I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.- Thomas Jefferson.

debt clock

Wednesday, June 30, 2010

Time to shut down the US Federal Reserve?

by Ambrose Evans-Pritchard

Like a mad aunt, the Fed is slowly losing its marbles.

Kartik Athreya, senior economist for the Richmond Fed, has written a paper condemning economic bloggers as chronically stupid and a threat to public order. ed note (mea culpa, cg)

Matters of economic policy should be reserved to a priesthood with the correct post-doctoral credentials, which would of course have excluded David Hume, Adam Smith, and arguably John Maynard Keynes (a mathematics graduate, with a tripos foray in moral sciences).

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14 Reasons Why The U.S. Government Will Never Have A Balanced Budget Ever Again

The United States government will never have another balanced budget again. Yes, you read that correctly. U.S. government finances have now reached a critical "tipping point" and things are going to spin wildly out of control from this time forward. Why? Spending on entitlement programs and interest on the national debt are now accelerating at exponential rates. Some time around 2020 they will eat up every single dollar of federal revenue that is brought in before a penny is spent on anything else. Of course the solution to all of this would be to radically cut entitlement programs, but no U.S. politician in his or her right mind would do that. After all, do you think elderly people (who vote in droves by the way) would vote for you after you just cut their Social Security checks in half? That is not the way the world works. You see, democracies always get into trouble once the people realize that they can vote for the candidates that promise them the largest gifts out of the public treasury. That is where the United States is at now. Over 100 million Americans now receive direct payments from the United States government. For millions of Americans, the American Dream now means getting a government check and kicking back and enjoying life. We have become a nation that is chock full of people that can't take care of themselves and that are totally dependent on the monolithic nanny state that the U.S. government has created.
Are there really 100 million Americans that cannot take care of themselves?

Of course not.

The welfare state has gotten wildly out of control and now we are drowning in an ocean of red ink because of it.

In fact, unless the underlying laws for the entitlement programs are rewritten and unless benefits are cut to the bone, it will be mathematically impossible for the U.S. government to balance the federal budget from this time forward.

You are skeptical of that claim?

The following are 14 reasons why the U.S. government will never have a balanced budget ever again....

#1) Right now, interest on the U.S. national debt and spending on entitlement programs like Social Security and Medicare are somewhere in the neighborhood of 10 to 15 percent of GDP. By 2080, they are projected to eat up approximately 50 percent of GDP.

#2) Approximately 57 percent of Barack Obama's 3.8 trillion dollar budget for 2011 consists of direct payments to individual Americans or is money that is spent on their behalf.

#3) Nearly 51 million Americans received $672 billion in Social Security benefits in 2009. That number is projected to grow substantially in years ahead as waves of Baby Boomers begin to retire.

#4) According to the Congressional Budget Office, in 2010 the Social Security system will pay out more in benefits than it receives in payroll taxes. That was not supposed to happen until at least 2016.

#5) Back in 1950 each retiree's Social Security benefit was paid for by 16 workers. Today, each retiree's Social Security benefit is paid for by approximately 3.3 workers. By 2025 it is projected that there will be approximately two workers for each retiree.
#6) The U.S. government "borrowed" 2.5 trillion dollars from the Social Security Trust Fund, and now it turns out that the Social Security system is going to start needing that money. So where will the U.S. government get an extra 2.5 trillion dollars?

#7) Over 40 million Americans are now on food stamps and the U.S. Department of Agriculture is projecting that more than 43 million Americans will be on food stamps by the end of 2011.

#8) Entitlement programs are not subject to budget freezes or budget cuts - unless Congress changes the underlying laws.

#9) The lobbies for those receiving entitlement payments are extremely powerful. That is why so few politicians will ever even mention the possibility of cutting Social Security payments. Old people vote in high numbers, and cutting their benefits would really piss them off.

#10) Interest on the U.S. national debt now makes up 7% of the budget and it is climbing rapidly. This is an expense that must be paid or else U.S. government finances collapse.

#11) According to the Tax Foundation’s Microsimulation Model, to erase the U.S. budget deficit for 2010, the U.S. Congress would have to multiply the tax rate for every American by 2.4. That would mean that the 10 percent tax rate would become 24 percent, the 15 percent tax rate would become 36 percent, and the 35 percent tax rate would have to be 85 percent. Keep in mind that this is before unemployment taxes, Social Security taxes and state taxes are paid. Do you think any American would ever put up with a federal income tax rate of 85 percent?

#12) According to an official U.S. government report, rapidly growing interest costs on the U.S. national debt together with spending on major entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every dollar of federal revenue by the year 2019. That is before one penny is spent on anything else. As the U.S. government graph below reveals, the financial picture only gets more bleak in the years beyond that....

#13) The present value of projected scheduled benefits exceeds earmarked revenues for entitlement programs such as Social Security and Medicare by about 46 trillion dollars over the next 75 years. So that means that the U.S government is going to have to find an extra 46 trillion dollars from somewhere to pay all those benefits.

#14) The vast majority of the American people have become soft and don't know how to take care of themselves any longer. We now have millions upon millions of people who are totally dependent on the U.S. government for survival. As the government takes care of more and more people the red ink will increasingly get worse. At what point will it cause U.S. government finances to totally collapse?

Needless to say, the U.S. government is facing a financial crisis that is absolutely unprecedented in U.S. history. There is no way out of this mess that does not involve a massive amount of economic pain.

As of June 1st, the U.S. National Debt was $13,050,826,460,886.97. But as you can see from the data above, things are about to get a lot worse.

We are heading into a financial black hole that will literally rip apart this nation if something is not done right now to fix things. But the folks down in Washington D.C. don't seem the least bit interested in fixing things. In fact, about the only thing they seem determined to do is to spend even more money and get us into even more debt.

The course we are on now can only end badly. Hopefully our representatives in Washington D.C. will wake up while there is still time. If not, the tsunami of red ink that is headed our way will devastate all of our lives.

Tuesday, June 29, 2010

BIS, gold, silver, banks

I have a number of Banking, Gold and silver links for you today, at least one of which I may have sent before, and I'm reprinting an entire short article reviewing the latest Bank of International Settlements report, which is germaine to the current G-20 meetings. There is a thread in these links all running throught the BIS. As a side note, I almost invested in BIS, a long time ago, I probably should have. As for now, investing in banks seems dangerous, but if you were ot pick one, BIS might not be a bad choice. Maybe a pair trade, long BIS/short (GS, JPM, BA, etc.)


Eric King
The very fabric and the seams of the financial system are coming apart. Who knows what the timetable is for the implosion of the current monetary system? We are witnessing the greatest wealth transfer in history, and the horrors of the aftermath of this tragedy will not be forgotten for decades. Keep in mind that the stark warnings from today’s annual BIS (Bank for International Settlements) report are the very reason why it is so important for all readers globally to protect themselves and their families by owning gold.

June 28, 2010

This was from the annual report released today by the very secretive and extremely powerful BIS: “Three years after the onset of the crisis, expectations for recovery and reform are high but patience is wearing thin. Policymakers face a daunting legacy: the side effects of the ongoing financial and macroeconomic support measures, combined with the unresolved vulnerabilities of the financial sector, threaten to short-circuit the recovery; and the full suite of reforms necessary to improve the resilience of the financial system has yet to be completed.”

The BIS release continues: “When the transatlantic financial crisis began nearly three years ago, policymakers responded with emergency room treatment and strong medicine: large doses of direct support to the financial system, low interest rates, vastly expanded central bank balance sheets and massive fiscal stimulus. But such powerful measures have strong side effects, and their dangers are beginning to become apparent.”

“Here are the worst problems arising now from the continued use of the extraordinary programmes: Direct support is delaying vital post-crisis adjustment and runs the risk of creating zombie financial and non-financial firms. Low interest rates at the centre of the global economy are discouraging needed reductions in leverage, thereby adding to the distortions in the financial system and creating problems elsewhere.”

“The sustained bloat in their balance sheets means that central banks still dominate some segments of financial markets, thereby distorting the pricing of some important bonds and loans, discouraging necessary market-making by private individuals and institutions, and increasing moral hazard by making it clear that there is a buyer of last resort for some instruments. And the fiscal stimulus is spawning high and growing government debt that, in a number of countries, is now clearly on an unsustainable path.”

