Altogether now
On the first day of Xmas, the chief executive of a leading store chain told me to ignore the pictures of crowds doing their last minute shopping – retailers have slashed their prices in early sales and promotions, so profit margins are being squeezed till the pips squeak.
On the second day of Xmas, the same chief executive said that trading conditions were worst in furniture and furnishings, followed by men’s clothes and then ladieswear. Only the food retailers are doing okay, he said – because they are massively discounting petrol on their forecourts and because many of us are eschewing restaurants, to save a few bob, and eating more at home.
On the third day of Xmas, retailers started to praise the farsightedness of investment analysts making the gloomiest forecasts – in the hope the market would cotton on, and they wouldn’t have to issue formal profit warnings.
On the fourth day of Xmas, the head of a restaurant chain complained that turnover was well down.
On the fifth day of Xmas, an investment analyst – Mark Brumby of Blue Oar Securities – pointed me towards statistics showing that the collapse in beer sales at pubs is getting worse. He said national figures showed that in November there was a 9.7 per cent fall in those sales (premium ale was down 6.9 per cent and stout dropped a staggering 10.6 per cent). The smoking ban surely can’t account for the entirety of that reduction.
On the sixth day of Xmas, the owner of several hundred pubs dotted around the country said that turnover in his pubs in the early weeks of December was even worse.
On the seventh day of Xmas, a private equity tycoon was rung up by advisers to a company having difficulty refinancing itself, asking him if he wanted to buy the company at a knockdown price.
On the eight day of Xmas, that private equity tycoon said no – and told me he thought the proffered company would be in administration under insolvency procedures before too long.
On the ninth day of Xmas, the head of a large bank told me that although evasive action by global central banks had eased the tightness of money markets, he thought all prudent banks would continue to hoard cash and charge more for loans – because of the risk that falls in commercial and residential property prices would lead to a sharp increase in loan losses.
On the tenth day of Xmas a distressed debt specialist reminded me that the debt of some well known companies, notably retailers and estate agents, is trading at less than a hundred pence in the pound – and therefore the equity in those business should in theory be worth nothing.
On the eleventh day of Xmas, the world’s canniest investment banks, hedge funds and private equity firms were raising many billions of dollars to buy distressed debt and assets at knockdown prices. They scent huge profits from the pricking of a bubble, which was inflated in the first place by their frenetic creation and trading of genetically re-engineered debt. They won on the way up, and they hope to win on the way down.
On the twelfth day of Xmas, I apologized to all readers of Peston’s Picks for being in a bah-humbug strop. But I feel compelled to sing as I find.
I'm 
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Yes Robert and you should continue to sing as you find.
However, you haven't yet touched on some other important issues such as the wholesale selling off of UK industry.
As those icons of British engineering Jaguar and Land Rover end up in overseas hands we're still being told "ownership" isn't important although those who tell us this are the ones that seem to benefit most from these sales.
It's time I think to think to prick this bubble of lunacy as well.. So that's your task for next year.
A typically apocolyptic post from one of my favourite bloggers over the past year. Thanks for your informative blogs that hopefully touch/affect/waken people who know little about the murky world of business :) As a 26 yr old Call centre worker looking to buy a first house in April 2008, I dare not repeat your posts or views to the missus for fear of scaremongering although trust me im ever so slightly scared.
Me, my mother and my mother in law to be, all work for the much maligned banks albeit in office capacities and none of the doom and gloom is uttered at our level all is fine its business as usual but yes the lending rates are 2% higher than this time last year and our own modest bonus payments (sharesave schemes) keep falling in value without an explanation.
2008 will be a watershed I fear but fear is something we are told to cast out and warning we should ignore as the whole house of cards relies on confidence, I am confident though that I will be kept abrest of what is really going on thanks to Mr Peston and equally importantly all you informed posters who make my day in between calls slightly more intresting. Merry Christmas all and heres to a good new Year :P
Is Number 10 Foxtons? Is it? Please?
Merry Christmas and keep it up
Bob, you are a reporter so you report. It helps when people do what it says on their label.
There is nothing you report that surprises me and suprises many others as we are also observers of the wonderful world of the global economy. The difference is that we have to manage the risk you report on.
