Why 'manufacturing' growth on borrowed capital is not sustainable

Global debt now stands at a staggering $200 trillion (28 per cent of global annual produce), an increase of $57 trillion since 2008 when spiraling debt burden led to an unprecedented financial crisis. Ever since the financial crisis—when the world was forced to gulp the unpalatable truth that fancied financial engineering wherein risky mortgages were sliced and resold, riding on the misplaced hope that realty prices will keep surging and rake in gravity defying returns—rising debt level continued to ring alarm bells. Eurozone sovereign debt crisis and the mounting debt in emerging markets are just a couple of sour examples.

For 30 years since early 1950s, global financial markets enjoyed a relatively stable run. Then from early 1980s, debt started surging and spotted larger spikes in mid-1980s and late 1990s. Over the last 30 years, global debt has rocketed not only in absolute terms but clearly outpaced economic expansion over that period.

While some developed markets such as the US and the UK showed signs of the pace of debt surge slowing down of late, spike in debt in emerging markets nullified it. Of the close to $57 trillion rise since the financial crisis, government debt accounted for a significant share as countries has tried to revamp economies following the near collapse during the financial crisis. Corporate debt too spiraled more than 63 per cent, mostly in emerging markets.

In fact , the increasing number of corporate defaults reflects the unhealthy stature of the overall global debt situation—more than 100 global firm defaulted in 2015 alone (US companies accounted more than 60 defaults), the second greatest tally in more than a decade, lagging behind more than 200 defaults seen in 2009, as per data compiled by Standard & Poor’s.

Emerging market borrowers accounted for close to 20 defaults and Europe represented more than 15 while other developed countries including Japan and Canada shared the rest. Since early 2007, the proportion of corporate bonds rated as junk or speculative-grade by S&P rose to  over 50 per cent from 40 per cent.

The mounting number of defaults is a clear indication that firms across the globe are facing a sluggish operating environment, falling revenues and surging debt burden.

A sharp decline in oil and commodity prices has also exacerbated the problem by hurting the fortunes of energy producing firms, as OPEC countries continue to dump oil in an effort to retain market share.

In fact, the increasing debt in emerging markets compelled analysts at Goldman Sachs to speculate about a ‘third wave’ of the financial crisis that raised its ugly head in 2008.

Economic growth is seen as crucial for lifting living standards, snapping poverty and solve multitude of problems faced by indebted people, corporate and countries. Economics across the globe cite strong economic growth as panacea for financial and political ill-health and also assume that governments and central bankers can kind of prod economies to turn healthy and record impressive growth.

However, the key to this assumption is the premise that strong growth is ‘normal’ and that companies and countries can keep on fuelling growth year after year. However, a crucial missing element in the whole game is the fact that in modern times economic activity and wealth creation significantly reply on borrowed money and speculation. Another folly nursed by advocates of perennial growth is that natural resources such as oil, water and soil can be plundered to fuel economic growth and that unsustainable degradation of the environment is not a sin if it is done under the garb of ‘manufacturing’ growth.

A key conundrum integral to the assumption of ever rising growth triggered by debt is that borrowed money is used to purchase something against the promise of paying back in the future. Cheap capital enables spending which would otherwise have been spread across a long period of time to be condensed to a short period. When demand slows down, the ability of businesses to generate excess cash-flows through increased sales diminishes, leading to debt and interest pile-up and landing them in trouble.

Contrary to what debt advocates make us believe, the precondition that debt will have to be repaid out of future income or proceeds of asset sales actually drags down growth. The idea of sacrificing future for short-term gains now is also unrealistic in a world where resources are limited. For instance, arable land available globally has remained almost constant at 3.4 billion acres over the last decade. Humans’ unrealistic desire for engineering extra growth by borrowing and amassing debt is also adds to the burden on Earth and its resources which is already battered by ever increasing global population. This leads to the question why humans continue to be foolish to sacrifice sustainable growth for unrealistic ‘virtual’ growth boosted by borrowed capital which is a recipe for an eventual financial collapse. 

Are economists good investors?

When asked about their personal investment portfolio at a conference organised by Boston University’s School of Management a few years ago, three Nobel prize winning economists—Robert C Merton, Paul A Samuelson and Robert Solow—gave divergent answers. Harvard economist Merton, who won the Nobel Prize in economics in 1997 for his study of stock options, said the bulk of his portfolio was in a global index fund and inflation-protected securities and a hedge fund. He said he also invested in a commercial real estate fund, but dropped when its value rose too quickly.

