the implosion continues

Chinese exports dropped significantly in November. The magnitude shocked economists. Read about it in the New York Times today. See my other postings on China. This turned out to be an easy prediction.

It is also a further indication that the crisis is far from over. Seriously, the worst is yet to come. For those of you who think we reached bottom, think again. I also stick to my prediction of a Dow 6000. I don't see any improvement until at least mid-2010. Most economists believe things will turn around in mid-2009, but then again, they don't get paid to spread bad news. And economists have been wrong before. Recently, as a matter of fact.

'T is the season to be wasteful

People's desire to light up the night sky is never as strong as it is in mid-winter. All modern religions originating in the Northern Hemisphere have incorporated ancient solstice rituals into festivals of light. And so we have the Hanukkah candle lighting, the Persian Sadeh and Yalda festivals, the Hindi Diwali festival of lights, and the ubiquitous Christmas lights. To say nothing of the recent revivals of winter solstice celebrations.

But even in the midst of all this joy, we feel the need to outdo the neighbors. Once again the drive to show how cool we really are is alive and well. So much so that many cities and neighborhood associations are starting to step in and put an end to the posturing contest. Today's Wall Street Journal has an article entitled "Neighbors Clash Over Christmas Lawn Decorations" that highlights the problem. It appears some of the people featured in the article were inspired by the rather boring comedy Deck the Halls, where Danny DeVito attempts to make his tacky home visible from space. How does 50,000 lights sound to you?

But what is quite disturbing are some numbers cited in the article. In 2006, Americans spent $16B of their "discretionary" dollars on seasonal decorations, up almost 10% from 2 years earlier. And very few of these items are just static. Nearly all require energy to set up and run. Inflatable yard decorations, many of them well over 8 feet tall are the latest craze, with people spending nearly half a billion dollars on this segment alone. Many of those require constant inflation and nearly all are lit up round the clock to boot.

At the same time these consumers are fuming about rising energy costs. Given that the lighting craze mostly affects middle class neighborhoods, the ones that are said to be feeling the pain, one has to wonder how real this pain is. Are people feeling the pinch when it comes to adding another 10,000 lights?

It is quite obvious that Americans retain a profoundly wasteful attitude towards energy use and that their proclamations of wanting to fix global warming are lacking credibility.

The winter holidays are a true celebration of overconsumption and excess. Holiday spending is close to $450 billion. Fully one fifth of retail industry sales occur during the holiday season according to the National Retail Foundation. $450 billion is three times as much money as the nation spends on prescription drugs each year. And it is almost twice as much as the total annual charitable giving to all causes, except for disaster relief.

The total US economic and military assistance to the entire world -much of it in the form of military intervention and loans by the way- totaled $40B last year. That is only 10% of what consumers will spend on gifts and trinkets this holiday season. The true aid stands at $19B and it barely exceeds the $16B in seasonal decorations that we buy. And here are some more interesting numbers.

In 2006, we spent $1.2 billion dollars on "real" christmas trees and another $631 million on "fake" trees according to the National Christmas Tree Association. Those fake trees are petroleum products by the way. And most come from China too, adding a fair dose of air pollution along the way. The real trees only travel from Canada so they are relatively clean in comparison.

We spent more on Christmas trees last year than we did on foreign aid to Afghanistan. And no countries other than Iraq, Israel and Afghanistan received more than $1 billion in aid. Only one poor country, Ethiopia, received more in aid than we spend on fake Christmas trees each year.

vanishing trees

Only 8.8% of the planet's land surface remains covered in dense forest according to the latest study employing advanced satellite imaging. Less than 20% of the original forests remain in large tracts of undisturbed forest. More than 3/4 of those are in three countries, Russia, Canada, and Brazil. When it comes to biodiversity, intact tracts are more important than the same numbers of trees in small patches. That is because many animals and plants require large tracts to survive. Fragmentation, even as simple as cutting a few roads through the forest, is the main factor threatening plants and animals with extinction.

Forest devastation is especially pronounced in easily accessible and inhabitable regions. Temperate broadleaf forests are down to less than 4% of what they were a few centuries ago. Boreal forests in Russia, Canada, and Alaska are among the best preserved mainly because they are the hardest to reach and exploit. Not so with tropical forests. While these are still substantial today, they are shrinking incredibly fast. One estimate says tropical forests will last less than 50 years if present trends continue. One and a half acres disappear every second. Along with 137 species per day.