Your observations add to our knowledge and temper our consequent reports and actions. In this way the economy will slowly move on and gradually put the current horrors to rest. This will take time, energy and some sensible policy for which we need sense in high places: a currency which is apparently more lacking than liquid capital.
We need people who speak as they find as the illusion has gone on too long already.
Robert, thanks for giving it to us straight (although most people who read this blog are already well aware of the state of play). It's so refreshing to find a major media figure who actually tells it as it is.
Merry Xmas to you, and may 2008 bring interesting times in which to live.
"woh! Woe, O great city,
dressed in fine linen, purple
and scarlet,
and glittering with gold,
precious stones and
pearls!
In one hour such great wealth
has been brought to ruin!
(Revelation chapter 18)
I just want to say two things...
The first is to those posters who post here that it's Mr Preston's fault, that this or that is old news, scaremongering or simply that what ever it is is 'boring' ...bah humbug to you. If you don't like this blog, if you don't want to know, to be informed; go read something else, elsewhere. Alternatiely, ofcourse you could just go and that which you rather we all did ....go stick your collective heads in the sand... turkey style.
And the second thing....Thank You.
I've just come back from holiday ~ is there a problem then ?
Yes you are obliged to sing as you find it. Unusually for your profession, you actually go ahead and do it. That is why we read you and value what you have to say.
Happy Christmas.
Aren't the 12 days of Christmas supposed to happen after Christmas?
Quite, now Bob , would you please go forth and educate your media colleagues,or perhaps just ask them to do the job they are paid to do. Report facts/data and with hold some of their spin and assinine opinions.
Recently media reports gleefully reported all the new money being pumped into the system etc etc.
If you take the time to run through those links what you will find is the FED and ECB have hardly added any new liquidity to the system at all. They've simply been rolling repos/loans with relatively short expiry periods.In the case of the ECB the expiry has been lengthened over the last few months.
Let's aim for more solid data and less media drama and dare I say 'bubble mediaopinia'.
Can I suggest an end of year poll for the media terms most disliked ?
Can I start with...
1.Credit crunch (cadburys should sue)
2.Toxic waste (most media reporting)
3.Headwinds (as opposed to bottomwinds)
4.Bubbles (substitute for brains)
For what it is worth your reporting is better than most of your colleagues ,but can you do better next year ?
One of my favourite blogs of 2007. Informative, inquisitive, and easy to understand.
Just be sure those canny market fellows don't start feeding you false information.
As of this morning it looks like the US 'Paulson Plan' to rescue something from the debt wreckage has gone belly up. The three major banks behind the plan have pulled out. If non on eis stepping on teh buy up the various grades of deingredientised instruments (mortgages cut up into bits) the next year is bound to be subject to substantial deflationary pressures - hold onto your cash.
Merry Christmas Robert.
Two requests from me.
First - please can you get your Â鶹ԼÅÄ resources to look into how much default is going to take place globally, how much of the banks' capital is going to be wiped out and estimate the consequent constriction in lending. My calculations frighten me and is hugely deflationary - the injections of capital by sovereign wealth funds seems to be trivial by comparison.
Second - please can you dig out more on the credit default swap (tradable insurance policies against credit default) industry that has grown exponentially from virtually nothing in 2000 to $56 trillion in 2007. And look into 'counter party risk' and how well they are prepared fro a downturn?
And a Happy New Year.
Thanks for your fascinating articles this year Robert.
One thing that's bothering me: Isn't there a bit of a risk for the UK as a whole if all our banks, ports, airports and leading companies get snapped up by overseas corporations?
Once everything is foreign-owned isn't there a tiny risk that they may suddenly decide to pull the plug on UK plc with a view to bringing us down?
The UK economy seems mainly based on public spending and financial services, so we are hardly in a good position if tax revenue dries up and the banks start to fail.
With the central banks printing money to keep the system afloat I am wondering whether those saving in sterling deposit accounts might become rather poorer in 2008.
The only straw I have to cling on to is the fact that when everyone says a crash is going to happen, it probably won't. By definition these things only happen when they are least expected.
For a minute there I thought we were rid of young Peston untill after Christmas. Come on Robert tuck into your turkey and become the changed Scrooge.
Thank you for sound commentary during the year & for such festive forebodings.
I look forward to Chancellors Past, Present & Future visiting Premier Brown at the stroke of Midnight tonight.
