Energy efficiency will have to make the single most-important contribution if policymakers are serious about limiting greenhouse gas emissions and dampening growing demand for fossil fuels.

Energy efficiency will not remove the need to invest in large volumes of wind, solar and nuclear generation, or in technology for carbon capture and storage, but it does form the third leg of the triad.

In the United States, nowhere have efficiency initiatives been given higher prominence and become as deeply entrenched in the public policy process as in the state of California. In response to a series of power crises, the state has adopted some of the toughest standards anywhere in the world.

The 1974 Warren-Alquist Act, signed by then-governor Ronald Reagan, created the State Energy Resources Conservation and Development Commission, now renamed the California Energy Commission (CEC), with a mandate to develop minimum efficiency requirements for new construction and appliances.

Efficiency improvements have been enforced through a strict standard-setting process.

Title 24 of the state code of regulations prescribes detailed requirements for all new buildings and major redevelopments in the state. Title 20 establishes standards for appliances sold to in-state customers, including heating and cooling systems, lighting units and refrigerators. Both have been repeatedly tightened to require higher levels of efficiency.

The objective is to limit the need to build new generation and transmission capacity by cutting electricity consumption in heating and lighting applications.

Measuring the amount of generation and greenhouse emissions avoided this way is difficult since it involves a counterfactual — comparing the amount of energy actually used and the amount that would have been needed in the absence of conservation measures — which can never be known for certain.

But by any yardstick, the amount of generating capacity and greenhouse gas emissions avoided by these “negawatts” has been substantial.

THE ART OF ENERGY EFFICIENCY

Prior to 1974, California’s installed generating capacity was 30 Gigawatts (GW) and growing 6 percent per year, with more than half the annual increase required to supply new homes and buildings.

California Energy Commissioner Art Rosenfeld, one of the godfathers of the efficiency movement, claims Title 24 building standards cut energy use per square foot for heating and cooling in new buildings by 50 percent in the ten years between 1975 and 1985. A decade later savings had avoided the need to build 2.5 GW of new generation.

Rosenfeld claims even larger success for standards to improve domestic refrigerators. Progressively tighter state and federal regulations for new appliances, as well as improvements in technology, have cut annual energy consumption from an average of 1800 kilowatt hours (KWh) in 1974 to 450 kWh in 2001.

Consumption has been cut even as the typical refrigerator’s volume has grown 10 percent from 18 cubic feet to 20, making a compound efficiency gain of 5 percent per year.

Rosenfeld estimates the amount of energy saved, in California and now nationwide as standards have been adopted at federal level, is equivalent to around 50 GW of generating capacity (see the diagram on page 48 of Rosenfeld’s famous paper on “The Art of Energy Efficiency”.

CPUC ADOPTS AMBITIOUS TARGET

The drive to reduce power consumption has accelerated following the state’s devastating power crisis in 2000-2001.

“Energy efficiency is the first priority in California’s loading order for energy resources” (ahead of solar, wind, nuclear or fossil fuels) according to the California Public Utilities Commission (CPUC), which regulates electricity rates charged by investor-owned utilities (IOUs) in the state.

CPUC has now included energy efficiency objectives in its IOU rate-setting process. Utilities receive an increase in the rate charged per kilowatt hour in return for meeting certain load-reduction targets.

CPUC has adopted targets that would cut peak generation about 450-500 MW per year between 2006 and 2013. Assuming they are met, California’s four IOUs would avoid the need for around 4 GW of generating capacity by the end of 2013 (roughly four large nuclear or coal-fired plants)

For comparison, the Western Interconnection, of which California is the largest component, has around 178 GW of generating capacity at present, so the avoided capacity would be equivalent to around 2 percent of all generating capacity on the western power grid.
CASH FOR CLUNKERS, REDUX

California’s approach is now being adopted by the Obama administration (Energy Secretary Steven Chu is a self-described “energy efficiency nut”).

