This is a fascinating article, and huge.
The idea is that — worldwide — stocks based on carbon reserves are essentially a multi-trillion dollar bubble, because they cannot actually ever be burned (if they are burned it’s — as James Hansen has said — “game over for Planet Earth”).
The bubble is real only if carbon reserves are “unburnable,” and the argument for why they are unburnable is essentially the argument being made by the carbon divestment (“Do The Math”) campaign led by Bill McKibben, Naomi Klein, and millions of climate activists.
It comes down to this: EITHER the carbon reserves (and thus stocks) of energy companies have full value OR civilization on Earth has a viable future. Up until reading this article, I was betting on the energy companies and not holding much hope for the Earth (which is absurd, of course).
I find this a very hopeful development (for the planet, but not for the markets).
This is a grim development for financial markets.
Hold on to your hats, a disturbance in the force may be coming soon to a planet near you.
By Damian Carrington, The Guardian
Thursday, April 18, 2013 20:11 EDT
The world could be heading for a major economic crisis as stock markets inflate an investment bubble in fossil fuels to the tune of trillions of dollars, according to leading economists.
“The financial crisis has shown what happens when risks accumulate unnoticed,” said Lord (Nicholas) Stern, a professor at the London School of Economics. He said the risk was “very big indeed” and that almost all investors and regulators were failing to address it.
The so-called “carbon bubble” is the result of an over-valuation of oil, coal and gas reserves held by fossil fuel companies. According to a report published on Friday, at least two-thirds of these reserves will have to remain underground if the world is to meet existing internationally agreed targets to avoid the threshold for “dangerous” climate change. If the agreements hold, these reserves will be in effect unburnable and so worthless – leading to massive market losses. But the stock markets are betting on countries’ inaction on climate change.
Read the full article here.
When the subject of revenue increases comes up, Republicans usually complain that the United States is among the most highly taxed country in the world, and that taxes must be lowered.
Here’s a graph — from a report by Citizens for Tax Justice — that proves that the US bears nearly the lowest tax “burden” among OECD countries..
The US is third from the bottom in this graph. Only Chile and Mexico have a lower rate, measured as the total of local, state and federal taxes as a percentage of GDP.
Young farmers in Scarborough, Maine can’t afford to buy land, so they lease it from the Scarborough Land Trust.
Could that model work here in Nevada County, California?
Michael Hudson explains how public banks may serve the goals of capitalism, while private banks — under our current system — tend to become parasites.
Reprinted from Web of Debt
By Ellen Brown
Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds.
New Zealand has a similar directive, discussed in my last article here, indicating that this isn’t just an emergency measure for troubled Eurozone countries. New Zealand’s Voxy reported on March 19th:
The National Government [is] pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts . . . .
Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.
Can They Do That?
Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.” The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.
The 15-page FDIC-BOE document is called “Resolving Globally Active, Systemically Important, Financial Institutions.” It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:
An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equitywould become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.
No exception is indicated for “insured deposits” in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks. The directive is called a “resolution process,” defined elsewhere as a plan that “would be triggered in the event of the failure of an insurer . . . .” The only mention of “insured deposits” is in connection with existing UK legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.
An Imminent Risk
If our IOUs are converted to bank stock, they will no longer be subject to insurance protection but will be “at risk” and vulnerable to being wiped out, just as the Lehman Brothers shareholders were in 2008. That this dire scenario could actually materialize was underscored by Yves Smith in a March 19th post titled When You Weren’t Looking, Democrat Bank Stooges Launch Bills to Permit Bailouts, Deregulate Derivatives. She writes:
In the US, depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren’t even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.
One might wonder why the posting of collateral by a derivative counterparty, at some percentage of full exposure, makes the creditor “secured,” while the depositor who puts up 100 cents on the dollar is “unsecured.” But moving on – Smith writes:
Lehman had only two itty bitty banking subsidiaries, and to my knowledge, was not gathering retail deposits. But as readers may recall, Bank of America moved most of its derivatives from its Merrill Lynch operation [to] its depositary in late 2011.
Its “depositary” is the arm of the bank that takes deposits; and at B of A, that means lots and lots of deposits. The deposits are now subject to being wiped out by a major derivatives loss. How bad could that be? Smith quotes Bloomberg:
. . . Bank of America’s holding company . . . held almost $75 trillion of derivatives at the end of June . . . .
That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show.