Yes, Robert, continue to report as you see it. But perhaps with not quite as much glee at things going wrong as you have shown in three last few months?
I know from experience that it's fun for a while being right when others are wrong but you soon find yourself with fewer friends...
..and on the thirteenth day (!) of Christmas the EBK sent to UBS, notice of inspection (who is responsible, writedowns at $10bn) (Yippeee!!) ..and a Partridge in a Pear Tree! Merry Christmas Robert, and to all your readers!
An excellent summation. Very good.
Kendrick (11) is right. So either all this is Peston's Prophecy or he has as little grip on the calendar as he does on banking.
You need to work on the rhyme scheme and the scantion, a bit, I reckon. ;-)
Thanks for a year of great blogging, Bob. All the best.
Robert
Having read your reporting and comments of others there appears to be a consensus that the biggest immediate problem is that the markets do not know either the size of the sub-prime losses of who is holding them. One result of this is that the markets could undervalue assets and allow the Sovereign Wealth Funds to acquire bargains.
If we are worried about such large scale foreign ownership of assets and the inevitable consequential moving of high earning jobs to the emerging markets (and I think we should be), then it is in our interests for the information on the size of the losses and who is holding them to be known to the markets as soon as possible. While the ultimate size of the losses may be difficult, who holds what should be easier - even if complex.
One of the principles of the free market model is self interest. While it might not be in the interests of individual institutions to publish this information (after all those holding too many toxic assets will be trying to offload them without disclosure so they don't close of get sold off) it is in our overall interests that they do. So the regulators should ensure that this information is forthcoming and for the auditors to find their teeth for once (Colchester beat a high flying Leeds in the FA Cup once so highly unlikely things do occassionally happen) to ensure that the information is accurate. It is time for the regulators to act for the benefit of the people, not for the bankers. And act altogether now.
Tranquilo Robert. Tomorrow we celebrate the birth of our Lord.
Robert,
you are a day late. As usual Jeff Randell on the Telegraph has beat you to it.
Only he dares to pin the blame where it belongs: one G Brown of 10 Downing St.
Is this a prediction, or are you one of the many ignorant people who think that Christmas day is the 12th day of Christmas, rather than the first (which is correct)? Have you never heard of twelth night? I'm not even a Christian and I know that!
Thankyou for a most engaging overview of the world according to Robert, which seems very similar to mine, the world that is. Your translating of financo-business-economic-political double speak is excellent.
May I wish you well during the humbug season and for more insights in the year to come.
The current short story at my blog is a shrinks sideways view of this time of year. You might enjoy it? (SFW)
As a relative newcomer to Mr. Peston's blog (hence the formality!), I'd like him to tell us what he's done or going to be doing with his own finances as a result of his knowledge -the insight might be useful to us all!!!
Good blog. I'll keep on reading in2008.
Seasonal greetings to all.
Robert Peston, you're a star, but I'm not sure about your distressed debt specialist. Debt will trade at less than a hundred pence in the pound because there's a chance of going bust (equity worth nothing) but there's still a chance it won't (so equity not worth nothing). On average, and in reality, it's still worth at least something.
And on the thirteenth day of christmas I was reminded by myself that I work at John Lewis, we are doing better trading than last year in an increasingly harsher high street climate and I went home happy as larry!
some people are taking robert's little '12 days..' conceit very seriously. It doesn't matter people!
Great blog.
I guess this is what happens when the UK has a current account deficit of 20bn pounds / 5.7% GDP (most since records started in 1948)
Pound starts dropping , and domestic demand starts falling (probably too sharply).
I would like to wish everyone a prosperous New Year but is hoping for one realistic?
Mr Peston is now required reading at this address; his comments appear to be unvarnished and unslanted, and I have no reason to doubt the accuracy.
There are doubtless many in the establishment who would prefer that he was silenced; luckily we in the UK still enjoy a free press, in certain other parts of the globe he would now be under lock and key!
AndyB, #27:
Wow. You must be truly impressed by Gordon Brown's power, if you believe he could have single-handedly demolished a section of the American mortgage market - one that any fool could have seen was lending out money on some very questionable assumptions anyway. Surely someone so powerful, so able to effect change, is someone it would be dangerous to alienate?