Asked about his views on timing investments, Samuelson, one of the pre-eminent American economists of the 20th century and the sole winner of the 1970 Nobel in economic sciences, said:  “History teaches no lessons,” adding, “You don’t know when to get in” (Samuelson, who taught economics for many years at Massachusetts Institute of Technology, became the first American to win the Nobel in economics for raising the level of scientific analysis in economic theory).

However, queried about his personal investments and asset allocation, Robert Solow, who like Samuelson, taught economics for many years at MIT and won the Nobel in 1987 mostly for his work on the theory of economic growth that culminated in the exogenous growth model named after him, gave the most startling answer, saying he had no idea what was in his portfolio. “I just never paid any attention,” he said, adding, “That’s because I don’t care. And I’m lucky to have a wife who doesn’t care.”

These divergent responses point to something interesting—when it comes to investing economists do not necessarily have access to tools or approaches that average investors don’t have and that insights into economics or finance don’t easily help them come up with market-beating investment performance.

In order to understand if economists excel as investors, it is better to turn the question on its head and see how many among the legendary investors in history have been trained in economics—almost none. A random look at some of the best investors—Warren Buffett, George Soros, Peter Lynch, Jesse Livermore, John Neff, Thomas Rowe Price, Jr., John Templeton and Benjamin Graham—reveals that none of them have been known for their acumen in understanding economic theories and that their investment approaches have never been specifically dictated by economic theories.

While Buffett, who learned investment insights from Graham, relied on his core investment principles of discipline, patience and value that helped him emerge as arguably the best investor in history (those who invested $10,000 in his Berkshire Hathaway in 1965 are above the $50 million mark today), Soros adopted a more riskier approach of a short-term speculator, making huge bets on the directions of financial markets. While Neff’s preferred investment tactic involved investing in popular industries through indirect paths and focused on companies with low P/E ratios and strong dividend yields, Rowe Price viewed financial markets as cyclical and took to investing in good companies for the long term, which was virtually unheard of when he was an active investor. Similarly, while Graham, who is equally known as a financial educator as an investment manager, has been recognised as the father of two fundamental investment disciplines – security analysis and value investing, Templeton smartly diversified his portfolio by investing in different markets across the globe.

Interestingly the investment approach of none of these masters has born out of a closer understanding of economic sciences rather they relied on their own experience and understanding of the vagaries of the financial markets though most of them stood apart from typical investors—who embrace too much short-term risk to net quick returns and often are battered for the same—by adhering to value and growth investment, a clear long-term market perspective, a keen understanding of the cyclical nature of market and exercising the time-tested way of ‘buying low and selling high’ which to a great extend depends on timing the market.  

In fact, when it comes to investing, economists see a tussle between their macro training and practical wisdom and the challenge of how to adapt high finance to retail investing. Often, this struggle also puts them at odds with advice pushed by the personal finance industry. So whether to rely on hard-learnt macro-economic principles or tips from the portfolio manager can become a tough call to make. Depending on risk profile, what the investment manager at the mutual fund calls ‘passive’ may seem ‘aggressive’ to an economist and ‘focused’ may seem ‘diversified’

Most economists wouldn’t want to stack up against the herd and rather prefer to follow what they call life-cycle investing—a combination of maximising wealth and never taking a big hit in terms of lifestyle. Economists also don’t support brokerage firms’ approach of promoting investment products that lend them a hefty fee and selecting stocks based of strange algorithms.

Broadly, economists would be capable of long term forecast and not short and medium terms that drive stock markets. They also tend to believe in the efficient market theory and invest in market indexes and bonds. They are known to be conservative investors because they believe it is almost impossible to beat the market. 

Why the days of the petrol-driven cars are numbered

Rumours of Apple’s plans to launch an electric car gained credence last week after news reports said the technology firm recently registered several automobile-related internet domains, including apple.car and apple.auto, though it is yet to formally announce that it is working on a vehicle. The news on Apple’s possible entry into the automobile space came after The Wall Street Journal reported that Ford and Google are in talks to form a joint venture for launching autonomous driving cars and that the deal would see a new company created, in which Ford would develop software and systems for automotive components, while Google would focus on the master self-driving software, leveraging Ford’s strength in making cars and Google’s experience in putting together a self-driving fleet.

These developments hogged limelight against the backdrop of an ongoing search for an alternative to fossil fuels—essentially petrol, diesel, LPG and CNG—that are currently used to drive vehicles all around world. Fossil fuel has already proven be unsustainable given its huge impact on the environment and the fact that Earth’s atmosphere is fast depleting due to carbon emissions. So the question is: What’s next?

