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Econ Disads Ankurstyle

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I rarely cut an op-ed piece, but Paul Krugman's call for government spending will cut into a terriffic link turn to spending DAs.

 

 

The New York Times

Paul Krugman

 

The long-feared capitulation of American consumers has arrived. According to Thursday’s G.D.P. report, real consumer spending fell at an annual rate of 3.1 percent in the third quarter; real spending on durable goods (stuff like cars and TVs) fell at an annual rate of 14 percent.

 

 

To appreciate the significance of these numbers, you need to know that American consumers almost never cut spending. Consumer demand kept rising right through the 2001 recession; the last time it fell even for a single quarter was in 1991, and there hasn’t been a decline this steep since 1980, when the economy was suffering from a severe recession combined with double-digit inflation.

 

Also, these numbers are from the third quarter — the months of July, August, and September. So these data are basically telling us what happened before confidence collapsed after the fall of Lehman Brothers in mid-September, not to mention before the Dow plunged below 10,000. Nor do the data show the full effects of the sharp cutback in the availability of consumer credit, which is still under way.

 

So this looks like the beginning of a very big change in consumer behavior. And it couldn’t have come at a worse time.

 

It’s true that American consumers have long been living beyond their means. In the mid-1980s Americans saved about 10 percent of their income. Lately, however, the savings rate has generally been below 2 percent — sometimes it has even been negative — and consumer debt has risen to 98 percent of G.D.P., twice its level a quarter-century ago.

 

Some economists told us not to worry because Americans were offsetting their growing debt with the ever-rising values of their homes and stock portfolios. Somehow, though, we’re not hearing that argument much lately.

 

Sooner or later, then, consumers were going to have to pull in their belts. But the timing of the new sobriety is deeply unfortunate. One is tempted to echo St. Augustine’s plea: “Grant me chastity and continence, but not yet.” For consumers are cutting back just as the U.S. economy has fallen into a liquidity trap — a situation in which the Federal Reserve has lost its grip on the economy.

 

Some background: one of the high points of the semester, if you’re a teacher of introductory macroeconomics, comes when you explain how individual virtue can be public vice, how attempts by consumers to do the right thing by saving more can leave everyone worse off. The point is that if consumers cut their spending, and nothing else takes the place of that spending, the economy will slide into a recession, reducing everyone’s income.

 

In fact, consumers’ income may actually fall more than their spending, so that their attempt to save more backfires — a possibility known as the paradox of thrift.

 

At this point, however, the instructor hastens to explain that virtue isn’t really vice: in practice, if consumers were to cut back, the Fed would respond by slashing interest rates, which would help the economy avoid recession and lead to a rise in investment. So virtue is virtue after all, unless for some reason the Fed can’t offset the fall in consumer spending.

 

I’ll bet you can guess what’s coming next.

 

For the fact is that we are in a liquidity trap right now: Fed policy has lost most of its traction. It’s true that Ben Bernanke hasn’t yet reduced interest rates all the way to zero, as the Japanese did in the 1990s. But it’s hard to believe that cutting the federal funds rate from 1 percent to nothing would have much positive effect on the economy. In particular, the financial crisis has made Fed policy largely irrelevant for much of the private sector: The Fed has been steadily cutting away, yet mortgage rates and the interest rates many businesses pay are higher than they were early this year.

 

The capitulation of the American consumer, then, is coming at a particularly bad time. But it’s no use whining. What we need is a policy response.

 

The ongoing efforts to bail out the financial system, even if they work, won’t do more than slightly mitigate the problem. Maybe some consumers will be able to keep their credit cards, but as we’ve seen, Americans were overextended even before banks started cutting them off.

 

No, what the economy needs now is something to take the place of retrenching consumers. That means a major fiscal stimulus. And this time the stimulus should take the form of actual government spending rather than rebate checks that consumers probably wouldn’t spend.

 

Let’s hope, then, that Congress gets to work on a package to rescue the economy as soon as the election is behind us. And let’s also hope that the lame-duck Bush administration doesn’t get in the way.

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nope.

 

 

im cutting impacts for land values, preferably stuff like unemployment and poverty but you know, wars always good too

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It's obama specific but some of the warrants would apply to some of the ptx scenarios

 

___________

 

From Panic to Depression?

 

The dangers of blaming free trade, low taxes, and flexible labor markets for our current troubles.

 

By Phil Kerpen

October 28, 2008 7:53 AM

 

Blame for today’s financial panic can be assigned to a Federal Reserve that kept interest rates too low while a bubble inflated; unscrupulous lenders; people who bought homes they couldn’t afford; Wall Street wizards who overleveraged and wrote derivatives they couldn’t pay; and a Congress that set the policy goal of universal home ownership and recklessly grew Fannie Mae and Freddie Mac to pursue that goal.

 

But with so many real culprits out there, we cannot afford to blame the fake culprits of free trade, low taxes, and flexible labor markets. These are the fundamentals of a free economy. If we undermine them in response to the panic, we risk repeating the mistakes that followed another great panic and ushered in the Great Depression.

 

First, trade. The Smoot-Hawley tariff was Congress’s first major policy blunder leading up to the Great Depression. Despite a warning from more than 1,000 prominent economists, Congress raised protective tariffs to record-high levels in June 1930. The result was that U.S. imports crashed while retaliation from abroad sunk U.S. exports. Some historians believe the political debate surrounding the Smoot-Hawley bill actually contributed to the initial stock market crash of 1929, and most believe it was a factor in turning that crash into the Great Depression.

 

The world economy is far more interconnected today. Trade volumes are much higher and large sectors of the U.S. economy are extremely trade-dependent. Thus, any protectionist response to the current panic would be even more disruptive.

 

Unfortunately, China-bashing has become a bipartisan pastime in Congress. And Sen. Barack Obama is campaigning on poison-pill labor and environmental standards that many of our trading partners can’t afford. It’s a sure way to sink free-trade agreements.

 

Obama also promises new non-tariff barriers to trade that could spark a global trade war, such as direct subsidies for companies willing to locate production in the United States. Under undivided Democratic rule it appears unlikely that there would be any progress on a new global trade agreement. And the existing World Trade Organization framework could unravel under so-called “fair trade” pressure, or even from a return to explicit protectionism.

 

Second, taxes. President Herbert Hoover’s infamous Revenue Act of 1932 was the biggest and worst-timed tax hike in U.S. history. The bill was a bipartisan “achievement,” a compromise between the Hoover administration’s plan to raise income taxes and the Democratic Congress’s plan to institute a national sales tax. The top marginal income-tax rate was raised from 25 to 63 percent. New excise taxes were put on everything from cars and trucks to refrigerators, chewing gum, soft drinks, and electricity. The death tax was doubled.

