Economic Meltdown (seconda parte)

[kandrathe]

Things are looking bleak in the US and Europe today. Here, the US economy is slowing, unemployment is rising, and we've passed the 100% GDP debt ratio threshold. Elsewhere, the Japanese and Swiss are devaluing their currency to compete with a weak dollar, and bank vulnerability in Italy and Spain may mean that EU efforts to control debt have failed.

My fingers are crossed that we aren't about to repeat the winter of 2008/09. In my little University, our forecast is about a 9% drop in enrollment this fall of which about 5-6% can be explained by demographic trends (2006 was a peak in HS graduations).

[Jester]

Welcome back to 1937. It wasn't great the first time, and it won't be any better now. I think the debt ceiling debacle has done quite a lot of damage, although more for the deal that was cut (and what it says about the political process) than for any lack of faith in the credit of the United States. US treasury bonds actually *rose*, but stocks crashed - the problem is growth, not confidence in government. Nobody is predicting growth in the face of severe cutbacks during a recession.

Out of curiosity, why is 100% of GDP a threshold? A milestone, maybe, but I've never quite understood why everyone is so comfortable with 90%, yet so panicked by 110%. What really matters is service vs. revenues... right?

-Jester

[kandrathe]

Welcome back to 1937. It wasn't great the first time, and it won't be any better now. I think the debt ceiling debacle has done quite a lot of damage, although more for the deal that was cut (and what it says about the political process) than for any lack of faith in the credit of the United States. US treasury bonds actually *rose*, but stocks crashed - the problem is growth, not confidence in government. Nobody is predicting growth in the face of severe cutbacks during a recession.

Out of curiosity, why is 100% of GDP a threshold? A milestone, maybe, but I've never quite understood why everyone is so comfortable with 90%, yet so panicked by 110%. What really matters is service vs. revenues... right?

-Jester

As I understand the deal, the cuts are loaded out a few years into the future. The debt can increase by some 2 trillion (and we are borrowing 40% of our spending). So, really, we are just slowing the increase in spending and not really cutting back on spending.

If the tax cuts don't expire, the revenue's will increase to 20-21% of GDP by 2020, and higher if they are allowed to expire. But, say you were limited to the historical rate of about 18% of GDP, then on a 14 trillion dollar GDP you'd be raising about 2.5 trillion in revenue. In a normal economy, banks would charge interest for use of their money, and you'd need to curb spending below the 2.5 trillion to ever begin paying down the debt. So, I think the 100% threshold is where it begins to be very hard to ever make headway on paying it down. The previous link says, "In theory there is no maximum level for debt relative to GDP, but Ireland and Iceland (not on this map) found the limit in practice when they hit eight-to-ten times GDP."

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[DeeBye]

S&P lowered the US credit rating. That sort of sucks for the US.

http://www.reuters.com/article/2011/08/0...VF20110806

edit: http://en.wikipedia.org/wiki/List_of_cou...dit_rating

[kandrathe]

S&P lowered the US credit rating. That sort of sucks for the US.

http://www.reuters.com/article/2011/08/0...VF20110806

edit: http://en.wikipedia.org/wiki/List_of_cou...dit_rating

Yup. It's $100 billion that won't be spent on programs, but rather interest to banks. Interesting that they changed their tune on the reason. Before they said they might due to the partisan wrangling in Washington. Now, it's because the deficit reductions are too small. I think the real reason is that they are still a bit steamed up after they got hauled in front of congress and schooled due to the ratings on the derivatives that caused the whole 2008 recession.

[Jester]

S&P lowered the US credit rating. That sort of sucks for the US.

http://www.reuters.com/article/2011/08/0...VF20110806

edit: http://en.wikipedia.org/wiki/List_of_cou...dit_rating

US treasuries are trading at record high prices, and yet we're going to believe S&P, the guys who (along with Moody's) just rated all those subprime-based bonds as AAA, right up until the day they were worthless?

Listen to the markets. Investors may have the memories of goldfish, but they're not stupid. People are not buying 30-year securities at 3.7 because they don't know security from a hole in the wall.