...Or is it more likely that you have simply not quite grasped that this country's service-only economy is now but a leaf on the global wind, and that's the result of policies that were carried to completion long before Gordon Brown got anywhere near no.10?
well done but on the 12 Day can the city bounes please go go back into our pensinon funds do not be sorry for giving the city a hard time they all need to get a sense of humour and stop been so gready
On the first day of Christmas I sang about Northern Rock.
On the second day of Christmas I sang about Northern Rock
On the third day of Christmas I sang about Northern Rock
On the fourth day of Christmas people were sick of me singing about Northern Rock
On the fifth day of Christmas I sang about Northern Rock.
(repeat at nauseum)
On the 37th day of Christmas I changed the tune and talked about super-senior CDO tranches in a way that nobody except finance professionals could understand
On the 38th day of Christmas I sang about Northern Rock.
"What has become evident is that banks are concerned about the capital position of other banks. They do not know where the losses resulting from the array of derivative financial instruments will finally come to rest, and I think in the last four weeks we've also seen a more disturbing development, which is that the banks themselves are worried that the impact of their reluctance to lend collectively will lead to a sharper downturn in the United States, and perhaps elsewhere, thus generating further losses outside the housing and financial sectors, which will feed back onto balance sheets and reinforce their reluctance to lend, because of the need to generate more capital." Mervyn King, Governor Bank of England
Merry Christmas one and all.
Love Mervyn. x
@35.
Surprisingly, this blog doesn't criticise the incompetence of GB (as much as should be done). If as you suggest, current events were unstoppable from the day before our ex-chancellor started approaching total control, then why is such a powerless figure in office at all? Surely not for ability?
Please lord, as my Christmas wish, can we stop those few who still blame the Tories, as they were left behind in the dust a decade ago. As my New Year wish, can we also stop those who blame Thatcher, even way further in the past. Can we have the wisdom and the courage to accept that the state of the UK, if indeed it is governed and managed by the current government, is the responsibility of the current government and any events befalling a country with an incumbent government of a decade, could, reasonably, assume that yes, we got this from the sheer incompetence of labour.
Merry Christmas to all. Keep these honest words coming. Long live Peston!!! I am amazed that he gets away with truth at the Â鶹ԼÅÄ. Beware the long knives at the lavatory and I hope you benefit from the guaranteed house valuation before you pretend to live in Manchester for 10 minutes.
I seem to remember a similar situation arising in Japan in the late 80's - sky high property prices, liquidity difficulties in the banking sector, over-zealous lending, equity indicies at record levels, commodity prices also at highs. Today you could also add a few more gremlins - the huge costs of reducing carbon emissions, the hidden dangers of off-balance sheet financing, regulatory issues, massive deficits (USA and UK in particular), ageing industrialised populations requiring subsidy from a shrinking tax base. The response of the Japanese central bank was to reduce interest rates, eventually to zero. And yet the Japanese consumer prudently remained on strike for over a decade, provoking a bear market in equities that saw Japanese stock indicies fall by over 60%. I switched my pension funds from equities to deposits twelve months ago. I see no reason to switch back despite the prospect of rate cuts.
Banks spreads on their loan books are now being read justed to better reflect the risks involved.
Just like the dot-com crash - when low-revenue business models failed when the investment capital ran out - today high-risk loans will fail when the low cost credit runs out.
"On the tenth day of Xmas a distressed debt specialist reminded me that the debt of some well known companies, notably retailers and estate agents, is trading at less than a hundred pence in the pound – and therefore the equity in those business should in theory be worth nothing."
Robert, this isn't what the "theory" says at all. The reason debt can trade below par is that there's a risk of default with no corresponding opportunity to increase the value of the principal. Equity value, while also capturing the risk of default, does have the opportunity to increase the value of principal if the value of the company increases.
If your so called theory were correct, then almost all debt sold over the last 6 years (which has been typically sold at, or below par) would have been sold in companies were the equity value is worth zero.
Well then ..... the banks' bubbles have been burst, but money lending has been aroud for millenia, so lets all but good bank stocks at the bottom then !
Robert
#31 where is this money coming from ?
#40 the dismantling of British Industry etc. and the big sell off to foreign owners began about 25 yrs/ ago - now who was in power then and believed in a 'free market'?