The first section of the BIS report concludes: “The financial disruptions in the first half of 2010 have brought the fragility of the industrial world’s financial system into stark relief: a shock of virtually any size risks a replay of the events we saw in late 2008 and early 2009. The sovereign debt crisis in Greece is clearly jeopardising Europe’s nascent recovery from the deep recession brought on by the earlier crisis.”
“Unlike then, however, we have hardly any room for manoeuvre. Policy rates are already at zero and central bank balance sheets are bloated. Although private sector debt has started to decline, public debt has taken its place, with sovereign fiscal positions already on an unsustainable path in a number of countries. In short, macro-economic policy is in a vastly worse position than it was three years ago, with little capacity to combat a new crisis – it will be difficult to find a source of further treatment should another emergency arise. Regaining the ability to react to economic and financial crises, by putting policies onto sustainable paths, is therefore a priority for macroeconomic policy"
Notice the BIS report describes zombie banks and even zombie non-financial firms. They also describe the “high and growing government debt” as clearly unsustainable. They then go on to note the fragility of the financial system and the fact that another shock would be extraordinarily dangerous to the system because central banks are losing the ability to maneuver as interest rates are low and “central banks balance sheets are bloated.”
Gold is often referred to as an insurance policy, and it is one insurance policy you cannot be without when the financial system ultimately implodes. You must own gold to be on the right side of the greatest wealth transfer in history.



In his obscure academic paper published in the June 1988 issue of The Journal of Political Economy, then-Harvard Professor Lawrence H. Summers, eventually to become U.S. Treasury secretary and presidential economics adviser, explained the inverse relationship between gold and real interest rates and implied that government could control the latter if it could control the former:


In recent and much shorter essays the financial writers Adrian Ash of Bullion Vault and Andrew Mickey of Q1 Publishing have elaborated a lot more understandably on the relationship between interest rates and gold.

Mickey's essay is headlined "Bernanke's Bind: One Chart Reveals Gold's Next Move" and you can find it at GoldSeek here:


Ash's essay is headlined "What The Economist Doesn't Know About Gold" and you can find it at Bullion Vault here:


Both conclude that as long as the real rate of interest is being destroyed and government currency devalued, the direction of the gold price has to be up. GATA would put an asterisk on that conclusion, to the effect that gold's rise will be tempered by central bank gold dishoarding and backstopping of bullion bank gold paper sales; but the more that people buy and take delivery of real metal rather than bullion bank paper, the faster the gold price will rise.

Central Banks Should Weigh Ending Stimulus to Avoid Side Effects, BIS Says


Dear Friend of GATA and Gold:

Thanks to our friend W.G. for pointing out a fascinating article written for Harper's magazine in November 1983 about the Bank for International Settlements by the veteran journalist Edward Jay Epstein, who seems to have been given unusual access to top BIS officials. Epstein's article shows the BIS running the world financial system almost entirely in secret and, in the process, frequently intervening in the gold market or making gold available to arbitrageurs as part of a general system of currency market regulation -- and swapping gold particularly as part of a policy of supporting the U.S. dollar.

Of course this was 27 years ago and the BIS couldn't possibly be part of such things anymore, could it? After all, Kitco senior market analyst Jon Nadler says central banks have no motive to manipulate the gold market, and CPM Group executive Jeff Christian says central bankers hardly ever think about gold. (That would explain why they have chosen him as their gold consultant.)

Epstein's article is headlined "Ruling the World of Money" and you can find it in the archive of his Internet site here:

And finally, out on the fringe-

Melt The Witch...swap all your Gold for SILVER!

Monday, June 28, 2010

Thursday, June 24, 2010

Homelessness and Real Estate overcapacity

I think I have found a solution to the homeless problem and the real estate problem. These economists are idiots, don't tear 'em down, fill 'em up w the homeless. Hasn't anyone else thought of this?

On another note, why are spending money fighting terrorists? By the same logic as below, terrorist activity- Bombing and property destruction anyway- would be good for the economy making the un-blown-up property more valuable and providing jobs in construction for the unemployed (those that are still alive.)


Economists consider tearing down homes to protect housing market

By Elizabeth Razzi

Saturday, June 12, 2010

Douglas Duncan, vice president and chief economist for Fannie Mae, raised a provocative idea at a recent meeting of real estate journalists in Austin: Some of the misconceived housing developments built during the boom years might have to be torn down because they don't make financial sense.

Duncan agreed with Stan Humphries, chief economist at Zillow.com, who warned that a "tremendous shadow inventory" of homes is poised to come on the market. That includes future foreclosures (due to negative equity and continued high unemployment), homes that will end up in foreclosure after failed loan modifications, and homes from what he calls "sideline sellers" who have been biding their time until the housing market improves. Humphries said home prices won't bottom out until the third quarter of this year, leading to "the second phase of the housing recession": below-normal price appreciation for several years. (The long-term appreciation norm is 3 to 5 percent per year.)

Said Duncan: "Some of that shadow inventory could have to be torn down. It was not economically viable when it was put in place." That includes some boom-time developments in California's Inland Empire and Central Florida. Duncan said people might find that the cost of sustaining their lifestyle in some developments -- including high transportation costs to far-away jobs -- is greater than the cost of the home. That could wipe out demand.

Who would pay for tear-downs? What would happen to the people who have hung on to their homes despite the foreclosures all around them? All are unanswered questions.

Economists are discussing the idea, but Duncan said he doesn't know of any policymakers considering it. "It's un-American to think about tearing down housing," he said. "But we have a long history of ghost towns."

Looking Behind the Saudi Gold Holdings Increase

Jeffrey Nichols
Published 6/23/2010

Gold prices continue to march higher, hitting a new all-time high near $1,265 this Monday morning in London trading before settling down to the $1,250 to $1260 area. Reportedly, the catalyst to higher gold prices was the revelation that Saudi Arabia's central bank, the Saudi Arabian Monetary Authority (SAMA) had made a sizable addition to its official gold holdings in early 2008 but only recently chose to report this metal in its official central bank reserve accounts.

According to the latest statistics published by the International Monetary Fund reporting the foreign exchange and official gold holdings of its member countries – and publicized last week by the World Gold Council, a pro-gold marketing association of many of the world's top gold mining companies – the Saudi Arabian Monetary Authority increased its gold holdings by nearly 180 tons in the first quarter of 2008 from 143 tons to its current reported level of 322.9 tons.

In a footnote to its first-quarter 2010 report, the Saudi monetary authority said that its "gold data have been modified from first quarter 2008 as a result of the adjustment of the SAMA's gold accounts." It seems likely from the available evidence that the Saudi's bought all of this gold in the first quarter of 2008 -- but chose not to publicize or report the purchase until now, instead holding the bullion in a "non-reserve" account or possibly by the Saudi Sovereign Wealth Fund on behalf of SAMA.

We have long held the view that some of the oil-rich nations might be buying gold on the sly through their sovereign wealth funds that do not necessarily report their investment holdings. Why did SAMA choose not to report its gold purchases until now? We can only guess it feared aggravating relations with the United States since the U.S. Treasury and the Federal Reserve view gold accumulation by foreign central banks as a threat to the dollar's international reserve status. But with a number of other central banks either buying gold outright or surreptitiously and with U.S. policymakers already on the defensive, the Saudi's may no longer feel quite so obliged to tow the U.S. line.

The Saudi news is reminiscent of China's announcement in April 2009 that it had purchased some 600 tons of gold over the prior six years, more than doubling its holdings from 454 tons to the current reported level of 1054 tons. The Chinese have not reported additional gold purchases since then.

However, we (like many other gold-market observers) believe China's central bank continues to buy more gold month after month but chooses not to report these additions so as not to boost the market price as such an announcement would likely do. We would not be surprised to learn that SAMA continues to buy as well, but like the Chinese, chooses not to report its ongoing purchases in order to minimize the upward price pressure resulting from its gold-buying program.

Regardless, SAMA's golden revelation confirms our view that central banks around the world are adopting an increasingly favorable view of gold ... as their concerns about the U.S. economy and the U.S. dollar's long-term purchasing power continue to mount.

Among the central banks that have announced gold purchases in the past year or so are Russia, Kazakhstan, India, Venezuela, the Philippines, Sri Lanka, and Mauritius ... and it is likely that a number of other counties, including China and possibly other Mideast oil-rich states, are buying quietly without publishing or reporting their purchases.

Importantly, central bank purchases are no small potatoes – and are already contributing to the yellow metal's continuing bull market run. Russia alone bought 117.6 tons last year and another 26.6 tons in this year's first quarter, while the Philippines purchased 9.6 tons and Kazakhstan 3.1 tons in the first three months of 2010.

Last year, the official sector (central banks and the IMF) reported net purchases of some 425 tons of gold. This came after two decades of net selling by the official sector of roughly 400 tons per year on average over the prior 20 years.

We think central banks as a group -- and a growing group, at that -- will continue building official gold reserves as a means of diversification and reducing exposure to U.S. dollar-related risks for years to come. This year, we conservatively expect that central banks as a group will buy -- and report -- some 150 to 300 tons -- and possibly much more counting unreported purchases.

