Red Alert: How China's Growing Prosperity Threatens the American Way of Life Paperback – Oct 16 2012
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Because it is useful for understanding current world politics and finances, this book is recommended for all adult readers.―Library Journal
The U.S. was galvanized by the terrorist attacks of September 11 , but according to economist Leeb, what we should have been worrying about was the contemporaneous emergence of China's enormous impact on commodity conservation and use. By 2012, the Chinese will hold a leading position in every aspect of renewable energy. Leeb argues that we as a nation are not paying enough attention to the threat of China's growing influence; he paints a picture of our government as fundamentally scattered and shortsighted, though his ire isn't aimed at any particular administration. Our political and economic systems don't lend themselves to tackling major problems until they reach crisis proportions, whereas the Chinese are relentlessly longterm thinkers (furthermore, their leaders don't have to answer to a fickle electorate). While we have no plan as to how to secure or develop our resources, China does, and its drive for growth means that its leaders will leave carbon reduction (and other initiatives) to the free market.
Though he does touch upon the potential problems China will face, his main purpose is to provoke Americans to wake up to a situation that threatens to destroy our economy and our environment. Terse, well-reasoned, and comprehensive, this is a much-needed shot in the arm for American complacency.―Publisher's Weekly
About the Author
Regarded as one of the nation's experts on global economic trends, Stephen Leeb has written several bestselling books for us, including THE OIL FACTOR, THE COMING ECONOMIC COLLAPSE, and GAME OVER.
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Leeb's thesis is extremely well thought out and multi-faceted, and I will do my best to sketch his arguments here. First, the increased demand that China places on basic commodities -- oil, copper, silver, rare earths, iron ore, etc. -- is creating a genuine scarcity of these goods, leading not only to higher commodity prices, but to the threat of our civilization running out of these commodities altogether. Of course, "running out" doesn't necessarily mean there won't be any copper or oil left in the ground; rather, it means we reach a point where there is a net resource loss from new extraction -- that is, any new resources will require more resource inputs than the resources we obtain.
If we had, by some magical means, access to unlimited, cheap energy, many of the other resource problems would be solved, and indeed, many of our current economic ills would be made far easier to deal with; low energy costs would make extracting other basic resources infinitely easier, in turn making production costs cheaper for almost all the goods we currently use, allowing companies to charge less and still turn a profit, creating jobs, etc.; indeed, Leeb makes the compelling case that the high price of oil and other vital commodities was one of the crucial (and widely-overlooked) causes of the financial meltdown in 2008.
The problem, though, is that our current, conventional energy sources are fast being depleted -- Leeb cites estimates that the world's oil production may already have peaked, and that there is far less coal and other fossil fuels in the ground than people think. So why doesn't the market switch to renewables? The key insight Leeb made in his previous book, Game Over, and that he reiterates in Red Alert, is that resources depend on each other in complicated ways. Building renewables itself requires massive resource inputs; the magnets in wind turbines require heavy rare earths, and large scale solar panels require silver, to name just two examples. Extracting these other resources in turn requires still more resources, not to mention massive amounts of energy -- a tangled web indeed. So to control one resource, such as energy, it is necessary to control many other resources as well -- all of which are subject to greater and greater scarcity.
Of course, resources can only be scarce relative to the demand put on them -- and as we said above, the lion's share of global demand comes from China. I read people all the time -- from Jim Chanos to Fareed Zakaria -- who say China's growth is simply a bubble, or they have overbuilt their infrastructure, or it is not sustainable for one reason or another. If only it were true. Leeb's argument is that the Chinese have methodically paced their economic growth with great foresight, and most of the so-called "overbuilt" infrastructure is part of a well-laid plan to sustain this growth in the long-term -- for instance, building more housing than is currently necessary in urban centers makes it available in the future for the large number of people moving from rural locations into cities. The most crucial purpose of this infrastructure, however, is to facilitate the construction of alternative energies around the country.
This leads us to Leeb's central argument: not only is it China whose demand is putting such a strain on resources, but the Chinese leadership is keenly aware of the emerging resource crisis, and has been vigorously mobilizing to secure the earth's remaining commodities so that they can build out alternative energies and secure their country's future. China's leaders recognize the interdependencies among resources, and seek to control the earth's supply of all the commodities necessary for future growth and the construction of renewable energies. China already has a near monopoly on heavy rare earths (crucial for wind power) and the production of solar panels; and they have been making deals with leaders in Africa and the Middle East to secure the precious commodities in these parts of the world. One fact Leeb cites that really boiled my blood is that while the brave men and women of the US army are risking life and limb trying to make Afghanistan secure, it is Chinese mining companies, not US firms, that have won the bids to the copper mines in this country -- copper being the commodity that will play a crucial role in building a smart grid across China.
