Here in the States everyone is keen to see the non-farm payrolls report. It comes out on Friday. Anecdotal evidence (what people say) suggests that the employment situation here is still pretty bad. But government statistics can say pretty much whatever you want them to say.
If you’re looking for the internals of the market, try breadth. That is, if you want to judge how intrinsically strong a rally is, look at how broad it is. Is it just concentrated to a few of the big stocks (banks and basic material, for example). Or are all stocks marching up in lock stop on higher earnings and higher valuations. Is the equity premium visible?
Take a look at the chart below. It’s the advance-decline index on the New York Stock Exchange from early 2007 unto today. The scale of the chart is less important than the trend. The index tracks the difference between advancing and declining issues on any given day. When there are more advancers than decliner, the index is bullish. When there are more decliners than advancers, it’s bearish.
NYSE A/D Ratio Looking Toppy
If you’re trying to use the A/D ratio as a predictor of what’s next (and who isn’t?) then what does it really tell you? The chart above shows you that market breadth started to deteriorate months ahead of the actual high in the Dow Jones (which came later that year in October.) The June-July revelations that two Bear Stearns funds were in trouble accelerated the deterioration.
The March 2009 low in the A/D ratio more or less coincided with the low in the index. There wasn’t any advance warning from the index. That’s likely because the March lows were reversed by the active (and perhaps direct) support of the Federal Reserve via interest rates and a program of Treasury bond buying.
Whether the Fed worked a way, via its primary dealers, to get stocks moving too (another word is ‘manipulation’) is an interesting but ultimately unanswerable question. The important point here is that nothing in the fundamental mechanics of the market indicated a reversal. It was an external event.
And what about now? The A/D ratio is going up, up, and away. It could be that corporate cash positions are solid, the employment market won’t get worse, and that the end is in sight for the U.S. housing market. Some combination of these factors could explain the steady advance of stocks since last March. But maybe not.
Our guess is that this is simply evidence of the Fed’s Great Reflation (see Marc Faber’s March Gloom, Boom, and Doom Report). All the new money created by the Fed, and the new lines off credit made available to U.S. financial institutions, made its way into the stock market by force off habit. It was easy to borrow and there was only one sensible place to put it: stocks.
But is that still the best trade going now?
No.
Your best bet, as we’ve said for a while, is to retire now. Gradually liquidate your stock portfolio and pare it down. People are buying stocks now because it’s what they’ve always done and what they’re still told to do. But as a wealth survival strategy, the stock market is a death trap.
You should, by our reckoning, own a small portfolio of stocks leveraged to positive Black Swans (low probability but high magnitude events that drive a share price higher…like the discovery of a new ore body or the development of a new drug). These are the sort entrepreneurial ventures that will create new wealth. A portfolio of these business experiments is like a call option on the world we’ll live in after governments have gone bankrupt and lost the ability to perpetuate the follies of the previous credit bubble.
But for now, the public sector campaign to bail out the plutocrats in the private sector is in full force. And in the meantime, the public sector in Europe is trying to save itself. Markets in Europe have reacted with contented indifference to the affair in Greece. Has anything important happened there?
Well, the Greek government presented a plan to cut spending by $6.8 billion. If effected, it will reduce the deficit-to-GDP ratio from 12.7% to 8.7% in the next year, which is pretty ambitious. The Greeks plan to do two things: raise revenue and cut spending.
The Greeks will raise taxes on fuel, tobacco, and sales taxes. And if the communist unions don’t derail the plan, bonus payments to public sector servants will be cut by 30% and wages will be frozen for civil servants.
If Greece is having a fiscal crisis, why is anyone in the government getting a bonus payment at all?
The Greeks have $20 billion in sovereign debt maturing in April and May of this year. The negotiations between the Greeks and the rest of Europe are trundling along. But to what end? The Germans refuse to pony up for a bail out. But will the EU sacrifice Greece to save the Euro as a currency?
Nobody knows. But our main point today is that you should not think Greece has gone away. It’s true that since February, the cost of insuring sovereign governments against default has fallen. According to the folks at Bespoke Investment Group, only Vietnam, Argentina, and Egypt have seen wider credit default swap spreads in the last two months.
