Those who have been making money buying gold to resell and those who have been hoarding it fearing the apocalypse will be disappointed. The gold bubble has burst. From its high of $1,923.7 per Troy ounce, it has fallen to $1,477.00 as of this writing.
Gold is only one in a long and continuing line of speculative bubbles upon which our investment-driven economy is increasingly based. These bubbles are at root a scam based on exaggerated values and, like bubbles in the real world, they always burst. The most successful investment gamblers know when to take advantage of inflated values and, more importantly, when to sell. As the housing bubble and the bundled debt bubble demonstrate, the rest of us pay the price when the game has run its inevitable course.
A bubble driven economy may reap billions for a very small minority but it is volatile and unpredictable, especially when you throw in increasingly automated day trading and a lack of regulation. Market stability also relies on trust. Big bank money laundering schemes and price-fixing scandals like LIBOR and more recently, ICAP undermine that public confidence. The market system at best -- when it is based on tangible material production, is one of corruption in practice. Under-regulated speculation is fuel on the fire bankrupting nations, killing industries and livelihoods, and endangering public safety.
The latest bubble is the ultimate example of this. From Japan's recent discovery of offshore deep sea deposits of methane hydrate – sometimes called “flammable ice,” to Israel's finding of off-shore natural gas, to the increase in domestic hydraulic fracturing, or fracking, we are now seeing the growth of a carbon bubble. Never mind that “natural gas,” which is mostly methane, is the most potent of greenhouse gases: twenty times more potent than carbon dioxide. Never mind that as the planet warms, tons of methane seep from thawing tundra and plumes of it are bubbling to the surface of the Arctic Ocean. Never mind that along with aquifer contamination, up to 9% of methane mined by fracking leaks into the atmosphere. There is money to be made and in our economic system money trumps all else.
The potential six trillion dollar carbon bubble has investors even more excited than industry magnates and politicians looking to make us less petroleum dependent, but there is much cause for concern. We all want cleaner burning fuels and we certainly want energy independence but a cost benefit analysis is vital. Fossil fuel industry reps rightly point out that natural gas produces less carbon than oil or coal. Not considered is the effect of releasing long buried methane into the atmosphere or the displacing of needed investment in research on cleaner energy technology like hydrogen production. It's easier to go for the quick buck and instant gratification of mining plentiful methane. What are the real costs?
We are dealing with finite resources. Nothing is more finite than the level of greenhouse gases the atmosphere can absorb if the planet is to stay beneath the internationally agreed on 2 degree centigrade threshold beyond which we face dangerous, irreversible climate change. The nonprofit Carbon Tracker and the Grantham Research Institute at the London School of Economics have released an important report called, Unburnable Carbon 2013: Wasted Capital and Stranded Assets which points out that if we are to remain below that vital 2C threshold, at least two-thirds of the world's estimated coal, oil and gas reserves have to remain underground. The counting of estimated amounts of oil, coal and natural gas in the ground as assets by the fossil fuel industry over-inflates the value of those companies. As Bill McKibben of 350.org and Carbon Tracker chairman Jeremy Leggett explain: “Six trillion dollars is what oil, gas, and coal companies will invest over the next ten years on turning fossil fuel deposits into reserves, assuming last year’s level of investment stays the same. Reserves are by definition bodies of oil, gas or coal that can be drilled or mined economically. Regulators allow companies currently to book them as assets on the assumption that they are at zero risk of being left below ground, value unrealized - over the full life of their exploitation.” According to the report, the world's estimated fossil fuel reserves equate to 2,860 billion tons of carbon dioxide. Only 31% could be burned for an 80% chance of keeping below the 2C degree target yet 100% are counted as company assets.
By over-valuing assets which in reality can never be used without wreaking havoc on the biosphere, fossil fuel corporations are themselves overvalued, as is their influence on government. That wealth is already a bubble ready to burst. The confidence game of the growing carbon bubble only extends their bogus wealth. Billionaire fund manager Jeremy Grantham, an expert in markets and investments writes, “If you are a true long-term investor, the time has come to change your entire frame of reference - to recognize that we now live in a different, more-constrained world in which the prices of our finite resources will rise and shortages will be common. . . The world is facing an unsustainable surge in demand. In fact, it's no longer just a question of 'peak oil' - we're now facing a future of 'peak everything.' How we deal with this unsustainable surge is going to be the greatest challenge facing our species.” He cuts to the chase when he says, “If we mean to burn all the coal and any appreciable percentage of the tar sands, or other unconventional oil and gas then we're cooked, there are terrible consequences that we will lay at the door of our grandchildren."