A Look At Gibson's Paradox And Gold

by Jim Richter

As I write these words in late June, 2010, I note that gold went to an all-time nominal high against the dollar on June 21. However, even though we find ourselves in the worst financial crisis since the 1930s, gold has still not reached a REAL, inflation-adjusted high. Using the numbers given to us by the U.S. government, gold would have to reach a nominal price of about $2,400.00 per ounce to equal its January, 1980, high of about $850 per ounce. Other analysts, such as the noted John Williams, of Shadow Stats, contend that gold would have to reach a nominal high of about $7,595.31 per ounce in order to equal its 1980 high in real terms. Suffice it to say that there are some who think that gold should be a lot higher in price than it is at present.

In March, 2010, there were some fireworks at the CFTC hearings when Bill Murphy, President of GATA, revealed evidence of metals market manipulation which had been provided to him by Andrew Maguire, a London precious metals trader. Murphy's revelations set off an angry debate between those who believe that the gold and silver markets are highly manipulated and those who do not. I wrote an article in my newsletter about the CFTC revelations. I even got a few "nastygrams" after posting my article. Gold engenders strong feelings!

During the CFTC brouhaha, Jim Puplava, of the excellent Financial Sense website, hosted a debate between Mr. Murphy and Jeff Christian, of the CPM Group. During that debate, Mr. Christian argued against the manipulation theory. He even asserted that central banks think very little about gold. I will admit that I was surprised that he would say this. Quite frankly, central banks think a LOT about gold. In fact, after being net sellers of gold for many years, they have become net BUYERS of gold during recent months.Why would they BUY gold and store it in vaults if they did not think about it? Indeed, why would they own it at all?

It is not my purpose to re-kindle the hot tempers which erupted after the CFTC hearings. However,we do live in a world where all currencies are FIAT currencies. For this reason, I think that it is helpful to re-examine some of the reasons WHY a central bank might want to manipulate the price of gold. With that in mind, here are some pertinent parts of an article I wrote in October, 2008, in the aftermath of the Lehman Brothers collapse:

I write this newsletter in a non-academic style because I do not want my readers' eyes to glaze over after a minute's-worth of reading! Academic economic writers dress up economic concepts in "high-fallutin" language. The reader's mind shuts down. That which is simple is rendered impossible to understand! No wonder so many people think that economists are practitioners of some kind of occult art!

Having issued the foregoing disclaimer, I believe that the time has come to discuss a VERY academic concept, Gibson's Paradox. Much of what has happened with the gold price since the mid-1990s is only explicable if one has a basic understanding of Gibson's Paradox. When one does understand it, one immediately sees why governments and central banks will do everything in their power to suppress the price of gold, as has happened since about 1995.

In the 19th and early 20th centuries, conventional economists believed that long-term interest rates were correlated with the rate of change in the general level of prices. However, in 1923, A.H. Gibson, an English economics writer, published an article in a British magazine wherein he asserted that the rate of interest and the general level of prices were correlated. In other words, the correlation was between interest rates and prices, rather than the rate of change in prices. Gibson produced 131 years' worth of statistics which backed up his assertions.

Gibson argued that the prices of British government bonds depended upon the long-term interest rate, and that this, in turn, was determined by the level of wholesale prices. When interest rates are low, then investors will find it attractive to invest in equities (because they will deliver better yields). Investments in equities will, in turn, lower the costs of production. This will be reflected in lower consumer prices. It should also be remembered that when long-term interest rates are lower, the prices of long-term bonds are higher.

Gibson's article came to prominence because John Maynard Keynes happened to read it. The article's main thrust had been with regard to stock and bond investing. Keynes was an avid stock market investor, and he had previously believed that long-term interest rates were correlated with the rate of change in general price levels. Gibson's work caused Keynes to revise his thinking. It was Keynes who invented the term "Gibson's Paradox."

But what does Gibson's Paradox have to do with gold? EVERYTHING! In 1988, two young economists wrote a paper entitled, "Gibson's Paradox and the Gold Standard." One of the economists was Lawrence Summers, better known as the man who succeeded Robert Rubin as Secretary of the Treasury during the Clinton administration [and the man who is now President Obama's top financial advisor]. The paper is a very "dry," academically-oriented one. However, the main idea proposed in it is this: Higher real interest rates mean lower gold prices, and vice versa.

Here is what Mr. Summers and his co-author, Robert Barsky concluded: "The price level under the gold standard behaved in a fashion very similar to the way the reciprocal of the relative price of gold evolves today. Data from recent years indicate that changes in long-term real interest rates are indeed associated with movements in the relative price of gold in the opposite direction and that this effect is a dominant feature of gold price fluctuations." In summary, gold prices and REAL INTEREST RATES move in opposite directions in a free market.

As a practical matter, what does this mean? It's simple, yet complicated. As I have stated many times in this newsletter, gold is money, no matter what Keynesian economists might say. Gold is the proverbial canary in the coal mine. It tells us when something is rotten in the world of fiat currency. In a free market, if gold prices are rising, it tells us that REAL INTEREST RATES are too low. However, if interest rates rise, bond prices will fall. There will be less of an incentive for stock market investment because real interest rates will be yielding better returns for investors.

Clearly, the perfect world for a central banker would be one in which the stock market is flourishing. However, the BIGGEST market is the bond market, so it is the most important market for the central bankers. Keep interest rates low, and all your owners (JP Morgan Chase, Goldman Sachs, and the other banks) can make BILLIONS! The real estate market will go ballistic. Indeed, you have the best scenario, except for one thing: In a free (i.e.,UNMANIPULATED) market, the gold price moves inversely to real interest rates. If you keep interest rates artificially low, gold will go up in price. When gold goes up in price, the dollar is worth LESS relative to gold. The dollar is thus revealed as a shabby, counterfeit piece of Crane Company stationery with ink on it. It follows that it might be helpful if the gold price could be suppressed.

[Editor's Note: Crane Company stationery is wonderful. It's the fiat dollar I am criticizing. Crane Stationery is the real thing!]

Reginald Howe has contributed many scholarly articles to the Gold Anti-Trust Action Committee (GATA). Mr. Howe publishes occasional commentaries at his own website, www.goldensextant.com. Mr. Howe has proven beyond ANY DOUBT that, in 1995, real long-term interest rates and gold prices "began a period of sharp and increasing divergence..." When Mr. Howe wrote those words in 2001, real interest rates had declined from 4% to about 2%. Under Gibson's Paradox, and according to Summers and Barsky, when real interest rates declined, the price of gold (in dollars) should have gone up. Instead, Reg Howe pointed out that the gold price had fallen from about $400 per ounce to around $270 per ounce. When he wrote his article, Howe calculated that, had the markets been left to operate freely, then gold should have been priced at about $500 per ounce. However, the opposite had happened. Instead of rising in price as real interest rates fell, gold had also fallen. Why?

Do you remember the "Strong Dollar Policy," as enunciated by President Clinton's Treasury Secretary, Robert Rubin? It turns out that this was nothing more than a scheme by which to have the best of all possible worlds: Stock market? UP! Interest rates? DOWN! Bond prices? UP! Dollar? UP! Gold? DOWN! How was this accomplished?

It is not the purpose of this article to enumerate all of the ways in which the U.S. government, other central banks, as well as their allies in the private sector (JP Morgan Chase, Goldman Sachs and others) colluded in order to suppress the price of gold so that they could accomplish their other objectives. For the full story, go to www.gata.org and read all about it. However, here are some of the things which were done:

1) Central banks sold their actual gold reserves into the market, thus flooding it with extra supply and depressing the price. Prime Minister Gordon Brown did this during the late 1990s when he was Chancellor of the Exchequer. He sold a very significant portion of Britain's gold at an average price of less than $300 per ounce. Gold is now priced at more than $800 per ounce. What a GREAT DEAL for Britain! [Editor's note: It's an even better deal now!] Western central banks are STILL selling their gold under an agreement which began in 1999 and was extended in 2004, although the current financial crisis seems to be diminishing some of the banks' enthusiasm for continued gold sales. Germany has even announced that it does NOT want to sell more gold. [Editor's note: I wrote this article in October, 2008. The financial crisis did diminish the banks' enthusiasm for selling their gold. They are now net BUYERS!]

2) Central banks have leased gold into the markets, thus creating an artificial "oversupply" of gold at a time when overall mine production of gold has been on the decline. This has also depressed the gold price. How does this work? The Fed allows JP Morgan Chase, Goldman Sachs, or other "bullion banks" to lease gold at ridiculously low interest rates (usually LESS THAN 1%). The bullion banks can then SELL the gold and take the proceeds to invest them into other things yielding a higher rate of return. The bullion banks will make risk free profits as long as the price of gold stays about where it was when they "borrowed" it. However if the gold price rises too much, the bullion banks can lose money because they will essentially be caught in a short-covering squeeze. Bullion banks have made BILLIONS in profits by "borrowing" OUR NATIONAL TREASURE and selling it! We do not know whether or not the Fed (or other central banks) will ever make the bullion banks "cover." The federal government has "stonewalled" against all efforts to find out how much gold the United States actually has.