When it comes to alternatives, there have been two camps advocating different approaches.  On the one side is a bunch of behemoths in car making: Japanese giant Toyota; its domestic rival Honda; and their Asian neighbour Hyundai, which are betting big on hydrogen fuel cell vehicles, popularly known as fuel cell electric vehicle (FCEV). On the other side are those cite electric vehicles (EVs) as a sustainable and scalable alternative and who is convinced that vehicles powered by batteries represent the future, led by tech visionary and chief of electric vehicle maker Tesla and Nissan boss Carlos Ghosn who have been betting on lithium-ion batteries.

Hydrogen fuel cells were invented in the 1880s; they work by mixing outside air with the hydrogen they carry in pressurised tanks where electricity is created in a chemical reaction, with the only waste product being water. This electricity is used to charge a battery or drive electric motors to power the car.

Toyota has already spent billions into research to manufacture Mirai, its first car powered by a hydrogen fuel cell. Hyundai’s ix35 and the Honda Clarity are also on the road.
Hydrogen’s edge is that as a fuel it is similar to petrol in the sense that it takes a few minutes to fill a tank. It also offers a long range—Mirai runs 350 kms on a single charging. Long range is the major advantage of FCEVs over EVs despite their size and weight—Mirai is nearly 5 metres (16 feet) long and weighs more than two tones.

However, fuel cells have a problem—they are very costly, though with Mirai, a family-sized car, Toyota has managed to bring the price down to around $60,000. Developing the infrastructure to support hydrogen—creating enough gas, transporting it and building a network of filling stations—is also a huge task.

Storing enough alternative fuel onboard to give the car the kind of range consumers expect without compromising passenger or cargo space is also a challenge.  There are also concerns as to how safe hydrogen as a fuel is.

Despite the challenges, Toyota plans to deliver more than 30,000 FCEVs within five years. This would involve networks of hydrogen filling stations which can generate the gas through renewable power such as wind turbines.

Germany plans to build a network of 500 hydrogen filling stations, pointing to the possibility that infrastructure to support hydrogen-powered vehicles can be built once a critical mass of FCEVs are on the road.

However, the wait for mass-produced FCEVs can be really long—just 700 Mirai units will be made this year; if you order one now, it may not arrive before end of 2018.

In contrast, EVs are much more accessible—if you want a battery car, there is much more choice and it is cheaper compared with an FCEV.
However, there are hiccups—EVs powered by batteries have shorter ranges and charging them takes longer—as long as an hour—though introducing the infrastructure to support battery charging less challenging than that for FCEVs.

However, the delay is getting EVs charged is being addressed and many EVs now sport comparatively lesser charging time—for instance, Nissan’s Leaf needs less than 30 minutes to get fully charged. Also, unlike home electricity supply (which runs on 110 or 240 volts AC), quick charging stations supply 500 volts DC at a much higher current of 125 amps. Prices of EVs are also falling—you can get the Leaf for around $26,000 now.

Resultantly, EVs are gaining momentum. Last year, BMW launched i3. Renault's Zoe model offers a more affordable option. Mercedes and Volkswagen, besides Ford, are following suit their own battery electric vehicles. This is in addition to Tesla S, the most expensive and luxurious battery car so far. The Tesla also has a range of more than 400 km on one charge. Besides there more ambitious EV manufacturing startups, including China-based NextEV, which recently roped in former Cisco CTO, and US-based, Chinese-backed Faraday Future which is investing more than $1 billion to set up its manufacturing facility for EVs.

While the debate over FCEVs versus EVs is likely to continue till technology and innovation make the answer clearer, a mix of both technologies would provide a feasible alternative to gasoline—use battery range to start and then rely on hydrogen range for the long haul.

Beyond the nitty-gritty of which of the two alternatives holds an edge, the more encouraging fact is that use of fossil fuel to drive vehicles is increasingly seen as unsustainable. As countries world over are coming to grips with the perils of global warming, it appears that the days of gasoline-driven vehicles—a major contributor of carbon emission—are numbered. 

Why tech-savvy manipulators can take the market for granted

The recent incident where the Syrian Electronic Army (SEA) hacked AP’s Twitter account and posted fake tweets reporting explosions in the White House and the injury of President Barack Obama, leading to a 1 per cent fall in US financial markets, points to the fact that shrewd manipulators, aided by technology, can ‘manufacture’ news and make gains from the market’s inability to immediately ascertain if a piece of news is authentic or fraudulent.