The administration has already run a cash-for-clunkers programme to provide a boost for automakers while giving customers an incentive to retire older, less efficient vehicles in favour of modern cars that achieve higher mileage per gallon.

But the American Recovery and Reinvestment Act also provides $296 million of funding for State Energy Efficiency Appliance Rebate Programs (SEEARP) — a cash-for-clunkers system to replace aging clothes washers, refrigerators and room air conditioners with more energy efficient versions.

California’s share is $35 million, and the state proposes to make rebates available for purchases made during a one-month period from March 17 and ending on April 22, 2010. Rebates will be offered for 125,000 washing machines, 150,000 refrigerators and 100,000 air conditioners.

“COMFORTABLE CONSERVATION”

Rosenfeld has calculated that the amount of energy used to produce a dollar of GDP fell by a factor of 4.5 between 1845 and 1998, after adjusting for inflation, a compound annual improvement of 1 percent, driven by market forces.

But the average concealed substantial variations. Conservation rose to as much as 4 percent per year following the first oil shock, until real oil prices fell in the late 1980s and through the 1990s, slowing the pace of improvement.

If the rate could be raised to 2 percent per year — double the long-term average but just half the rate achieved after the first oil shock — energy consumption per unit of output could be cut by two-thirds in just over 50 years.

“Comfortable conservation” (getting the same quality of heat, light and output for a fraction of the energy by reducing waste) is now the central objective for the coterie of physicists advising the White House, and is likely to be one of the central policy themes over the remaining years of the Obama administration.

Such gains are perfectly feasible. U.S. motor manufacturers achieved even larger improvements in engine efficiency in the early 1980s, though the gains were used to build larger and more powerful vehicles rather than reduce fuel consumption.

The real prize, however, is in the emerging markets, where most appliances and buildings still operate at just a fraction of the efficiency of their advanced-country counterparts, and where the scope for efficiency gains is huge.

In effect, the only way to continue raising living standards, especially in developing countries, while limiting emissions is to take the success achieved in California refrigerators and replicate it across all the other energy-consuming sectors on a worldwide scale.

Some kind of debt restructuring was inevitable for Dubai’s myriad overleveraged borrowers, but the emirate’s decision not to support property developer Nakheel and seek a debt standstill for holding company Dubai World has devastated its standing in financial markets. Dubai’s future and ability to attract much-needed external capital will depend on how it handles the fallout.

It is rare to see a company announce plans to launch a bond on the same day it threatens creditors to one of its main businesses with potential default. That’s what Dubai just did, when it asked creditors of flagship holding company Dubai World and property developer Nakheel, owned by Dubai World, for a debt standstill until next May on the same day it announced plans to sell a bond for its electricity and water authority.

This muddle suggests Dubai has underestimated how much international markets’ view of its own standing would be contaminated by the standstill. Yesterday’s bombshell followed weeks of rapprochement between Dubai and international markets, culminating in the government’s recent sale of an Islamic-compliant bond. That goodwill is now lost.

Supporting property developer Nakheel may have been unpalatable, but the way the news was announced — on the eve of the Eid holiday — is hugely damaging for other government-related entities and Dubai itself.

Dubai and its related companies have about $90 billion of debt, of which $20 billion falls due over the next year, according to Barclays Capital estimates. All of Dubai’s entities will be tarnished. That is why DP World, the profitable port operator, quickly moved to assure creditors that it was not subject to the standstill.

Much depends on how the big banks that have lent to Dubai and its various entities now respond. If they withdraw credit lines and demand repayment on outstanding debt, the whole leveraged edifice could collapse.

Dubai risks suffering the payback from the financial engineering it used to grow so quickly during the boom times. By allowing the boundaries to be blurred between an ordinary corporate and a government-backed entity, the emirate will now find it harder to contain the fallout from a high-profile failure.

A lot depends on how Dubai handles the debt negotiations over the next few months.