We are in an environment in which our government and our central bank, the Fed, have kept real interest rates artificially low. This has been going on since the Greenspan era. Remember when the Greenspan Fed dropped rates to 1%? Yes, lowering interest rates ignited the stock market in the 1990s. We also got an epic bull market in bonds. By suppressing the gold price, we got a "Strong Dollar." However, we got some other things as well. We got serial speculative bubbles which inflated and then collapsed. The dotcom and real estate bubbles each vaporized TRILLIONS of dollars of wealth. We also got malinvestment, as artificially low interest rates conveyed a FALSE picture of the economy to businesses and to ordinary investors.

In a truly free market, when one aspect of the economy gets out of balance, the natural forces of the market act in such a way as to bring things back into balance. In a free and natural market, the government's artificial lowering of interest rates would have triggered a RISE in the gold price. This would have exposed the shabby house of cards which our fiat financial system has become. Instead, our leaders chose to continue to manipulate the markets, and we are now paying the price because we are in the worst financial crisis since the 1930s. Based upon the events of September, 2008, I now believe that this crisis is going to be WORSE than the 1930s. That was a deflationary depression. This is going to be a hyperinflationary depression. [Editor's note: I still believe that we could see hyperinflation at some point, especially if, in desperation, "Helicopter Ben" Bernanke cranks up the proverbial printing presses in an attempt to inflate his way out of the current situation. However, recent deflationary forces have also caused me to moderate my "inflationist" views. If the current trend of credit contraction continues, we may get a deflationary collapse.]

Given recent events, I believe that our government is now trapped. If it wishes to avoid a deflationary collapse, it must inflate as never before. The Fed will have to LOWER interest rates. We can expect the war against gold to continue. Even this year [2008], several bullion banks took record short positions against gold on the COMEX. The US dollar had a "Hail Mary" rally! However, given the absolutely DISMAL fundamentals for our economy, these kinds of attacks are akin to an army which executes a fighting retreat. The army wins some battles, but the overall direction is retreat. Since 2000, gold has gone from about $250 per ounce to about $880 per ounce as I am writing these words. This has occurred in spite of all the manipulation. Had the gold price not been manipulated, it would be MUCH HIGHER. It will get there!

A Postscript:

In October, 2008, the gold price was at about $880 per ounce. In June, 2010, the gold price hit an all-time nominal high of $1,265.07. Despite the efforts of central banks and bullion banks, the gold price has gone up steadily since 2000. In that respect, I am reminded of one of the key tenets of the Dow Theory: You might be able to manipulate the day-to-day trend. You might even be able to briefly influence the medium-term trend. However, you cannot manipulate the long term trend.

The Fed's interest rates have remained at 0% for an extended period of time. Please remember that, under Gibson's Paradox, in a free market, the gold price moves INVERSELY to real interest rates. Real interest rates are currently NEGATIVE. That, above all else, is the reason why central banks might actually think about gold from time to time! It's also a reason why they might even want to try to suppress the price!

A Few Quotations:

"I can't remember the exact quote but when I used to trade and Mr. Volcker was Fed chairman, he said something like 'gold is my enemy, I'm always watching what gold is doing', we need to think why he made a statement like that. If you're a central banker or one of the congressmen or senators, watch what gold is doing because this is a no-confidence vote in fiscal and dollar policy."

Rick Santelli, CNBC

"You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of f***ing bond traders?"

William J Clinton, President of the United States

"There are no more markets anymore, just interventions."

Chris Powell, Secretary/Treasurer. GATA

Wednesday, June 23, 2010

Best of Jim Cook, Opportunity Of A Lifetime

June 18, 2010
Last week I had to prepare a two page advertisement promoting silver for Forbes Magazine and U.S. News and World Report. I also spent an hour on Howard Ruff’s conference call to his subscribers talking about silver. It caused me to review all the bullish aspects of silver. Consequently my enthusiasm for silver reached a new high. As I said on the Ruff interview, I’ve committed my personal assets to silver because I believe this is an opportunity like no other. I see it as a fortune builder. I think silver offers a way to get filthy rich.

I’ve been studying finance, reading economics, investing in stock, drilling for oil, digging for gold, putting money in start-up companies, buying krugerrands or silver coins and running a business for most of my life. My book on starting a business made it to the best seller list. My novel predicted and described the economic crisis we are going through.

My library at home is overflowing with books on how to succeed, how to invest and how to get rich. I’ve studied the lives of Carnegie, Ford, Edison, Sloan, Rockefeller, Giannini, Swift, Ogilvie, Penney, Woolworth, Wannamaker, DuPont, Templeton, Heinz and Hershey to name a few. I’ve learned how to succeed and how to make money. I’ve persisted in the face of failure and adversity. I’ve hung on when nothing worked and fought back my fears a thousand nights. I’ve stood my ground when the government tried to crush me and outlasted them on faith alone.

Napoleon Hill taught me, “Whatever the mind can conceive and believe it can achieve.” Andrew Carnegie taught me the quality that distinguished him from all others was persistence. Emerson taught me the laws of compensation, “honest service cannot come to loss . . . every stroke shall be repaid. The longer the payment is withheld the better for you; for compound interest on compound interest is the rate and usage of this bank.”

By most standards I have prospered. But that was not my bargain with life. I wanted more, not just to pile it up, but to do some good. Now I believe the opportunity I have waited for is here. The astute silver analyst Butler has laid it out for us in the clearest terms. No one that I have known has ever mastered a subject or presented a money making opportunity as clearly as Ted Butler has with silver.

According to Ted the price of silver has been artificially depressed for years. The price hasn’t reflected the true state of available supply or the reality of surging demand. If large banking and investment firms had not built up an inordinately high paper short positions, the price of silver would have been much higher. It was held down while the big boys engineered sell offs that lined their pockets. The game was rigged.

As a result of the low price a lot of silver was used up. Billions of ounces that were once counted in the above ground supply were utilized by industry and are gone forever. The U.S. government once counted as much as five billion ounces in their hoard. Now they have none. In fact they have become one of the world’s biggest buyers of silver for use in their coin programs.

Because of Ted Butler’s relentless crusading the cat is out of the bag and the silver shenanigans are under the spotlight. Government regulators have held hearings about putting limits on how much silver one firm can be long or short. The impact of these position limits would be profound. Not only would the big banks have to buy back silver to close out their short position they would have to refrain from taking the short side in the future. This would set the price free.

Ted Butler has postulated that this single event would send the price much higher. He also claims that it doesn’t matter if the government clamps down on the short sellers. A silver shortage will eventually drive up the price. Industrial demand along with soaring investment demand, have squeezed the supply to the point that delays are now being experienced by silver investment funds. One of Ted’s themes is that industrial users will begin to panic once they have trouble getting silver. This would send the price up in a hurry. In the meantime more and more investors are pouring into silver as the story gets out.

Other bullish factors include the numerous new industrial uses for silver, the difficulty in ramping up silver mining production, inscrutable Asian demand and the amount of silver that doesn’t exist in pool accounts that must be covered someday. Then there’s the possibility of inflation, a dollar crisis or an economic panic that causes a stampede into precious metals.

It seems clear to me. If silver does what Ted Butler says it will, then fortunes will be made by those who hold the metal. I’m a true believer and I’ve put my money into silver with the expectation of making a fortune. Now it’s a waiting game but I’m “all in.”

BP: Blame Petroleum

June 23, 2010 by John Myers

“Birds covered in oil make a great advertisement for renewable energy.”

The Financial Times, June 16, 2010.

As I watched President Barrack Obama’s Oval Office speech last week—in which he offered up empty buckets of hope—I reflected on the Greens and the crisis their President is muddling through. Like a cop, there never seems to be a Green around when you need one.

Certainly the Save-The-Earth Squadron has been noticeably silent on the Gulf oil spill. In fact there hasn’t been a peep from the animal rights activists, even in the face of CNN’s continuous coverage of oil stricken pelicans.

According to Politico, “As the greatest environmental catastrophe in U.S. history has played out on Obama’s watch, the environmental movement has essentially given him a pass—all but refusing to unleash any vocal criticism against the president even as the public has grown more frustrated by Obama’s performance.”

In fact, environmental groups sacrificed some seals to run a full page ad in The Washington Post earlier this month. Incredibly, the ad does not fault Obama over the ecological catastrophe. In fact it thanked him for putting on hold an Alaska drilling project. “We deeply appreciate your decision…” the ad tells Obama.

It gets even more surreal.