-Jester

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So, really, we are just slowing the increase in spending and not really cutting back on spending.

*Total* government spending crashed during the crisis. The increase in federal spending ("stimulus") didn't even bring it back to previous levels. Government spending and revenue are down, not up, if you include local and state. That's contractionary - the "G" in Y = C+I+G+Nx does not discriminate.

-Jester

[kandrathe]

*Total* government spending crashed during the crisis. The increase in federal spending ("stimulus") didn't even bring it back to previous levels. Government spending and revenue are down, not up, if you include local and state. That's contractionary - the "G" in Y = C+I+G+Nx does not discriminate.

Most of the government spending contraction is due to state and local issues where they cannot borrow, or print money to replace declines in sales, income, and property taxes while demands from the newly impoverished are skyrocketing. In 2009, and 2010, the Federal government engineered ~$200 billion "stimulus" to give to states to make up for their annual deficits. But, the changes in the state/local and federal components of the GDP are not significant in comparison to the decline in business spending and personal consumption. And... I'm not convinced that when the government takes the money from the people in the form of taxes and then spends, that it duplicates free market investment. The government tends to subsidize certain already inflated services such as health care, education, and the military. As we saw in the so called stimulus spending in 2009, the government chooses poorly when it comes to finding investment that will actually stimulate growth. Had I been your benevolent dictator, I would have made better choices and I'm not really the brightest bulb in the investment category. In simple terms, buying a bunch of bread will sustain a community, but investing in new farm equipment will increase their production capacity. Most of the stimulus was sustaining, and not investing.

US GDP Components

The biggest problem in the economy and GDP equation would be business spending, and employment (impacting personal consumption). What the stimulus did not do enough of was to actually stimulate business spending, and that requires leadership to inspire confidence in the economy. Instead, we were handed more restrictive laws in health care, and in Dodd/Frank. Both incredibly bad bills which don't actually do what they were "sold" as resolving, but both added greatly to the size of government.

I couldn't find a handy chart of GDP components, so I made one from the recent BEA.gov data.

[attachment=56]

P.S. I also found analysis of 2001 Q1 real GDP on BEA.gov. The following image shows the percent of contribution of components and their net change from Q1 2010 to Q1 2011. The biggest decline in the government area was Federal Defense spending(blue highlighted area) mostly due to the draw down in Iraq.

[attachment=57]

I think one thing that is confusing is that GDP continues to be calculated in "inflation adjusted dollars", however the devaluation of the US dollar has not been factored into the GDP calculations since the resultant inflation has yet to be realized. So, consumers and businesses are dealing in the current deflated currency (too many dollars) for our purchasing power. The aggregated CPI masks the inflation on the street. Once demand returns (pursuing too few goods as measured in the velocity of money), the actual devaluation will appear as inflation. Here is a great article summarizing my views on this. Consequently, I have little faith in the government supplied CPI, GDP, or unemployment statistics. They seem to be engineered to lead the electorate down a primrose path, whereas business and the investor class are not fooled. The author makes a case for investing in gold, but as we discussed earlier, I believe gold carries too much passion and not enough stability. Keeping your savings in an commodity index fund, or a diversified basket of stable commodities would be a better hedge against currency devaluation and inflation.

And, since QE1 and QE2 were so effective in stimulating the economy, why not QE3? So, there will be more devaluation shortly, and a bigger risk of runaway inflation in the future.

[Jester]

They seem to be engineered to lead the electorate down a primrose path, whereas business and the investor class are not fooled.

"The investor class" is buying US treasuries at incredibly high prices, even for long-maturing bonds. If they are not fooled, then where is their prediction of inflation? If hyperinflation is going to happen, then there is money to be made shorting US bonds, then "the investor class" should be doing that until prices drop... right?

-Jester

[kandrathe]

They seem to be engineered to lead the electorate down a primrose path, whereas business and the investor class are not fooled.