$75 trillion and $79 trillion in derivatives! These two mega-banks alone hold more in notional derivatives each than the entire global GDP (at $70 trillion). The “notional value” of derivatives is not the same as cash at risk, but according to a cross-post on Smith’s site:
By at least one estimate, in 2010 there was a total of $12 trillion in cash tied up (at risk) in derivatives . . . .
$12 trillion is close to the US GDP. Smith goes on:
. . . Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. . . . Lehman failed over a weekend after JP Morgan grabbed collateral.
But it’s even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors.
Perhaps, but Congress has already been burned and is liable to balk a second time. Section 716 of the Dodd-Frank Act specifically prohibits public support for speculative derivatives activities. And in the Eurozone, while the European Stability Mechanism committed Eurozone countries to bail out failed banks, they are apparently having second thoughts there as well. On March 25th, Dutch Finance Minister Jeroen Dijsselbloem, who played a leading role in imposing the deposit confiscation plan on Cyprus, told reporters that it would be the template for any future bank bailouts, and that “the aim is for the ESM never to have to be used.”
That explains the need for the FDIC-BOE resolution. If the anticipated enabling legislation is passed, the FDIC will no longer need to protect depositor funds; it can just confiscate them.
Worse Than a Tax
An FDIC confiscation of deposits to recapitalize the banks is far different from a simple tax on taxpayers to pay government expenses. The government’s debt is at least arguably the people’s debt, since the government is there to provide services for the people. But when the banks get into trouble with their derivative schemes, they are not serving depositors, who are not getting a cut of the profits. Taking depositor funds is simply theft.
What should be done is to raise FDIC insurance premiums and make the banks pay to keep their depositors whole, but premiums are already high; and the FDIC, like other government regulatory agencies, is subject to regulatory capture. Deposit insurance has failed, and so has the private banking system that has depended on it for the trust that makes banking work.
The Cyprus haircut on depositors was called a “wealth tax” and was written off by commentators as “deserved,” because much of the money in Cypriot accounts belongs to foreign oligarchs, tax dodgers and money launderers. But if that template is applied in the US, it will be a tax on the poor and middle class. Wealthy Americans don’t keep most of their money in bank accounts. They keep it in the stock market, in real estate, in over-the-counter derivatives, in gold and silver, and so forth.
Are you safe, then, if your money is in gold and silver? Apparently not – if it’s stored in a safety deposit box in the bank. Homeland Security has reportedly told banks that it has authority to seize the contents of safety deposit boxes without a warrant when it’s a matter of “national security,” which a major bank crisis no doubt will be.
The Swedish Alternative: Nationalize the Banks
Another alternative was considered but rejected by President Obama in 2009: nationalize mega-banks that fail. In a February 2009 article titled “Are Uninsured Bank Depositors in Danger?“, Felix Salmon discussed a newsletter by Asia-based investment strategist Christopher Wood, in which Wood wrote:
It is . . . amazing that Obama does not understand the political appeal of the nationalization option. . . . [D]espite this latest setback nationalization of the banks is coming sooner or later because the realities of the situation will demand it. The result will be shareholders wiped out and bondholders forced to take debt-for-equity swaps, if not hopefully depositors.
On whether depositors could indeed be forced to become equity holders, Salmon commented:
It’s worth remembering that depositors are unsecured creditors of any bank; usually, indeed, they’re by far the largest class of unsecured creditors.
President Obama acknowledged that bank nationalization had worked in Sweden, and that the course pursued by the US Fed had not worked in Japan, which wound up instead in a “lost decade.” But Obama opted for the Japanese approach because,according to Ed Harrison, “Americans will not tolerate nationalization.”
But that was four years ago. When Americans realize that the alternative is to have their ready cash transformed into “bank stock” of questionable marketability, moving failed mega-banks into the public sector may start to have more appeal.
Ellen Brown is an attorney, chairman of the Public Banking Institute, and the author of eleven books, including Web of Debt: The Shocking Truth About Our Money System and How We Can Break Free. Her websites are webofdebt.com and ellenbrown.com.For details of the June 2013 Public Banking Institute conference in San Rafael, California, see here.
Reprinted from Alternet
By Les Leopold
North Dakota’s thriving state bank makes a mockery of Wall Street’s casino banking system — and that’s why financial elites want to crush it.