 

And the results were tragic. By raising taxes during an economic downturn, the economic pain of the 1930s was made deeper and more permanent. The higher Hoover taxes discouraged work, savings, and investment, prevented capital formation, and depressed consumer spending.

 

Today, even liberal congressman Barney Frank of Massachusetts has said there should be no tax hikes in the next year because of the current economic weakness. Yet Barack Obama remains committed to a program of raising the top marginal tax rate from 35 percent to 39.6 percent while also hiking capital-gains taxes, dividend taxes, and the death tax. All this will put the brakes on economic activity right when we need to hit the accelerator.

 

Third, labor. Economists at UCLA have determined that President Franklin Roosevelt’s anti-competitive, pro-union policies prolonged the Depression seven full years. In particular, those policies led to artificially expensive products that discouraged consumer spending and artificially high wages that prevented employment from recovering.

 

Despite this lesson, congressional Democrats, including Obama, are today poised to give unions their greatest power boost since Roosevelt’s 1935 National Labor Relations Act. The vehicle this time is the shamelessly named Employee Free Choice Act, which, among other pro-union legal changes, would abolish secret-ballot elections for union organizing.

 

By way of a new procedure called card check, workers will be openly pressured to sign union cards, after which, if a majority of workers sign, unions will be automatically certified. Coercive tactics by union bosses would run rampant if this policy is ever enacted. And as unions gain in power and force wages unnaturally high, mass unemployment could be the unintended result.

 

It’s important that we avoid all these policy errors — not just for the sake of our prosperity, but for our survival. The Great Depression, after all, didn’t end until the advent of World War II, the most destructive war in the history of the planet. In a world of nuclear and biological weapons and non-state terrorist organizations that breed on poverty and despair, another global economic breakdown of such extended duration would risk armed conflicts on an even greater scale.

 

To be sure, Washington already has stoked the flames of the financial panic. The president and the Treasury secretary did the policy equivalent of yelling fire in a crowded theater when they insisted that Congress immediately pass a bad bailout bill or face financial Armageddon. Members of Congress splintered and voted against the bill before voting for it several days later, showing a lack of conviction that did nothing to reassure markets. Even Alan Greenspan is questioning free markets today, placing our policy fundamentals in even greater jeopardy.

 

But after the elections, all eyes will turn to the new president and Congress in search of reassurance that the fundamentals of our free economy will be supported. That will require the shelving of any talk of trade protectionism, higher taxes, and more restrictive labor markets. The stakes couldn’t be any higher.

 

— Phil Kerpen is policy director for Americans for Prosperity.

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not quite what im looking for but thanks anyway. Im cutting a land values DA for the college topic. i need something for cutting subsidies collapses land value. land value k to ag banks and employment, ag bank collapse collapses econ leads to bad shit.

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a. ag sector is okay now

b. cutting subsidies collapses land value(which is k to ag banks and employment).

c. ag bank collapse collapses econ

d. econ collapse leads to bad shit.

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I am mostly MIA from the site. If you have any questions, please backchannel me. I dont check most threads often...

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Here's some evidence I came across today... hopefully it helps debaters before nationals... CFLs or NFLs...

 

Rosenfeld et al 2009 (Jaeson. McKinsey Global Institute. "Averting the next energy crisis: the demand challenge." March 2009.)

 

p.9

Amid exceptionally high uncertainty about the future path of GDP in different regions in this turbulent period, we have looked at energy-demand growth projections using both mainstream current GDP projections and a range of alternative scenarios around these estimates. The "moderate" case projects a global GDP downturn producing a total 4.7 percent gap to trend - felt mostly in 2008 and 2009 - and then recovery in 2010. MGI's moderate case assumes that, under current consensus GDP projections, energy-demand growth will experience a short-term lull in 2009 due to the global economic downturn and the credit squeeze but is likely to rebound sharply thereafter across all fuel types. As demand recovers, CO2 emissions will recover rapidly.

 

 

 

 

i was gonna copy past other cards, but the whole report is useful depending on your perspective... so you should just look it up and download it yourself.

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This isnt directly economics related... its more hege impact related... but the link can be worker productivity, unions and other socioeconomic balances.

 

Please refer to the following source:

 

Producing Hegemony: State/Society relations and the politics of productivity in the United States

Mark Edward Rupert, International Studies Quarterly, v34n4, 1990 pp427-456

 

I dont know how much use you'll get of it... but there are some interesting internal link stories... and it might be a hybrid K/da?

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Since I am home for the summer and not busy with grad school, if there is any interest, I am willing to provide analytical responses to economics arguments (disads/advts) from camp files, etc.

 

Send me an email with a link to the original file. If I can think of anything, I'll post back here. Important: the file must be publicly available, and in the spirit of my desire for everything to be open, my response will be public too.

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I'm a bit of an economics tyro so excuse me if the following question seems a bit stupid.

 

Given the recent/ongoing recession what do you think is the most strategic way to structure a economy disad?

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That is a really broad question. For example, you need to make sure the link/internal link story is unique - not the impact. It doesnt matter if the economy isnt doing so well now if you can prove, for example, that further creation of non-essential/non-recovery oriented programs will curtail China's desire to purchase our debt resulting in the crash of the dollar. This way, it doesnt matter if the aff argues that the economy is weak.

  • Downvote 1

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To the anonymous neg repper (I am pretty sure I know who you are anyways)...

I am answering questions other students ask of me. If you have a problem with that, dont read them or just leave the site or do whatever the hell it is that floats your boat. I dont care. Grow up.

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I thought Ankur might appreciate this article: regarding

Social services topic and the economy

 

(I have no idea how business confidence is related to this social service topic--but I might be wrong)

 

Inflation DA: To me it seems like the most obvious negative disad for the economy this year is inflation. This takes into account that the aff. will claim to increase the economy (and its hard to link turn). The primary argument in response is "greater risk of deflation" and similar arguments. Also, it takes into account that our economy is hurting right now better than most economy disadvantages (so your uniqueness will take into account their uniqueness--also specifically the thing the pundits say is lacking in the economy is consumer spending and 95% of affirmatives will likely trigger consumer spending)

 

Spending DA: Spending is alright but the aff has 2 built in advantages (we save the economy, which most 1acs will claim and will have a better internal link to (ie systemic) and the we save money over the longer term) Certainly both have time frame issues--but none-the-less put the disad (combined with our near addiction to spending and terrible economic situation--this disad has rather large holes).

 

Disadvantages Plus Counterplan Strategies

The spending disad probably makes it easier to find a counterplan it avoids and it can specifically be used to hege against the California State spending disads.

 

The only exception I see to running the inflation disad is the case of a politics disad linked to saving the economy OR running a libertarian style counterplan (the internal links to economic growth will likely be large--although the later strategy is just a risk--not a TKO)

 

Ankur, what do you think are the various internal links to the economy????

Edited by nathan_debate

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Thinking about spending disads:

 

Spending is a dumb disad anyway without a counterplan.