"The investor class" is buying US treasuries at incredibly high prices, even for long-maturing bonds. If they are not fooled, then where is their prediction of inflation? If hyperinflation is going to happen, then there is money to be made shorting US bonds, then "the investor class" should be doing that until prices drop... right?

-Jester

Um... Like other government ponzi schemes, it's the Fed who are buying the bulk of t-bills (and hiding their true holdings). Now, convince 10 of your friends to buy t-bills... China and "smart" investors are clearing out of their US bond holdings, and most of our debt is in 90 day issue and not long term. Not good... definitely not good.

[Jester]

Um... Like other government ponzi schemes, it's the Fed who are buying the bulk of t-bills (and hiding their true holdings). Now, convince 10 of your friends to buy t-bills... China and "smart" investors are clearing out of their US bond holdings, and most of our debt is in 90 day issue and not long term. Not good... definitely not good.

Horsepuckey. First, it's not a ponzi scheme. It shares nothing in common with a ponzi scheme. That's just a scary word people use when they want to frighten the horses. Second, that article is from 2009, which in post-crisis US bond terms, is pretty much the stone age. QE1 and QE2 are dead and gone - and yet, bond prices have gone *up*. If the markets were dumping US Bonds, then the instant QE2 ended, they would have crashed. Did they? Not even close. Most of the debt is 90 day? Great! 3 month yields are ... 0.02! Like, free fraking money. The US could go to Vegas on the defense budget, and markets wouldn't so much as blink. Don't take my word for it - these are actual, honest to god, up to date, bond prices.

I await movement in the opposite direction. Record highs do not stick around forever. But this is not the Fed keeping this afloat. That's what QE is, and they aren't doing any more of it right now - yet no crash.

-Jester

[kandrathe]

Horsepuckey. First, it's not a ponzi scheme. It shares nothing in common with a ponzi scheme. That's just a scary word people use when they want to frighten the horses. Second, that article is from 2009, which in post-crisis US bond terms, is pretty much the stone age. QE1 and QE2 are dead and gone - and yet, bond prices have gone *up*. If the markets were dumping US Bonds, then the instant QE2 ended, they would have crashed. Did they? Not even close. Most of the debt is 90 day? Great! 3 month yields are ... 0.02! Like, free fraking money. The US could go to Vegas on the defense budget, and markets wouldn't so much as blink. Don't take my word for it - these are actual, honest to god, up to date, bond prices.

I await movement in the opposite direction. Record highs do not stick around forever. But this is not the Fed keeping this afloat. That's what QE is, and they aren't doing any more of it right now - yet no crash.

-Jester

Ponzi was the articles take on it since it is unclear who is buying and who gets paid. QE2 ended June 30 2011.

People are fleeing to T-bills as a safe harbor. Even though the yield will be nearly zero, or slightly negative, it's better than riding a crash down. It's probably a signal of an impending stock market meltdown. We'll see tomorrow, when the markets open.

[Lissa]

Horsepuckey. First, it's not a ponzi scheme. It shares nothing in common with a ponzi scheme. That's just a scary word people use when they want to frighten the horses. Second, that article is from 2009, which in post-crisis US bond terms, is pretty much the stone age. QE1 and QE2 are dead and gone - and yet, bond prices have gone *up*. If the markets were dumping US Bonds, then the instant QE2 ended, they would have crashed. Did they? Not even close. Most of the debt is 90 day? Great! 3 month yields are ... 0.02! Like, free fraking money. The US could go to Vegas on the defense budget, and markets wouldn't so much as blink. Don't take my word for it - these are actual, honest to god, up to date, bond prices.

I await movement in the opposite direction. Record highs do not stick around forever. But this is not the Fed keeping this afloat. That's what QE is, and they aren't doing any more of it right now - yet no crash.

-Jester

Ponzi was the articles take on it since it is unclear who is buying and who gets paid. QE2 ended June 30 2011.

People are fleeing to T-bills as a safe harbor. Even though the yield will be nearly zero, or slightly negative, it's better than riding a crash down. It's probably a signal of an impending stock market meltdown. We'll see tomorrow, when the markets open.