Given its limited natural resources compared to stronger neighbor Abu Dhabi, Dubai can’t afford to ignore international investors’ interests or prioritize local lenders.

The restructuring will be complex. It may involve untangling cross-holdings between Dubai’s World’s different companies and other entities owned by Dubai’s other holding companies.

Dubai needs to tread carefully. It can rely to some extent on Abu Dhabi for now, but needs to ensure it can continue to attract enough external capital in the long run. Presenting creditors with a fair restructuring proposal for Nakheel and Dubai World debt would be a good start.

Abu Dhabi is not going to crow publicly over Dubai’s troubles. But it will use the opportunity to assert control over its upstart neighbor. The price for Abu Dhabi’s help could be prize assets like airline Emirates. Dubai has little choice but to do what it is told.

Dubai is unable to service the $80 billion debt it has amassed during its meteoric rise to wannabe global financial hub. Oil-rich Abu Dhabi holds the political and financial trump cards. Not only is it the capital of the United Arab Emirates, its ruler is head of the UAE’s seven desert states — squeezed between Saudi Arabia and Oman.

Dubai’s success threatened the balance of power between the two emirates. Abu Dhabi has developed quickly, but not at the speed of Dubai, where until a year ago new skyscrapers popped out of the desert every few days.

A property market crash and the end of free-flowing credit have taken their toll. Abu Dhabi has already lent Dubai at least $10 billion and another $5 billion indirectly via two of its banks. That won’t be the end of it. Dubai has nowhere else to turn, particularly now it has alienated the international capital markets by admitting it can’t meet the debts of flagship holding company Dubai World. Abu Dhabi can afford to bail out Dubai, but it has not been immune to losses itself and won’t be signing blank checks.

Abu Dhabi won’t want to see its neighbor sink — after all they belong to the same country. But it will feel Dubai needs to be taught a lesson.

One particularly painful punishment would be to force Dubai to hand over control of its prized Emirates Airline through a merger with Abu Dhabi carrier Etihad Airways. Global ports operator DP World is another asset Abu Dhabi should think about laying its hands on. Indeed, ownership of such assets may already have changed hands without anyone other than the royal families knowing about it.

Other changes will be more subtle. Dubai has attracted overseas financial services companies with tax breaks and the relative freedom to do business in the way they are used to in Western countries.

Curbing some of the excesses which have accompanied this influx of people and money will also be on the agenda.

With the two cities an hour or so apart along the coast of the Persian Gulf, greater cooperation and coordination on development and direction should ultimately be beneficial to them both. Dubai’s moment in the sun has passed, now is Abu Dhabi’s chance to move out of its shadow.

A new America must confront this dark chapter openly and publicly. It must give victims a chance to testify and allow the American people to hear a firsthand, unvarnished account of the crimes committed in their name. It is only then that America will be able to say to itself in unambiguous terms: “We are not a nation that tortures its enemies. We regard torture as immoral and criminal. We will never justify or condone torture and we will punish those who commit these criminal acts.”

Watch the video below or click here to read van Zyl’s speech in full.

Click here for more Reuters coverage of Poptech.

Call it a paradox of plenty. In the world’s wealthiest country, home to more obese people than anywhere else on earth, almost 50 million Americans struggled to feed themselves and their children in 2008. That’s one in six of the population. Millions went hungry, at least some of the time. Things are bound to get worse.

This the bleak picture drawn from an annual survey on “household food security” compiled by the U.S. Department of Agriculture (USDA) and released in mid-November. It showed the highest level of food insecurity since the government started the survey, in 1995, and provided a graphic illustration of the effect of sharply rising unemployment.

This year’s picture will be even bleaker - the unemployment rate more than doubled from the beginning of 2008 to now, at 10.2 percent the highest in a quarter century. It is still climbing, and for many the distance between losing a job and lack of food security is very short.

In keeping with the American predilection for euphemisms, the word “hunger” does not appear in the report which classes food security into several categories, from “marginal” and “low” to “very low.”

