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Can Nuclear Power Bolster The Wilting U.S. Dollar ?

Currencies / US Dollar Oct 01, 2010 - 05:16 PM GMT

By: Andrew_McKillop


Best Financial Markets Analysis ArticleIt could seem surprising to ask this question, but desperate problems call forth innovative remedies - and conventional wisdom has it that Barack Obama’s administration is on the economic ropes. The problem is that un-conventional wisdom says the same thing but comes to the same conclusion along different pathways.

US unemployment is high and might rise more, even though the recession officially ended more than a year ago. The Federal budget deficit is around 9% of GDP, which can be beaten by a few European economies, and a few Third World "superdebt' economies on IMF life support, but is a real sign of weakness even if the Fed's 2009 fiscal stimulus was or is widely regarded as a bore meriting no repeat of the exercize. If that happened, this would likely wind up the debt spiral even further: the US economy has all that it needs to speed the growth of debt without extra debt-growth stimulus.

On top of the usual Republican litany of whining that the Obama administration is anti-business, discourages hiring and investment, and does not pursue overseas wars the right way, the US trade situation is traditionally execrable - and China is signalling with unusual insistence that its patience with a wilting dollar is close to breaking. To be sure, for cynics, this is only a buy signal for gold and oil and a few other selected "hard assets", but is also a signal for the Obama team to try finding some new super white and super big rabbit in its shrinking black hat: nuclear power could fit the bill.

Through 2010-2020 up to 250 new nuclear reactors equivalent in power to the industry standard of 900 MW each could be built around the world - mostly outside the OECD countries. Their average price, with constantly rising nuclear power capacity costs now edging above 4500 US dollars per kiloWatt, can easily attain 4.5 billion dollars each. The overall market value could therefore be as high as 900 billion dollars, and might top the "magic trillion".

Enter the debt-and-derivatives financing circus, where anything is rigorously possible on the long and winding path from an "underlying security", like a 900 MW power plant, and a final finance package with a price tag 100 times bigger. Melding national debt into the package will be easier than pulling a rabbit from a shrinking hat. With a 900 billion dollar asset, even if the USA might only hope to get say 25% to 30% of this market, very large amounts of financing are possible.

Members of Obama’s original economic dream team -- Larry Summers, Peter Orszag and Christina Romer -- have at times given deep thought and one-liner deep insights on how to finance green energy in our struggle to save the climate and the polar bears from global warming. Amounts dangled before the press in late 2009 regularly went as high as US$ 100 billion for the starter fund proposed by Obama and his OECD friends, and shot down in flames by China, India, the GCC states and Russia.

But that was strictly a 2009 tune, and all or most of the dream team have decided to stop dreaming anywhere in microphone range of the Obama White House. Before they left, however, and as aired at the ill-fated 2009 Copenhagen climate summit with the IMF primed to take it further, their mulling included not only a 100-billion-dollar soft energy starter fund, but a new single world money replacing the dollar, euro, yen, yuan and all the others - codenamed Carbon Money. National debts were of course to be "translated" into Carbon Money at rather attractive rates of discount, we can be sure.

Even conventional wisdom today admits that the USA like the other OECD countries has experienced a severe credit crisis somewhat reminiscent of Third World crises in the 1980s and 1990s, and exactly like several of the "foreign crises" shifted massive and unpayable private debts, to even more massive and unpayable public and sovereign debt. The Obama theory is the U.S. can recover quickly, and jobs too, if the dollar now depreciates, which it is doing before eyes every day on the FX markets. This is unfortunately not a sure recipe for spurring US exports, but is certainly risky: not much later on squeals of horror will announce the return of inflation, the agonizing need to raise interest rates, and the terribly surprising result that trade deficits have climbed even higher and US double dip has morphed into US all out crash.

Like it or not, significant dollar depreciation is more probable than most now suppose. The depth of the crisis in late 2008 stunned many U.S. observers, but its features reproduce a litany of currency and economic crashes in countries ranging from Russia to Argentina and South Korea. Avoiding this needs all other options to be studied.

Even if Carbon Money did not work, Neutron or Proton Money might. Today we have on the table a likely or possible default choice of creating a US economic growth miracle, through first imploding the economy with a dollar panic and currency crash. What happens to US debt will be ugly, especially for foreign holders. It is uncertain they would come back for more punishment. After its economic collapse in 1997-98, however, South Korea grew by nearly 11 percent in 1999; when Russia imploded the value of the Ruble, defaulted on its debts and let the rest of the national economy go AWOL at the end of 1998 its economy rebounded to 6.5 percent growth in 1999.

The Neutron Money alternative would therefore need to be at least heroic and large scale, and would need the UN's IAEA and the IMF plus World Bank to operate closely together, to set up and finance a huge program of reactor building worldwide - with a major role for the US nuclear industry. New and special US-guaranteed bonds linked with the program would be emitted, based on build-operate-transfer power plant projects and spinoff economic and trade development, in at least 15 countries. The bonds would be denominated in Neutron (or Proton) currency units, possibly linked to uranium the way SDRs are linked to the dollar and were linked to gold. US debt would be progressively transferred to and diluted into Neutron-linked vehicles and structures. As the nuclear bubble grew, US debt in old-style dollars would shrink.

The U.S. has an imperious need to crank up exports - and the reason it isnt doing this is not an overvalued dollar, whatever the politically correct spin applied to the figures. Only currency implosions, as in Argentina or Russia, give that instant 25 to 40 percent cut in national currency value that can instantly crank up export sales, at least for a while. US exports of nuclear plant and equipment, and downstream services are already competitive. What they need is financing that does ot further wind up US debt. Through a worldwide special plan for speeding the sale of nuclear power - with a special array of financing tools - the US can dilute its debt, achieve more exports, and avoid massive depreciation or devaluation of the dollar.

With export-led growth, which is what Obama wants, the U.S. dollar can be sheltered from the harsh winds of speculation and the fears of Chinese monetarydeciders. The dollar can become solid and secure, if not a safe haven overvalued money. The logic of pushing the dollar down and exports up could work in the past, perhaps. But its life expectancy, like its credibility today are very low. Saving the US dollar through a world program to supply and finance nuclear power, and its downstream could appear fragile, but the alternatives are either unattractive or unworkable.

Emerging-market economies with a big need for nuclear power, like India, are already targeted for US business, and initial but unsure multi-billion-dollar finance packages are already being mulled. With Neutron Money the process can be dramatically expanded and accelerated. Based on the solid and growing asset of nuclear power and its downstream, foreign holders of US debt, like the increasingly nervous Chinese, can diversify into the US World Program for nuclear power as they diversify out of dollars. Global savings will be attracted to an array of special linked funds, denominated in Neutron Money, in time enabling the US to avoid all possibility of defaulting on any sovereign debt.

By Andrew McKillop

Project Director, GSO Consulting Associates

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.


© 2010 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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