The market has been over inflated for going on a decade. The market needs to drop to be at the historical climb rate. Right now, that drop needs to take the market into the 10,500 range to get to that historical climb rate. If you look at any of the graphs of the DJIA since it's inception back at the turn of the 20th Century, it has doubled roughly every 12 to 15 years. As of 2007, just at it's peak, it was triple where it had been from the prior 12 to 15 year cycle (it was around 5000 in the mid 90s which was the historically proper level). When the market dropped in 2008 and worked back up to 10,000 in early 2009, it was back to it's proper amount. Then it took off again at a pace that was beyond the historical pace. What we're seeing now, is a re-correction that will likely bring the market back to its proper historical pace (which should put it at around 10,500).

[kandrathe]

The market has been over inflated for going on a decade. The market needs to drop to be at the historical climb rate. Right now, that drop needs to take the market into the 10,500 range to get to that historical climb rate. If you look at any of the graphs of the DJIA since it's inception back at the turn of the 20th Century, it has doubled roughly every 12 to 15 years. As of 2007, just at it's peak, it was triple where it had been from the prior 12 to 15 year cycle (it was around 5000 in the mid 90s which was the historically proper level). When the market dropped in 2008 and worked back up to 10,000 in early 2009, it was back to it's proper amount. Then it took off again at a pace that was beyond the historical pace. What we're seeing now, is a re-correction that will likely bring the market back to its proper historical pace (which should put it at around 10,500).

Roughly it should mirror the level of investment and capitalization in the market. There were tremendous growth spurts in productivity in the past 30 years that might alter the trajectory of the DJIA, and then there is the matter of the changing nature and accuracy of the DJIA itself.

[attachment=58]

The above is the historical DJIA, and I added a curve to show a possible projection other than linear. Thinking about the creation and destruction of companies, it probably should be curved upward as more companies are created and increase in value do to investment than lose valuation or go bankrupt.

[Concillian]

In R&D we use "S-curves" to model a technology through an R&D process. Using perpendicular recording as an example, initial growth was slow (before product introduction), then breakthroughs made and densities were increasing at alarming rates. Now we are approaching the top of the S, where material and physical limits are being approached and have been working on the slow grind ramp of the next technology (Heat Assisted Magnetic Recording)

Difficult early growth, a booming middle, and then a rough, slow gaining upper 4th as you approach materials and physical limitations.

I think you can make a real argument that a DJIA model does not necessarily need to be one that is "one sided". A correct model could easily have an inflection much like the S-curve models we use to demonstrate a technology R&D cycle. I'd probably argue that the correct model is really an overlapping series of S-curves associated with whatever the primary innovation at the time is that is stimulating growth the most. The overall market is somewhat tempered by the diversity, but there is little doubt that things like computerization and the miniaturization of was the real driver of growth in the early 21`st century, much as industrialization and the miniaturization of were the leading drivers from the late 30s through the 70s.

We're approaching a point where computerization is not going to sustain explosive growth. We need "the next big thing" for that. I wish I knew what that was, but I doubt it's social networking, smartphones and tablets, as they seem to be more about shifting money from one place to another within the economy rather than driving real growth. Who knows what's next, but I don't see any major growth before we start seeing something different that can drive jobs without government subsidization.

[kandrathe]

In R&D we use "S-curves" to model a technology through an R&D process. Using perpendicular recording as an example, initial growth was slow (before product introduction), then breakthroughs made and densities were increasing at alarming rates. Now we are approaching the top of the S, where material and physical limits are being approached and have been working on the slow grind ramp of the next technology (Heat Assisted Magnetic Recording)

Difficult early growth, a booming middle, and then a rough, slow gaining upper 4th as you approach materials and physical limitations.

I think you can make a real argument that a DJIA model does not necessarily need to be one that is "one sided". A correct model could easily have an inflection much like the S-curve models we use to demonstrate a technology R&D cycle. I'd probably argue that the correct model is really an overlapping series of S-curves associated with whatever the primary innovation at the time is that is stimulating growth the most. The overall market is somewhat tempered by the diversity, but there is little doubt that things like computerization and the miniaturization of was the real driver of growth in the early 21`st century, much as industrialization and the miniaturization of were the leading drivers from the late 30s through the 70s.

