My perspective on Obama's Green Economy

Well, here we are in 2009! Will this be the year the "Green economy" gets a jump start?

The US is in bad financial shape. Globalized as we are nowadays, everybody is affected. Let’s follow the money to see what the options in this economy are. Keep in mind I am NOT an economist, this is just my personal view of things.

Who has cash?

Cash is the king of economic downturns, whoever holds cash is able to buy assets at a discounted price and will benefit from the eventual up-turn of the economy (if we ever get there!).

China is loaded with cash; it has accumulated cash by becoming the manufacturing center of the world and maintaining their consumption per capita at low levels.

The Oil producing countries have cash. They have been benefited by the absurd surge in oil prices.

Lets assume for one moment that Obama takes on the task of building the "Green Economy" he has promised head-on (I believe he will, because this is his answer to the economic downturn). Obama (or the US) will need MONEY (Obama: "Strategically invest $150 billion over 10 years in green initiatives") to get this "Green Economy" up and running. So, who will fund this endeavor?

There are two options:

A- Get funds directly from the Chinese or the Saudis into "Green Economy" initiatives (very unlikely). The US will not allow these countries to become the direct engine of the new economy. Therefore we are left with only one option:

B- Print more US dollars and sell the T-bills to the Chinese and the Saudis.

Clarification 1: If a country prints more money it either has to create more wealth or find buyers to support the "fresh" money, otherwise it would trigger an hyper-inflation

Clarification 2: I use T-bills as a general term, there may be other financial instruments used by the government to raise money, I am not sure

Now that we have some idea of where the money will come from, let's take some time and run a simulation of how will the "Green Economy" will be developed.

As an example we will use Obama's initiative of pushing for 10% renewable energy by 1012. Let's say that wind farms will help US energy get to that 10% (most probably they will).

Company XYZWind is going to build a 200 Mega Watt wind farm. They are going to purchase land (good for the US). Then, they will have to buy wind turbines. If they buy from a US supplier is beneficial to the US, if they buy foreign technology is not so good. Either way, the components will be most likely manufactured (where else?) in China!

Company XYZWind will require $350 Million to develop this project. Where will the money come from (again, same question)? Here are some options:

1- From government funds: either by way of subsidy or by way of loan. As we mentioned before, the "fresh" money from the US government will have to come from whoever holds cash to buy T-Bills (China and the Saudis)

2- From private funds: most US investors as well as big corporations got hurt in the recent economic downturn, it will be interesting to see if they have the guts to undertake this type of ventures.

Finally, the wind is blowing and the turbines start rotating. Electricity is sent to the grid. But as we all know, the cost of generating a Kilo Watt with wind turbines is more expensive than the price we currently pay per Kilo Watt from the utility (or in the best case is too close to generate enough profit). The government has to provide an incentive. Where is the money from the incentive coming from? You guessed right! China and the Saudis through Treasury Notes!

CONCLUSION: We can have a new Green Economy that will help improve the current financial crisis. If the US (and the rest of the countries that wish to jump into this strategy) follow the Green Economy development plan there will be a big debt to pay. But if these countries play the cards correctly, eventually the debt will be paid and the benefits will remain at home. Otherwise, we will be in the hands of the Chinese and the Saudis.

What do you think?

I would like to send a special SHALOM to my friend in Israel who are going through rough times. In war there are no winners, I hope this conflict gets resolved as soon as possible with the least amounts of deaths (from either side!).