 

This is especially true given that:

a) the economy is not strong now--we're just coming out of a recession

B) the stimulus package and (the add-ons that will inevitably come later) will swamp this.

c) Between the significant risk of Cap and Trade and health care reform and other Obama reforms passing--your plan will be a drop in the bucket in comparison. Everyone seems to agree that some form of health care reform will pass.

d) Get a piece of evidence on Iraq and Afganistan spending. Year by year each of these wars will swamp your spending for your aff.

 

-----200 Billion more in perception have already been sent--your disad is a joke--at best we are a drop in the bucket compared to trillions in budget deficit. Dow Jones Newswire in 2009

 

(Cory Boles, Dow Jones Newswires, Tues Sept the 8th, 2009, p. online, downloaded: thur sept 10th, 2009 http://english.capital.gr/news.asp?id=809294)

 

The U.S. federal budget deficit reached nearly $1.4 trillion by the end of August, with one month remaining in the worst fiscal year for the federal government in history.

 

The nonpartisan Congressional Budget Office said Tuesday the deficit reached $1.38 trillion through August, with revenue running 16% lower than in fiscal 2008, while federal outlays were running 19% higher.

 

Last month, in a revised budget outlook, the CBO said it expected the budget deficit to top out at $1.6 trillion by the end of September, slightly improved from its earlier forecast of $1.8 trillion for the fiscal year

 

-----Disad 100% inevitable--this disad will never be unique in the next 10 years. Obama will spend between $7 and 9 trillion

(Sacramento Bee, Sept 9, 2009, Downloaded: Sept 10th, 2009, http://www.sacbee.com/846/story/2166712.html)

That's saying something. Back in January, the Congressional Budget Office forecast a flood of red ink, with the federal deficit totaling $1.2 trillion this year and $3.1 trillion over the next 10 years. But those were the good old days, fiscally speaking. Last week, the CBO put this year's budget gap at $1.6 trillion - the biggest, as a share of the economy, since World War II.

 

The picture doesn't brighten much after this year. Over the next decade, deficits will add up to $7.1 trillion, according to CBO. But that figure doesn't include the policy changes President Obama has requested. Include those, says his Office of Management and Budget, and the sum comes to $9 trillion.

Edited by nathan_debate

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I actually think that you can argue a very nuanced but interesting story against job training social service plans which either gives you a significant solvency mitigator on one side or an econ disad on the other.

 

So you can claim based on economic theory that the number of citizens employed is the economy's optimal level of employment given the current situation. Therefore, retraining poor people for other jobs (lets artibtrarily say construction workers) results in a glut of construction workers which depresses the wages of construction workers. The depressed wages then make it impossible for the people to pay their mortgages, more people go into default, and the recovering economy tanks.

 

On the flip side, economic theory would suggest that the only way the glut doesnt depress wages would mean that the excess people dont have jobs, which defeats the point of job training.

 

Thats just me spitballing an idea, but its interesting to play with...

 

I would have to see specific plans to come up with other ideas. I have no idea what anyone is running...

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I assume those would be libertarian authors...but did any camp put out arguments like this? or any links, cites, or otherwise you would suggest?

 

Somehow this onion evidence won't cut it [without irony good] but I did find evidence about the Phillips Curve. (i'm sure I can google or google scholar it in terms of at least increasing inflation)

 

Here is a uniqueness shield for the neg based on improving jobs numbers (and the stimulus means that even more in that direction will be coming in the future), even if it concedes the internal link that jobs are good for the economy.

 

And more evidence (I know its a blog, but he has a PhD and he's a business consultant) and his argument makes some sense. (econ is self-regulating).

 

And even consumer spending is improving (and the overall outllook is better than pessimists suggest)

 

On the flip side is this aff-ish piece of evidence:

 

Lack of employment could tank the recovery. Bloomberg September 2009

(Bloomberg, September 9, 2009, Downloaded: Sept 10, 2009 http://www.bloomberg.com/apps/news?pid=20601087&sid=avvF5aNtrCfc)

“The consumer is hunkered down in the process of repairing his finances,” said Ryan Sweet, a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “Consumers remain very cautious and won’t be leading us out of this recession.”

 

Unemployment that’s projected to reach 10 percent by early next year and a decline in household wealth are casting doubt on the strength of the recovery from the worst economic slump since the 1930s. Federal Reserve policy makers, at their last meeting in August, expressed “uncertainty” about the projected pace of gains in spending by households.

Edited by nathan_debate

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Ill take a look when I get a chance... but considering that I average three exams a week (10 classes, 22 credits of grad school), I cannot promise a response at any given time.

 

Its much easier if you give me a plan text + advantage/solvency

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On the Rare Earth Crisis of 2009

Jack Lifton

 

The recent rare earth investment mania has exposed a not unexpected contradiction in the rare earth segment of the rare element mining investment space. The market prices of the shares of the publicly listed existing rare earth mining opportunities have, for the two existing Canadian companies, first gone up dramatically and then declined but they have settled at a much higher baseline than before. So have the share prices of the two most active listed Australian rare earth mining companies, since the beginning of August, 2009.

 

Additionally, the listed-rare earth-mining-venture-share-price-run-up has now also raised the share prices of many, if not all, of the existing and spawned a large new wave of rare earth wannabes. Most of these, in my opinion, have either no understanding of the rare earths or their potential future uses and market, or no direction as to finding a way to extract, refine, and process their ores to recover contained rare earth values. I might also mention that among the wannabes there were a few listed so-called rare earth opportunities actually selling fantasies of high grade high volume ore bodies on the analyses of a few carefully selected drill cores, most of which had been previously sold as evidence of other “deposits’ of metals, not the rare earths - desired at previous times by a volatile and fickle commodities market.

 

Institutional investors, public and private equity funds and banks often buy and sell shares of specialty metal companies based on the same factors and the same hype and promotion as small private investors do in order to make short term gains. Thus, stock pickers go orgasmic when they find out that an institutional investor has “taken a position” in one of their holdings of a bulletin board, pink sheet, or even NASDAQ listed junior (exploration) mining company. What the stock pickers call evidence of interest is almost always evidence of wanting to get into and out of a good thing while it lasts.

 

The institutional investors however are traditionally very hard on actual mining development. The rare earth mania has so far been no exception to the banker’s rule of avoiding high risk (or failure to produce anything) on long term investments. Such investments offer a low probability of any Return on Investment in a reasonable time that exceeds the return the institutional investor would get from merely putting its money in a “quality” investment, such as traditionally, US Treasury long-term securities.

 

Note well that even today when such quality investments as U.S. Treasuries are paying all time low returns, institutional investors are not placing long term bets on rare earth mining with their capital.

 

So far my analysis is not unusual. There is rarely any direct connection between a share price run up and the probability of a long term investment in a mining venture being successful through commercial production of a desired end product, so why worry?