“President Obama is the best environmental president we’ve had since Teddy Roosevelt,” Sierra Club chairman Carl Pope told the Bangor Daily News earlier this month. “He obviously did not take the crisis in the Minerals Management Service adequately seriously, that’s clear. But his agencies have done a phenomenally good job.”

Good job? Can you imagine if this disaster belonged to John McCain and Sarah Palin? The Greens would be marching on Washington with ropes in hand. So what is going on?

I think the answer is pretty easy: Greens are not outraged by what is happening in the Gulf of Mexico because it is a means to and end. The end being a President that wants to reshape the U.S. economy right down to the last solar panel.

“These guys have bet the farm on this administration,” said Ted Nordhaus, chairman of an environmental think-tank, the Breakthrough Institute. “There has been a real hesitancy to criticize this administration out of a sense that they’re kind of the only game in town. These guys are so beholden to this administration to move their agenda that I think they’re unwilling to criticize them.”

Even as Obama compares the oil spill to 9/11, the silence of the environmentalists is deafening. It is all part of the Green’s strategy to paint petroleum as the enemy. And Obama is marching lockstep with them.

“In the same way that our view of our vulnerabilities and our foreign policy was shaped profoundly by 9/11,” said the President, “I think this disaster is going to shape how we think about the environment and energy for many years to come.”

Obama is using the catastrophe to push forward climate and energy reform. These are not my conclusions. This is what the President has vowed: “(We will) move forward in a bold way in a direction that finally gives us the kind of future-oriented… visionary energy policy that we so vitally need and has been absent for so long.

“One of the biggest leadership challenges for me going forward is going to be to make sure that we draw the right lessons from this disaster,” the President said.

Obama said he did not know if America would shift from an oil-based economy in his lifetime, however he added that now was the time to “start making that transition.”

Obama’s comments and the Federal government’s need to look like it is doing something about the oil spill led the CEOs from Big Oil to Capitol Hill last week with promises to reform while pleading their case for petroleum.

The executives of the five biggest oil companies operating in the U.S. faced accusations that the Deep Horizon oil spill is somehow the fault of all of them. The bosses of BP, Shell, ExxonMobil, Chevron and ConocoPhillips delved into the safety of offshore oil exploration and drilling and even had to muster arguments as to why oil is a necessity to the American economy.

Woulda, Coulda, Shoulda

I can see why BP was grilled by Congress; but I am baffled why the other Big Four were called before the House Energy and Commerce subcommittee.

"This blowout happened at a BP well,” declared Congressman Henry Waxman (D-Calif.), “but, if it occurred at an ExxonMobil or Chevron well, they wouldn’t have been any more prepared to respond.”

Excuse me Mr. Waxman, but it didn’t occur at an ExxonMobil or a Chevron well. It happened at a BP well, and while we are on the subject let’s talk about why it happened. It happened because the available terra firma of the U.S. has been over drilled, over pumped and sucked dry.

Still Chairman Waxman and the rest of the committee have Big Oil back-peddling. ConocoPhillips CEO James Mulva looked like a kindergarten kid ready to cry as he explained that the Federal government’s energy policy must "recognize that we have a robust oil and gas industry that generates vital U.S. jobs, as well as substantial state and Federal revenue from tax and royalty payments."

Obama’s Testing The Waters

Common sense suggests that Mulva and the rest of the non-BP executives should have told Congress to shove-off, that they are in fact keeping America’s economy afloat and, oh by the way, providing you with transportation home. Big Oil isn’t doing this. Instead they are allowing themselves to become whipping boys for Must See Congressional TV. That tells me that something bigger is afoot. Exactly what that is is being revealed by Obama.

From the Oval Office Obama said: “The time to embrace a clean energy future is now.”

It just so happens, writes The Financial Times, that wind turbine makers and solar panel companies are ramping up their pressure on Congress and getting a sympathetic ear.

A member of the Clinton White House (Bill’s not Hillary’s) told The Times that renewable companies had to seize the moment quickly. "Most events do not engage people’s heartstrings and neurons together. This one does," he said, adding: "It cries out for the President to push the Senate to act this year."

First come the heartstrings then come the purse strings. By the time this thing finishes up the environmentalists will be tickled silly. For them the catastrophe in the Gulf of Mexico is a perfect storm—a stupendous way for the Greens to collect a lot of green from ordinary people like you and me.

Tuesday, June 22, 2010

Last Friday, Gold hit new record weekly and daily closing highs against the US $.  It has also been hitting highs against all other currencies as well.  More with charts on this subject.

It was amazing listening to Rahm Emanuel talk about how well the economy is doing on This Week on Sunday.  The bullshit that govt representatives can shovel out on the sunday talk shows is beyond belief.  The republicans were just as guilty during the previous administration.  Anyway here is some of what Rahm said :

"Well, first of all, it's important to remember, Jake, when we had to -- came to office, the economy was shrinking by a little over 6 percent. Today it's growing by 3 percent. In some cases, a little more.

Second, we're losing on average 700,000 jobs. The last three months we've been adding on average about 140,000 jobs. Those are dramatic swings in 12 months. Now we have broken the back of the recession, but what we haven't -- what we don't have is a fast enough, strong enough recovery. And that's the focus of the president's agenda on a going forward basis."

I'm not sure adding 400K census workers to the payroll is that big a step on the road to recovery.  I hope none of you actually believe any of these rosy economic forecasts and proclamations of recovery.  Don't get me wrong, I'd love to see a recovery, I simply can't.  The Czar has no clothes.

Both Europe and the US are struggling under the weight of crushing debt.  Bankrupt countries bailing each other out can't go on forever.  The death of fiat currency and the banking cabal is drawing near (see gold).

The following article is, IMO, a very good synopsis of the current international financial predicament and likely future outcomes.  Bottom Line- (buy gold...and silver)

What G20 will not discuss this weekend (but probably should)

By James G. Rickards

There's a growing sense that the current global economic "Plan A", i.e. substitute public debt for private debt and use fiscal stimulus to keep economies afloat until private demand kicks in, has failed. Not surprising to many of us; it was destined to fail, but now the reality of that is becoming undeniable so leaders are scrambling for Plan B. For the U.S., Plan B is to double-down on Plan A. Others are not so sure. One problem is timing. There are several Plan B's, but they all take 5-7 years to implement, e.g. yuan as reserve asset, SDR's as a new liquidity source, etc. The two-tier Euro plan is just another Plan B although it might possibly be implemented in 2-3 years rather than 5-7.

None of these plans is totally ridiculous, but they all suffer from the same weakness which is that they depend on continued faith in paper money in a world where that faith is rapidly eroding. So the meta-political question becomes: can one or more of these plans be implemented faster than the paper currencies collapse? My spot estimate is "no". The avalanche has already started; there is no way to push the snow back uphill; it's just a matter of time before the paper money village below gets buried. Plan A and the the system it represents will collapse before there's time for Plan B.

This brings us to Plan C of which there are several: (x) chaos, autarky, neomercantilism and heavy-duty protectionism; i.e. playing to win a negative sum game, (y) draconian policy responses including seizure, delegitimization and/or taxation of private gold and forced use of paper money, or (z) gold and commodity backed currencies and a gradual return to stability (albeit with a depression between here and there). Options (x) and (y) more or less speak for themselves. Option (z) is the most interesting because it involves a host of policy choices and political considerations such as: what is the non-deflationary price at which the gold standard should be reestablished (probably $5,000/oz or higher); and who gets to participate and at what levels, (and this is where the true weakness of players like China, India and Brazil comes into sharp relief). Russia is the most interesting case because although it has a relatively small GDP (less than 3% of world GDP) it is a natural resource powerhouse which could play with the big boys in a world of commodity backed currencies. Italy is another interesting case because it is a true gold power (over 2,400 tonnes) although it is frequently lumped in with the Club Med miscreants.

Given the dynamics and cross currents, a likely scenario consists of elements of all of the above. The U.S. and China will continue to lead the world to a new regime of dollars and yuan as reserve currencies and SDR's plus IMF leverage as the key instrument for increasing world liquidity and settling international payments imbalances. As the system breaks down anyway (because of private demand for gold due to lack of faith in official solutions) one political response will be protectionism (to appease local populations) and efforts at confiscation (to put the gold genie back in the bottle). At that point, and amid the chaos, one or more countries will "go for gold" on their own to preserve wealth and the purchasing power of export income; the most likely axis here is Germany-Russia with Austria, the Netherlands, France and possibly Italy joining in. The German-Russian axis is the most natural in the world because each has what the other needs; technology and manufacturing in the case of Germany and energy and other natural resources in the case of Russia. At that point, the U.S. may have to give up its alternative paper plans and join the gold rush leaving China heavily exposed to collapse because of its shortage of gold relative to GDP. It seems likely that China sees the same scenario which explains its own rush to gold, albeit mostly from captive domestic production in the short run.