Marginal food security means, in the lexicon of the USDA, “anxiety over food shortages or shortage of food in the house.” The second category, low, means “reduced quality, variety or desirability of diet,” but not necessarily less food.

The most severe category, “very low,” used to be labeled “food insecurity with hunger” and is defined as “disrupted eating patterns and reduced food intake.” That applied to around 17 million people, up from 12 million in 2007. Black and Hispanic families and single-parent households are the most affected.

It is not the kind of hunger — think African famines, skeletal babies with distended bellies — that brought world leaders to a U.N. food summit in Rome this month to boost aid from rich countries for agricultural development in the Third World. The U.S. is a land of plenty, so much so that a study by the University of Arizona a few years ago found that the average household wastes about 14 percent of their food purchases.

Food is so abundant that overeating is more of a problem, numerically and in terms of public health, than under-nutrition. The Food Research and Action Center, a Washington-based advocacy group, makes the point that “poverty can make people more vulnerable to hunger as well as obesity,” one of the reasons being that food high in calories is cheaper than healthy food. For many  Americans, hunger and obesity are two sides of the same poverty coin.

(International health statistics put the United States at the top of the obesity league. Two-thirds of Americans are overweight and a third of these are obese.)

INEQUALITY OF THIRD WORLD PROPORTIONS

Vicki Escarra, head of Feeding America, a hunger relief charity that runs 200 food banks in the U.S., has likened the growing difficulties of those on the lower rungs of the socio-economic ladder to conditions in the Third World. She is right in more ways than one.

The USDA report reflects inequality of Third World proportions. While the Great Recession has culled the ranks of American millionaires — by 22 percent according to a September study by the Boston Consulting Group — the gap between rich and poor is not shrinking.

Last year, according to a report by the census bureau, the wealthiest 10 percent of Americans made 11.4 times more than those living on the poverty line. The year before, the ratio was 11.2. At the far end of the economic scale, America’s six largest bank holdings have set aside $112 billion in salaries and bonuses during the first nine months of the year. By year’s end, bonuses might exceed the almost $164 billion paid in 2007, before the credit bubble banks had helped to inflate burst and millions of Americans lost their jobs and savings.

Banks and other financial institutions were rescued by a $700 billion infusion of taxpayer money and news of the bonuses coincided with reports that U.S. wages were at a 19-year low. Which helps explain growing anger among a public long famous for lacking the resentment of the rich that is common in other parts of the world.

After all, a bedrock belief in America held that this is the land of unlimited opportunities where every citizen has an equal chance to succeed and become rich. That requires an assumption that the system is fair. How many Americans still believe that? Last summer, a pair of political scientists, Benjamin Page and Lawrence Jacobs, published a study whose findings included that just 28 percent thought the present distribution of wealth is fair.

More evidence that the gap between myth and reality is shrinking comes from the American Human Development project, a research group which found that “social mobility is now less fluid in the United States than in other affluent nations…a poor child born in Germany, France, Canada or one of the Nordic countries has a better chance to join the middle class in adulthood than an American child born into similar circumstances.”

A better chance to avoid food insecurity, too.

You can contact the author at Debusmann@Reuters.com

Auditing the Federal Reserve may or may not be a good idea, but one thing seems pretty sure: just discussing it seriously will tend to drive the price of gold higher.

The U.S. House of Representatives Financial Services Committee last week voted to approve an amendment that would bring about an audit of the Fed, its monetary policy and lending programs, since when gold has gone its merry way higher, hitting an all-time high of $1,174 per ounce on Monday.

The amendment, a provision to a broader financial services reform bill that is still under consideration, was co-sponsored by Republican Representative Ron Paul, author of the book “End the Fed,” and the man least likely to be found chairing a panel at Jackson Hole or Davos.

The Fed, understandably, hates the idea, saying it will compromise its hard-won independence, the administration loathes it, and really it will almost certainly never become effective in a recognizable form.