We're approaching a point where computerization is not going to sustain explosive growth. We need "the next big thing" for that. I wish I knew what that was, but I doubt it's social networking, smartphones and tablets, as they seem to be more about shifting money from one place to another within the economy rather than driving real growth. Who knows what's next, but I don't see any major growth before we start seeing something different that can drive jobs without government subsidization.

I like your the S-curve theory. I don't think we've fully automated to the limit of our current technological level yet. Also, we've gained productivity from new work place philosophies, such as KANBAN, and other JIT production, Deming, Tom Peters, etc.

Negative factors like commodity scarcity (e.g. peak oil), or labor shortages can cause declines until a replacement is found or a correction occurs.

I don't agree on government subsidy as the best method of instigating change. It can skew choice away from what would otherwise be the correct one, such as what has and is happening with ethanol or biodiesel made from crops. Texas Instruments, and Motorola had microchips for years before a Steve Jobs and Steve Wozniak decided to build inexpensive Apple kits. Often a revolution has all components in place until the right people come along to pull it all together. But, I would give some credit to NASA and the military industrial complex for driving the demand for miniaturized logic chips in the first place. I would like to see more government funding going into pure research, and let smart entrepreneurs and innovators discover the subsequent applications, and profit from them.

[eppie]

I don't agree on government subsidy as the best method of instigating change.

Well maybe it will work if they stop indirectly subsidizing oil. The tremendous costs the west and especially the US has (but also china and russia) in handling one conflict after another in the middle east is nothing else then subsidizing weapons industry and oil.
Without the gulf wars maybe the west already had a 30 % higher share of alternative energy.

[kandrathe]

I don't agree on government subsidy as the best method of instigating change.

Well maybe it will work if they stop indirectly subsidizing oil. The tremendous costs the west and especially the US has (but also china and russia) in handling one conflict after another in the middle east is nothing else then subsidizing weapons industry and oil. Without the gulf wars maybe the west already had a 30 % higher share of alternative energy.

Isn't it a two edged sword?

On the one hand, you have a population that has been habituated to the internal combustion engine in a 3600 lb vehicle that can accelerate to 60 mph in less than 8 seconds, and achieve a top speed of 150 mph. Their lives and livelihoods are directly influenced by the range and speed of this vehicle. Were you to turn people out of their jobs, or cause prices to skyrocket, it would create domestic unrest and riots.

Or, you can take your technologically advanced military hardware, and a small army and dominate the middle east to control the supply and therefore price of oil.

The ugly truth that we are unwilling to adequately address is that our energy consumption is unsustainably high. Many people in the world are habituated to the comforts afforded by fossil fuels, such as heat, and mobility. Who wants to oversee the move towards deprivation? Who gets to eat the reduced food supply, and who freezes in the winter? Then there would be the business and economic impact, causing a generation of disruption and displacement.

But, our goals are the same. I would like to see more implementations of alternative energy, where they make economic sense. What doesn't work is when the government gives a few billion dollars to GE to make wind turbines and they end up installed everywhere, including many places without wind. Or, when government decides to subsidize ethanol, and require it's use to create an artificial demand.

I'm against the blood sucking companies who derive their profits through subsidy, regulation, and bailouts rather than through wealth creating competition and innovation.

[eppie]

But, our goals are the same. I would like to see more implementations of alternative energy, where they make economic sense. What doesn't work is when the government gives a few billion dollars to GE to make wind turbines and they end up installed everywhere, including many places without wind. Or, when government decides to subsidize ethanol, and require it's use to create an artificial demand.

I'm against the blood sucking companies who derive their profits through subsidy, regulation, and bailouts rather than through wealth creating competition and innovation.

I agree, but this I don't call subsidy I call it plain old fraud. This is going on for years....look at all the new devices they invent to keep us safe in airplanes.....al those interesting security gates that are replaced every three years......we all know who makes those.