The end result is a chaotic, ad hoc, but nevertheless eventual return to a global gold standard. It would be far better for G20 to set up the processes, study groups and other mechanisms to make this an organized and efficient transition. That is the one thing I do not expect to happen this weekend.

Friday, June 18, 2010

Tax Hikes and the 2011 Economic Collapse

Today's corporate profits reflect an income shift into 2010. These profits will tumble next year, preceded most likely by the stock market.

People can change the volume, the location and the composition of their income, and they can do so in response to changes in government policies.

It shouldn't surprise anyone that the nine states without an income tax are growing far faster and attracting more people than are the nine states with the highest income tax rates. People and businesses change the location of income based on incentives.

John Fund of WSJ's Political Diary breaks down Tuesday's most interesting primary contests. Also, WSJ Columnist Mary Anastasia O'Grady translates the latest economic signals from Washington.

Likewise, who is gobsmacked when they are told that the two wealthiest Americans—Bill Gates and Warren Buffett—hold the bulk of their wealth in the nontaxed form of unrealized capital gains? The composition of wealth also responds to incentives. And it's also simple enough for most people to understand that if the government taxes people who work and pays people not to work, fewer people will work. Incentives matter.

People can also change the timing of when they earn and receive their income in response to government policies. According to a 2004 U.S. Treasury report, "high income taxpayers accelerated the receipt of wages and year-end bonuses from 1993 to 1992—over $15 billion—in order to avoid the effects of the anticipated increase in the top rate from 31% to 39.6%. At the end of 1993, taxpayers shifted wages and bonuses yet again to avoid the increase in Medicare taxes that went into effect beginning 1994."

Just remember what happened to auto sales when the cash for clunkers program ended. Or how about new housing sales when the $8,000 tax credit ended? It isn't rocket surgery, as the Ivy League professor said.

On or about Jan. 1, 2011, federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero. Lots and lots of other changes will also occur as a result of the sunset provision in the Bush tax cuts.

Tax rates have been and will be raised on income earned from off-shore investments. Payroll taxes are already scheduled to rise in 2013 and the Alternative Minimum Tax (AMT) will be digging deeper and deeper into middle-income taxpayers. And there's always the celebrated tax increase on Cadillac health care plans. State and local tax rates are also going up in 2011 as they did in 2010. Tax rate increases next year are everywhere.

Now, if people know tax rates will be higher next year than they are this year, what will those people do this year? They will shift production and income out of next year into this year to the extent possible. As a result, income this year has already been inflated above where it otherwise should be and next year, 2011, income will be lower than it otherwise should be.

Also, the prospect of rising prices, higher interest rates and more regulations next year will further entice demand and supply to be shifted from 2011 into 2010. In my view, this shift of income and demand is a major reason that the economy in 2010 has appeared as strong as it has. When we pass the tax boundary of Jan. 1, 2011, my best guess is that the train goes off the tracks and we get our worst nightmare of a severe "double dip" recession.

In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn't take effect until Jan. 1, 1983. Reagan's delayed tax cuts were the mirror image of President Barack Obama's delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.

But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don't work until they take effect. Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.

Consider corporate profits as a share of GDP. Today, corporate profits as a share of GDP are way too high given the state of the U.S. economy. These high profits reflect the shift in income into 2010 from 2011. These profits will tumble in 2011, preceded most likely by the stock market.

In 2010, without any prepayment penalties, people can cash in their Individual Retirement Accounts (IRAs), Keough deferred income accounts and 401(k) deferred income accounts. After paying their taxes, these deferred income accounts can be rolled into Roth IRAs that provide after-tax income to their owners into the future. Given what's going to happen to tax rates, this conversion seems like a no-brainer.

The result will be a crash in tax receipts once the surge is past. If you thought deficits and unemployment have been bad lately, you ain't seen nothing yet.

Mr. Laffer is the chairman of Laffer Associates and co-author of "Return to Prosperity: How America Can Regain Its Economic Superpower Status" (Threshold, 2010).

Thursday, June 17, 2010

Saudi Arabia gives Israel clear skies


State bailouts

I sent the following letter to my congressmen and the president today,

President Obama has requested that Congress quickly approve nearly $50 billion in emergency aid to help prevent states from being forced to lay off more workers.

Both the states and the federal govt need to get their houses in order, and cut spending. It is ridiculous that federal employment is still increasing while the private sector is contracting. States need to cut budgets as well, and laying off workers is probably necessary. Don't bail states out, make them live within their means, like everyone else.

Govt needs to get smaller.

No more bailouts, public or private.

Wednesday, June 16, 2010


If you want more technical details on BPs negligence, check out the following links-



And here's a video BP's Pr people don't want you to see

BP Goons Block News Media

Hyperinflation Watch - June 15, 2010

June 15, 2010 – The latest financial results of the US government show that it continues to spend and borrow recklessly. As a consequence, there has been no improvement in the hyperinflationary outlook for the US dollar.
Hyperinflation results when a country’s central bank turns government debt into more currency than is demanded in economic activity. It is unfortunately impossible to measure precisely the demand for currency. Nevertheless, the rate at which the government is borrowing can be used as a general guideline to determine if too much currency is being created.

If government borrowing causes the debt to accumulate at rates of increase greater than the historical trend, clearly too much new debt is being added, which forces the central bank to ‘print’, i.e., turn that debt into currency. I have discussed this phenomenon before. “The [Federal Reserve] has one mission. It is to make sure that the federal government obtains all the dollars it wants to spend. If the federal government cannot attract these dollars from the world’s savings pool, then there is only one other way to obtain them. The Fed must print them.”

The following chart illustrates the worsening problem.

Federal revenue remains stagnant, indicating that the economic recovery is weak at best. At the same time, federal spending is not contracting. Therefore, the gap between income and outlays remains near record levels. New debt continues to be piled upon existing debt.

The once-almighty US dollar – that only a few decades ago was considered to be ‘as good as gold’ – continues down the road toward hyperinflation. All that is needed to ignite the hyperinflationary bonfire is a small spark.

Wednesday, June 9, 2010

All the perplexities, confusion and distress in America arise not from the defects in their constitution or confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation. - John Quincy Adams

It’s The Greens That Sowed The Seeds Of The Gulf Oil Disaster

It's almost funny. Every time I see someone from the liberal left or a Democrat on any news program, when asked about any of the current administrations failures or lack of progress, I know what the first sentence out of their mouth will be. "It's Bush's fault." Now don't paint me into the Republican corner, I don't think Bush was a good president either, and I don't think the republicans have much to offer either, but come on Dems. "It was Cheney's oil policies that caused the Gulf oil spill!" "We inherited these economic/financial problems!" "It's not our fault!" The Dems increasingly sound like whiny children, not leaders (of course, leaders are the last thing I want.)

Do you want to know whose fault the oil spill was? It was the "Greens", throught the law of unintended consequences.

(Excerpt w link to full story)


The Greens Made Us Drill So Deep

Last January I wrote about the problems and costs of drilling for oil at such extraordinary depths as those being worked off the coast of Louisiana. It was called The Deep Truth About Oil and the Gulf of Mexico.

In that column I said: “Chevron has spent 10 years and a whopping $2.7 billion for this project. This is the cost of running a drill and casing more than 30,000 feet through earth and ocean, the same distance that an airliner flies above the earth. Chevron will spend billions more and in the end, even with all the high-tech in the world, there are no guarantees that its deep-water experiment will hit pay-dirt. In fact there is less than a 50/50 chance that Chevron’s latest deep-sea adventure will yield anything. Still Chevron and their brethren don’t have a choice.

“The Wall Street Journal sums up the situation: ‘Big easily tapped oil fields close to shore have become off-limits.’”

Fast forward a few months and we saw the real danger in not drilling in shallow waters and places like the Arctic National Wildlife Refuge (ANWR). We see what happens when Big Oil is forced to drill in 5,000 feet or more of seawater; depths at which accidents can’t be easily repaired.

I’ve been talking to my friends in the Alberta oil patch about this for weeks. But the problem didn’t see the light of day until the May 29 episode of Meet the Press. There Host David Gregory asked White House Energy Adviser Carol Browner if in response to the Gulf Coast oil spill, America should start drilling in ANWR.

Gregory asked: "Is the problem that we’re drilling in water that’s just too deep?"

Gregory continued: "Should you (the White House) even rethink your own approach to the environment to say… maybe in the Arctic Wildlife Reserve; we ought to be drilling there… we ought to be going into shallower waters so that this can be done more safely?"

Incredibly Gregory wasn’t given an answer. But even I know this simple truth—that we need to be drilling in shallow water and places like ANWR. Places where accidents can be corrected.

Don’t expect any leadership on this from the President even though his decision to suspend deepwater drilling off the U.S. coast will have consequences.