There can be many reasons why the financial market is inherently weak when it comes to countering such vulnerabilities. For one, the market is not known to be god at ascertaining truth. On the other hand, it has immense faith in the wisdom of the majority. Therefore, if the majority reacts to a piece of news in a certain way, irrespective of whether it is valid or faked, then their perspective, or the lack of it, is seen as the market’s  perspective. The reason is simple: for most investors it is easy to ‘follow the herd’ than spending time and effort to ascertain the veracity of news and information when it comes to making investment decisions. Legendary investor Benjamin Graham and his more illustrious disciple Warren Buffett have warned against the herd mentality which has over and over again proved to be a real chink in armor of even those investors who claimed to be systematic and disciplined. But why most investors tend to be part of the herd and react to a piece of news or event irrationally despite possibly knowing that it is not the right thing to do?

The efficient market theory says that the decisions of the well-informed buyers and sellers lead to fair prices. But if the theory is true, then stocks are always fairly priced and it makes as much sense to by them when they are trading at 30 times their earnings as when they are trading at three times. Obviously there are some gaps in the theory. Behavioral finance tends to offer a clue as to why humans possess ample traits that prevent rational stock market behavior and prominent among these traits are greed and fear (existence of casinos means humans are not rational about money), vanity (this forces investors to hold on to their picks even when stocks keep going down) and an unfounded respect for the majority’s whims (most investors believe the market, or herd, is always right while the truth may be other way around).

Stock prices are nothing but the present value of expected future earnings and the present has already been discounted by the market six or 12 months ago. This points to a certain correlation between an event and the time the market takes to react to it. Therefore, if a technologically innovative market manipulator, using a fast algorithm, can get insights into emerging events before others; hack into news sources, and post flashes that can potentially push the market up or pull it down; he/she can make gains during the intervening time when the market—which is nothing but the collective wisdom of the majority—tries to figure out the veracity of the information.

Fourth industrial revolution: A boon or peril for India?

The recent World Economic Forum (WEF) in Davos was noted for creating a buzz around ‘Fourth Industrial Revolution (FIR)’, which was defined by WEF founder and executive chairman Klaus Schwab as a “technological revolution that will fundamentally alter the way humans live, work and relate to one another”.

The first industrial revolution started in England towards the end of the 18th century with use of steam power and revamping of the textile industry through mechanisation. The second revolution began a century later and culminated in early 20th century; it was driven by electricity and a cluster of inventions including the internal combustion engine, the aeroplane and moving pictures. The third industrial revolution, which was started in early 1970s, was basically digital in nature—it involved application of electronics and information technology to enhance production, and centred around concepts such as mass customisation and additive manufacturing (for instance, 3D printing) whose applications are yet to be explored fully.  

The fourth industrial revolution is seen as an upgrade on the third one and is noted for a mix of technologies across biological, physical and digital worlds.

Nicholas Davis, head of Society and Innovation at the World Economic Forum, has defined the fourth revolution as the advent of “cyber-physical systems which represent entirely new ways in which technology becomes embedded within societies and even our human bodies”.

In a WEF paper, Davis has spotted genome editing, new forms of machine intelligence, and breakthrough approaches to governance that rely on cryptographic methods such as blockchain, as the early signs of the advent of the fourth revolution.

While the fourth revolution will help lift incomes and improve lives, and lead to long-term gains in efficiency and productivity, it will also pose formidable challenges.

As the world moved on to succeeding industrial revolutions, the impact of disruptions became increasingly profound. For example, the music industry turned upside down with the Apple iPod. Going by this logic, FIR will usher in the most unpredictable disruptions. For example, the smartphone industry could be erased by the next big thing in technology about which even predictions are next to impossible.

Going by the device and product cycles that are increasingly getting shortened, even FIR can prove to be short-lived with the ‘fifth industrial revolution’ making inroads before the so-called technology pundits start predicting the same.

According to MIT Sloan School of Management economists Erik Brynjolfsson and Andrew McAfee, the revolution is likely to increase inequality in the world as the spread of machines increases unemployment and disrupts labour markets.

According to Schwab, “in the future, talent, more than capital, will represent the critical factor of production, giving rise to a job market increasingly segregated into low-skill/low-pay and high-skill/high-pay segments, which in turn will lead to an increase in social tensions”.

This was highlighted by Swiss bank UBS in a report launched at Davos that said, ”There will be a “polarisation of the labour force as low-skill jobs continue to be automated and this trend increasingly spreads to middle class jobs.”

