Entry 6 – War (second phase)

As for my usual and particular press summary of what has happened since I wrote the last entry, this time I want to emphasize that we have had a week of “indications” rather than major events. However, the signs still seem to point to the search for some kind of peace. My selected news items are:

There is more and more talk of “general winter“, i.e. cold as a military strategy. Everyone sees it from their own point of view. Here they think it can be bad for Russia. And here they think it will be bad for Ukraine.

There is also talk of doing a Bretton Woods III (organizing the new world stability between currencies). A well-told argument can be seen here. It is something I have talked about a lot in previous entries, and would help close the cycle we have lived through since WWII, and start a new long wave cycle.

Agreements with investors for the reconstruction of Ukraine begin. It is true that it may be early, but if there are people who bet their money on getting to that deal first, it is because they believe that the end is near (news here).

We have seen the videos in which it could be deduced that Ukraine has killed surrendering Russian soldiers. I say “inferred” because there is nothing clear in those videos (some say the Russians tried to shoot). The fact is that they are using them as propaganda to discredit Ukraine (as they did with the missiles in Poland). It seems that they are trying to undermine their support to force them to negotiate.

An article with a (mild) criticism of Ukraine for these concepts can be seen here, and it should be remembered that it is published by FPIF, which is related to the Western left.

Regarding the power war between blocks of countries, I found the point of view of Douglas Murray (British intellectual) interesting.

He comes to say that there are Chinese, Russian, Islamic anti-Westernists, …, but that the group he sees as most dangerous is that of the anti-Westerners (the internal enemy). He speaks of the suicide of the West. An interview can be seen here.

On the energy war, I liked the graph posted by Visual Capitalist (experts in eye-catching graphs for economic issues). What they do is to put the price of gasoline of each country on a map. It is clear that Europe has problems. You can see it here.

After the bankruptcy of FTX (cryptocurrencies issue, which I talk about below), some people see the disappearance of the crypto concept, but others, such as Cathie Wood, who is very respected, think the opposite (news here). The conclusion is that nothing is clear and we will have to wait for developments.

After this press summary, and as I have already said that it has not been a week of major events, I am going to talk about very important matters that I have been delaying due to military urgencies (cryptocurrency crisis, and energy issues).

FTX. Disorder in cryptocurrencies.

A very different issue from the War, but an important one, which has been all over the media, is the FTX bankruptcy.

For those who don’t know, FTX is (or was) one of the most important exchanges in the cryptocurrency world.

An Exchange is, in theory, the place where people can exchange their fiat currencies ($, €, …) for cryptocurrencies (bitcoin, …). That is an operation that is done in seconds.

What happens is that many customers left their cryptocurrencies in the Exchange (as we leave our euros in the bank current account). And, the exchanges came up with the idea of copying what banks have always done: to use the money deposited in the accounts to make their investments and obtain profitability. In addition, they also copied the banks in creating all kinds of derivative products, and others, to offer them to their clients as a good investment (although it always turns out to be a very bad one).

And all of this occurred without any legislation or controls in place.

Therefore, it is a clear deduction that, if what happened in 2007 with the banks could have happened if there was regulation (bad, as it turned out, but some), something had to happen here at some point.

The FTX bankruptcy is that moment. It is comparable to Lehman Brothers. And, as then, this will also have a domino effect, … and subsequent regulation.

However, we must not confuse the business of exchanges (comparable to banks), with the concept of cryptocurrencies (comparable to the dollar). Let’s remember that the financial crisis sank some banks, and did a lot of damage to others, … and to the states. But the dollar or the euro did not disappear.

Furthermore, continuing with the comparison, there is a difference between cryptocurrencies and fiat currencies. It consists in the fact that, with fiat currencies, it is normal to have almost everything in the bank (invested in rare products, or in a simple current account); while, with cryptos, when you do not want to invest them in rare products, what most people do is to keep them in their personal wallet (which is equivalent to having the money under the mattress). Therefore, those who had their cryptos in their wallet have not lost them. They are just suffering (which is no small thing) from the price drop, which we do not know if it will end up being fixed, or if it will get even worse.

On the other hand, it is important to look at the time when FTX happened. The problem existed, but, as in all things, until someone decides to “attack”, the problem does not surface. And this decision to attack has come from two fronts: conventional finance, and competition between exchanges.

Conventional finance has begun to have, if not fear, at least respect for the world of cryptocurrencies. Until recently, it seemed irrelevant to them, like a toy.

It has been when cryptocurrencies have started to move relevant amounts of money that things have changed.

Moreover, they were starting to have “power”, as is the example that SBF (which is what they call the founder of FTX) was one of the big donors in the American presidential campaigns (and sought to lobby for the regulation of cryptos).

Another example of “power” is that major sports and movie stars were lending their image to promote businesses associated with cryptos.

As for the competition, the exchange called Binance (the largest in the world) was attacked by FTX, since what FTX was looking for with its political lobby was to ban Binance’s activity in the USA. And it should be known that Binance had previous times of strong association with FTX, after which it was a holder of many cryptocurrencies created by FTX (well, not created directly by that company, but closely related).