“An extended moratorium on safely producing our oil and natural gas resources from the Gulf of Mexico would create a moratorium on economic growth and job creation,” said Jack Gerard, chief executive of the American petroleum Institute.

It’s worth noting that the Gulf of Mexico currently produces about 1.6 million barrels of oil per day—an amount larger than the output of Canada’s oil sands. It was expected to grow to 1.9 million barrels by 2025. But the jury is out on this until Obama—"The Chosen One"—chooses leadership over politics and stops this catastrophe.

Yours for real wealth and good health,

John Myers

Myers’ Energy and Gold Report

Tuesday, June 8, 2010

The government masks the true cost of goods and services through hidden subsidies

Thomas F. Schaller
June 1, 2010

Two weeks ago in this space I scoffed at alarmists warning about socialism on the rise in America. In this column, I examine a rather insidious form of government behavior that is never called socialism but by the current standards of debate ought to be. It's so insidious, in fact, that despite affecting almost every one of us almost every day, we hardly notice it.

I speak, of course, about supermarket socialism.

Presuming you drive your car to the supermarket, the automobile, the gas that powers it and most of the food you piled into your trunk were subsidized to some degree by one government program or another. Put another way, what you paid to run that errand is less than what it cost because some portion of what otherwise would be unfettered market prices for cars, gas and food is hidden.

Let's start with food, specifically corn, the dominant monoculture crop grown in the United States. If you've seen the documentaries "Food, Inc." or "King Corn," you already know that corn byproducts are found in hundreds of supermarket products, from cereals and soda to laundry detergent and even batteries.

American corn growers benefit from a variety of government subsidies that allow them to sell corn below market price. According to statistics compiled by the Environmental Working Group, those subsidies totaled $78 billion between 1995 and 2009, or more than $5 billion annually. If priced accurately, corn would cost more — and so would everything made from it. And that's just corn subsidies.

Then we pile our subsidized food products into our automobiles. The government now runs General Motors and Chrysler, thus ending any discussion of whether the retail prices of cars made by these two automakers reflect true market prices.

But even before the recent takeovers, and even for non-GM or non-Chrysler models, the invisible hand of government was at work. There are the higher labor costs because of unionized wages and pensions. And as Slate's Daniel Gross estimated a few years ago, we must also include government spending on highways and bridges, plus various permanent or temporary tax incentives like mileage deductions or last year's tax break for new car purchases, which Mr. Shafer estimates at more than $100 billion annually.

Finally, there's gasoline, easily the most subsidized commodity of the three. Estimates here vary widely, depending upon how the military and diplomatic costs of securing Middle East supplies and shipping routes are estimated, and whether and to what degree the costs of environmental damages from fuel consumption are included. Some studies claim the true price of a gallon of gas would be as high as $8 or $10 per gallon, although these estimates include economic impacts of lost jobs and federal or state income tax revenues, and a variety of other costs.

But even a conservative estimate would add about $1 to the retail cost of a gallon of gas. A recent study conducted for Congress by University of Maryland economist Maureen Cropper and her colleagues at the National Research Council concluded that non-climate health and environmental costs of oil consumption in 2005 totaled $56 billion. That translates into an estimated 1.2 to 1.7 cents per vehicle mile traveled, or 23 cents to 38 cents per gallon. Not counting war costs, the Defense Department spends another $50 billion annually to secure Persian Gulf shipping lanes, adding probably another 30 cents to 35 cents per gallon.

If we grant that the low-end estimate of hidden costs per gallon is $1, that means filling a typical car's gas tank costs about $15 more than the total paid at the pump.

Any national conversation about the costs of government and the supposed perils of creeping "socialism" must include the myriad and often overlooked ways in which government hides some part of the price of everyday purchases, thereby fooling us into believing our capitalist system is producing goods and services cheaper than it really is. The difference between the retail price and true cost doesn't disappear: You can still find it right there in the federal and state income tax withholding boxes of your paystub.

That said, maybe liberals and conservatives can agree that if retail prices more accurately reflected true costs, we could make better-informed consumer decisions. Liberals would be buoyed by the prospect that Americans would think twice about how much gas they guzzle, conservatives would be cheered to have the true cost of union-made automobiles fully revealed, and people across the ideological spectrum — since we all eat — might re-think their diets. Whatever the behavioral changes, greater price transparency would make all of us reconsider what, and how much, we consume.

Thomas F. Schaller teaches political science at UMBC. His column appears regularly. His e-mail is schaller67@gmail.com.

The President is not stumbling

Posted by M.Bailey on June 3, 2010 at 1:37pm

Today Johnathan Allen and Carol Lee wrote in Politico that the White House political team is stumbling and bumbling. I couldn't disagree more. To believe that he is stumbling is to believe that at some point this Presidency was walking fully upright, striding forward. It never was.

There is a very telling quote in this article. It comes from an unnamed House Democrat who wonders "how one group of people can be so good at campaigning and so bad at politics." In fact Barak Obama was really never that great at campaigning. His candidacy arose in response to a country-wide malaise. People had, over many years, grown tired of politicians. Approval ratings for Congress were in the toilet, and approval ratings for President Bush were in the toilet. Americans wanted something different, and they, more or less, decided that Barak Obama was the lesser of several evils. Sure, he fired up some crowds, but he never captured the imagination of the country. There was talk of JFK, and talk of Reagan, and talk of Abraham Lincoln, but that was just all talk. All sizzle, no steak as they say. Barak Obama ascended to the Presidency due to circumstance, not due to any cunning strategy set forth by shrewd political advisers, nor due to any fabulous rhetorical flourish.

Fast forward to today and the bloom is officially off the rose. People have become bored and irritated with this President just as they tend to become bored and irritated with most Presidents. Not because the President is doing anything differently, but precisely because he is refusing to do anything differently. He never made the jump from presidential candidate to President. His Presidency isn't stumbling... it never managed to stand up in the first place.

Put Down the Burger and Take a Chance

I love just about everything Vedran Vuk writes, here's another-

By Vedran Vuk

The smallest daily risk-and-reward decisions reveal a lot about an individual. Those who avoid the smallest risks rarely achieve much. In the investment world, you won’t get rich investing in T-bills. In daily life, you won’t get far avoiding all risk either.

Even daily food choices can reveal one’s risk preferences. Whether trying a new restaurant or an entirely new cuisine, the chance of being unsatisfied is always present. However, the return is high. Finding the perfect restaurant or a favorite dish can be a life-changing experience.

Discovering a new cuisine can be more rewarding than many investments. If I had to choose between permanently giving up Indian, Vietnamese, or authentic Szechuan cuisine for $10,000, I would honestly choose the food instead. The 10K will be spent; good food can last a lifetime – health permitting, of course.

But success and food? Where’s the connection? Exotic foods seem to attract the risk takers and movers in society. For example, walk into the average Indian restaurant or Vietnamese pho joint, and the demographic will be completely different from the average Burger King or Applebee’s restaurant. Usually, the crowd will be educated young professionals on the move. These are the types of people building careers and planning for the future. The price range doesn’t keep others out. An Indian buffet can go as low as 6 to 8 dollars. A sink-sized bowl of Vietnamese pho soup is nearly the same price. Yet suburbia is filled with a wasteland of chain restaurants and fast food.

We shouldn’t be surprised at all by these chains. The modern American abhors risk of any sort. Just look at locations such as New York’s Times Square. Tourists crowd into the square and then dine at the local TGIF chain. This is an insane concept to me that one would travel hours and hours to see a new location only to eat at a chain restaurant. But most Americans would rather eat microwaved garbage than face disappointment and uncertainty. The whole chain restaurant industry operates around risk-averse eaters rather than quality food.

Another risk crutch for many is geographic location. America’s poor are particularly scared to death of leaving their places of origin. The majority don’t need more programs to better their condition. They just need to move to the countryside. The benefits of being poor in the countryside compared to the inner city are immeasurable, ranging from better schools and less crime to lower rent.

My solution isn’t for everyone to get a college degree. It’s far simpler. If your career goals amount to being a fry cook at McDonald’s, then maybe it’s best to live in the country rather than the city, especially for a family with kids. In my book, raising children on the drug-filled streets of Baltimore or Detroit is right next to child abuse.

When a person becomes completely risk averse, there’s no amount of prodding, pushing, or government benefits to save them. But it hasn’t always been this way. In fact, it was the complete opposite. Previously, the poor sailed oceans to reach America, they crossed a continent for the California gold rush, and left the family farm for city factories. Now, people refuse to leave modern urban hellholes for the reward of a better life.

How do we get back to the old ways? And can we? Who knows. We’ll have to see a lot more adversity until the entrepreneurial risk spirit returns. Maybe the Greater Depression could offer such an unfortunate opportunity.