 

I think that the market share-price-lifting “crisis” that has been caused by the promulgation of mostly hearsay evidence that China, the present monopoly producer, is (further) restricting exports of the rare earths and may even halt the export entirely of selected rare earths, is evidence of two things that are being masked by the now increasingly obsolete approach of western procurement officers, both public and private, to long term planning. These procurement officers have been taught in western business schools and are convinced that price is the critical driver of their ability to buy anything and that increased demand always increases supply.

 

The two things being masked by this belief are that:

 

1. The selling prices of the rare earths outside of China are being artificially depressed; they are too low, and

2. China is moving towards or preparing for the re-pricing of commodities, such as the rare earths, (in which it is world dominant in production and usage) out of US dollars or perhaps of revaluing the renminbi.

 

Interestingly enough, although the first factor above clearly explains why institutional investors are not making long term investments in rare earth mining - the selling prices are too low to give any, much less an adequate, return on investment - the second factor is a reason to make such investments. Because American production costs won’t go up if the dollar declines (most of the costs are independent of the relative value of the US dollar) but margins will skyrocket when and if the goods are exported to those consumers who will be buying many more dollars with their local currency and so are unlikely to reduce their demand solely because of a price increase in US dollars. Did I mention that I believe that Chinese production and refining of rare earth metals cannot keep up with Chinese domestic demand for much longer?

 

I have always believed that perspective is the key to objectivity. And although the mainstream media are now noticing that hard asset prices are increasing for commodities besides gold and that such price increases may in fact reflect the decrease of the value of the dollar rather than any increase in the value of the commodity, the MSM has not noticed that some commodities, for which the demand is in fact increasing, are nonetheless not increasing in price as rapidly as others. The MSM does not discuss this anomaly, because its perspective is too limited.

 

I’ve been watching the current stock market small investor interest boomlet in the rare earth elements, REEs, since it began late this last summer (2009). For small investors I think that the first wave of the “rare earth publicly traded share price rush” was triggered by an article by James Dines in his popular subscription newsletter. There he predicted that due to rapidly rising public awareness of their strategic and critical nature, a rare earth investing rush, mimicking the one he correctly predicted many years ago for uranium mining under similar circumstances of rising public awareness, was about to get underway.

 

It didn’t hurt the octogenarian Dines' prediction thesis at all when the news media, shortly thereafter, caught wind of a supposed Chinese pronouncement that would impact the future security of the supply of rare earths. This pronouncement, said to be an internal memo solicited by China’s Ruling State Council on the future supply and demand of rare earths in and by Chinese industry during the next “five year plan” cycle, 2010-2015, had first actually been noted in April, 2009. The Chinese, it was said, in a press release by the listed Australian miner, Arafura Resources, [ASX:ARU], were officially considering a continuation of the reduction in their export allocations of rare earths (the reduction of which they have been carrying out for the last 5 years), and (drumroll, please) it was said that they were contemplating an “immediate” cessation of the export of the so-called heavy rare earths (first four notes of Beethoven’s Fifth Symphony, please).

 

Although there are no “official” comparative production statistics for the rare earths, which are not traded on any exchange, it is believed by everyone who comments on this topic that the People’s Republic of China (PRC) today produces more than 95% of the entire world’s annual new supply of the rare earths. It is certain that the PRC today produces 100% of the world’s annual production of the very rare so-called “heavy” rare earths, dysprosium, terbium, and europium. These high atomic numbered rare earth elements - referred to as the “heavies”- are critical either for raising the operating temperature at which rare earth based magnets can perform efficiently, or for producing a red cathodolumenescent phosphors for color displays. “Critical” here means that without these rarest of the rare earths the functions they create cannot be performed. There are no substitutes for them.

 

There is, and has been continuously, since the mid-twentieth century some mining of rare earths in Russia, India, and, perhaps, Maylaysia, and there has been since 2007 a small amount of large scale processing of previously produced REE concentrates (70%) in Mountain Pass, California by MolyCorp. The Mountain Pass production is as of this writing 6 tons a day, apportioned between lanthanum [oxide], 4 tons a day, and didymium [80% neodymium mixed with 20% praseodymium] oxide, 2 tons a day. MolyCorp, at Mountain Pass, although it is a producer of rare earth oxides [REOs] is not currently mining or concentrating ore; it is working off concentrates last produced in 2002. I am using the convoluted term “small amount of large scale processing,” because I am certain that no one else outside of China is producing anywhere near the volume of REOs, daily, that Mountain Pass is.

 

MolyCorp is most likely producing between 40% and 67% of all of the REOs produced outside of China in a vertically integrated operation. It is important here to note that the Mountain Pass ore body was the site during the 1980s of the largest individual rare earth production level ever achieved in one mine. The open pit operation reached a level of 20,000 tons a year of REEs. The ore body that was mined at Mountain Pass is immense; it is an indicated (verified) resource of at least 30,000,000 tons of 9.6% average grade, with a cutoff grade of 7.6%, bastnaesite.

 

The reason that Mountain Pass was put on care and maintenance (i.e., shut down) in 2002 was not due to the exhaustion of high grade ore or the loss of access to such ore. The reason was simply that Chinese production out of the Bayanobo region of Inner Mongolia had by 2002 become priced so much lower than that at Mountain Pass that MolyCorp could only continue mining by subsidizing the cost, which it chose not to do since the trend was clearly for even higher Chinese production and lower pricing. It was not then and it is not now clear whether or not Chinese production costs could justify the selling prices of Chinese REEs. But there may well be subsidies available to Chinese miners from the state in order to maintain employment in Inner Mongolia that are not solely based on the world market prices for the products of the mines as they would be in the free market oriented West.

 

Whether the current Chinese monopoly in rare earth production was planned as a strategy fueled by predatory (lowball) pricing or simply happened as a consequence of adhering to a larger national plan to create employment and drive manufacturing dependent on a secure supply of the rare earths to China is only an important consideration outside of China. Because as of this moment China is still exporting enough refined rare earths such as metals, alloys, and fabricated products to keep the world market for these products going.

 

The problem that has been exposed by the “discovery” of the memorandum on rare earth export allocations is that it proves the conjecture highlighted by well-known Australian rare earth specialist, Dudley Kingsnorth, that Chinese domestic demand for rare earths is rapidly catching up to Chinese supply output. Mr. Kingsnorth has predicted that before the expiration of China’s next five year plan in 2015 Chinese domestic demand will exceed its domestic production.

 

Assuming Mr. Kingsnorth’s prediction to be correct, and I do, this means that at some point in the next five years it will not be possible to manufacture rare earth based products outside of China unless and until 1. There are rare earths produced outside of China; 2. Those rare earths can be refined and processed into useful forms outside of China, and 3. Chinese domestic consumers have not preemptively gained control over the non-Chinese production of the rare earths in order to secure their own supplies for domestic manufacturing and marketing within China.