But North Dakota is also red in another sense: it fully supports its state-owned Bank of North Dakota (BND), a socialist relic that exists nowhere else in America. Why is financial socialism still alive in North Dakota? Why haven’t the North Dakotan free-market crusaders slain it dead?
Because it works.
In 1919, the Non-Partisan League, a vibrant populist organization, won a majority in the legislature and voted the bank into existence. The goal was to free North Dakota farmers from impoverishing debt dependence on the big banks in the Twin Cities, Chicago and New York. More than 90 years later, this state-owned bank is thriving as it helps the state’s community banks, businesses, consumers and students obtain loans at reasonable rates. It also delivers a handsome profit to its owners — the 700,000 residents of North Dakota. In 2011, the BND provided more than $70 million to the state’s coffers. Extrapolate that profit-per-person to a big state like California and you’re looking at an extra $3.8 billion a year in state revenues that could be used to fund education and infrastructure.
One of America’s Best Kept Secrets
Each time we pay our state and local taxes — and all manner of fees — the state deposits those revenues in a bank. If you’re in any state but North Dakota, nearly all of these deposits end up in Wall Street’s too-big to-fail banks, because those banks are the only entities large enough to handle the load. The vast majority of the nation’s 7,000 community banks are too small to provide the array of cash management services that state and local governments require. We’re talking big bucks; at least $1 trillion of our local tax dollars find their way to Wall Street banks, according Marc Armstrong, executive director of the Public Banking Institute.
So, not only are we, as taxpayers1, on the hook for too-big-to-fail Wall Street banks, but we also end up giving our tax dollars to these same banks each and every time we pay a sales tax or property tax or buy a fishing license. In North Dakota, however, all that public revenue runs through its public state bank, which in turn reinvests in the state’s small businesses and public infrastructure via partnerships with 80 small community banks.
How the State Bank Creates Jobs
Banks are supposed to serve as intermediaries that turn our savings and checking deposits into productive loans to businesses and consumers. That’s how jobs are supported and created. But the BND, a state agency, goes one step further. Through its Partnership in Assisting Community Expansion, for example, it provides loans at below-market interest rates to businesses if and only if those businesses create at least one job for every $100,000 loaned. If the $1 trillion that now flows to Wall Street instead were deposited in public state banks in all 50 states using this same approach, up to 10 million new jobs could be created. That would effectively end our destructive unemployment crisis.
No Bailouts for the BND
Banking doesn’t have to be a casino. It doesn’t have to be designed to create gambling opportunities so bank traders and executives can make seven- and eight-figure salaries. As BND president Eric Hardmeyer said in a 2009 Mother Jones interview:
We’re a fairly conservative lot up here in the upper Midwest and we didn’t do any subprime lending and we have the ability to get into the derivatives markets and put on swaps and callers and caps and credit default swaps and just chose not to do it, really chose a Warren Buffett mentality—if we don’t understand it, we’re not going to jump into it. And so we’ve avoided all those pitfalls.
As state government employees, BND executives have no incentive to gamble their way toward enormous pay packages. As you can see, the top six BND officers earn a good living, but on Wall Street, cooks and chauffeurs earn more.
- Eric Hardmeyer, President and CEO: $232,500
- Bob Humann, Chief Lending Officer: $135,133
- Tim Porter, Chief Administrative Officer: $122,533
- Joe Herslip, Chief Business Officer: $105,000
- Lori Leingang, Chief Administrative Officer: $105,000
- Wally Erhardt, Director of Student Loans of North Dakota: $91,725
The very existence of a successful BND undermines Wall Street’s claim that in order to attract the best talent big banks need to offer enormous pay packages. Yet somehow, North Dakota is able to find the talent to run one of the soundest banks in the country? The BND is living proof that Wall Street’s rationale for sky-high executive pay is a self-serving fabrication. (For more information on financial inequality please see my latest book, How to Earn a Million Dollars an Hour,Wiley, 2013.)
Wall Street Is Gunning for Bank of North Dakota
As you can well imagine, our financial elites would love to see this successful (socialist!) bank disappear. Its salary structure and local investments makes a mockery of Wall Street’s casino banking system. But the bigger threat comes from the possible spread of this public banking concept to other states. Already, there are 20 or so state legislatures that are exploring state banks. Collectively, more public banks would pose an enormous threat to the $1 trillion in state and local bank deposits that now run through Wall Street.