China has also taken devious steps to derail the construction of alternative energies in other countries like the US, to ward off competition for the resources necessary for renewables. Leeb makes the interesting point that in the US, "alternative energies" have become almost synonymous with "climate change" -- that is, the people in this country who support renewable energy do so for environmental reasons, not for the sake of resource scarcity. The Chinese used this to their advantage when they sabotaged the Copenhagen climate change agreement; by preventing any binding agreement to reduce emissions, they all but guaranteed that Western powers, especially the US, would not commit to building alternative energies, since the US still sees emission reduction as the primary rationale for alternatives. The Chinese government has also kept the price of solar panels and rare earths relatively cheap to drive US firms out of business, thereby giving their country global dominance in the production of solar and wind energy -- and the accumulation of the resources necessary for this production.
Leeb paints a stark picture of the world we are likely to face in the coming years -- a world of resource scarcity and "resource nationalism" that will come to define the geopolitical landscape and drive our standard of living lower and lower. We simply cannot create sustainable economic growth in a world of persistently high and ever-increasing energy and commodity prices, and a persistent failure to recognize this is leading us towards a position that will make our current "Great Recession" look like paradise in comparison. China currently has a dramatic, and perhaps insurmountable, lead in the race to secure the earth's vital resources, while the US and other Western countries seem almost oblivious to the threat. Indeed, the vast stockpiles of rare earths that the US used to control have largely been sold off, and the one major rare earth mine on our land -- the Molycorp mine -- has been unused for several decades; in fact, the US training of engineers in rare earth mining has all but disappeared.
What we need in this country is a laser-like focus on securing the world's resources and building alternative energies -- and we could learn a thing or two from the Chinese about how to get this done. In particular, as Leeb discusses, it is senseless to wait for new technologies to save us; time is already short, and we must focus on improving the technologies we have and scaling them up. If we do not want to cede the 21st century to the Chinese and become a second or third rate power, we need to be devoted to building renewable energy infrastructure, and accumulating the resources necessary to do so, the way we were devoted pre-World War II to preparing for war with the Axis powers. Nothing less than the future prosperity of this civilization is at stake. Leeb has made the case as clearly and compellingly as one could, laying out the facts for all to see; it is up to our policy-makers, and the citizens of this great country, to listen.
Leeb believes OPEC's control of oil is dwarfed in comparison to China's control of rare earths, a commodity just as vital. Recently China has alternately banned and limited shipments of these raw materials used for super-strong magnets in products like wind turbine generators (as much as 560 lbs/generator) and lightweight electric motors for hybrid cars, as well as the manufacture of glass, batteries, catalytic converters, CFLs, cell phones, solar panels, toughening tank armor, powering night-vision goggles, and computer display screens. Common to many of these applications is rare earth's enabling smaller electronic products.
China extracts much of its rare earths from iron-ore tailings, giving it unbeatable low-costs. It has also discovered cheaper refining processes that provide higher purity than in the U.S. A 2010 GAO report estimated it could take 15 years to develop alternative supplies. China, meanwhile, is developing stockpiles, subjecting potential alternatives sources to the risk of China flooding the market.
China also has a concern on the negative environmental impact from mining rare earths using lax practices. Many of its mines operate illegally.
Cornering the market on rare earths will provide China with a strong, sustainable competitive advantage in the manufacture of some green energy products; it already is the world's low-cost manufacturing leader in solar power (80 tons of silver are required to produce one gigawatt of electricity from solar power - Leeb predicts the price of silver could reach $150/oz.) and working to build strength in nuclear power. Monopolizing access to rare earths will also give China strong leverage over the U.S. in a world of decreasing oil supplies. Today, $2 trillion of the U.S. economy is dependent on rare earth minterals; mining those commodities itself is only a $2 billion global industry.
So, while the U.S. is fighting wars in Iraq and Afghanistan, struggling over the issue of gays in the military, engaged in non-stop ideological and political battles, being badly beaten by its adherance to free trade, and electing a president with no management or economic expertise, China is surging - led by a focus on building infrastructure, moving towards adding high-technology (especially in green-energy) to its areas of domination,
Bottom-Line: Leeb's material is interesting, but probably over-hyped. U.S. alternatives include reopening our own rare earth mine, and designing rare-earths out of products as Toyota reportedly has done in at least one instances.
What is worrying is the lack of action and clear discourse from our nation's leaders and the frightening ramifications that will arise if nothing is changed soon.
In addition to the focus on past macro-oriented trends that Dr. Leeb has been so successful in predicting, the book builds on his obvious passion and experience in commodities and resources and adds a critical foreign affairs viewpoint that enables the reader to really understand the gravity of the situation that we will face. As the influence of the US wanes and that of China waxes, care must be taken to ensure that our competitor does not become our enemy.