Even so, and even interpreting the vote as a populist cry of the heart against Washington and Wall Street, the fact that it has gotten this far will cause some serious people without an ideological dog in the Federal Reserve fight to buy a bit of gold, which is really a sort of anti-currency, as a hedge against increased political influence in the process of making monetary policy.

Undoubtedly many people who think keeping the Fed on a short leash attached to an elected body is a good thing also think the Federal Reserve should have been much less aggressive in creating money and risking inflation. History shows that the risks are actually skewed the other way: tighter political control of central banks more often means more inflation and a higher risk of a debased currency.

In other words, the people who support this because they think the Fed shouldn’t debase the currency are probably raising the risk that the currency is debased. This just adds to the bid for gold, which is already being supported by concerns that current monetary policy and deficits put inflation and the dollar at risk. These risks are not high, they are tiny, but they are disturbingly more worth discussing now than two years ago.

Thus we are in the bizarre situation of watching the price of gold being driven higher both by people who don’t trust the Federal Reserve and people who don’t trust the people who don’t trust the Federal Reserve.

HOW HIGH IS HIGH?

It has to be said; the very idea of buying gold, which adds nothing to the creation of wealth or innovation and is only conceivably a hedge against bad actions of other people, is dispiriting. If you buy gold you cannot tell yourself that you are doing well by doing good, as perhaps you can with a biotech or fertilizer company. You are simply limiting the damage that can be done to you, and then only in very particular circumstances. What’s more many of the people who advocate it as an asset show a disconcerting monomania; the type who if they sit next to you on a commuter train makes you consider pretending the next stop is yours.

Gold’s real virtue is negative. It is not used for much industrially but there is limited supply and real physical constraint on producing more. Unlike, say dollars, you can’t simply flip a switch and make more.

Dylan Grice, strategist at Societe Generale in London (who, by the way, I’d happily sit next to on a train) points out that the value of the gold held by the Fed only equals 15 percent of the U.S. monetary base and that the price would have to rise to $6,300 per ounce to make the currency fully backed by gold reserves.

Of course, gold is not just going up against the dollar, it is going up against an array of major and minor currencies, indicating that the worries are not simply about the Federal Reserve or U.S. policy but about the interplay between fiat currencies and policy around the world. A tremendous amount of debt has been created and socialized and a lot of money has been created.

Which brings us back to the Federal Reserve and the politics of monetary policy, or as perhaps we will begin to see it the politics of politics. The betting has to be that the Federal Reserve emerges with its independence intact, if not its power as a regulator. From a markets point of view the Senate confirmation hearings for Ben Bernanke’s second four-year term as chairman kick off next week and offer the next opportunity for populist fireworks.

I am looking forward to having fewer conversations about gold, but I am not expecting it.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)

– This opinion piece was written by C.M. Sennot for GlobalPost. The views expressed are his own. It was originally published here on GlobalPost. –

The last time America had to borrow money to finance a war was during the Revolution and a cash-strapped Continental Congress took loans from France to fund a surge against the British.

That worked out pretty well.

But it’s hard to feel the spirit of 1776 in President Obama’s journey to China. He went as a representative of a borrowing nation to its primary lender amid a call for yet another costly military surge in the Long War that is escalating in Afghanistan even if it is hopefully winding down in Iraq.

As the president completes his journey to Asia, he returns to Washington to face what is the most consequential foreign policy decision of his presidency, a decision that this administration has not yet fully thought through.

That is whether to heed the counsel of his top commander in Afghanistan, General Stanley McChrystal, and call for a surge of 40,000 more troops in Afghanistan.

Obama is said to also be pondering a middle ground of calling up somewhere between 10,000 and 30,000 more troops.