But elite financiers also stand to lose much more. In the 49 states without a public bank, there’s no safe place to turn for loans to rebuild schools and finance other public infrastructure projects. That creates an enormous opportunity for Wall Street firms to hook localities on expensive bond programs — like capital appreciation bonds, which can lead to repayments equaling 10 times the original loan. Investment bankers and advisers also make enormous fees by selling expensive, high-risk financial schemes to state and local governments (read an investigative report here). But such schemes are useless in North Dakota where the state bank provides the capital the state needs for a fraction of the long-term costs.
Trade Agreements: Wall Street’s Weapon of Mass Destruction
Clearly, from Wall Street’s perspective, the North Dakota bank must go, and all other state efforts to replicate it must be thwarted. Wall Street’s stealth weapon may be lodged within the latest corporate trade agreement called the Trans-Pacific Partnership (TPP), which currently is being negotiated in secret. We already know that Wall Street is seeking to remove all tariff restrictions that prevent the U.S. financial services industry from doing business in countries like Brunei, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The biggest banks also want the treaty to eliminate “non-tariff” barriers including regulations that create “unfair” competition with state-owned financial enterprises.
Depending on the final language, it is possible that the activities of the Bank of North Dakota could be ruled illegal because “foreign bankers could claim the BND stops them from lending to commercial banks throughout the state,” according to an analysis by Sam Knight in Truthout. How perfect for Wall Street: a foreign bank can be used as a shill to knock out the BND.
The Public Bank Movement
A small but highly dedicated group of financial writers, public finance experts and former bankers have formed the Public Bank Institute to spread the word. Working on a shoestring budget, its president Ellen Brown (author of Web of Debt), and its executive director Marc Armstrong, a former wholesale banker, have become the Johnny Appleseeds of public banking, hopping from state to state to encourage legislatures to explore state-owned banks.
The movement is gathering steam as it holds a major conference on June 2-4 at Dominican University in San Rafael, CA featuring such anti-Wall Street hell raisers as Matt Taibbi and Gar Alperowitz, along with Brigitte Jonsdottir, a member of the Icelandic parliament, and Ellen Brown.
Is America Up For This Fight?
Since the crash, the financial community has largely managed to wriggle off the hook. In fact, fatalism may be replacing activism as we sense that maybe Wall Street is simply too big and too powerful to change. After all, the big banks seem to own Washington, as too-big-to-fail banks are permitted to grow even larger and more invulnerable to prosecution and control.
But this new public banking movement could have legs, especially if it teams up with those fighting for a financial transaction tax (see National Nurses United.) Most Americans remain furious about how financial elites profited from the crisis — before, during and after — while the rest of us pick up the tab. Americans know deep down that Wall Street is the predator and we are the prey.
The state-owned and operated Bank of North Dakota proves that it doesn’t have to be that way. This is the time to fight for public state banking in a big way.
Les Leopold is the executive director of the Labor Institute in New York, and author ofHow to Make a Million Dollars an Hour: Why Hedge Funds Get Away with Siphoning Off America’s Wealth (J. Wiley and Sons, 2013).
- Editor’s Note: And now, as depositors too. See “It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors” ↩
Reprinted from Credit Slips blog
Jonathan Ginsberg posted an interesting article on the National Association of Chapter 13 trustees web site this weekend, that will be relevant to many of our readers as well. Social security is now requiring all beneficiaries to set up direct deposit, which means the resulted funds could become available to executing creditors if there are any funds from any other source in the account as well. You might recall my blog about this some time back, which contains cites to some of the relevant law.
As my previous blog explains, Federal law provides that Social Security payments are exempt from garnishment from civil creditors. If, for example, a credit card lender sues you and obtains a judgment, that creditor cannot ask Social Security to withhold funds from your government check. While these protections do not apply with equal force to the IRS collecting a tax debt or a creditor collecting child support, all other creditors are not to touch social security funds under any circumstances.
There is however, a rub. Under the applicable law, Social Security money (SSA) that is co-mingled with non-Social Security money may lose this special protection. Here is what Jonathan Ginsberg says recipients should do:
“Social Security recipients can protect themselves by asking their bank to create a sub-account that holds onl y SSA issued funds. No money other than SSA funds should ever be deposited into this account. This is especially necessary if the recipient has civil judgment creditors looking for a source of funds to levy against.
