank you for sharing our work in your towns and neighborhoods, for getting involved in your places, for doing a little Tactical Urbanism and for encouraging us along the way. I want to especially thank those that listen to the podcast -- it is a labor of love and I'm glad you enjoy it.
And for those of you that have supported us with a financial contribution, not only a special thank you but a promise of a major announcement soon on how your donation is being leveraged with support from a major contributor. You've helped us reach that next level -- now the hard work truly begins. Let's build some Strong Towns!
But first, here's the news of the week, with financials taking front and center. Enjoy!
- Fed Chief Ben Bernanke held his second post-FOMC press conference this week. This one did not have the drama of anticipation as the first did, but was probably more substantive. I found it fascinating (see video below starting at 9:50) how the confidence of the Fed seems to be waning. Not only have they downgraded their own growth forecasts, but the Chairman seems at a loss to explain exactly what is going on. This bit of humility is welcome -- the economy is so complex that it defies simple explanation, despite the Fed's prior statements of omnipotence -- and hopefully will translate into an approach favoring long-term resiliency over near-term growth-inducement.
- Also rather puzzling this week was the sudden decision to release oil reserves into the market, which dropped global oil prices by 6%. The U.S. released 30 million barrels, which -- for comparison -- is a day and a half of American consumption. This was done at a time when crude prices had actually dropped substantially from prior highs. What is going on? This feels more like a feeble attempt at economic stimulus (or worse, politics) than a substantive move to stabilize oil prices. If it is stimulus, it just reinforces our complete impotence to deal with this financial crisis. If it is truly about oil prices, then what does that say about our seriousness?
- Of course, the real oil story is how the major oil exporters are needing to withhold more of their oil for domestic consumption, which reduces the amount available for export. This coming at the same time when global oil production has plateaued and the growing economies of the world (most of the globe, sans the U.S. and E.U.) are sucking up more crude for their economies. All this makes the dribble of a day and a half's worth of supply from the strategic reserve seem even more silly by comparison.
From dairy farms that run air conditioning for tens of thousands of cows to the Middle East's largest fleet of private jets, the world's leading exporter of crude oil is burning more and more energy.
Domestic subsidies keep fuel prices low and give citizens and companies no incentive to cut back.
Peak-time power demand—fueled largely with crude oil—rose by 10% last year, according to the country's deputy electricity minister.
Some economists say that if Saudi Arabia's current energy-consumption growth rate of 7% a year continues unabated, the kingdom within 20 years will burn the equivalent of almost all its recent daily output—more than eight million barrels a day—or around two-thirds its total production capacity.
"They're really within, just mathematically, 20 years of having very little oil to export," said Brad Bourland, chief economist of Jadwa Investment in Riyadh. "I think it's a very significant medium-term challenge for them in how they turn it around."
- One other place where we are having a difficult time developing a coherent narrative to explain what is going on is with overall employment. After "leading economists" were stunned last month with higher than expected unemployment figures, they were once again too optimistic with the latest figures. The Patron Saint of Strong Towns thinking, Nassim Taleb, has said many times that we have a serious problem with forecasting. This is a problem that can't be solved with better math, slicker spreadsheets and more PhD's but with humility and a little social science. I swear, if these economists actually walked down a main street or talked to people at a grocery store they would learn more about what is going on than any spreadsheet projection will ever tell them.
The number of Americans filing new claims for unemployment benefits rose last week, suggesting little improvement in the labor market this month after employment stumbled badly in May.
Initial claims for state unemployment benefits climbed 9,000 to 429,000, the Labor Department said Thursday.
Economists had expected claims to come in at 415,000.
- If you need any further proof that the emperor has no clothes, here is another quote from that last article. Are these people just talking to hear themselves talk?
Like the Fed, economists are cautiously optimistic that the recovery will regain momentum by the third quarter.
The decision to release 60 million barrels of oil from stockpiles held by industrialized oil-consuming nations, which brought prices down sharply, should help ease the pressure on consumers and bolster the recovery.
