2022 GDP, Population, Density by State

Water, Hydrogen, Real Estate & the Dollar

Background

It is indeed remarkable the propensity of our esteemed decision makers to ignore scientists’ warnings. Case in point, the March 1912 issue of Popular Mechanics correctly predicted that coal burning would accumulate carbon dioxide in the atmosphere and cause a greenhouse effect. Did the industrialized countries heed? The answer is that the world is now addicted to fossil fuels and will remain so for the foreseeable future. What is certain is that the catastrophic consequences of anthropomorphic climate change, which disproportionately affect those who contributed the least to it –the so-called “developing” nations and the poor- are getting much worse.

Water

Although water scarcity does not command the political prominence it deserves, it is a ticking time bomb. In the U.S. the line separating the moist East from the arid West may have already shifted 140 miles eastward, from the 100^th to the 98^th meridian. As a result of this encroaching aridification, the U.S. is now bisected into two regions of nearly equal size –one moist and the other arid, and their population densities and economies could not be more disparate. It makes sense: no water, no life. Thus, the Ogallala Aquifer, already severely depleted in some areas, and the Colorado River basin, which is basically drying up, simply lack the water resources to support future population growth. Clearly, a new source of abundant water is needed to address the real estate crisis.

Hydrogen and Water

New discoveries make it feasible to produce green hydrogen directly from seawater using solar energy. Many nations would like to switch from fossil fuels to hydrogen, not only for mobile applications but to generate electricity. China has already started building the world’s largest green hydrogen plant, German project developer Conjuncta signed a memorandum of understanding with Egypt’s energy provider Infinity and the United Arab Emirates’ Masdar for a $34 billion green hydrogen product in Mauritania, and the City of Los Angeles, CA is replacing a gas-fired plant with a green hydrogen unit.

These and other similar projects are all designed to use hydrogen’s energy-carrying properties, understandable given the global tensions revolving around, and resulting from, the desperate ongoing struggle to dominate the fossil fuels market. But hydrogen has another critically important property: it can be oxidized to make water. Thus, as noted above, highly efficient water splitters can extract green hydrogen directly from seawater using solar energy, and conversely, as Los Angeles proves, it is now feasible to build hydrogen-burning plants to generate electricity. Obviously, all that remains is to synchronize both ends of the equation to produce unlimited water (subject to availability of unlimited green hydrogen) and electricity. The cycle, anchored on a man-made, sea-level canal from the Pacific Ocean to Death Valley wide and deep enough to accommodate supertankers is shown here. Thus, the new fiord would become a hub where green hydrogen would be produced and distributed to domestic and foreign markets. The benefits of this project are described here. Incidentally, the principle could also be expanded to sun-drenched islands around the world and natural depressions such as the Dead Sea, Qattara, San Julián in Argentina, and others. One potential tangential benefit would be to disperse ocean water. That might mitigate the effect of rising seas on coastal cities worldwide.

The Struggle

The United States is in the midst of a titanic struggle with China for economic, technological and military supremacy. Barring a nuclear holocaust that would make everything else moot, the reaction of the Global South is going to have a pivotal influence in the struggle’s outcome. The region, which was at one time colonized by the G7, has the world’s largest reserves of many critical natural resources. More importantly, most people on the planet live there, and many are shockingly poor and hungry. Understandably, China’s indisputable track record of having lifted 800 million people from poverty in forty years resonates with their predicament far more than non-edible abstract mantras such as “democracy” and “authoritarian.” And some have already taken concrete steps to express their dissatisfaction with what the U.S. preaches and does. Brazil, Russia, India, China and others have not supported the U.S. and EU sanctions against Russia stemming from the Ukrainian war; Iran and Saudi Arabia, under Chinese mediation, have decided to pursue rapprochement, and some purchases of oil and gas are now being settled in currencies other than the U.S. dollar, a clear indication that the petrodollar is seriously ill. In fact, the dollar’s use as the reserve currency of the world, currently at 58%, has declined precipitously over the last three years, a direct consequence of the weaponization of the dollar for geopolitical reasons. Furthermore, there’s nothing to prevent this decline from accelerating. Indeed, that could happen very quickly should the petrodollar’s illness metastasize to the U.S. bond market. The consequences of that would be unprecedented in scope and severity, including the very real possibility of hyperinflation, collapse of the Defense Budget, and default on the debt, Social Security and Medicare. The solution is obvious. For the reasons described above, we should become the world’s largest producer of green hydrogen to replace fossil fuels. When used to generate electricity, the process would manufacture water as a byproduct, something no other fuel can do. If the U.S. could export hydrogen on a scale large enough to generate electricity worldwide, that might eliminate or at very least greatly reduce the trade deficit. Incidentally, it might forestall hyperinflation and strengthen the greenback independently of the petrodollar or the U.S. bond market.

The Real Estate Connection

The federal government directly buttresses the mortgage industry through insurance and guarantee programs: FHA has an insured portfolio in excess of $1.2 trillion, Ginnie Mae guarantees over $2 trillion in securities backed by mortgages with FHA or other federal agencies, and Fannie Mae and Freddie Mac –government sponsored enterprises (GSEs) guarantee a $6 trillion portfolio of mortgage-backed securities. As the latter two are currently in conservatorship under the Federal Housing Finance Agency (FHFA), good old Uncle Sam is ultimately responsible for them should they become insolvent. All told then, the federal government’s risk exposure exceeds $9 trillion. Obviously, in view of the $31 trillion debt the government is already saddled with, a complete collapse of the real estate market would likely overwhelm the government’s ability to prevent it from bringing down the rest of the economy. Needless to say, that must be avoided -at all costs. One way to do so is to make sure that prices do not decline to the point that a majority of homeowners find themselves with negative equity. However, this has become somewhat of a challenge. In an effort to combat high inflation, the Federal Reserve has seen fit to raise interest rates substantially, a policy that caused prices to decline nationwide . Coincidentally, with FHFA’s acquiescence, Fannie Mae is introducing a system called Value Acceptance that essentially reduces the number of transactions requiring full appraisals. Lenders have traditionally required appraisers to carry errors and omissions insurance, a mechanism that mitigates the possibility that appraisals might overstate the value of the collateral and cause lenders, servicers, and/or GSAs to suffer losses due to foreclosures. Presently it’s unclear who or what will compensate investors for the disappearance of this layer of risk protection, and whether they’ll be officially advised of this before they buy mortgage-backed securities in the secondary market.

Buying Power of Median Incomes

In 35 states the median income of a single earner is insufficient to buy a median-priced single-family home . The reason is that from 1950 to 2022 median prices grew much faster than median incomes. A precipitous decline to 1950’s price/income ratio would collapse the market, the broader economy, and the government. Therefore, the government is compelled to support an environment whereby prices perpetually climb at an optimal rate. Unfortunately, that makes homes progressively less affordable for single individuals who earn no more than a state’s median income. The system simultaneously prevents them from buying median-priced homes, the mechanism past generations relied on to accumulate wealth over their lifetimes. That has consequences: it depresses household formation and the fertility rate; it impacts GDP growth, the incidence of mental illness, the drug abuse rate, and life expectancy. It stands to reason that if the arid West could be gradually provided with enough water to support an economy (and density) akin to the moist East, people would more evenly disperse throughout the country. That would shift the demand for housing in the moist East to the arid West and eventually stabilize median prices. The key therefore is to materialize water in the western half of the country, and for that we’ll need hydrogen –lots and lots of it.