 

What the recent hubbub over Chinese rare earth export allocations has exposed is that a deadline is rapidly approaching after which the production and use of the rare earths will pass by default to the absolute control of the PRC.

 

I and others have written extensively over the past few years about the importance, indeed the critical importance, of the rare earth metals in today’s age of technology. This importance seems now to have been noticed first by the market and finally by the US military establishment, which finds itself in the unenviable yet perfectly foreseeable position of becoming dependent on a foreign power, the PRC. The PRC, if not a military adversary of the US, is already a direct economic competitor of the US and the rest of the world for the raw materials, the rare earths, without which the US military cannot build its smartest and most effective weapons. To some it seems irresponsible in the extreme and, perhaps ominous that the US has allowed itself to become dependent on the PRC for any critical raw materials, much less such materials as the rare earths which the US has in abundance and of which the US was very recently the world’s largest producer.

 

It must also be noted that even without the military hardware consideration there are very few green technologies that do not need rare earth elements for critical aspects of their performance.

 

An excellent example of spin control - excuse the pun - has been projected by the “wind turbine generator” industry in the US and Europe. In the Spring of 2009 the PRC announced that over the course of the next two five-year plans (2010-2020) China would quadruple its previous commitment to building wind generators from a previously announced 33 gigawatts to a new total of 120 gigawatts. The western “wind” industry acclaimed this announcement whenever it was brought up as a vindication of their industry and as proof of China’s commitment to alternate energy production to reduce its, China’s, dependence of fossil fuels for energy generation.

 

In fact, the Chinese plan may throw the rest of the world’s attempt to build wind generating capacity into chaos. One of the most efficient and reliable of wind generators is based on the use of a permanent magnet type generator, which is most effectively made using a neodymium-iron-boron permanent magnet. Each megawatt of electricity produced by such a wind turbine type requires between 0.7 and 1 ton of neodymium-iron-boron. The construction by China of a 120 gigawatts of such capacity could take therefore as much as 120,000 tons of neodymium-iron-boron magnet alloy. This alloy would necessarily have to be produced with newly mined materials since it replaces nothing now using neodymium, and it can be estimated that it could require 250,000 tons of new production of rare earths over the next 10 years just to provide sufficient neodymium for the job.

 

The only nation that could possibly produce enough new neodymium in the next ten years to undertake the completion of such a project would be the PRC, and it could do this only by eliminating the export of neodymium or maintaining it, at best, at 2008 levels. Whenever I mention this to anyone associated with the wind industry I am accused of ignorance of other than rare earth based permanent magnets for wind turbine generators and of ignorance of other types of generators. Yet no one will tell me what would happen to the western wind turbine energy industry if it were now completely cut off from PRC material. It is clear to me that public companies that depend on subsidies to be competitive do not wish to discuss what the effect of delays, re-engineering, and lessened efficiency will do to their business models.

 

The most progressive of the world’s car companies in the electrification of the motor car, Toyota , has sold more than 1 million of its full hybrid Priuses since 1997. The current model, third generation Prius uses a 1.5 kWh nickel metal hydride (NiMH) storage battery based on the rare earth metal lanthanum in conjunction with a gasoline fueled internal combustion engine (ICE) to achieve a 50+ mpg fuel efficiency. Toyota has made it clear recently that based on its own three year study of currently available lithium-ion storage batteries it, Toyota, has decided to indefinitely continue the production of the Prius with its current NiMH battery and to ramp that production up to 1 million units per annum by 2011. Toyota makes its own NiMH batteries from its own in-house design, so that it feels directly any Chinese export reductions or eliminations.

 

Although Toyota does not disclose the amount of lanthanum and other rare earth metals it uses in the construction of the Prius type power train I can safely estimate that Toyota annually uses at least 7,500 tons of lanthanum and 1,000 ton of neodymium. I don’t know how much praseodymium, dysprosium, and terbium Toyota uses annually, but I would guess that Toyota is the world’s largest single user of all of the rare earth metals named. Toyota thus has good reason to be concerned over the security of its supply of Chinese REEs and this gives it good cause to be proactive in seeking out alternate sources of REEs globally. In fact, Toyota has done that, and it is in the process of doing more. That story however is for another article.

 

I have now come to the topic I wish to discuss. With the need for the REEs for strategic and critical civilian and military manufacturing growing and with China cutting back on its exports of REEs to secure its own supplies of these strategic and critical metals, why are private capital and the federal government state not placing a priority on reviving rare earth production and processing in the USA, even as they throw hundreds of billions of dollars at green technologies which will not be efficient, or even, in some cases, functional without rare earth based components? Why doesn’t the US military seem concerned with its dependence on a competitive power for the critical and strategic materials for so many of its highest tech weapons and weapons’ platforms?

 

There is no explanation other than sheer lethargy for the lack of state action; if it’s not really broke, why fix it seems to be the rationale for non action. Military procurement officers will tell you that so far there has been no problem sourcing the relatively small amounts of REEs needed for military production, so, they say, why “create an issue where there has been no problem?’ It is not just the American military that ignores long term strategic planning for even critical materials; short term thinking is, in fact, the norm in American private industry.

 

But there is even a better reason than short term thinking why private capital is not being directed to the development of non Chinese sources of the REEs.

 

To be concise, it is because at current rare earth prices there is no chance of any return on investment from any rare earth mining ventures, public or private, that do not contain the heavy rare earths in significant quantity and even then such a venture to be profitable will need to have not only the heavy rare earths but also either have the light rare earths or be combined with a venture that does.

 

Additionally, there is no point to developing a rare earth mining venture unless it is accompanied not just by a refining operation to separate the individual REEs from one another but also to produce the pure rare earth metals and the necessary alloys and compounds required to manufacture products critically dependent on the REEs. In other words, any investment must also be over the entire supply chain or have access to such a supply chain.

 

To understand the dilemma look at the declining copper mining industry in the USA for example and contrast it with the rare earth mining industry.

 

America has not only copper mines, but also copper refineries, copper fabricators, and copper end product manufacturers. Copper mined in Utah, for example, can be smelted in impure “blister” copper and then refined into high purity copper cathode in Utah. Then the cathode can be drawn into wire in a place like St. Louis; then the wire can be used to make OEM automotive wiring harnesses in Ohio, and the wiring harnesses can be installed in cars being made in Indiana. America through its fascination with globalization does not today mine enough copper to feed its domestic demand, so it must import copper cathodes from abroad. America could however produce enough copper to satisfy its own demand and it is still self sufficient in the value chain for copper containing products such as electric wire and electric motors so that even if the copper cathode is imported, most of the value added to the copper by forming it into electric motors can be done in America by American workers. Keep in mind that when value is added to a natural resource it creates jobs and wealth.