Aside from the damage we've incurred via the BP Horizon Gulf oil spill, the costs of which are still rising, the Tar Sands pipeline project is already over cost when you figure in the Exxon-Mobile tar sands spill of over 150,000 gallons of toxic tar sands crude oil into Lake Conway and adjoining neighborhoods in Mayflower, Arkansas. That was only one of four major spills in the same week. 30,000 gallons were spilled in a train derailment in Minnesota, another 30,000 gallons were spilled in Houston Texas and 16,642 gallons leaked in White River, Ontario. The costs of fracking including fluid contamination of groundwater in Wyoming and in Pennsylvania have to be figured in as well.
So far, in looking at the “carbon bubble” the focus has been one of actuarials, that is, statistical risk assessment, probabilities, and gains versus costs. Most of us are not big investors or economists and this sort of thing is admittedly difficult to wrap your head around. Even so, all of us are affected. When bubbles based on overvaluation burst those of us with employer based 401(k) plans or IRAs lose our savings. Those devalued investments also affect our cities and the entire economy. Since at least two-thirds of oil and gas reserves will have to remain underground if the world is to meet existing agreed upon targets to avoid the threshold for "dangerous" climate change, these reserves will be in effect worthless leading to massive market losses. At present, the stock markets are betting on countries' inaction on climate change which affects us as well, threatening our very real futures beyond just economics. That likely inaction is directly attributable to the powerful influence exerted by the fossil fuel industry which, in its own defense, also funds climate denial and misinformation.
Not only does claiming ownership of unusable natural resources by private corporations falsely inflate the value of those entities, it reflects a dangerous economic paradigm that has outlived its usefulness. Private commercial ownership of land is a Western concept originating in the late 16th century and first introduced into many developing countries by Europeans. In native American and other cultures, land belonged to all, particularly the tribe. Individual land ownership did not exist, since all were entitled to the fruits of nature. In our own culture, we have the older concept of The Commons, defined as forests, air, rivers, fisheries or grazing land that are shared and used by all. We already have some legal limits on the rights of landowners that protect the commons, though they are unevenly applied. You can no longer freely dump toxins into local waterways or burn trash in your yard yet Exxon-Mobil, BP and TransCanada can pollute great swaths of land with little real consequence. It is time we revisit the old Roman idea of res extra commercium holding that certain things are of necessity public property, not be privately owned, and therefore insusceptible to being commercially traded.
The carbon that is naturally sequestered deep beneath the ocean or beneath the bedrock on which we live has been there for many millions of years. If it were not, our planet would more closely resemble Venus and life as we know it would never have occurred. Those elements, like us, are part of the earth; our common inheritance. Their exploitation and misuse may also be our common demise. Our natural resources need to be protected and managed rationally for the common good of all. This cannot be done where profits are involved and especially not by private individuals or corporations, as profits are the primary motive no matter the consequence. Private ownership can only exist with government recognition. In granting and recognizing the claimed private ownership of natural resources, our government abdicates its responsibility to citizens. In the case of fossil fuels or radioactive elements, that abdication endangers us all.
The past decade has shown how difficult it is to get even a minimal international agreement where the environment is concerned, much less to address corporate abuse in our own country. The present administration has failed to re-regulate the finance industry whose malfeasance, such as trading bundled bad debt, was largely responsible for crashing our economy in 2008. Instead, as my last article pointed out, we get laws protecting industries from public scrutiny. More recently President Obama signed a new provision exempting biotech firms like Monsanto from local laws regarding genetically modified seeds. One has to ask, whose government this is? Government's primary role is to provide for our common security. Our survival depends in large part on our ability to move beyond the market paradigm that commodifies everything, prioritizing private profits over life itself, and to reclaim and protect The Commons. This includes the reclaiming of our government.
In the short term, we must inundate our local and national representatives with demands to address climate change, to prohibit local fracking, oil drilling, tar sands or shale oil mining and pipleines. Another effort we can support is divestment. According to a recent news release from 350.org and the Mayors Innovation Project, nine mayors and city councils across the country are joining the Mayor of Seattle in urging their cities to divest from the top 200 fossil fuel companies because of the industry’s responsibility for the climate crisis. “Divestment is just one of the steps we can take to address the climate crisis,” said Mayor Mike McGinn of Seattle, who this November urged the city’s pension fund to divest from the fossil fuel industry and is now encouraging other mayors to do the same. We can pressure our city counsels to join this effort which will also protect our local economy when the bubble bursts on those dirty investments. It is an important first step. Ultimately, we must as a society, move beyond an economic system based on a mathematically impossible growth model of unsustainable consumption and opportunistic speculation that benefits a few at great cost to the rest of us. We must transform our economy to one based on rational ecologically sustainable use of our limited resources for the good of all. Every day the damage to our world and our future increases. Let's take responsibility for ourselves and our future before it is too late.