When the left looks out at suburbia, they see the evils of capitalism. When I look at the suburbs, I see characteristics that will end capitalism instead. Economist Ludwig von Mises once said, “The entrepreneur serves the consumers as they are today, however wicked and ignorant.” Unfortunately, today’s consumer wants the familiar, the secure, and the safe rather than risk the new and unfamiliar.

We’re willing to trade quality for safety. It’s no wonder that our national policies exhibit the same trends. With the new airport scanners in place, Americans are literally allowing their wives and daughters to be strip searched by TSA goons – just for the thought of being a little safer on an airplane. We’re willing to let the government take over health care – just for the thought of a slightly better safety net. We’ve become obsessed with security and safety rather the elements that made us great in the first place, risk and opportunity.

Wall Street regulations are dealt with the same way. The safety net and bailouts must be maximized. The opportunity to even consider engaging in risk must be eliminated. Without risk, there also isn’t reward – a fact forgotten by most schemers choking off risk.

There’s the old saying, “You are what you eat.” Then, who are we? Looking at our food choices, I would say scared, closed-minded, risk averse, and safety obsessed. The entrepreneur continues to serve this consumer, and the government continues to take advantage of him as well.


Links to Reality

If you read the mainstream news, you might be excused for thinking that the nation’s real estate markets are on the mend. However, if you paused to read the Cash for Clunkers article above, you may have already come to the correct conclusion that it was the government’s stimulus that has been almost entirely responsible for what will turn out to be a temporary pick-up in sales so far this year. And you’ll know what to expect when the May data comes out later this month and the June data appears later in July, and can act accordingly.

If you’re interested in following real estate, there are also several web sites that cater to the industry. I have found these sites to be much more focused on the hard data and not the false promises of “happy days being here again.” Here are three articles on real estate, from three of these sites.

Commercial Real Estate Loans Contribute to Bank Failures

CMBS Losses Keep Up the Pace

Strategy of Last Resort: To Default or Not to Default?

Now, just a minute ago, Joe the Plumber walked into my basement. No, not that Joe the Plumber, but a plumber named Joe that we have worked with on various projects over the years.

Joe is not your garden variety type plumber, with the greasy hair and sagging jeans, but a sharp young guy who has built a solid business in doing all sorts of high-tech installations, including geothermal and energy efficient boilers. That sort of thing.

In support of my thesis about the power of the Internet to shed light on reality, I just now had the following conversation with Joe.

“How’s business?”


“Any real pick-up in the economy, from your perspective?”

“No. People are considering doing projects, but so far they’re waiting to see how things go. In fact, if it wasn’t for the stimulus, there wouldn’t be a lot going on.”

“What stimulus?”

“You know, the 30% credit the government is offering for upgrading appliances to be more energy efficient. Last year, the amount a person could receive was capped. This year, there’s no cap. Which means a lot when someone is putting in a solar-powered water heating system or geothermal system, which can run $40,000.”

“How much of your work involves upgrades associated with the government’s incentive program?”

“Pretty much all of it. So it’s working out pretty good.”

“Yes, but I wonder where the money for all this is coming from,” I said, knowing the answer. “After all, money doesn’t grow on trees.”

Joe laughed and rolled his eyes.

“I know, I know. The government is just running up debt like there’s no tomorrow. The dollar is doomed.”

I kid you not, he actually said that.

Friday, June 4, 2010

George Bernard Shaw

“You have to choose between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”
Corporate taxation is a very complicated and sticky issue, made more complicated by obcure and overly-complicated tax codes. The US has one of the highest, if not the highest corporate tax rates in the developed world. (I heard that somewhere, but after a little research, I'm not so sure.)

from the CBO-

How effective marginal corporate tax rates in the United States compare with other countries’ rates depends on the type of corporate investment being made and the way in which it is financed. Corporateinvestments are financed by either shareholders or lenders (which include corporate bondholders). Compared with the average effective marginal corporate tax rates for shareholder-financed investment in machinery among all other OECD countries, the United States’ rate is slightly higher; compared with the average among other G7 countries, the United States’ rate is about the same. Compared with the average rate for shareholder-financed investment in industrial structures among all other OECD countries, the United States’ rate is significantly higher; however, the United States’ rate is close to the average among other G7 countries. In contrast to rates for shareholder-financed investment, the United States’ effective marginal corporate tax rate for lender-financed investment in machinery is low by comparison with the average for other OECD countries and for other G7 countries.

From an international perspective, although the United States’ effective marginal corporate rates for shareholder-financed investments are higher than the average, such rates for investments financed by a combination of shareholders and lenders may be lower than the average if a sufficient fraction of the marginal investment is financed by lenders.

The history of corporate tax rates between 1982 and 2003 suggests that countries do not change their corporate tax rates independent of one another. After large reductions in statutory corporate tax rates by Ireland, the United Kingdom, and the United States in the mid-1980s, other OECD countries also cut their rates, perhaps out of concern that they would lose investments or part of their tax base—for example, when corporations moved their operations to a lower-tax country. Hence, the corporate tax rates that the United States establishes may affect the choices that other countries make about rates. Thus, how the United States’ corporate tax rate ranks in relation to the rates in other countries is not determined by U.S. policy choices alone.
Typical economic Gobble-de-Gook, how about a little more-

The domestic distortions that the corporate income tax induces are large compared with the revenues that the tax generates. That finding is independent of how the United States’ corporate income tax compares with the taxes imposed by other countries. The corporate income tax in the United States generates a variety of domestic economic distortions that may have little relationship to what other countries do with their corporate income taxes. Those domestic distortions bring about reductions in economic efficiency that researchers estimate are large relative to the amount of revenues that arecollected. Reforms to the tax system that reduced those distortions would not depend on how the United States’ corporate tax rate ranked in relation to the rates of other countries. Differences among countries in their corporate income tax structures distort incentives for locating investments and create additional opportunities for tax planning. In addition to distorting firms’ decisions about domestic investment, corporate income taxes may distort their international economic decisions. Costs to efficiency may arise because countries impose varying tax rates on corporate income, which may influence where and for what purpose a corporation chooses to invest. Those differential rates may distort the international allocation of investment and cause businesses to engage in additional costly international tax planning. 

                            end of CBO quote

What this says to me, is that tax policies in general, result in more harm to business, than the revenue they generate. The inefficiencies in the tax code (not just in the US) are wasteful, and ultimately harm all of us. We are all consumers who rely on private business to supply our daily needs. No matter what your criticisms of the corporate world, we need their products. Remember, corporations can not survive w/o profits, profit should not be a dirty word. Increases in corporate taxes will simply be passed along to the consumer, resulting in rising prices.

OTOH, large corporations should not get special favors from govt either (fascism), which is clearly happening right now. The cry of "Double taxation", that corporate taxes have already been paid, why should dividends be taxed as well is a legimate argument.

Do I have a solution you ask (assuming you're still reading and haven't switched your setting to ignore this user)?

1. Most Important and possibly easiest- Simplify tax codes. A simple "bad" tax code may be better than a complicated "good" tax code. No targeted taxes.

2. How about NO corporate taxes. Tax income, dividends, and capital gains of employees, stockholders, and owners equally. Isn't that fair?

3. Sales tax, (VAT tax?). I'm not sure about these taxes. Regressive in nature, but to some extent act as contractual insurance, funding the civil court system to adjudicate transactional disputes

4. Reduce regulatory burdens. Most regulations end up favoring large businesses, stifling competition that would lead to innovation and lower prices. Most govt regulations drive up costs w few benefits. The financial and banking system is an exception to this rule, as they have an unfair advantage by virtue of the fiat monetary system currently in place, but that topic deserves its own separate essay

5.  Cut govt spending.  There is nothing that the the govt does, that couldn't be done better, cheaper and more efficiently in the private sector.  I know I'll get plenty of argument re: infrastructure, but I'm trying to keep this simple.  There is no such thing as an efficiently spent dollar in the govt sector.

6.  Consistent, but low tariffs.  I believe tarriffs were how the founding fathers intended to pay the fed govt bills. I am against targeted, punitive, or protectionist tarriffs as they harm the individual US consumer. If Canada can provide lumbar at a lower cost than US manufacturers, even after a resasonable tarriff, I should not have to subsidize the US lumbar industry or lumbarjack unions, and pay more for housing and whatever else lumbar is used for. I might make minor concessions to certain industries re National security, such as the steel industry, although they have really overplayed that card in the past. If Korean steelmakers are being subsidized by their govt, and dumping low cost steel into our markets, I say BUY it. Their govt is harming every other Korean industry and all of the Korean people (other than those who work in the steel industry), WHY SHOULDN'T THE MAJORITY OF THE AMERICAN PEOPLE BENEFIT FROM THE Korean govt's folly.