Or, and this is shaping up as a long shot, he and his team of rivals in the Pentagon and the State Department could decide to rebuff McChrystal. In this scenario, Obama would refocus the mission but still hold to the general counterinsurgency plan that he originally spelled out in March and which increased U.S. troops by 21,000 to a total U.S. presence of 68,000 troops. That surge was just completed this fall.

From my experience talking with counterinsurgency experts and meeting with U.S. and coalition counterinsurgency leaders and trainers in Afghanistan over the summer, I am hoping Obama chooses to hold to the existing troops level. I am hoping he does that while refocusing his original plan to be more targeted on counterterrorism than the wider goal of classic counterinsurgency against the Taliban. He should stick to his guns and hold at the troop levels he has and make the troops who are there better and more effective and provided with better equipment and intelligence assets to get the job done. As I said in an earlier column, less is more right now in Afghanistan.

Every empire in history has regretted an escalation in Afghanistan and it is hard to see how America would be any different.

I do not envy the president and his team in making a very difficult and costly decision at a very hard time economically in America. Few presidents in history have had to face so many fateful decisions in their first year in the White House.

But despite all the pondering the president has given to whether to increase troops, it seems he has given far too little consideration to the overall cost of escalating the war and how it will undercut his ability to fund the ambitious domestic policy agenda he has set out from bank bailouts to health care reform.

With all the debt piling up, it seems to me there is a clear connection between his trip to China and these war costs in Afghanistan.

If you think about it, the hundreds of billions we borrow from China every year will go at least in part to fund the enormous cost of an escalation of troops in Afghanistan, a cost — in terms of lives and treasure.

The war in Iraq will end up costing this country more than 2 trillion dollars, according to the conservative projections of Linda Bilmes, an economist at the Harvard’s Kennedy School of Government. The cost is higher still if you include interest on the debt, interest which will in a large measure be paid to China.

Bilmes has worked closely with the Nobel Prize-winning economist Joseph Stiglitz to do the long math on the wars in Iraq and Afghanistan, to factor in not just the military budget and the interest on the debt but also the extraordinary high cost on every level of soldiers who are wounded physically and mentally by war.

Bilmes is credited with highlighting the failure of the administration of President George W. Bush to give an accurate cost assessment of a war that escalated several hundred times beyond the original projection of just $50 billion to $60 billion made by the Pentagon at the start of the war in 2003. She’s been proven right and she’s worried that the Obama administration may be fatefully making another miscalculation on the cost of war in Afghanistan.

And we’ve hit a profound turning point in Afghanistan. In this new budget year, which started Oct. 1, for the first time, the war in Afghanistan will cost Americans more than the war in Iraq.

And, as Bilmes points out, fighting in Afghanistan is more costly than it is in Iraq because of the terrain and the difficulty in supplying troops and evacuating the wounded. She estimates that Afghanistan is as much as 1.6 times more expensive per soldier than Iraq.

“While this administration has brought great military expertise to thinking this through, there needs to be a greater focus on the cost. How are we going to pay for this? People are still not looking at the long term costs,” said Bilmes.

And so as the president stares out the window of Air Force One pondering the dark skies in the long journey back to Washington, one can only hope that he has thought through the extraordinary cost — on every level — of calling for an escalation of troops in Afghanistan.

More on Afghanistan from GlobalPost:

America’s farmer-soldiers in Afghanistan

Afghanistan’s only pig quarantined? Must be bad

Afghanistan: Waiting for the dust to settle

Troops’ deaths shatter trust in Helmand

Pictured above: U.S. President Barack Obama tours the Great Wall of China at Badaling, November 18, 2009. REUTERS/Jason Reed

Easy money in the United States, a falling dollar and growing flows of funds seeking better returns in emerging markets are touching off a new round of capital controls in hot emerging markets, a trend that could accelerate and will at the very least increase market volatility.

It shouldn’t be a surprise, really; loose money in the developed world is helping to spur investment into emerging markets, driving currencies up and making local exports less competitive for countries which, unlike China, aren’t hitching a free ride as the dollar declines.