In my practice, I have represented a number of senior citizen clients who are living with tens of thousands of dollars in credit card debt, have no assets or equity in property, and who survive on Social Security only. In these cases I often discourage bankruptcy and instead write each creditor advising the creditor that my client is judgment proof with no source of funds that can be garnished.
At the same time I write the credit card company, I also draft a letter to my client’s bank, putting the bank on notice that it should not honor any garnishment because the sole source of funds is Social Security money. Often, however, I find that my clients are using their “Social Security” account as a regular bank account and they deposit other money, such as funds generated from a garage sale or a gift from a relative. I spend a lot of time explaining to my client that even a few dollars of co-mingled money may jeopardize the protected status of their Social Security bank account.
Now that many more Social Security recipients are entering the electronic banking world, I expect that more than a few will find themselves trying to get money back from a judgment creditor who found a co-mingled account. Sometimes, senior citizens choose to file bankruptcy for the peace of mind benefit, but often a Chapter 7 or Chapter 13 filing is not necessary – instead many creditors and collection agencies will write off your debt and close their files if you can show that you are judgment proof. If you are receiving Social Security money, I urge you to take time now – before a judgment creditor begins collection efforts – to protect your bank accounts.”
Nathalie Martin joined the University of New Mexico law faculty in 1998. Her research focuses on consumer law and bankruptcy, as well as elder law. Most recently, she has studied predatory lending products such as payday loans and title loans, as well as products and services offered to the elderly. Her projects include several empirical studies funded by the National Conference of Bankruptcy Judges, including one that funded curbside interviews of payday loan customers and an ongoing study of the credit habits of undocumented New Mexicans. The author of several books and dozens of law review articles, she holds what is thought to be the only endowed chair in the country dedicated to consumer law issues.
Reprinted from TomDispatch.com
If cities were stocks, you’d want to short Phoenix.
Of course, it’s an easy city to pick on. The nation’s 13th largest metropolitan area (nudging out Detroit) crams 4.3 million people into a low bowl in a hot desert, where horrific heat waves and windstorms visit it regularly. It snuggles next to the nation’s largest nuclear plant and, having exhausted local sources, it depends on an improbable infrastructure to suck water from the distant (and dwindling) Colorado River.
In Phoenix, you don’t ask: What could go wrong? You ask: What couldn’t.
And that’s the point, really. Phoenix’s multiple vulnerabilities, which are plenty daunting taken one by one, have the capacity to magnify one another, like compounding illnesses. In this regard, it’s a quintessentially modern city, a pyramid of complexities requiring large energy inputs to keep the whole apparatus humming. The urban disasters of our time — New Orleans hit by Katrina, New York City swamped by Sandy — may arise from single storms, but the damage they do is the result of a chain reaction of failures — grids going down, levees failing, back-up systems not backing up. As you might expect, academics have come up with a name for such breakdowns: infrastructure failure interdependencies. You wouldn’t want to use it in a poem, but it does catch an emerging theme of our time.
Phoenix’s pyramid of complexities looks shakier than most because it stands squarely in the crosshairs of climate change. The area, like much of the restof the American Southwest, is already hot and dry; it’s getting ever hotter and drier, and is increasingly battered by powerful storms. Sandy and Katrina previewed how coastal cities can expect to fare as seas rise and storms strengthen. Phoenix pulls back the curtain on the future of inland empires. If you want a taste of the brutal new climate to come, the place to look is where that climate is already harsh, and growing more so — the aptly named Valley of the Sun.
In Phoenix, it’s the convergence of heat, drought, and violent winds, interacting and amplifying each other that you worry about. Generally speaking, in contemporary society, nothing that matters happens for just one reason, and in Phoenix there are all too many “reasons” primed to collaborate and produce big problems, with climate change foremost among them, juicing up the heat, the drought, and the wind to ever greater extremes, like so many sluggers on steroids. Notably, each of these nemeses, in its own way, has the potential to undermine the sine qua non of modern urban life, the electrical grid, which in Phoenix merits special attention.
If, in summer, the grid there fails on a large scale and for a significant period of time, the fallout will make the consequences of Superstorm Sandy look mild. Sure, people will hunt madly for power outlets to charge their cellphones and struggle to keep their milk fresh, but communications and food refrigeration will not top their list of priorities. Phoenix is an air-conditioned city. If the power goes out, people fry.