Just the notice to put them up for sale caused their price to plunge, which plunged the value of the assets FTX held, which prevented it from being able to meet its payments, which triggered the cascade of attempted withdrawals, … which led to its closure.

The summary is that this has happened, not because cryptocurrencies are going to collapse because they are a scam (which they are not, or rather, not all of them are), but because they had come of age, and now it is time to “accept them in society”, but asking them to behave correctly (regulation).

In the meantime, the economic damage has been, and will be, great. This is in addition to the damage we have been suffering with inflation, energy shortages, …

My forecast is that this was a necessary “cleanup”, as was the dot com crisis. Many cryptocurrencies will survive (especially bitcoin), and even have a bright future. Others will disappear (those that were scams, or silly games). Companies in the sector will be regulated. And, for a while, the speculators who sought unrealistic profits with these derivative products will disappear from the market.

In other words, less money will temporarily enter this world, because only those who believe in it as a long-term investment will stay.

Until cryptos are accepted by society (and by governments) as currencies, I liken them to collecting.

There is no problem in someone who wants to make a collection of art, or of soccer cards, or in people exchanging two cards of one team for one of another (according to their perceived value). What we do have to watch out for are the scams of the companies that sell you those cards and charge you with official currency, especially if it turns out that they don’t have those cards they say they have sold you, or if they keep them in bad custody.

Ultimately, what has gone wrong have been things related to conventional economics, not cryptos. They explain it well here.

I was curious to receive an email from Coinbase, which is another very important Exchange, where they tell me that they are not like FTX, and that they do their job well. That I should be calm and that I can have my money there (the truth is that I don’t have it, because it never seemed to me an adequate decision). They have published in their blog this article. It is clear that they are scared.

Regarding all this, I like the way Enrique Dans (IE professor, among other activities) tells things here.

Energy. False stereotypes.

At this point in the war, we all know that the control of energy, and its prices, has become an important weapon.

Therefore, it is also important to try to become independent of the energy source that controls the “enemy”. What happens is that this is not so easy, nor so fast to do. Not only because of the large investments needed (which is true), but also because of the pressures based on climate change, as well as the issue of having access to the mining that requires that other energy source (a much more important issue than it may seem at first glance).

Before talking about these things, I want to polemicize a little with the “universal truths” that we are told about energy, and that are more than debatable.

Solar energy is nuclear.

The first thing I say is that I am a great believer in correct bioclimatic technologies. In fact, I have devoted a good part of my professional life to that. In other words, I put the bandage on the wound before I am criticized as a denialist.

Having said the above, I have to remind you that solar energy, as its name suggests, comes from the sun. And the sun is nothing more than an immense nuclear bomb.

In other words, even if it bothers the “environmentalists”, solar energy is nuclear.

Of course, the sun is far away, so they don’t care and hardly notice it. This brings us to another approach: those theoretically against nuclear energy, and in favor of solar, are not so much against nuclear. What they want is for the nuclear power plant to be far away, and not to worry about the waste themselves. It is the selfish position of “far from my house yes, but not close to it”.

Basically, it is the same with wind, tidal and all the so-called “renewable” energies, which is a nice name, but debatable in its concept. They all derive from taking advantage of climatic phenomena of the earth, and all these phenomena have their ultimate cause in the sun.

Moreover, the claim that these renewable energies are eternal is a lie. It is well known that the sun will eventually become what they call a “red giant”. When that happens, the sun will engulf the Earth. So, if Elon Musk doesn’t help us conquer other planets first, we will lose life on ours. Although it is true that we have a long time to achieve that (millions of years).

What I mean by the above is that we should think of energy as a temporary resource and technical-economic viability, and not so much as an electoral banner.

I also say that solar energy is a very good thing that we need to delve into (with the mining issues I talk about later).

The wood-burning fireplace is not environmentally friendly.

Although it creates problems for me with the “enlightened”, it is clear that burning wood emits CO2. And it is even clearer that burning them without perfect combustion (which is not present in fireplaces) generates other pollutants and many health risks.

I will not detail the scientific reasoning, so as not to bore the reader. But, whoever is interested can consult this FAO report, where, among other things, it is said that burning wood in the traditional way is more polluting than liquefied petroleum gas.

So, that bucolic idealization that the wood-burning fireplace is environmentally friendly is a lie. Which doesn’t mean we don’t think it’s beautiful (I do, too).

The truth is that firewood is something that was once a living being, and the same is true of oil and gas.

Climate change is natural.

There is much talk of climate change as a human-caused drama. And it is blamed on the way we consume energy. This is not entirely untrue. Nor is it true.

The way it is communicated, the fact that climate change is something that has occurred constantly in the history of the Earth is very much hidden. There has never been climate stability.