- Fed policy, oil prices, unemployment....this tour of economic confusion would not be complete without the foundation of futility: housing. Housing prices continue to drop and the media sound bite of the week was that the fall is now "greater than the Great Depression," which is incredibly stupid and actually makes it sound like things can't get much worse. To the contrary, there is a long, long ways down to go. Heading into the Great Depression, housing prices were already down in comparison to our wages. Heading into the housing correction, prices were inflated beyond all reasonable capacity of our pocketbooks to sustain. Prices have begun to correct, but they have not yet begun to reach even historic averages and remain overvalued. Check out the historic Schiller Index for a comparison of 2010 and 1932.
- No tour of economic folly this week is complete without a quick look at Greece. If you want to understand what is going on in Greece and why it matters, the Economist has a good article this week that explains the fear of cascading defaults and the need to take some decisive action towards resolution. But their proposed remedy -- a restructuring, which would mean a technical default by Greece -- would bring back an old friend we would just as soon forget: the Credit Default Swap (CDS). If you bought Greek debt, a CDS is insurance you would buy to protect yourself in case Greece defaulted. Kind of like we did with subprime (and that worked well, AIG). But since CDS's are not regulated, any insolvent bank can sell an unlimited amount of these policies, pad their profits, pay out some nice bonuses and pray that a default doesn't happen. And if it does, well....just hope they are too big or interconnected to fail. Kind of a "get yours before things blow up" kind of approach. Moral hazard on steroids, especially with reports that the value of CDS's on Greek Debt far exceeds the actual amount of Greek debt.
...a Greek default event would break the banks and the financial wizards who sold default insurance. This is all about protecting them, not the Greek people. To quote Atrios, “The people who run the world agree that ordinary people need to suffer so that the banksters don’t lose on their bets.”
Mohamed El-Erian of Pimco still thinks Greece will default. And maybe they will. Maybe the Parliament will succumb to the pressure of the street and refuse to institute more pain and suffering. Maybe this latest plan will just kick the can down the road, and default will be an inevitable future event. But Greece should have the power to set the terms here. It’s like the old joke: “If I lend you $100 and you don’t pay it back, you have a problem. If I lend you $1 trillion and you don’t pay it back, I have a problem.”
- The most flattering compliment I received this week was on Twitter from @whiteknuckled who said, "Reading C. Marohn is sort of like reading Kunstler. If only Kunstler were calm, measured & not laced w/ profanity." I love the work of James Kunstler (although he still shuns my social media invite). His latest is a piece in the Orion Magazine titled Back to the Future, which looks at the forces impacting the future of cities. Sobering, but not chicken little by any stretch. There is also a really good audio interview, so check that out.
- The group Redfields to Greenfields has some fascinating information on the extent of the real estate crisis -- stuff we use in our Curbside Chat program. An article this week in The Dirt quoted from R to G to make the economic return case for the value of parks. And to my friends like @Ross from Grand Rapids, it is not just the park that matters but where the park is built that provides value.
“The U.S. caused this real estate crisis with its housing policy. There were no down payment requirements, easy credit, and lots of capital moving into non-performing assets.” As a result, the federal government had to move in with $10 trillion investments and recovery programs (“real estate backstopping”) to hold off further economic decline. To counter this trend, surplus land must be redeveloped as green space. Cities large or small can use green spaces as an “economic multiplier” that not only creates green infrastructure but also helps developers get developing again. “Parks can help unlock the real estate market.” Also, tearing down underperforming, vacant housing can create wealth. “Land without buildings are still assets.” If real estate entrepreneurs and parks managers collaborate on identifying opportunities, these types of program could not only lead to a “stock market explosion” but also make communities more livable.
- And finally, this has been a very difficult spring and early summer for those of us in Minnesota. No, we've not had the flooding or tornados that have devastated other parts of the country. Our injuries have been more emotional. The Minnesota Twins playing their second season in beautiful Target Field were supposed to dominate, but instead were, until recently, the worst team in baseball. This happened against the backdrop of a spring that refused to arrive and now a summer that has been equally elusive. Well, I'm looking out my window and the sun is coming up in a cloudless sky while my Twins have climbed from the cellar to within striking distance, and done it on the backs of some scrappy AAA players, old school. What a joy to watch. Here's a sampling of the magic and energy our minor league reserves have brought to the park.
I hope you all have a wonderful weekend full of sun, family and friends. For those of you in Minot, we wish you the best and hope for a limit to the damage your city is now experiencing.
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