08 May 2013

Stock market bubble fueled by printed money

So the Dow Jones has hit 15,000, it was 14,000 just over two months ago, with the S & P reaching a record level, the FTSE is at its highest since 2007, and the German DAX index reaching levels not seen since before the global financial crisis.

It is like the crisis didn't happen, but oddly enough there isn't a huge amount of evidence to demonstrate that this is due to performance, rather than cheap credit.

Yes there has been a bit of a recovery, and yes some stock prices were low compared to expected revenues.

"Ultra-loose and interventionist monetary policy globally is one of the main causes of this resurgence. Pretending that it isn’t, and that economies – even those like America’s which have liquidated many past malinvestments – could immediately and easily readjust to neutral interest rates and zero intervention is a dangerous delusion.

Much of the central-bank induced madness that led to the last two bubbles is reaching ever more dangerous proportions, not least the Fed’s hubristic determination to prop up markets..."

It was the perpetual issuing of fiat money by central banks that fueled the crisis, with CPI inflation hidden by a combination of plummeting prices from Chinese imports (a scenario that has come to an end, as China no longer offers lower costs) and the inflation being largely seen in stock and property prices.

The new bubbles will be stores of future problems. 

Increases in stock prices due to good performance and optimistic earnings based on improved productivity and market growth are one thing,  increases due to banks, flooded with cheap money from central banks, seeking somewhere to put it, are another.

No one has learned anything.

02 May 2013

Not all austerity is equal...

Allister Heath of City AM:

Spending cuts are austerity of the public sector  (as it has to reduce its activity)

Tax increases are austerity of the private sector

Think about which one is more likely to decrease employment, and which one is more likely to reduce economic growth.

01 May 2013

Self-driving cars could transform land transport

In the UK the talk is about taxpayers paying for an extensive high speed railway network between London, Birmingham, Manchester and Leeds.  It would cost £35 billion to build and would lose money.   It will mostly service well-heeled business people (the fares will be too high for families, who will drive, or the poorer, who will take the multiple competing privately provided coach services).  90% of its users will be those using trains now, or people who wouldn't have travelled in the first place.  It will make next to no impact on domestic flights or road traffic.  One of the main objectives is to free capacity on the existing lines, so that more loss making commuter services can operate on the lines close to London.

In Auckland the talk is about an underground rail loop to enable its commuter rail service, soon to be electrified, to have more capacity during the peak hours.  Roughly 45,000 trips a day are taken on that system, roughly the entire average daily trips of Fenchurch Street station in London (yep that busy) (and 10% less than Wellington's network, despite Wellington's region having at least a quarter of Auckland's population.  It would cost NZ$2 billion to build and would lose money.  

In both cases the projects are expensive, not financially viable, and serve relatively few people.

They are 20th century solutions to perceived transport problems, but another is on its way, and it could transform land transport between and within cities.

Self-driving cars. Allister Heath says it makes big rail schemes like HS2 outdated.

The technology exists now.  Cars can already park themselves, emergency brake, follow road lines and follow other vehicles and brake automatically.  Several US states are already changing laws to allow for fully autonomous road vehicles, and the technology now being trialled enables vehicles to navigate safely along existing roads.

What could that mean?

Road vehicles that actively avoid collisions, both with other vehicles, and cyclists and pedestrians.

Road vehicles that operate in convoys, in close formation on major roads, increasing the capacity of those roads by a factor of three to four, rivalling railways.

Road vehicles that don't need a driver, that can be sent to be parked anywhere, called up on command by mobile phone.

Motorways that operate like trains of vehicles, except that the vehicles have the ultimate flexibility of starting and ending trips anywhere on the road network.

Traffic lights will no longer need to keep traffic stopped, but rather interweave traffic to maximise capacity.

Speeds can be faster where it is safe to do so, and better managed where there are many pedestrians.

Cars could be parked with a far higher density.

Let's not pretend there are barriers to this.

Technology needs to be refined, it needs to be secure.  Nobody wants autonomous cars diverting onto footpaths and mowing people down.

Laws need to be changed, so that owners of vehicles are liable for accidents when there is no driver or active driver.

Roads need to be better managed, so lines are maintained, databases about road rules, traffic signals adapted and systems in place so the network is actively managed.   

However, it can transform transport.

Buses can have the capacity of commuter railways (with the exception of high frequency metro services, which Auckland will never have).

Roads can have much more capacity, so there is far less need to build more capacity, and there is far less need to build safety into the roads with barriers and signs and speed limits that reflect driver behaviour.  

Roads would be so much safer that incidents of accidents causing congestion would be rare, and thousands of lives would be saved from serious injuries, and hundreds of millions of dollars of property damage and health costs avoided.

Vehicles would be much more fuel efficient, as vehicles become more efficient anyway, reducing emissions and the environmental impacts from transport.

Roads would be more like networks akin to telecommunications and energy networks, and politicians choosing projects to expand capacity would be rightly treated as amateur fools.  Who today would listen to a politician who says that a specific switch needs to be installed on a network, or a substation or that cable capacity be added somewhere?

Railways are bespoke inflexible networks that have a lot of capacity best suited for a narrow range of transport tasks.  The range of those tasks will narrow even more with automated road transport.

Of course some will still choose to drive, and will have options to do so, for leisure, but probably pay much more for insurance to do so without driving assistance.   What happens ought to be up to market demand, for vehicles and for roads.

Unfortunately, roads are managed by politicians and bureaucrats.  If anything is going to get in the way of setting them free, it will be them.