 

This is not true of the value added to products by the use of rare earth components. Rare earth magnets are for example only manufactured in one type in small quantities by one American company which imports the rare earth metals, which it alloys in-house from China because no one in the USA today produces rare earth metals or alloys even, I do not believe, from the REEs produced by MolyCorp in California.

 

So the only wealth creation possible today in North America from the rare earths, after they are mined and concentrated and in the sole case of Molycorp, separated into their crude oxides, is the added value of those rare earths to Chinese rare earth refiners, metal and alloy producers, and fabricators of the industrially useful forms of rare earth metals and alloys. Most of that material is further processed into magnets, batteries, lasers, motors, generators, and displays within Asia, predominantly China. So the added value to any rare earths based products that would be produced today anywhere in the world outside of China would be added mainly in China and to a lesser extent in Japan and Korea.

 

One of the reasons that Australia officially rebuffed the recent attempt by China Non Ferrous Metals Company to acquire Lynas Corp’s (LYSCF.PK) Mt. Weld mine was that the investment would have created only 90 jobs in Australia while insuring the creation of 400 jobs in a Maylaysian refinery and untold numbers of jobs in China where final reduction of the refined oxides to metals and alloys, as well as the fabrication of those metals and alloys into end use products, would have occurred. Australia’s government is now questioning the business model of Lynas and asking why the refining, metal production, and component and end-use product manufacturing supply chain cannot be erected entirely within Australia creating new wealth and jobs from what up until now was considered merely a natural resource. It is ironic that until recently it was not possible to get government interest in Australia in assisting in the development of the rare earth industry - actually the re-development, since Australia was producing rare earths in the second half of the twentieth century, but like America got globalized out of the business by China.

 

China clearly has already recognized and adopted the closed loop, or perhaps more technically correct, feedback, model for creating wealth and jobs from a natural resource in which it is dominant. Australia is on the verge of catching on to the Chinese model. Canada and the United States are both in the process of waking up to the success of the Chinese business model for maximum wealth creation from natural resources.

 

But China operates by state action whereas all of its present direct competitors use some form of free enterprise. China’s competitors are and can only be industrialized nations that are blessed with natural resources and high technology industries. In the case of the abundant natural resources, free market capitalism triumphed first. But in the case of rare metals, where individual production or manufacturing may be uneconomical, only collaborative action (such as Chinese state action) can work unless prices get so high (as in the case of the industrially useless rare metal gold) that even though enormous investments must be made in order to produce small amounts such investments can be profitable.

 

Some examples of why China is considering totally restricting the export of the critical and strategic rare earth metals will tell the whole story. Deep drilling for oil is not an area where the Chinese are known to have high expertise but they may soon have a cost advantage anyway because the electric motors driving the drills deep under the ground or the ocean are made with permanent magnets made to operate at the highest possible temperatures - it is impossible to cool such motors well at depths of thousands of feet. The best permanent magnets for such motors are probably those made from the alloy Neodymium-iron-boron. The alloy itself must have additions of dysprosium and terbium, which are today only and solely available from the PRC and are very rare, in order to be able to operate at the highest temperatures that can occur. It must be obvious to the world’s oil companies that shortly they will be unable to buy or have made new motors for deep drills other than in China. It must also be obvious to them that if Chinese oil exploration companies place orders for the same motors they will ultimately simply be unavailable to non Chinese oil drilling companies.

 

I should also point out that the American domestic maker of permanent magnets, Electron Energy, has produced some amazing high temp Sm-Co alloy for permanent magnets for motor applications using the mid-atomic-number range rare earth element gadolinium as an additive. There is today no North American production either of gadolinium or of samarium, although MolyCorp told me that they hope to produce both, as oxides, from their above ground concentrates in California within a year. In the meantime, and if MolyCorp does so, Electron Energy will remain totally dependent on the PRC for the critical rare earth metals it needs to make its high temperature operating permanent magnets, for which it is the principal supplier to the US Department of Defense.

 

Yet even if an oil company or an industrial company like Toyota were to agree to pay for the development, for example, to bring Avalon Rare Metals (AVARF.PK) or Great Western Mineral Group’s mining ventures into production there would still be a need for the rest of the supply chain to be built simultaneously or China will still be in control due to its absolute dominance of the value chain for the rare earth metals. No one in the world of institutional investment seems to care about rare earths, because the total market size for the current global production of rare earths at the mine is less than two billion dollars.

 

The only hope for the further availability of the rare earths outside of China after 2015 is a collaborative effort by the rare earth mining, refining, metal and alloy production and fabrication, and end use product manufacturing industries to build a complete rare earth supply chain. This includes, by the way, a recycling industry targeted at recovering the rare earths from civilian and industrial products and processes, in one country, such as Australia, Canada, or the USA, or, at least, on one continent, North America.

 

This and this alone can create enough value to justify the total investment required. It makes no sense at all just to invest in mining either the light or the heavy rare earths. At today’s selling prices and even at the prices projected over the next ten years there is little or no hope of any return on such investment and therefore no private investors will undertake such a venture other than to make money by the increased value of their public share holdings.

 

The public, without any analysis, is hypnotized by the hype. In the stock market holders of shares are betting with each other on the company’s future; they are not analyzing the company’s future nor understanding fundamental issues such as the current monopoly held by China and the value to China’s domestic economy of the rare earths.

 

Chinese companies owned by the state do not fail if they are unprofitable; they fail only if they are not needed by the next five year plan.

 

The Chinese rare earth mines are critical to not only the growth of the Chinese domestic technology culture but to its very existence. Balance sheets don’t matter. As soon as Chinese industry needs raw materials these are directed from the heavily indebted to the government mines to where they are needed. Foreign buyers are simply told that the desired material is sold out. This is exactly what American short term thinking has done to our heavy industry and is now doing to our high tech industry. The rare earth supply crisis is a symptom of a greater dilemma. It is time for collaborative action right now, before it is too late.

 

 

====================================================================

 

The Battle Over Rare Earth Metals

Jack Lifton

 

Rare earth metals are most simply defined as those chemical elements that have atomic numbers between 57 to 71. These include lanthanum, from which rare earth metals get their collective chemical name of lanthanides, to lutetium. For reasons of chemical similarity, two additional metals, scandium and yttrium, are commonly found in rare earth metal deposits, and so are frequently referred to as rare earth metals, resulting in a total number of 17 rare earth elements — all of which are metals.

 

 

 

Table from the US Geological Survey

 

These 15 consecutive lanthanide elements have, uniquely among all the elements in the periodic table, chemical properties so similar that they are difficult and expensive to separate from one another. However, once these metals have been separated from one another, the individual physical properties of these materials put them in today’s top tier of the rarest and in many cases the most critical of metals for technological application. These metals are used to manufacture environmentally friendly products such as electric cars and in alternative power generating technologies such as wind turbines.