Wake up America! Most of the available evidence would indicate that our politicians are clueless and that the American people are blissfully unaware of the dangers lurking just around the bend. Americans have long taken for granted that when it comes to solving our impending energy, precious metals (gold, silver, copper etc.) and rare earth mineral shortages that "technology" would somehow magically save the day. But according to the noted economist and author Dr. Stephen Leeb the problems confronting the United States in the near and long terms are far more complex and ultimately much more difficult to resolve than any we have seen in the past. His new book "Red Alert: How China's Growing Prosperity Threatens the American Way of Life" is a clarion call for all Americans to wake up to the stark realities that are almost certain to result in substantially reduced lifestyles for all of us in the years to come. In his book Dr. Leeb warns that while our leaders in Washington continue to procrastinate and focus on the short term the powers-that-be in China have been quietly and systematically sewing up vast quantities of the world's remaining fossil fuels, precious metals and rare earth minerals at an alarming rate. The implications for countries like the United States, Canada and most of Europe are frightening to say the least. The shortsightedness and ineptitude demonstrated by the leaders of the Western world in these matters may well threaten our very way of life. Furthermore, Dr. Leeb fears it may already be too late to do anything about it!
Perhaps the most important lesson to be gleaned from "Red Alert" is that the assumptions most Americans have been operating under regarding future energy supplies have changed dramatically over the past two decades. That is because emerging economies in places like China and India are gobbling up ever increasing amounts of energy and other natural resources at a pace that seemed unimaginable just 20 years ago. As a result of this increased demand Americans can expect to see a dramatic rise in commodity prices in the not too distant future that will likely result in a greatly diminished standard of living for the vast majority of us. Dr. Leeb argues that we have probably already passed peak oil (the point at which demand for oil begins to outstrip the world's ability to supply it) and more importantly we are likely to reach peak coal in the next 10-20 years. Think about it. Americans have been told that we have enough coal to last us for at least 100 and perhaps 200 or more years. Clearly this is no longer the case and as Dr. Leeb is quick to point out much of the remaining coal contains far fewer BTU's that the coal that has been mined in the past. Meanwhile, the increased demand for precious metals and rare earth minerals will cause the prices of all of these commodities to rise dramatically in the coming years. Did you know that copper now sells for $450 per pound and is expected to rise exponentially in the near future? Think about the implications for new construction. Large amounts of copper are also used in building "hybrid" cars . It does not take a rocket scientist to see where all of this is heading. Unfortunately, despite the fact that our national security and economic future is at stake our leaders in Washington barely even acknowledge these issues and have done precious little to begin to address them while their counterparts in China have made stockpiling these commodities a national priority. Advantage: China!
"Red Alert: How China's Growing Prosperity Threatens the American Way of Life" examines these and a whole host of other critical issues in an extremely thorough and thoughtful way. Stephen Leeb argues passionately that the United States had better get off its duff and begin to address these monumental issues right away. Failure to do so will only exacerbate an already gloomy picture. Furthermore, he presents a compelling case that the 2008 financial meltdown had more to do with rising commodity prices than the so-called housing bubble. If this is indeed true American is already reeling from the issues Leeb is so concerned about. I am in complete agreement with another reviewer who opined that this book "should be mandatory reading for policy-makers". "Red Alert" is an extremely well-researched book and Dr. Leeb presents his case in language that most folks can readily understand. This is a great way to get up to speed on issues that are destined to change the way Americans live and work. Very highly recommended!
World supplies are growing very tight of certain key minerals (sometimes called strategic minerals) that are absolutely vital for the smooth running of a 21st century economy. Names like neodymium, europium, indium and niobium may sound very boring, but you can't run a high-tech economy without them. China has spent years, and a lot of money around the world, getting its hands on every bit of such materials that it can find. China is doing it not just to keep their economy growing, but because, one day, the supply will run out, and they want to be in the driver's seat.
For a number of other, equally important, minerals, of which America imports all of its supply, the world's biggest supplier is China. The American attitude is that technology will save the day. How is that going to happen if China decides that some vital mineral will be much less available?
Estimates put the cost of the wars in Iraq and Afghanistan at nearly $3 trillion. Even a portion of that money would have been much better spent on renewable energy, especially solar energy. China is the world leader in making solar panels, and their lead widens every day. How can America have any hope of catching up when federal investments are in the hundreds of millions of dollars (at the most), and China's investments are in the billions of dollars?
Everyone has seen pictures of acres and acres of electronic equipment dumped all over China. The methods to extract the metals inside may be low-tech and toxic, but even a small amount of gold, for instance, per monitor, multiplied by millions of monitors, is a substantial amount of gold that China can use elsewhere.
America can not depend on new sources of oil to power its economy, because the authors assert that "peak oil" has arrived. It is the point at which the era of "easy" oil extraction has ended, and any new discoveries will be harder and harder to extract ("Drill, baby, drill" is simplistic, at best).
This is a fascinating and very important book. It is very much worth reading for all Americans, and especially for all members of Congress.
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