In the summer of 2003, a heat wave swept Europe and killed 70,000 people. The temperature in London touched 100 degrees Fahrenheit for the first time since records had been kept, and in portions of France the mercury climbed as high as 104°F. Those temperatures, however, are child’s play in Phoenix, where readings commonly exceed 100°F for more than 100 days a year. In 2011, the city set a new record for days over 110°F: there were 33 of them, more than a month of spectacularly superheated days ushering in a new era.
In Flight From the Sun
It goes without saying that Phoenix’s desert setting is hot by nature, but we’ve made it hotter. The city is a masonry world, with asphalt and concrete everywhere. The hard, heavy materials of its buildings and roads absorb heat efficiently and give it back more slowly than the naked land. In a sense, the whole city is really a thermal battery, soaking up energy by day and releasing it at night. The result is an “urban heat island,” which, in turn, prevents the cool of the desert night from providing much relief.
Sixty years ago, when Phoenix was just embarking on its career of manic growth, nighttime lows never crept above 90°F. Today such temperatures are a commonplace, and the vigil has begun for the first night that doesn’t dip below 100°F. Studies indicate that Phoenix’s urban-heat-island effect may boost nighttime temperatures by as much as 10°F. It’s as though the city has doubled down on climate change, finding a way to magnify its most unwanted effects even before it hits the rest of us full blast.
Predictably, the poor suffer most from the heat. They live in the hottest neighborhoods with the least greenery to mitigate the heat-island effect, and they possess the least resources for combatting high temperatures. For most Phoenicians, however, none of this is more than an inconvenience as long as the AC keeps humming and the utility bill gets paid. When the heat intensifies, they learn to scurry from building to car and into the next building, essentially holding their breaths. In those cars, the second thing they touch after the ignition is the fan control for the AC. The steering wheel comes later.
In the blazing brilliance of July and August, you venture out undefended to walk or run only in the half-light of dawn or dusk. The idea for residents of the Valley of the Sun is to learn to dodge the heat, not challenge it.
Heat, however, is a tricky adversary. It stresses everything, including electrical equipment. Transformers, when they get too hot, can fail. Likewise, thermoelectric generating stations, whether fired by coal, gas, or neutrons, become less efficient as the mercury soars. And the great hydroelectric dams of the Colorado River, including Glen Canyon, which serves greater Phoenix, won’t be able to supply the “peaking power” they do now if the reservoirs behind them are fatally shrunken by drought, as multiple studies forecast they will be. Much of this can be mitigated with upgraded equipment, smart grid technologies, and redundant systems. But then along comes the haboob.
A haboob is a dust/sand/windstorm, usually caused by the collapse of a thunderstorm cell. The plunging air hits the ground and roils outward, picking up debris across the open desert. As the Arabic name suggests, such storms are native to arid regions, but — although Phoenix is no stranger to storm-driven dust — the term haboob has only lately entered the local lexicon. It seems to have been imported to describe a new class of storms, spectacular in their vehemence, which bring visibility to zero and life to a standstill. They sandblast cars, close the airport, and occasionally cause the lights — and AC — to go out. Not to worry, say the two major utilities serving the Phoenix metroplex, Arizona Public Service and the Salt River Project. And the outages have indeed been brief. So far.
Before Katrina hit, the Army Corps of Engineers was similarly reassuring to the people of New Orleans. And until Superstorm Sandy landed, almost no one worried about storm surges filling the subway tunnels of New York.
Every system, like every city, has its vulnerabilities. Climate change, in almost every instance, will worsen them. The beefed-up, juiced-up, greenhouse-gassed, overheated weather of the future will give us haboobsof a sort we can’t yet imagine, packed with ever greater amounts of energy. In all likelihood, the emergence of such storms as a feature of Phoenix life results from an overheating environment, abetted by the loose sand and dust of abandoned farmland (which dried up when water was diverted to the city’s growing subdivisions).
Water, Water, Everywhere (But Not for Long)
In dystopic portraits of Phoenix’s unsustainable future, water — or rather the lack of it — is usually painted as the agent of collapse. Indeed, the metropolitan area, a jumble of jurisdictions that includes Scottsdale, Glendale, Tempe, Mesa, Sun City, Chandler, and 15 other municipalities, long ago made full use of such local rivers as the Salt, Verde, and Gila. Next, people sank wells and mined enough groundwater to lower the water table by 400 feet.