#41 at least the Japanese were still making things to sell and owned their own industry.
I know confidence must be maintained by talking up the situation but as has been stated before - #1 and #16 we are just a service industry now and as always happens when things get tight the service sector is trimmed first - and as we don't own our country any more we should expect to be cut back to enable the main business to exist.
Personally , I think it'll all blow over.
Bob Cassandra Peston,
Merry Christmas and Happy New Year to you ,if possible!
We all sang long and hard - and borrowed and watched with smiles as our properties went UP in value - we earned more by doing nothing than from our daytime jobs. But we cannot eat or live on that value unless it stays there until needed.
Many having made gains, then borrowed again and 'invested' either BTLs or overseas. So whilst the going was good who cared about interest rates - the gains more than made up for that.
Reallity is that we in the west import more that we export - so if we do not bring things into balance - our creditors will. they will force down our currencies, pick off our pieces of silver and gold (who owns the UK airports, water companies, even the dartford tunnel? etc) and finally, when interest is lost, so the money will dry up too.
But we need those imports for food and goods and fuels - await the cries in 2008/9!
Tough luck! Will come the response - as there are others working at lower wages and lower overheads elsewhere.
What a hard world.
I was stunned to discover the Saudi Riyal is linked to the US dollar - I wonder when they will abondon ship (just as the Taj Mahal has done) and what currency will they use for reserves? their choice. definitely not the dollar or sterling - they wish to fund their own consumptions not ours - they are not charities.
So history unwinds - politicians have gloosed over the truth for decades and allowed spending to go unharnessed - for political reasons. We all knew that one day it would end in tears - 2008 is nigh - it will be harder and harsher than we expect - confidence will be lost in the systems of the UK and the USA - and their roles in the current world will become rudely apparent.
Wishing you all Health and Happiness for 2008
I was given 6 months to live with terminal cancer in December 2003 - so maybe I am a bit sceptical about the predictive ability of experts - and look for deeper truths - or maybe I am just deluded as the rest of you
:-)
Ian
Happy New Year Robert. Keep up the good work. As a manufacturing SME owner employing 20 odd people and after 7 years of revenue growth (but lousy and diminishing margins) I'm approaching 2008 gloomier than I can ever remember. Let's hope that our ability to produce and deliver goods in a tenth of the time it does from China and at a third of the carbon cost, will mean something to our UK customer base. To be fair there is some sign of improvement - ie I don't think it can get any worse - and a weaker pound will help. If the "crunch" means that future UK interest rates (say base 3.75%) will only support a 1.65 dollar rate we will finally be putting the pain where it deverves to be. We might just be able to preserve what's left of our manufacturing base and our agriculture. Think what the cost of oil will look like - just the boost our new generation energy companies need and - perhaps - the kick start that the Hydogen economy requires? Now is that a cloud or a silver lining?
Tony
AJ #49
If the cost of oil and energy in general goes up then the cost of hydrogen will also go up in direct proportion. Where do you think hydrogen comes from?
Hydrogen power will never become widely used. It has to compete with its own energy sources.
Energy is wasted when you go the hydrogen route.
#50 Surely the link between the prices of energy and hydrogen is more complex than that? Granted that currently it is most cost effective to produce hydrogen from fossiles, but it can also be produced from mainly water using electricity. If the cost of fossile fuels (in particular oil) relative to nuclear/renewable/coal generated electricity soars, is it not possible that it becomes cost effective to waste some energy in order to make it portable? Seems a distant scenario, but never say never! I believe it has pretty much the same energy efficiency issues as electric powered vehicles.
Bond If with probability 50% assets = 100, liabilities = 90; prob 50% a=100, l=120. Then expected liabilities > assets, so bond
Rude boy 50- Hydrogen etc - new paradymes dear boy - I know where it will come from - nuclear - it's the only way to create the hydrogen from seawater. Stick 5 very large pairs of nuclear power stations on South Georgia and you solve the problems for the UK. One's pair's a spare, two for electrolysing the water, two for compressing the gas, fleet of tankers (like the 13 on the north africa france lpg run) and bob's your uncle. Only the penguins and the ghost of Shackelton to do the nimby thing. What will it cost - just under a Northern Rock, give or take a billion and that buys the tankers too.
