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The color green
Everybody seems to be talking or going "green". They even announced another new exchange in New York to trade carbon emissions Wednesday, appropriately named the Green Exchange (see www.greenfutures.com for more details). I don't presume to know how these new contracts work, but apparently I will need to learn, based on the hype for this new frontier in futures.
But I'm not so sure about the outlook for a darling of the green movement, ethanol. One of the fuel blends, E85 (85% ethanol, 15% gasoline), is supposed to be the fuel of the future for U.S. vehicles, but very few vechicles can even use that blend. And, even if there were such vehicles, where would they get E85? An article in the Waterloo, Iowa, Courier indicated that in the whole Cedar River Valley area, there was ONE station that sold E85. And that was in the middle of corn country and ethanol plants!
And even if there were stations that sold E85, the price would have to be about 25% less than unleaded gasoline because mileage with E85 is reported to be about that much less than with gasoline. Ethanol has a number of other disadvantages, including the fact that it corrodes pipelines and production facilities and is difficult to move over distances. We won't even go into the argument about whether it actually saves energy.
But the government has mandated ethanol usage, and its push has resulted in record-high prices for corn, the main source of ethanol. High corn prices have raised soybean and wheat prices, so it's no surprise that food and fuel prices in Thursday's Producer Price Index contributed to the highest inflation rate since 1973 -- remember the days when President Gerald Ford was flashing those WIN (Whip Inflation Now) buttons.
The U.S. needs to be less dependent on Mideast oil, and I am sure the government ethanol policy is well-intentioned. But with the auto and oil industries not cooperating very well, the ethanol demand may be having consequences that were not expected. And now the Fed and central banks has another idea: Get banks to take more money to increase liquidity. But that's a subject for another entry . . .
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