Just to elaborate, while driverless cars will lead to an increase in demand for smart coders who can make such cars ply the roads in different parts of the world safely, it will make drivers obsolete, leading to huge job losses.

Loss of low-end jobs is where India, which is known for a very large low-skilled or unskilled youth population, is likely to face severe challenges.

In India, where more than 60 per cent of population still don’t have access to basic amenities, lack potable water and toilets, live in one-room huts with no electricity and  is exposed to all sorts of pollution, FIR can further unsettle the social fabric, with the rich getting even more richer and the poor becoming more doomed.

The country, which still relies a lot on the agricultural sector for a major chunk of its GDP, already faces several crises in farming that include lack of labour, low prices of produce, shortage of water and poor soil.

As FIR catches up, newer agricultural  methods, including precision land-based farming or container agriculture, powered by solar energy and other renewable energy systems, are set to revolutionise the way farming is done, making it efficient, high yielding and remunerative.

Container-based farming, which is fast gaining momentum in developed world, can help grow any agricultural produce, including fruits,  grain and vegetables with the use of precise levels of light, temperature, humidity and nutrients which are precisely monitored and controlled by smart sensors and computers.

While these new methods will significantly enhance productivity, they (based on the principle of hydroponics or aeroponics) will hugely hurt farmers’ income as these methods would require only a few labourers, very little soil and water.

After having seen the immerse perils of being left behind in the first three industrial revolutions, India cannot afford to be a laggard as FIR unravels. However, how to ensure parity among the rich and the poor when it comes to income creation will continue to be a tough nut to crack.   

Why US, China and EU together can save planet Earth

Copenhagen summit on climate control in 2009 came a cropper after the US, China, the EU and other countries failed to sign a legally binding pact, enforcing themselves to agree to a successor to the Kyoto Protocol, whose validity ended in 2012. Six years later, countries from across the globe are meeting again in Paris in December this year for the UN climate summit to formulate a legally binding agreement that set specific time frame for top polluting countries to cut carbon emissions. While country heads miserably failed to show responsible leadership traits at Copenhagen, leaders of the world’s biggest economies will get another opportunity to initiate responsible action and the change the course of history which can otherwise turn catastrophic in the near future as global warming has already transitioned from a rhetoric of doomsday mongering environmentalists to a real life-or-death question for the humanity.

There are some positive signs that world leaders are likely to exhibit more shades of prudence this time. The US and China, the world’s biggest polluters, began tackling climate change together when they announced an agreement last November to curb carbon emissions. While the US promised to double the speed at which it will reduce carbon emissions, aiming for a 26-to-28 per cent reduction by 2025 from 2005 levels, China agreed to peak emissions by around 2030. Also, recently, China and India issued a joint statement on climate change, promising to submit plans carbon targets before the Paris conference. These gestures assume significance as such joint statements were unthinkable six years ago. Now climate science is forcing country heads to look at global warming more seriously. So what is the science behind environmentalists’ alarm signals on global warming?

Since the beginning of human civilisation, the atmosphere contained about 275 ppm of carbon dioxide, one of the most heat trapping gases (ppm stands for ‘parts per million’, which is a way of measuring the ratio of carbon dioxide molecules to other molecules in the atmosphere). A few hundred years ago, as humans began to burn coal, gas, and oil to produce energy and goods, the amount of carbon in the atmosphere began to rise. Most human activities like cooking food, heating homes and turning the lights on rely on energy sources that emit carbon dioxide and other heat-trapping gases and in the process humans are releasing into the atmosphere millions of years worth of carbon, once stored beneath the earth as fossil fuel. The carbon dioxide levels in the atmosphere currently stand at 400 ppm and humans are adding 2 ppm of carbon dioxide to the atmosphere every year.

Climatologists say if humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted, carbon dioxide levels in the atmosphere needs to be reduced from 400 ppm currently to 350 ppm—the carbon dioxide level scientists say is ‘safe’ for humanity survival on planet Earth. If we don’t rapidly turn the maddening carbon dioxide addition around and return to below 350 ppm level, we risk triggering tipping points and irreversible impacts that could send climate change spinning truly beyond our control, climatologists warn.

China, the US, the EU, India, Russia, Japan are topping the list of countries with maximum CO2 emissions; while China's CO2 emissions were estimated around 10 billion tonnes in 2012, that of the US was more than 5 billion tonnes and EU more than 4 billion tones. India’s contribution was roughly one-third of China's and half of the US’.      