Same as the bioethanol thing.....this was just another present to the oil industry by the Bush family (of course payed with tax dollars). With as extra negative impact that people start not believing IPCC scientists anymore (even though they have nothing to do with that).

But when people are urged to eg buy solar panels for their roofs by giving them tax rebates, all kinds of companies (american and foreign) will start competing.
I have said this before. If we don't add in 'environment' in the total cost-balance of a gallon of gass we are fooling ourselves. This is nothing else than indirect subsidization.

[kandrathe]

But, our goals are the same. I would like to see more implementations of alternative energy, where they make economic sense. What doesn't work is when the government gives a few billion dollars to GE to make wind turbines and they end up installed everywhere, including many places without wind. Or, when government decides to subsidize ethanol, and require it's use to create an artificial demand.

I'm against the blood sucking companies who derive their profits through subsidy, regulation, and bailouts rather than through wealth creating competition and innovation.

I agree, but this I don't call subsidy I call it plain old fraud. This is going on for years....look at all the new devices they invent to keep us safe in airplanes.....all those interesting security gates that are replaced every three years......we all know who makes those.

Yes, I agree. And, before with Bush we had the whole no-bid contracts handed out to Halliburton and other administration cronies. Obama's crony capitalism is no better with his cozy relationship to Goldman-Sachs, and Jeff Immelt from GE, and his lobbyist Linda Daschle (Tom's wife)​ to name just a couple.

Same as the bioethanol thing.....this was just another present to the oil industry by the Bush family (of course payed with tax dollars). With as extra negative impact that people start not believing IPCC scientists anymore (even though they have nothing to do with that).

The shenanigans of the IPCC scientists deserve scrutiny, and jeopardize their credibility when they introduce bias into their findings. I think the biggest promoters of biofuels were both republicans and democrats from farm states who saw it as a way to curry favor with their constituents. But, like other "technology", politicians lacked the wisdom to think through the unintended consequences of trading food for fuel, and understand that the input energy to produce the fuel was larger than its net output. Big oil see's the brick wall of peak oil in the future, so they are certainly attempting to preserve their control of the energy market by adapting to the next big thing be it hydrogen, electric, or biofuels. The bottom line is that we need to be wary when politics mixes with science, or meddles in promoting a product on the market.

But when people are urged to buy solar panels for their roofs by giving them tax rebates, all kinds of companies (american and foreign) will start competing.

I don't know that solar panels on everyone's roof is the correct answer. I've done the math for my home, and it is not cost effective. It would cost me more money to keep my home outfitted with solar panels, than I would ever get back in savings from energy costs. The environment here is extreme and harsh, with seasonal temperature variations from -34 C in January to 43C in July, coupled with severe storms delivering many feet of snow in winter, to tornado's, hail, and torrential rain in spring and summer. It's really a weatherman's dream and nightmare to try to predict what is brewing out over the prairie, or swinging up out of the Gulf of Mexico. The point being that maintenance costs for anything exposed to the elements is higher, and useful life spans are reduced. But, being that I live in a fairly sparsely populated eastern broad leaf forest, I'm looking at high efficiency wood stoves and possibly steam power as a backup. Our local power provider(Xcel) has invested heavily into adding wind power with about 2500 MW out of a potential of 75,000 MW. Currently, peak electricity demand is in July at about 22,000 MW, in winter heating is performed by natural gas and fuel oil. So, as petroleum fuels are replaced with electric heating, and electric transportation you'd expect the needs to about double.

But, for people in Phoenix, and for small needs well off the grid it is a good solution. Southern Minnesota is like the Saudi Arabia of wind power. Other areas are coastal and may be able to derive power from tidal forces, others have abundant sources of natural gas, others are near coal deposits and might benefit from clean coal gasification. If we allowed local economics to drive the decision making, then regionally they'd have a solution that may fit better to their local situation.