Inflation may be a threat for many of these, but with the global economy still struggling, it certainly won’t feel that way to policy makers.

Russia on Wednesday joined the list of countries eyeing new measures to stem currency speculation and appreciation. Moscow was careful to say it would not impose actual capital controls, which seek to regulate flows of funds into or out of an economy, but the measures they are considering would have exactly that effect, making it tougher or more expensive for money borrowed abroad to be brought into Russia.

Kazakhstan, which has been intervening actively to slow the ascent of its tenge currency, has introduced legislation allowing capital controls, but so far has not used them.

Indonesia said this week it will consider curbs on foreign holdings of short-term official debt, sending its rupiah into a brief swoon until central banker Hartadi Sarwono damped things down by saying currency moves based on such flows were so far manageable.

Elsewhere all across developing Asia central banks have been intervening to cap gains in the value of their currencies, with Taiwan going so far as to ban foreign funds from investing in local time deposits.

Brazil last month announced a 2 percent tax on foreign investment in stocks and fixed-income securities to limit the strengthening of the real.

International Monetary Fund chief Dominique Strauss-Kahn gave the fund’s standard line to the Financial Times: “The IMF would not recommend them as a standard prescription … as they carried costs and were usually ineffective”.

FIGHTING OVER SCRAPS

Ineffective over the long run they may be, but tempting they are in the short term. The very fact that India and China have emerged relatively well from the crisis and have resumed growth in strong fashion gives courage to those considering their own measures. And really, the very idea of an orthodox allegiance to free flowing markets ensuring the best outcome for all now looks pretty 1999. Malaysia attracted a firestorm of criticism when it imposed controls in the wake of the Asian crisis in the 1990s. There was much talk of how investors would go away and not come back, how development would be retarded and Malaysia ultimately would rue the day. None of that has come to pass, and those same investors proved quite willing to come back if the returns looked good enough, as indeed they did.

But Malaysia, along with Chile, were outliers when they imposed capital controls. What will it mean if it becomes not a tool of desperation but a standard policy when hot money flows? There must be a risk that capital controls become part of an escalating series of beggar-thy-neighbor steps taken by countries fighting over the scraps of a diminished U.S. and European appetite for imported goods.

If, in other words, these controls are a temporary phase to ease the transition to stronger currencies, the risks might not be that high. I’d worry that developed market interest rates are going to stay low for a very long time. That means that the grand emerging markets carry trade of borrowing in dollar to speculate for appreciation elsewhere will, as it did in Japan, build and build.

At the same time you have to look at why interest rates will stay so low for so long. My bet is that it is because consumption in the developed world will be under structural pressure as debts are repaid. So the money flows into emerging markets and drives up currencies, but unless domestic consumption in China and India really takes off there will not be a very good market for exports. That will make newly strong emerging market currencies all the harder for those countries to tolerate, economically and politically. If China does not do its part and allow its currency to appreciate, the argument will be all the more stark.

It may or may not be a good idea, but one thing I would not count on is coordinated and globally sanctioned capital controls, as espoused by Arvind Subramanian, a senior fellow of the Peterson Institute.

The U.S. simply won’t wear it.

Look then for more unilateral controls and more volatility as speculation of all kinds grows.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)

With just a few short weeks until the end of the year, look for many fund managers to take on more risk in an effort to salvage their annual return figures.

This is not about fundamentals, this is about something far more important: career risk.

Hedge Fund Research’s Global Hedge Fund index, which is broadly representative of the industry, is up just 11.9 percent year to date, while its Equity Hedge index is scarcely doing better, up 12.6 percent. The HFR Macro Fund index is actually down 8 percent, indicating the best paid minds in the business did not see the astounding emerging markets rally and dollar fall coming.

Given that global emerging markets are up something on the order of 60 percent this year, that all global shares are up 30 percent and even the S&P 500 is up 22 percent, we can conclude that a lot of managers are heading into the year-end reporting season with a lot of ground to make up.