So we have a pause in the crisis-think. Markets rally on reflationary monetary and fiscal policy. But the underlying structure of the fiscal welfare/warfare state is badly damaged. This is still an excellent time to reduce your exposure to stocks and add, on the dips, your exposure to precious metals and precious metals equities (in full knowledge that even gold stocks are going to decline on another general decline in stocks).
It’s probably not just stocks you should re-think, though. Last week we mentioned that fund manager Colonial First State (owned by the Commonwealth Bank) has told investors in its Mortgage Income Fund that it could be as long as four years before they get their money back. The average age of the 17,000 investors in the fund is 74 years old.
Redemptions in the $850 million fund were frozen not long after the Federal government guaranteed bank deposits. High-yield mortgage trusts are not bank accounts. Investors and pensioners who treated them like high-yield bank accounts — because that’s how they were sold — were suddenly not generating needed income on precious savings. And now the savings are locked up.
But it wasn’t just the government guarantee that pummeled the mortgage and property funds. It was the underlying securities. On February 9th, Colonial announced it would wind down the Mortgage Income Fund because the bad debts on some of the underlying property loans were, “too big to manage.” It has another $1 billion of pensioner savings locked up in similar funds.
Now without knowing the composition of assets in the other funds, it would be hasty to say that mortgage funds in general are lousy investments. However we’re inclined to think just that. But more importantly, there’s a point here about having your money locked up in large pools of capital these days.
These large pools of capital — mortgage funds, property funds, super funds, 401(k) plans in the States — are extremely attractive to people who need capital. Call it “captive capital.” Banks covet it because it keeps them cashed up when facing declining asset values in commercial and residential property.
Governments covet the capital even more. It’s a ready source of funding for government deficits. If you can compel banks to buy government bonds (via credit requirements), or if you can compel savers to own government bonds for “safety” and “annuity” reasons, then you can force people to fund your deficits. That means you may not have to cut spending so deeply that you lose an election because of it.
So what should you expect and what should you prepare for? Higher taxes are a given. “Nutter expected to tax sugary drinks, set trash fee,” reports a Philadelphia newspaper. The Nutter in this case, quite appropriately, refers to the Mayor. He’s taxing fizzy drinks and garbage to raise extra money for the city. At the city and state level, you can expect a lot more of these creative ways to finance spending — along with cuts in services.
This is part and parcel of the over-reach of the Welfare state. If the U.S. Warfare State has over-reached in Iraq and Afghanistan, it’s been over-reaching domestically for years with programs paid for out of an empty pocket. The same is true in Europe, Japan, and increasingly, in Australia.
Some places are better off than others. Australia has a relatively smaller public sector debt burden. But the country overall, if you look at the net foreign debt, owes its prosperity to foreign lenders. You can expect the strain on public sector finances to only increase in the coming years.
All of that suggests, to us anyway, that you should re-think your reliance on traditional income and savings vehicles. Look for changes to be made that make it harder for you to get at your money. Or, if you can withdraw it from certain accounts and schemes, you will do so at a massive penalty. Governments need capital. And when they can’t compel you to use yours to finance their spending, they are going to get at least a pound of flesh if you choose to remove your money from the system.
What should you do instead?
As we said above, a small portfolio of stocks — business projects leveraged to very high returns — is nearly the only good reason to stay in stocks. The other good reason is that as governments monetize debts and confidence in paper money fails, stocks may beat inflation a lot better than cash. The rally of the last year is evidence of that.
Next week, when we get back to Australia, we’ll take on the main objection to all of this: deflation. That argument is simple. As the global debt burden becomes too heavy, it will crush asset values, leading to falling asset prices across the board, including precious metals. We have too many objections to this to list here. But stay tuned next week. Until then!
Regards,
Dan Denning
The Daily Reckoning Australia
Whiskey & Gunpowder
March 5, 2010
Why the Stock Market Is a Horrible Wealth Protection Strategy was originally featured on Whiskey and Gunpowder
“In plain English, the idea is for the government to take your retirement savings in return for a promise to pay you some monthly benefit in your retirement years.” ~ Newt Gingrich and Peter Ferrara, “Class Warfare’s Next Target: 401(k) Savings.”