 

By way of example, according to a December New York Times article two elements, “dysprosium and terbium, are in especially short supply, mainly because they have emerged as the miracle ingredients of green energy products. Tiny quantities of dysprosium can make magnets in electric motors lighter by 90 percent, while terbium can help cut the electricity usage of lights by 80 percent. Dysprosium prices have climbed nearly sevenfold since 2003, to $53 a pound. Terbium prices quadrupled from 2003 to 2008, peaking at $407 a pound, before slumping in the global economic crisis to $205 a pound.”

Table: Rare Earth Elements Periodic Chart

 

In discussing ‘rare earth elements’ the term rare can be thought of in two different ways. First, rare can be defined by how much of a particular metal is actually produced and made available to end-users who require its use. Second, rare can be thought of in terms of its uncommonness or scarcity. When speaking of ‘rare earths’ in current, manufacturing terms it is the production of these metals (high or low) and their availability (large or small) that can be used to establish which of them are rare and which are not. In short, ramping up production of some of these rare metals is one way of diminishing their value by increasing their availability on world markets and most importantly their availability to manufacturers which require their use.

 

China’s Monopoly Over Rare Earth Elements

All is not well in the world of rare earths. The main accessible concentrations of the rare earths are found in China, where more than 95% of rare earths are now produced. Over the last seven years, China has reduced the amount of rare earths available for export by some 40%.

 

Earlier in 2009, concern over rare earths and their availability caught fire with the US Congress when it ordered the US Government Accountability Office to undertake a comprehensive review of US dependence on rare earths for military applications (night vision goggles, range finders, precision guided munitions and cruise missiles to use but a few examples). The American public’s attention, apparently unaware of their use in national defense and in the production of “green” technologies, was heightened by this development. Then in December 2009 the PBS broadcast a series of interviews by a British journalist in Inner Mongolia. The topic of the interview was “Are Rare Earth Minerals Too Costly for the Environment?” The theme of the story was that the levels of pollution in the Bayanobo region of China where most of its and the world’s production of the rare earth metals takes place, are now so high that industry must be reformed if new mineral production is to continue.

 

Even existing mineral production may be in danger. The necessity for industry restructuring seems to be the case. It is obvious that in order to clean up the damage from decades of mining and refining operations, China’s rare earth industry must slow or even stop temporarily its activities. This must be carried out in order to assess the environmental impact of past mining operations and then to plan strategies for mitigating future environmental damage. Such steps would allow China to resume and perhaps ultimately to enlarge its production of the rare earth elements.

 

The PBS program also took note of the fact that Chinese officials are openly concerned that the elements mined in the Bayanobo region are so valuable and important to China’s technological future that they must be conserved for future Chinese use. Rare earth production is or may soon be too low to keep up with growing demand.

 

Six months ago, a story was circulated concerning China’s State Council which is the arm of the government that sets the agenda for China’s command economy. The story, supported by a white paper from the Chinese Ministry of Industry and Information Technology (MIIT), suggested that the export of the rarest of the rare earths, the higher atomic numbered (or heavy ones) be immediately terminated and that the export of the rare earths should be reduced in the next five-year plan (2010-15).

 

The story could have been floated as a trial balloon to measure world reaction to a curtailing of the rare earths’ supply. Another possibility is that the story was released to the Western press because the Chinese government had become aware of the importance of rare earths to China’s technological and green future and that this importance is sufficient enough to curtail the export of rare earths at current levels. This is particularly important since rare earth production may soon have to be reduced while environmental problems are remedied.

 

For the rest of the world, the problem is that the rare earths which the Chinese deem so important to their technological and green future are already critical for maintaining the West’s technological and green present, let alone a future of green growth and sustainable production. For example, China has announced that over the life of the next two five-year plans, 2010-2020, it will construct some 133 gigawatts of wind turbine generated electricity. This is likely to dramatically impact the supply of the rare earth metal neodymium. (it could take up to half a ton of neodymium to make a permanent magnet for a very large wind turbine) If China chooses to go with the wind turbine generator design that uses a rare earth permanent magnet based on neodymium, praseodymium, dysprosium, and terbium, (the last two of which are among the rarest of the rare earth metals) then this will require that China increase its current production levels in order to meet additional demand. The alternative is that China substantially reduce its exports of the required metals under the terms of present production levels. Modern, smaller, high performance and high efficiency electric motors and generators are also increasingly dependent on the unique properties of these metals.

 

The interruption of the supply of these metals to non-Chinese manufacturers and end users would upset both the civilian and military markets in the West. A shortage would surely mean that, first of all, the West would have to choose between “guns and butter.” Secondly, it would mean that technological advancements would stagnate or stop altogether in alternative energy production and uses where these metals are critical.

 

This is a direct challenge to the West’s march toward a greener future.

 

In 2002 the United States' most important rare earth mine, operated by Molycorp in Mountain Pass, California was shut down. This was due, at least in part, to Chinese predatory pricing. Rare earths from China’s Bayanobo region were shipped to California and sold for less than the cost of producing the same rare earths at Mountain Pass, even with a 5% duty assessed against the imports. It was unknown then, as it is now, whether Chinese mining companies were “dumping” their product, i.e., selling it for less than the cost of production.

 

Certainly today it is obvious that if China had capitalized its environmental liabilities and the true costs of its mining operations in their own country, production costs may not have been competitive with Molycorp’s production costs. However, lowball pricing had its effect. Molycorp ceased mining its immense, high grade California deposits of the light rare earths (with lower atomic numbers), and South African mining operations also abandoned their supply space to the Chinese.

 

This happened even though the resources and reserves available and accessible to modern clean mining operations outside China were (and still are) loaded with immense verifiable quantities of high grade ores.

 

Mountain Pass was, as early as 1984, the largest rare earth mine in the world; it produced then fully one-third of all of the global supply of rare earths and 100% of the US demand for them. Mountain Pass has proven reserves of more than 30,000,000 tons of ore when measured using a lower cut-off grade of 7.6%. Much of the ore is at 9.5%, which means that at today’s American demand of 20,000 metric tons a year, Mountain Pass could provide "light" rare earths, lanthanum through samarium, in sufficient quantities to supply current demand for 150 years. If this mine were operating and its output were merged with other known US deposits containing “heavy rare earths,” such as dysprosium, terbium, and europium, in commercial quantities, then America would be self-sufficient in rare earths.

 

It is important to note rare earth supply security may now be on an even keel with rapid return on investment as a driver for developing American domestic rare earth resources. Market forces are the preferred avenue to bringing US production of rare earth resources back online, but the issue is so vital to the US manufacturing sector and to US national security interests that Congress should address the it a priority. Indeed these observations catalyzed the proposed the Rare Earths Supply-Chain Technology and Resources Transformation Act of 2009 (RESTART Act) referenced earlier.