I'm a big advocate of proper distribution of smaller producers rather than one or a few large production facilities. You can extrapolate this to many networks, including energy, food distribution, computing, water, sewage treatment, broadcasting, etc. With redundancy and distribution across a network, a single outage will not affect much of the network. The added overhead cost of maintaining multiple sites is still a harder sell even at a company scale, until their one site gets hit by a natural or man-made disaster.

I have said this before. If we don't add in 'environment' in the total cost-balance of a gallon of gas we are fooling ourselves. This is nothing else than indirect subsidization.

Ignoring the environmental effects of civilization is a historical fact. We've come along way in the past 50 to 100 years in understanding pollution, and being able to measure it's obvious and covertly detrimental effects. It's taken us about 100 years to understand the impact of 'dumping' emissions into the atmosphere. My goal would be to "leave no footprints" on the environment. When I see the effects of dumping wastes in the ocean, rivers, land and atmosphere I am appalled. I'm just realistic to the idea that unless people SEE it or be harmed by it they won't change their behavior.

I remember back when I was a teen, and a friend of mine found a skeleton of a huge elk in the local creek. Being that there were no elk in Minnesota, I asked my father what happened to all the elk. He told me about how Minnesota used to be covered in old growth forest, and was a prime habitat for elk. But then the railroads came through, and they hired loggers to clear the land to be able to sell it to homesteaders coming from Europe. I imagined how that was, before, and after and it made me very, very sad for what we did to the land. It still does, but I live here.

[Concillian]

but I don't see any major growth before we start seeing something different that can drive jobs without government subsidization.

I don't agree on government subsidy as the best method of instigating change. It can skew choice away from what would otherwise be the correct one, such as what has and is happening with ethanol or biodiesel made from crops.

I do not think I wrote what you think I wrote. Without subsidies.

I fully agree with you about ethanol / biodiesel. My actual vision is that non-farmland ethanol production is the next big thing for the US economy.

There is some bioengineering and R&D to take place yet, but I do not think it outside the realm of possibility to engineer some kind of organism that lives in salt water, eats some kind of animal feces, and "poops" ethanol or something that can be easily turned into ethanol. We clearly know of natural organisms and algae that eat something and poop ethanol (fermentation), but natural organisms only do this in the absence of light and very slowly. The main hurdle is bio-engineering them to do it in sunlight, as the sunlight energy should significantly speed the conversion process.

All current ethanol processes destroy whatever plant matter it uses. I think a truly viable ethanol process where ethanol is created from live matter rather than dead matter will eventually happen.

Meeting all the conditions I mentioned would be somewhat of a holy grail (salt water organism = ethanol plant doubles as desalination plant in drought prone areas, if it "eats" animal feces in some form, even if it needed processed, then "food" would be extremely cheap. While the US doesn't have tons and tons of hot arid areas near salt water, it does have a fair amount of the south, Texas and CA that would be close enough that pumping salt water shouldn't be too costly,) but meeting even one should dramatically reduce the cost of ethanol production compared to today. Ethanol is almost an economical alternative to gasoline now, just not able to be scaled to quantities needed.

I honestly think we are close to a breakthrough here. I think much closer than we are to any breakthrough that would make electric vehicles feasible on a large scale.

The biggest problem right now with ethanol is with it's association to farming. This is why it's become such a political issue. Any funding towards ethanol research instead becomes branded as a farming handout, even if it is not. Breaking the ties between ethanol and farming, not just at a government level, but in the mind of the everyday person is an uphill battle. It's one of those things where people in the US hear ethanol and think corn. It's a terrible starting point, with two major lobbies against any rational decision making (oil lobbies and farm lobbies).

And besides the potential gain, the irony circle of such a discovery would be good for a laugh.
After all, if an ethanol process were discovered that would make ethanol cheaper to make in hot, sunny areas near salt water than the cost of extracting oil from the ground, the US would have a brief period of sticking their tongue out at the Middle East before they realized the Middle East is one giant hot & sunny desert bordering salt water and it would probably end up cheaper for them to make ethanol there and ship it to the US than it would be to make it in the US at US labor rates.