Gingrich and Ferrara are correct in their recent editorial on the Obama Administration proposals for new mandatory automatic IRA accounts and their goal to force existing retirement funds into government controlled annuities. But this is only the tip of the iceberg for Teresa Ghilarducci and her big government proposals to loot your IRA and retirement plan assets to fund the federal government.
Future Washington revenue needs and the growing treasury debt may require government mandates directing retirement plans to purchase government bonds. Stealth nationalization and ultimately confiscation of a majority of private retirement assets is coming to bail out failing state and municipal retirement plans which already have a deficit of at least one trillion dollars. Eventually underfunded union plans and even a bailout of the federal retirement system could take place as these groups line up to get another pound of flesh from productive Americans who worked hard and saved for their retirement years.
It Is Time for a Change!
How would you like to make a pleasant choice for a change each April 15th, the most hated day of the year? Your decision would be whether to give the first $5,000 each year you owe the IRS to the federal government or contribute it to your own “ironclad” private IRA account and receive a full tax credit for the contribution.” This is the Freedom IRA proposal in a nutshell.
Today the news is filled with stories about the Washington proposals for new mandatory IRA’s with the end game to nationalize, control and even force your retirement funds into government annuities. Washington needs the $15 trillion in private retirement plans to ultimately become the forced “buyer of last resort” for the treasury bond market as foreign investors and nations begin to avoid our debt like the plague it has become.
The retirement savings threat from a desperate federal government with falling revenues is real but just warning about the problem and defending the current private system is not enough. The American people must see this attempt to force full coverage with the proposed automatic IRA as the Trojan Horse to set the stage for stealth nationalization as they turn our retirement benefits into Washington’s ATM Machine.
Rather than creating a mandatory clone of the bankrupt Social Security System, let’s consider a simple, new retirement alternative I call the Ron Paul Freedom IRA. We hope he will introduce a bill along with other members of Congress to create this new Freedom IRA. This will generate publicity about the threat to your existing retirement funds from the Obama Administration and offer a free-market alternative to the forced, mandatory proposals from the left.
The Freedom IRA
Basically this would be an IRA with a $5,000 maximum contribution annually where instead of a tax deduction the individual contributor would received a tax credit for the entire contribution. So the ultimate question for the working taxpayer would be, “would you rather give the first $5,000 each year you owe the IRS to the government or contribute it to your own “ironclad” private IRA account?” For lower income workers who might contribute more than their annual tax bill, the tax credit could be carried forward to future years thus creating a future tax holiday for the participant.
It would operate under current IRA rules except distributions would be prohibited before the 59½ current retirement age except in the case of death or full disability. Note the plan funds would be totally protected from lawsuit, government or judicial asset seizures and other outside attacks on your retirement assets.
It would operate under and be automatically grandfathered under existing retirement regulations in the future and would be a voluntary addition to any existing plans covering the participant. Investment options would be up to the participant and investment providers but could range from conventional stocks, bonds and money market funds to CD’s annuities, mining shares, approved gold and foreign currency investments.
No one questions that the American private retirement system is broken due to excessive government regulations, bureaucracy and related costs but more of the same old big government solutions with mandatory coverage and forced participation is not the answer. I’ve worked in the financial and retirement planning industry since the early 1970’s and this is a simple, voluntarily solution to the existing system.
The Game Plan for Secure Retirement
First, contact Ron Paul’s office and urge him to introduce a bill for the Freedom IRA. Then we can contact all responsible Congressman and urge them to support a real cut in taxes and solve the existing retirement system problems in a few short years with the Ron Paul Freedom IRA.
The alternative from Obama and the Democrats means we will have a forced, mandatory government program in our future with growing nationalization and confiscation threats. You can learn more about how this could this happen in the 20-page special report, “Are You Ready for the Coming Obama Retirement Trap?”
Remember the adage, “the best defense is a good offense” and the Freedom IRA is a direct attack on the coming Obama Retirement Trap. Join us and work together to safeguard and secure our existing and future retirement benefits from the desperate Washington political elites.
Regards,
Ron Holland
for Whiskey & Gunpowder
March 4, 2010
P.S.: You can read the part of that 20-page report here.
The Ron Paul Freedom IRA was originally featured on Whiskey and Gunpowder
Since the stunning result of the Massachusetts senatorial race, President Obama has softened his tone quite a bit, essentially saying to Republicans that if they have any good ideas, “Bring ‘em on.”