Sometimes the land sank, too. Near some wells it subsided by 10 feet or more. All along, everyone knew that the furious extraction of groundwater couldn’t last, so they fixed their hopes on a new bonanza called the Central Arizona Project (CAP), a river-sized, open-air canal supported by an elaborate array of pumps, siphons, and tunnels that would bring Colorado River water across the breadth of Arizona to Phoenix and Tucson.
The CAP came on line in the early 1990s and today is the engine of Arizona’s growth. Unfortunately, in order to win authorization and funding to build it, state officials had to make a bargain with the devil, which in this case turned out to be California. Arizona’s delegation in the House of Representatives was tiny, California’s was huge, and its representatives jealously protected their longstanding stranglehold on the Colorado River. The concession California forced on Arizona was simple: it had to agree that its CAP water rights would take second place to California’s claims.
This means one thing: once the inevitable day comes when there isn’t enough water to go around, the CAP will absorb the shortage down to the last drop before California even begins to turn off its faucets.
A raw deal for Arizona? You bet, but not exactly the end of the line. Arizona has other “more senior” rights to the Colorado, and when the CAP begins to run dry, you may be sure that the masters of the CAP will pay whatever is necessary to lease those older rights and keep the 330-mile canal flowing. Among their targets will be water rights belonging to Indian tribes at the western edge of the state along the lower reaches of the river. The cost of buying tribal water will drive the rates consumers pay for water in Phoenix sky-high, but they’ll pay it because they’ll have to.
Longer term, the Colorado River poses issues that no amount of tribal water can resolve. Beset by climate change, overuse, and drought, the river and its reservoirs, according to various researchers, may decline to the point that water fails to pass Hoover Dam. In that case, the CAP would dry up, but so would the Colorado Aqueduct which serves greater Los Angeles and San Diego, as well as the All-American Canal, on which the factory farms of California’s Imperial and Coachella valleys depend. Irrigators and municipalities downstream in Mexico would also go dry. If nothing changes in the current order of things, it is expected that the possibility of such a debacle could loom in little more than a decade.
The preferred solution to this crisis among the water mavens of the lower Colorado is augmentation, which means importing more water into the Colorado system to boost native supplies. A recently discussed grandiose scheme to bail out the Colorado’s users with a pipeline from the Mississippi River failed to pass the straight-face test and was shot down by then-Secretary of the Interior Ken Salazar.
Meanwhile, the obvious expedient of cutting back on water consumption finds little support in thirsty California, which will watch the CAP go dry before it gets serious about meaningful system-wide conservation.
Phoenicians who want to escape water worries, heat waves, and haboobshave traditionally sought refuge in the cool green forests of Arizona’s uplands, or at least they did until recently. In 2002, the Rodeo-Chediski fire consumed 469,000 acres of pine and mixed conifer on the Mogollon Rim, not far from Phoenix. It was an ecological holocaust that no one expected to see surpassed. Only nine years later, in 2011, the Wallow fire picked up the torch, so to speak, and burned across the Rim all the way to the New Mexico border and beyond, topping out at 538,000 charred acres.
Now, nobody thinks such fires are one-off flukes. Diligent modeling of forest response to rising temperatures and increased moisture stress suggests, in fact, that these two fires were harbingers of worse to come. By mid-century, according to a paper by an A-team of Southwestern forest ecologists, the “normal” stress on trees will equal that of the worst megadroughts in the region’s distant paleo-history, when most of the trees in the area simply died.
Compared to Phoenix’s other heat and water woes, the demise of Arizona’s forests may seem like a side issue, whose effects would be noticeable mainly in the siltation of reservoirs and the destabilization of the watersheds on which the city depends. But it could well prove a regional disaster. Consider, then, heat, drought, windstorms, and fire as the four horsemen of Phoenix’s Apocalypse. As it happens, though, this potential apocalypse has a fifth horseman as well.
Rebecca Solnit has written eloquently of the way a sudden catastrophe — an earthquake, hurricane, or tornado — can dissolve social divisions and cause a community to cohere, bringing out the best in its citizenry. Drought and heat waves are different. You don’t know that they have taken hold until you are already in them, and you never know when they will end. The unpleasantness eats away at you. It corrodes your state of mind. You have lots of time to meditate on the deficiencies of your neighbors, which loom larger the longer the crisis goes on.
Drought divides people, and Phoenix is already a divided place — notoriously so, thanks to the brutal antics of Maricopa County Sheriff Joe Arpaio. In Bird on Fire: Lessons from the World’s Least Sustainable City, Andrew Ross offers a dismal portrait of contemporary Phoenix — of a city threatened by its particular brand of local politics and economic domination, shaped by more than the usual quotient of prejudice, greed, class insularity, and devotion to raw power.