Oh - and why are Honda, BMW, GM "wasting" (in your terms) so much capital on it?
Anyway thanks for picking up on the lighthearted and inconsequential part of the blog - serious bit go over your head?
AJ
AJ I didn't comment on your serious bits since I am in broad agreement with you on them and did not have much to add. Except that the UK needs to be competitive selling into the US or else they will look elsewhere for design services etc that we are still good at.
This is not the appropriate forum for discussing energy issues and hydrogen in particular. However. Deep breath;
Hydrogen is not much use as either a fuel or as an energy carrier.
It is a non starter as a fuel since it has to be manufactured from other fuels or synthesised from water. Those processes are wasteful in that you end up putting more energy into the product - hydrogen than you can end up using. Where hydrogen is currently produced on a tonnage basis from natural gas it is used as a basic chemical feedstock to synthesise fertilisers etc.
Synthesising hydrogen from water obviously can be done and is done - on a micro scale - where energy wastage does not matter so much. To scale that up would give you no end of difficulties. Not least that of water purification. In order to generate hydrogen from water you need to use ultra pure water. Any impurities will poison the platinum that is used as electrodes. If you use anything but platinum then you need much more energy to split the water molecules. Sad but true.
Even when using platinum as electrode material the process is very inefficient and you end up with hydrogen which even then is not very good as an energy carrier. Far better to just use the electricity as we do at the moment for our factories and houses or for trolley busses or charging batteries in cars.
As for shipping hydrogen from where it can be remotely produced:
LNG carriers use the boil off gas to power the engines that propel the ships. The good thing about LNG is that you can pack a lot of energy into a ship. You get a lot of energy per cubic metre. Hydrogen however, although light, does not pack well. Even when liquefied you would not get anywhere near the same amount of energy packed into a ship. Hydrogen when liquefied has to be kept very cold. Like really – really - cold if you don’t then it quickly boils off. So you need to have heavy vacuum flasks to contain it. The ship will be really heavy. Much heavier even than a LNG carrier – and it would be transporting a lot less energy. Inevitably the gas would boil off and you may as well use it to power the ship – unfortunately you would probably use up the whole cargo before you got to port.
There are various automobile manufacturers around the world playing with hydrogen cars and busses. If you look how they are all being financed you will see government tax breaks and grants. The governments all think that Father Christmas exists and that hydrogen will be powering his sleigh soon.
They all give grants out on the off chance that the laws of physics will be broken and they will be there when it happens. It just plain won’t happen. Sad but true.
ps Why does it take so long to post to this blog?
I could have written a better comment..
#46 - best post on this board all year!
Robert's views reflect the gloom in the credit market but can he explain why the Pound is doing so badly against the Euro? It has been steadily sliding for some weeks and with large numbers of the population holidaying in Europe in the coming months, not to mention those supporting property ownership over there, this is becoming a little painful
#30, #43.
Of course bonds trade below par in normal trading conditions without any expectation of default. The trade price is affected by the yield required on the bond. The desired yield is achieved by a mix of the coupon on the bond and the discount on the principle. Same as bonds can trade at above par if there is a particularly generous coupon attached.
What the distressed debt specialist is referring to is the amount of discount the market is currently applying to the bond.
Suppose a company issues a bond with face value of 100, paying a coupon of 8%. If the market has a decent expectation of the prospects of that company, it is likely that the bond could be issued at above par. However, say its a large US motor manufacturer currently in global difficulties, mentioning no names, and it would be expected that in a liquidtion of the company the bond would only be repaid at 40, you won't be paying more than par, despite the high coupon. Its that level of market applied discount that indicates that actually an insolvent liquidation is expected, and so the equity would be worth nothing.
Robert's views reflect the gloom in the credit market but can he explain why the Pound is doing so badly against the Euro? It has been steadily sliding for some weeks and with large numbers of the population holidaying in Europe in the coming months, not to mention those supporting property ownership over there, this is becoming a little painful
Apologies in advance for being off topic (and tongue in cheek)!
#54 LNG has higher energy content because it burns carbon as well as hydrogen. If you want the full comparison, you need to factor in the cost of doing this, through rising cost of emissions quotas or technology for sequestering/scrubbing (as yet unknown), looking 20 years down the line.
