Tuesday, June 19, 2007

Using the Fed to Lower Launch Costs...?

One of the oft-heard metrics amongst the space-development crowd is that if we could only lower the cost of launch to under $1000 per lb to orbit, as opposed to the $10,000 per pound that the hideously expensive shuttle charges, new markets would be enabled. There may be a bigger problem to consider....

Consider these bits of monetary trivia:

• The US Dollar has lost considerable amounts of inherent value through devaluation (some might argue outright debasement) of the currency as larger amounts of liquidity are pumped into the marketplace.

• The US government, through the Fed (which is actually a private bank, but that's another matter best left for other blogs and other websites to discuss), has borrowed extremely large amounts of money to finance expenditures on everything from Defense to Welfare, in order to support the shortfall in revenues that exists between the taxes collected and the $ spent on programs.

• The Euro, and most other major world currencies, have surged against the US Dollar over the past 7 years. Here in Australia, when I arrived in 2002, the exchange rate was US$0.62 to the Aussie Dollar - now it's US$0.83 and climbing...

• The Dow is *not* at an all-time high. Inflation adjusted, the Dow actually has to hit over 16,000 just to reach it's highs from the past 15 years. Think about that.

• Last year, Linda Goldberg, a vice president and head of the International Research area at the New York Fed, spoke about how in today's global economic environment, dollar depreciations have asymmetric impacts on exports relative to imports. She argued that the wide use of the dollar as the invoicing currency in international trade transactions affects how exchange rate movements influence traded goods prices in different countries and trade balance adjustments. In her analysis, substantial dollar depreciation did not provide much relief for U.S. producers competing with importers; however, markets for U.S. exports could really grow.

• Dollar depreciation reduces activities in upstream through different channels including increased cost, higher inflation rates, lower purchasing power, and lower return on investment.

So what does all this mean?

A couple of things come to mind (but these are not the only likely outcomes - i would be interested in your thoughts on other implications of these macroeconomic forces...)

1) Unless the US manufacturers are raising prices, the true international cost of a US made rocket or satellite should be getting significantly more competitive against their competitors (e.g., Delta II relative price should have dropped by 20-30% against the European equivalent)*

2) The cost of international launches should be getting more expensive in US dollar terms for purchasers of launch services*

3) The "true" cost of a Shuttle launch, in international terms, appears to have dropped by almost 35% since 2000, but then we all know how squirrelly NASA accounting can be...

Finally, as the US financial base gets more strained from increased liabilities (social security, medicare, ongoing wars, etc) and difficulty in obtaining future deficit financing (because of the dangers of raising interest rates - required to make the US debt offerings attractive to foreign buyers, but avoided by the Fed because of the impact it would have on the US domestic economy by punishing all of those mortgage holders who have Adjustable Rate Mortgages (ARMs)...), the ability to fund discretionary expenditures such as a trip to the Moon or Mars will become a harder and harder sell in an era of forced austerity.

* note - this all assumes, of course, no currency hedging has been done by the companies in these industries.


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