It is a truism that communities that do not pull together fail to surmount their challenges. Phoenix’s are as daunting as any faced by an American city in the new age of climate change, but its winner-take-all politics (out of which has come Arizona’s flagrantly repressive anti-immigration law), combined with the fragmentation of the metro-area into nearly two dozen competing jurisdictions, essentially guarantee that, when the worst of times hit, common action and shared sacrifice will remain as insubstantial as a desert mirage. When one day the U-Haul vans all point away from town and the people of the Valley of the Sun clog the interstates heading for greener, wetter pastures, more than the brutal heat of a new climate paradigm will be driving them away. The breakdown of cooperation and connectedness will spur them along, too.
One day, some of them may look back and think of the real estate crash of 2007-2008 and the recession that followed with fond nostalgia. The city’s economy was in the tank, growth had stalled, and for a while business-as-usual had nothing usual about it. But there was a rare kind of potential. That recession might have been the last best chance for Phoenix and other go-go Sunbelt cities to reassess their lamentably unsustainable habits and re-organize themselves, politically and economically, to get ready for life on the front burner of climate change. Land use, transportation, water policies, building codes, growth management — you name it — might all have experienced a healthy overhaul. It was a chance no one took. Instead, one or several decades from now, people will bet on a surer thing: they’ll take the road out of town.
William deBuys, a TomDispatch regular, is the author of seven books, most recently A Great Aridness: Climate Change and the Future of the American Southwest. He has long been involved in environmental affairs in the Southwest, including service as founding chairman of the Valles Caldera Trust, which administers the 87,000-acre Valles Caldera National Preserve in New Mexico.
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Copyright 2013 William deBuys
Based on a popular Mother Jones post on inequality.
More graphs from Mother Jones:
James Royal, writing in the Motley Fool, explains how the effort to destroy the economic viability of the U.S. Postal Service is actually aimed at privatizing the service. Privatization offers several goodies to some members of Congress (and their big-money sponsors) who have imposed unique, unprecedented and unnecessary financial burdens on the service:
- Privatization will bust the biggest union in the United States
- Privatization will make it possible to raise postal prices, thus profits to investors
- Privatization will allow the well-funded USPS retirement account to be open for raiding
Here a couple of excerpts from the article, “How the Postal Service Is Being Gutted“:
That 75-year pre-funding mandate adds substantially to the post office’s losses. This is a requirement that no other government agency, let alone a private company, must face. In short, the USPS is paying for people who aren’t even employees yet — in fact, may not even be born yet!
And the USPS has been a model for prudent squirreling. As of Feb. 2012, it had more than $326 billion in assets in its retirement fund, good for covering 91% of future pension and health-care liabilities. In fact, on its pensions, the USPS is more than 100% funded, compared to 42% at the government and 80% at the average Fortune 1000 company. In health-care pre-funding, the USPS stands at 49%, which sounds not so good until you understand that the government doesn’t pre-fund at all and that just 38% of Fortune 1000 companies do, at just a median 37% rate. The USPS does better than almost everyone.
So, if USPS is just government bloat, as some ideologues would have it, then why would efficient free market players such as UPS and FedEx resort to the government? Shouldn’t they simply compete USPS out of that express business?
This paradox reveals in stark detail the industry’s game plan. Compete effectively where possible and then use political power to grab market share from USPS, with the ultimate goal of privatizing the postal system, or at least its profitable parts. This goal is emblematized by the Cato Institute, a Washington think tank founded by Charles Koch advocating the privatization of public services such as the post office. Frederick W. Smith, founder and CEO of FedEx, was on Cato’s board, and FedEx funds Cato.
The results of this game plan are well-documented and disastrous for citizens. Want to know what will go down if the postal service is privatized? (Not postage!) Take a look at the 2008 Chicago parking meter fiasco, where the city leased its meters for 75 years to an investor group. The city gave the concession while estimating lifetime revenue at just half what investors expected. Now 2013 marks the fifth year in a row that meter prices have gone up, and Chicago boasts the highest prices in the U.S. The final middle finger: Whenever the city closes streets (as for a parade), it has to pay investors the lost meter revenue.
Expect the same for postage rates and with reduced service.