As for the comparison with battery operated vehicles, presumably if we are to all drive around in these we will also need a large amount of electricity. If this means we have to put nuclear power plants in the Antarctic, you also have to factor in the cost of transporting the electricity half way across the globe. And if we can do this, we can also produce the Hydrogen locally and send it out (mixed with the oxygen?) at normal pressure through the existing gas network. A home compressor/condensor has the advantage of releasing all the energy used in the process into the house for heating, plus a fair amount of heat from compressing the gas itself. (Useful if the golf stream stops). You also have to factor in all the huge batteries that would be needed to carry out a very similar process (electrolysis?), small scale, in millions of aluminium cars. You could presumably also make these more efficient by using better materials and purer water. Or you could use all the zink to create hydrogen with giant batteries, battery chargers and destilled water!
The point I am trying to illustrate is that the only way we can arrive at the correct answers is to create an environment where we increasingly reflect the cost of burning carbon for energy, and let the market work out which of the alternatives are cost effective under such constraints. Until you subject all carbon emissions to quotas that must be bought in auction, you don't know what this cost is going to be, so you can't speculate too much about which alternatives are cost effective.
59 LNG
Not only does LNG contain carbon it originates as natural gas straight out of the ground. It does not need to be manufactured as hydrogen does.
I try to keep away from price comparisons since they are essentially artificial, distorted by tax regimes.
Energy comparisons are much simpler and in the end all that matters.
Nobody in their right mind would knowingly waste energy.
BTW if you piped hydrogen mixed with oxygen you would get an explosion.
(Off-topic warning!) #60 Rude Boy. You don't seem to get the point. Energy comparisons are not enough, it is only one type of resource (others include labour, capital, climate). It is meaningless to talk about waste unless you include some measure of utility. After all, we'd save alot of energy if we all just killed ourself, but there would be no one around to benefit from it.
To compare trade-off between different energy sources you therefore need to look at the trade-off between all resources consumed in the process, and the different levels of benefit achieved from each. Unfortunately the closest we can get to objectively comparing the value of apples and pears is money.
The relatively low cost of burning carbon is artificial, because it doesn't include the cost to everyone of climate change (if predictions are true). It is a true externality, in that the cost falls on everyone regardless of whether they participate in burning carbon or not.
This makes it the public's responsibility to ensure that those who burn carbon are made to pay everyone else for the priviledge. The picture is distorted if you *don't* do this.
Only when you do this can you begin to assess whether you truly save resources (and energy isn't the only one) by producing energy in one way or another.
unfortunately the debate is dominated by (sometimes very flawed) popular science, without any real focus on the bigger picture.
Apology - Off topic # 61 Chris S
My point is why artificially compare when you can directly compare energy use.
Agreed that you cannot compare energy against life itself.*
I consider that energy is in equivalence with many physical and intangible things.
What does a nylon jumper cost? The cost is proportional to the energy cost used in its manufacture. How much does a trip to NewZealand cost? Again energy. The cost of making the plane materials – energy – the cost of the fuel.
Factor in the cost of living of the plane’s design engineers? Energy is used in transport, food production, building materials – everything. If the price of energy goes up then the cost of living goes up.
Without readily available energy there would be no civilization as we know it.
Galbraith’s guiding hand is not the only one in action. If one source of energy, fuel, is more readily available than another then it will be used first. Subsidies distort this and result in energy being wasted.
Subsidising LPG for road fuel use is arguably an exception since it otherwise may have been flared off or similarly wasted.
Gaseous hydrogen however does not exist before subsidised production.
*Bush’s biofuel project where food is used as fuel is arguably comparing the West’s energy needs against the third world’s existence.
"What does a nylon jumper cost? The cost is proportional to the energy cost used in its manufacture. How much does a trip to NewZealand cost? Again energy. The cost of making the plane materials – energy – the cost of the fuel.
Factor in the cost of living of the plane’s design engineers? Energy is used in transport, food production, building materials – everything. If the price of energy goes up then the cost of living goes up.
Without readily available energy there would be no civilization as we know it."
Not bad, RudeBoy....in fact biologists refer to the "currency" of living cells being energy, in the form of the biochemical ATP:
But it may only be a neat-sounding analogy. Personally, I still think that the true value of a thing is best seen as the labour time required to produce it.