Just fourteen countries control over 90% of the world's remaining intact forest landscapes. Apart from Russia, Canada, and Brazil, nearly all of these are poor countries with weak or puppet governments that are easily persuaded to wreck havoc with resources in return for some hard cash. And the pressure is very high. Big multi-national corporations control the forest trade. Conservation is not on their agenda. Their CEOs are more worried about their oversized pay and retirement packages and the daily fluctuations of the stock price than about some patch of forest in a far away land.

But there would be no business without demand. Many areas are wiped out to make room for agriculture and cattle farming, read cheap fast food hamburgers. Others are removed to facilitate mining and drilling operations. Yet others are stripped for their exotic hardwoods used to decorate overstuffed McMansions. It is ironic to see how many people grossly overextended themselves to spruce up their homes and buy gadgets they could ill afford using cheap mortgages. Many of these are now about to lose their homes in foreclosures.

But the trouble is a world wide phenomenon. The new economies of China of India are bottomless pits that swallow everything whole. China for example, cuts down 25 million trees a year just for disposable chopsticks in restaurants. The country uses 45 billion pairs of disposable chopsticks each and every year. In the 1980s China became the second largest importer of forest products in the world. Earlier it exported wood but now it is so far down on its own resources that importing is easier.

Russia is its main supplier now, followed by Malaysia. Nearly 40% comes from Africa, Malaysia, Indonesia, and other South East Asian nations. 40% of imports are hardwood logs and another 25% are conifer logs. And what does China do with all this wood? It manufactures items for rich countries.

China exports wood products to the US, Japan, Hongkong and South Korea. Nearly all exports are processed wood. A large share is veneers and plywood, but the majority is items such as door, frames, carving products, wood toys and tools, etc. China's export trade is slightly larger than its imports but both have grown from less than $1B in the nineties to over $7B today. And there is no end in sight. As long as people insist on building more and larger homes, demand will continue. For another 50 years or so that is. Because then, there won't be anything left.

chinese medicine

We all know that there is no such thing as a free lunch but that hasn't kept us from trying to eat one. And the fact is that some people eat free while all others pay. The trick they use is quite simple. It is called credit. But it is a type of credit where no bill comes due. At least not to them or in their life-time. It is a trick as old as Chinese medicine.

Today's WSJ has an article about tainted ginger originating in China and sold in California. Given how much food California grows, you would wonder why we import basic items such as ginger and garlic.  The US imports 68.7 million pounds of unground ginger per year. 53.8 million pounds travels 8,000 miles from China to get here.  And the reason why is simple. Ginger from China can be had for $7 per 30 pound box. And it can be sold for $2-3 per pound in the store. Good deal? Ginger from Brazil, the second leading source costs as much as $35 per box.

And the same applies to garlic. If you live in California, you may be forgiven to think that garlic comes from Gilroy. But think again. The US is a net importer of garlic. And China is the primary source.

One reason Chinese goods are so cheap is that Chinese workers aren't paid as well. That is the part the Chinese suffer for. They have a lower standard of living and we take advantage of it. The second part is that the Chinese are not subject to the same strict regulations and inspections that apply here. And here is where things get a bit tricky.

Everyone is always up in arms about government regulation. Demonizing regulations and the government is a favorite US pass-time. We conveniently forget that we elect the government, and that we put regulations in place to protect ourselves and our children. We do not want cheap toxic pesticides on our food, lead paint on our toys, or unsafe devices. We want inspections and guarantees. We want to sue for damages when someone gets hurt. And we expect multi-million dollar payments for pain and suffering. All that adds to price of things produced here. And like all good capitalists we really want someone else to pay for it. We effectively put locals out of business and go shop elsewhere.

The third part of the China bill is shipping. Importing basic stuff such as ginger, garlic, children's toys, and gadgets burns tons of oil. But we still "gain" because the oil is cheap too. It is cheap as nobody pays for the pollution part. Or the inevitable oil spills that mess up our coastlines. These are separate issues after all. Or are they?

Next time you volunteer your valuable time to clean up coastlines think about that. If you paid a few extra dollars for your goodies, you could save yourself a ton of time. And the environment a ton of hardship.