 

China’s gradual reduction of its export of raw ores and ore concentrates has forced the rare earth refining, separating, metal and alloy production industries to move to China. Therefore investment in China and the employment of Chinese laborers and engineers is the surest way for a foreign company to assure a supply allocation of rare earths for its own end-use.

 

The West has now been essentially denuded or contrarily has denuded itself of almost all its rare earth mine-to-market supply and value chains. Only some of the final assembly of permanent magnet using devices such as DC electric motors and electric generators for civilian use remain anywhere outside of China today. The US military and the allies it equips require that the final manufacture and assembly of all munitions or guidance devices and components be within the US or in an allied country such as the UK. Even so, rare earth metals — from which military components such as permanent magnet electric motors and generators, lasers, and infrared and sonar sensors are constructed all or in part — are exclusively imported from China and then alloyed and fabricated in the US or in another allied military contractor’s country.

 

This is an incredible and truly inconvenient truth. It should also be noted that Canada also has large and high grade deposits under development.

 

It is important to realize that the situation regarding the supply security of rare earth supply elements has been fundamentally driven by China’s growing domestic demand. Western industry, both civilian and military, could be cut off with little or no notice from these elements at a time when there is no alternative supplier of these elements from someplace other than China.

 

Western free-market mining, banking and institutional investors have to use this current reality to reassess factors such as the availability of strategic or critical rare metals, and the valuation of the entire supply chain to political and economic advantage. US policy makers should consider all options, including government incentives if necessary, to return US supply back to the point that it can satisfy at least US national defense requirements.

 

The US Department of Interior must now, through the Bureau of Land Management (which supervises mining claims) and its subsidiary the US Geological Survey, (which monitors the market and end use of natural resources) step forward. It needs to identify and measure US domestic reserves of rare metals which are strategic and critical for America’s industrial and military needs. These steps should be administratively codified by the Departments of Defense and Commerce and be used to catalyze the sourcing of these resources in the most beneficial way for the US economy.

 

To be clear, the security of the US supply chain for rare earths, and their availability, must be the focus of whatever actions are undertaken.

 

Also equal to supply concerns regarding rare earths is the fact that even if tomorrow the US would restart the mining of heavy rare earths it lacks the capacity to refine these elements. Thus, should the United States begin to mine its heavy rare earth oxides, it would still be dependent on overseas refineries for further elemental and alloy processing.

 

Transportation alternatives such as electric cars, electricity generating technologies such as wind turbines, communications’ technologies, such as iPhones, and even medical equipment such as X-ray machines and MRI machines all require rare earths for their manufacture.

 

Getting onto the green road is not the same as staying on it.

 

Jack Lifton is a Senior Fellow at the Institute for the Analysis of Global Security. He is an independent consultant, writer and lecturer focusing on the market fundamentals and end uses of the "technology metals," a category name he coined in 2007 to describe those typically rare metals, without which the implementation of modern technologies would not be possible. He also produces the Jack Lifton Report at http://www.jackliftonreport.com

 

 

=================================================================

 

Jack Lifton writes some serious debate worthy evidence at his website http://www.jackliftonreport.com

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Interesting comments from Shiller... I figure if you do a good search, you might find better articles or interviews he gave that will be evidence worthy.

 

 

 

 

Double-Dip Unlikely But There's "Definite Risk" in U.S. Economy, Robert Shiller Says

Posted Mar 05, 2010 07:00am EST by Heesun Wee in Investing, Newsmakers, Information Technology, Recession

 

Just when we thought the recession was behind us, recent cracks have emerged in America's recovery: Home sales are down, consumer confidence fell sharply last month and the stock market has gone sideways since peaking in mid-January.

 

Now all eyes are on the jobs report for February due at 8:30 a.m. EST Friday. The consensus calls for about 60,000 jobs lost (revised up after this week's ADP report and jobless claims data) and unemployment ticking up to 9.8%.

 

Many forecasters are braced for a more dour report as fears of a "double-dip" recession have resurfaced in recent weeks.

 

"The more plausible, bad scenario is not a double dip but just a very slow recovery... [where] the unemployment rate comes down but only over years," says Robert Shiller of Yale University.

Fallout of rising debt. Unlike past downturns and recoveries, Shiller argues a powerful psychological force is impacting the wealth and confidence of nations. Debt crises in Dubai and Greece, and America's own spending binge have a "gnawing" effect on individuals, he says. We dwell on these financial stories swirling around us and that in turn undermines our financial confidence, Shiller explains.

 

The reverberations of debt don't end there. America's rising debt levels could prevent more stimulus packages, which may be needed if the recovery really falters. Deficit spending could "disrupt our confidence and our markets. There could be a drop in the government bond market," Shiller says. "It's remarkably resilient, right now."

 

Outlook for housing. Topping Shiller's worries is America's nascent housing recovery. Housing is in a "precarious state," Shiller says, expressing concern about the emerging trend of Americans walking away from their mortgages.

 

"I think there is a definite risk of a turn down again in home prices," says Shiller, who co-created the Case-Shiller Home Price index, a widely-used measure of the housing market. "If home prices decline 10% or 20% more, we are in big trouble."

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There is a lot of fallout coming from the collapse of Greece's debt management. It very well could spread beyond Greece and plans which cost a lot of money (i.e. widening our deficit) may cause a serious economic and political upheaval. Selling our debt to foreign countries will be increasingly difficult in the coming months due to the pendulum swinging towards the debt averse side. As we saw today on Wall Street (Dow dropped 1000 points before recovering half that), they are taking this seriously for good cause. The direct crisis will affect Europe more heavily, partly due to the common sharing of the Euro and the interconnectedness of their economies... and the fact that they buy each other's debt. But its indirect effects are on the US in the form that we wont be able to access capital from countries which buy our debt. We are more insulated because China and Asia as a whole isnt super exposed to Greece, but when you look at the debt numbers between the US and Greece, we aren't that far behind... and we have yet to bite the bullet on the cost of healthcare. So its a real concern.

 

For anyone interested in developing a very current and pertinent economics disad, THIS IS IT.

 

Here is the financial times Greece-devoted segment.

Edited by Ankur
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There is a lot of fallout coming from the collapse of Greece's debt management. It very well could spread beyond Greece and plans which cost a lot of money (i.e. widening our deficit) may cause a serious economic and political upheaval. Selling our debt to foreign countries will be increasingly difficult in the coming months due to the pendulum swinging towards the debt averse side. As we saw today on Wall Street (Dow dropped 1000 points before recovering half that), they are taking this seriously for good cause. The direct crisis will affect Europe more heavily, partly due to the common sharing of the Euro. But its indirect effects are on the US in the form that

 

For anyone interested in developing a very current and pertinent economics disad, THIS IS IT.

 

Here is the financial times Greece-devoted segment.

Would it be good to invest in Greece's high-yield high-risk bonds?

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