The truth is that, over time, the Earth has experienced asteroid impacts, large volcanic explosions, changes in the magnetism of the poles, changes in ocean currents, glaciations, … And all these events have involved rapid climate changes (slow ones are constant), with their consequences for the living beings of each moment. The most common example is that of the dinosaurs, but five mass extinctions have been catalogued (see here).

What we are told is the novelty is that this climate change is the first man-made one. That may be true (it is still disputed, although less and less). But that does not change the fact that there have always been climate changes, and that there would still be, even if man did not exist.

The trap of the argument is that what they want is climatic stability so that the Earth is, constantly, a valid place for man (I would like it too).

In other words, what is sought and promoted is the opposite of what is natural. They want to slow down the natural and constant climatic changes (also the sudden ones), and they want to do it with “human power”. They want to manipulate the climate in favor of man. Because, if we let the Earth lead its natural life, at some point it would cease to be habitable by humans.

So, let’s stop the hypocrisy. What we seek is to force a climate change that suits the human species. It is the logical selfishness of the superior species. Nothing to let nature take its course.

Energy shortages are not true.

It is not true that there is a shortage of energy. What there is is a shortage of infrastructures to obtain energy. And it is much more complicated for us to obtain that energy at a price that seems adequate (be aware of the many nuances of that word, “adequate”).

The truth is that there is energy everywhere (oil, sun, wind, a uranium rock, …). What we have to see is what kind of technology we develop to be able to convert that energy into something we can use for whatever we want; plus the technology to store it and use it at the time that suits us; and plus the technology to transport it and use it in the place we want. Pedro has named this in a nutshell, he calls it FATU, an acronym for energy source, storage, transport, and use.

In other words, with energy we have to choose a primary source to exploit, a system of conversion to something usable, one of storage, and another of transport. All of them end up being industrial facilities, which require a lot of investment and raw materials for their construction.

I found the way an engineer friend of mine summed it up very descriptive. He told me: “where there is a gradient, there is energy, the problem is how you harness it”. I clarify that the word gradient, in engineering, means a variation of something in two nearby areas (for example, a difference in temperature, or pressure, or velocity, …).

It is well known that, if we had the facilities to take advantage of all the solar energy that reaches the earth, we would have enough, by far, for all the energy we consume. However, if we really take advantage of all of it, we take it away from plant and animal life, as well as from the temperature balance of the earth, … Something similar happens with all the energy of the wind, of the marine currents, …, and there is also the problem that we take it away from natural phenomena that we should not lose.

On the other hand, it is a fact that we have the technology to harness many different types of energy. We can research on improving them, but we have them.

The problem always comes back to the same concept, that of “adequate” infrastructure. It gets more complicated if we add the word “competitive” to it.

This brings us to the subject of these entries, which is that of the war of blocs of countries.

If the blocks of countries were truly incommunicado, each one could use the energy it wanted as fundamental. It would not matter that prices would be very different for each energy in each block (we would already adapt our economy to those prices). The thing changes if we have to trade with the other block, and if their energy is much cheaper than ours. That forces us to buy their products, and to depend on them.

In the paragraph above I said “we would already adapt our economy …”. I can’t go into that now, but I want to stress that the old economics textbooks (even the Marxist ones) are wrong when they summarize everything in availability of money (capital) and labor (work). The truth is that the availability of energy and raw materials must be included. The clear example is that, no matter how much money and population there is in a place, if there is no food, society will not function. The same is true if you do not have the raw materials you need to manufacture your production facilities, storage, transportation, and energy consumption.

Changing energy is changing mining.

It almost follows from things I have said above, but I think it is important to dedicate a specific epigraph to the issue I am dealing with here.

We can choose to change our energy model for different reasons. It may be because of ecological issues (even ill-founded), or because our enemy is the one who has the oil and we do not want to depend on it, …

Now, let’s take the case that we have chosen to abandon oil and get all our energy from solar panels. I know this is an extreme case and would not work well, but I want to give the example so that you can visualize the problem.

As it turns out, storing energy requires lithium batteries, the question is, do we have enough lithium to make all the batteries needed? The other question is, do we even have it in our block of countries? The quick answer is no.

With this I want to get to the bottom line: to change the energy model, besides a lot of money to invest in infrastructure (as would be millions of solar panels, batteries and wiring); besides a lot of time to build many solar panel factories (by the millions, not like now); and besides the price issues; we need to be sure that we have access to sufficient mineral resources.

If the answer is that we do not have access to those mining resources, we had better start thinking about trying to rely on other energy that requires other materials that we do have; or in developing new technologies (which will not be quick); or in making a pact with the country that has those mining resources, or in “buying” them, or in conquering them with a war initiated by us (if it comes to that case, let’s see how we explain that this invasion is just and necessary, unlike the one against Russia). Sorry, but there are no other options.

In short, power is not so much in money, but in mineral resources (including agricultural resources). The rest we can produce by working and thinking well, that is a matter of money and labor.

Regarding the above, I recommend you read this report on mining resources and energy, as well as this news item on problems in the wind energy industry.

There is always much more to tell, but as it gets long, I’ll leave it for the next entries.

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