There are also lifeboats full of institutional fund managers and mutual fund managers in the same position.

What all who have missed the rally have in common is not a common failure of analysis — there are lots of different ways to get it wrong — but a collective vulnerability to finding themselves waving their clients goodbye. Letters detailing 2009 performance will have to be posted, ranking lists of funds will be published and there will be consequences.

It must be hugely tempting for managers who are behind — and remember a lot of these people are not committed bears — to pile in and hope the momentum trade can bring their returns back to respectability.

It all adds up to a supportive background for risky assets through the new year. There can be no assurances that fundamentals, which are pretty poor, won’t reassert themselves. There is no telling too that policy makers might put a foot wrong and scare the markets, though I doubt it. They have a very large interest in a merry year end. Even if they didn’t, inflation is not an issue and unemployment is, so don’t look for any telegraphs from Washington, London or Frankfurt bearing tidings of rising rates.

COME BACK CHUCK PRINCE, ALL IS FORGIVEN
Individual investors who missed the rally are less likely to pile in right now. Their temptation will be to pass over the business headlines and go straight to sports. And besides, the holidays provide distractions of their own and you are highly unlikely to be fired by yourself as your own investment manager, now matter how richly you deserve the boot.

Professionals however are usually not so lucky as to be related to the client.

Of course, there must be many managers who are ahead of the market. Why won’t they trim their sails and protect their gains? I don’t know the answer to that but in my experience it just doesn’t work that way. People tend to think of gifts as entitlements and it’s a rare, and valuable, manager who having been aggressive when most were timid now gives up the habits of a lifetime.

It is all very reminiscent of good old Charles Prince, the former Citigroup chief who said about the leveraged buyout market, “As long as the music is playing, you’ve got to get up and dance,” just as the world began to unravel. Prince wasn’t a fool, he was expressing a core truth. If you are head of a bank or a mutual fund and you sit out a boom which you see as too risky you are taking on another, perhaps more persuasive risk; that the very clients you seek to protect will call you a stick-in-the-mud and take their business elsewhere.

This is not a specious argument about “cash on the sidelines” or money market funds. Numbers showing huge cash in money market funds are misleading; most of it will never end up in equity markets. This is simply about the self-fulfilling psychology and mechanics of rallies, especially rallies with official support.

The authorities, in their wisdom, have broken the circuit of a crash by flooding the market with enough money to drive up asset prices. This is intended to bring money out from under mattresses and force people to take risks again, to make them dance even if they feel like a fool.

That is unlikely to last forever or to work forever, but a reversal is less likely before January 1 than after.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)

(Editing by James Dalgleish)

The new guidelines by the U.S. Preventive Services Task Force, an influential panel of independent experts, would sharply curtail the number of breast mammograms done in the United States, sparing women the worry of false alarms and the cost and trouble of extra tests.

But U.S. cancer experts say the altered schedule may mean more women will die from breast cancer.

Should you and your loved ones get mammograms? What are the implications for health care reform, with members of Congress looking for ways to cut costs?

Join us for a live online on breast cancer screening and mammograms on Tuesday, Nov. 17, at 12pm ET. The event will be moderated by Reuters Health Executive Editor Ivan Oransky and joined by Reuters’ editor in charge of health and science, Maggie Fox.

Our confirmed participants:

Heidi Nelson, research professor of medical informatics and clinical epidemiology and medicine at the Oregon Health Sciences University, who has led systematic evidence reviews for the U.S. Preventive Services Task Force.
Daniel B. Kopans, professor of radiology at Harvard Medical School and director of breast imaging at the Massachusetts General Hospital.

You’ll be able to follow the discussion by listening in on the conference call line below or via the live blog here (it’s also embedded lower on this page.) If you have any questions for the participants, please leave them in the comments below. We’ll ask a selection on your behalf.

Update: Thanks to everyone who participated. You can hear a recording of the call here