Between 1850 and 2012, the US and Europe produced 45 per cent of greenhouse gases currently in the atmosphere, compared to 18 per cent from China and India, according Climate Analytics, a non-profit organisation. However, it is estimated that by 2020, China alone will produce 24 per cent of global greenhouse gas emissions, the US 13 per cent and the EU 8 per cent and India 7 per cent. So mathematically China, the US, the EU along with India can play a large part in shaping the future of the planet by reducing carbon emissions.

While the US’ emissions are less than China’s, its per-capita emissions are three times that of China and 10 times India’s. Therefore, if the US wants to persuade China, the EU and India to reduce CO2 emissions, it must lead the way by switching to low-carbon energy sources. India (along with China) fears that radical action on greenhouse gas emissions will hamper economic growth at a time when poverty reduction remains a key priority.

However, considering the larger threats that climate change poses—for instance, enhanced melting of Himalayan glaciers and increased coastal flooding due to warming; rising temperatures making water security a crucial concern with significant ramifications on already strained India-Pakistan relations, etc—it makes sense for India too to join the growing ‘save Earth’ chorus.

However, what India can do would make sense only when the top three polluting countries—China, the US, the EU—make a determined effort to set an example by snip their carbon footprint. So will these countries show responsibility at the upcoming UN climate change summit in Paris—which could be the world’s last big opportunity to regain sanity and stop abusing planet Earth’s delicate atmosphere—to take lead and positively change the course of human history from a possible catastrophic end to sustenance and balance?

The world is watching.

Climate change: Obama and the art of creating a legacy

In June when President Barack Obama used his executive power—bypassing the Congress—to order a regulation forcing American coal-fired power plants to cut carbon emissions, his admires hailed it as an aberration. However, giving credence to his foes’ accusation that he has been devising ways to work around congressional opposition against a clutch of controversial issues, now his administration is reportedly working on an international pact that will seek countries to reduce fossil fuel emissions. The pact, which is aimed to be signed at a United Nations summit next year, is expected to again bypass ratification by the Congress that involves a two-thirds vote from the Senate, setting the stage for another showdown between the President and the Congress. Obama is free to sign such pacts with his foreign counterparts but those agreements will neither change the behavior of Americans nor lead to a fall in carbon emissions by the country unless the Congress passes a related law.

So why is Obama pressing for something that is unlikely to be made into a law? First, as his stint at White House is winding down, Obama wants to leave a legacy as a president who has made an earnest attempt to do what he could to address climate change, arguably the most imminent threat that is challenging the very survival of humans and other species on Planet Earth. Based on the perception that climate change cannot be addressed without collective initiatives by countries across the globe, he is aiming to forge a ‘political agreement’ that will encourage other countries, mainly China, to follow suit. Second, the failure of world leaders in Copenhagen in 2009 to forge a new legally binding treaty to replace the 1997 Kyoto Protocol is fresh in the memory of Obama administration’s climate change negotiators and they don’t want to take chances going ahead. As the chances for a legally binding pact to force reduction of carbon emissions are fairly remote, they feel that this is the only ‘realistic’ way.

Will Obama succeed in pushing this pact through? Technically yes. Section 115 of the Clean Air Act—which states that if air pollutants emitted within US states are found to “cause or contribute” to the endangerment of public health or welfare in another country, the Environmental Protection Agency (EPA) can require the governors of those states to reduce the emissions of  the harmful chemicals—alone is more than enough for the safe passage of the pact.

Also, there ample precedents that point to the fact that Obama will not only be able to push through what he wants without sweating much but this may even be hailed as his best strategic move on the world stage by a future generation of fans in different countries. In 1975, Gerald Ford signed the Helsinki Accords that required the US and European countries to recognise the territorial boundaries of the Soviet Union and the Soviet bloc to respect human rights. The accords elicited hostile reactions back at home at the time, but historians believe that they reduced Cold War tensions and offered some space for dissidents in communist states to express their views and get away with them. The Roosevelt (1933) and the Carter (1981) administrations too went ahead circumventing the Congress for settling claims with the Soviet Union and Iran, respectively, and eventually won backing by the courts for doing so.
 
As scientists warn that the earth has started experiencing the effects of human-caused global warming—devastating storms, rising sea levels, stronger wildfires and severe droughts—and the UN is running out of its chances to help thwart catastrophic climate-change related repercussions, Obama is likely to be exonerated for bypassing the Congress for what he can claim to be a larger common good.