Whether he’s sincere or not remains to be seen, but the implication is that he’s unworried, because in his opinion the opposition party only knows how to criticize and doesn’t have anything constructive to say.
He needs to call Wisconsin Congressman Paul Ryan, ranking member of the Committee on the Budget, and have him over for tea.
Ryan is a representative who appears to take his job — overseeing the federal budget — seriously. In 2008, he introduced legislation called “A Roadmap for America’s Future.” It died, so he’s reintroducing it this year. It won’t pass, unless the Democrats somehow manage to lose control of the House. It’s just too simple.
It’s also breathtakingly visionary. In one fell swoop, Ryan takes on taxes, health care, Social Security, and the federal deficit, and fixes them all. He puts the government back on the road to solvency, something no other plan comes close to achieving. Most important, he wants to shift our mindset, so we finally recognize that the cure for debt problems is not to pile up more debt.
Income and Other Taxes
Ryan has a nicely targeted sense of humor. For those who can’t bear to part with today’s elephantine tax code, he leaves it in place, and anyone who loves it can still use it. For the rest of us: Single filers would pay 10% on income up to $50,000 ($100,000 for joint filers) and 25% thereafter, with a generous standard deduction and personal exemption ($39,000 for a family of four). That’s it. No loopholes, deductions, credits or exclusions. Fill out the postcard and mail it in.
Additionally, the plan promotes saving by eliminating a whole bunch of other taxes — on interest, dividends and capital gains. It scraps the alternative minimum tax and abolishes the death tax. It replaces the corporate income tax — currently the second highest in the industrialized world — with a business consumption tax of 8.5%, about half the world average, putting American companies and workers in a stronger position to compete in the global economy. And it allows for immediate expensing of new business investment.
Health Care
A refundable tax credit — $2,300 for individuals and $5,700 for families — to purchase coverage (from another state if they so choose) and keep it with them if they move or change jobs. State-based high-risk pools. Supplemental payments to low-income recipients, who can choose their care rather than be consigned to Medicaid.
Medicare
Large-scale, common-sense reforms involving vouchers and medical savings accounts, along with a very gradual rise in eligibility age, designed to preserve the best parts of Medicare while securing its solvency for generations to come.
Social Security
Maintains benefits for current recipients, while making the program permanently solvent by combining a modest adjustment in the growth of initial Social Security benefits for higher income individuals with a gradual, modest increase in the retirement age. Includes a property right, so that your vested Social Security interest does not die with you. Those who own these accounts can pass on assets to their heirs.
Making all this work would require some adjustments, though. Nondefense discretionary spending, for example, would be frozen for ten years at 2009 levels in nominal terms and allowed to grow thereafter by an amount linked to CPI.
There has been immediate criticism from Democrats, mainly centered around cuts to Medicare. And some of the objections could be valid; maybe the plan could be tweaked a little to bring more of the opposition on board. Or maybe they’ll just continue to complain because reducing the size of government doesn’t sit well with them.
But the thing is, even the critics have been forced to admit that the plan would probably work. How do we know? Ryan had the confidence to submit it to the Congressional Budget Office for analysis. As you probably know, the CBO has stated frankly that continuing along the current path leads to unsustainable deficit levels and bankruptcy for the country.
According to CBO projections, debt will spike sharply upward in 2015, rising — relentlessly and unstoppably — to over 700% of GDP in 2080. Of course, the economy will be destroyed and government forced to default long before then.
If Ryan’s Roadmap were adopted, however, the CBO estimates that debt/GDP would peak at 100% in 2043 and “decline thereafter, reaching zero by 2080,” then move into surplus. (For the complete CBO report, go here.)
Yes, all predictions are bound to be flawed. Yes, we must remain skeptical of anything that comes from a politician. And yes, it’d be better for government to shrink more than this proposal envisions. But, especially concerning taxes, it’s a big step in the right direction.
The president is wrong. There is another idea out there, and according to the government’s own budgetary watchdogs, it’s a good one. It “just” necessitates adopting a 75-year time line.
Of course, the odds of Congress looking that far ahead are slim to none, and you know where Slim is. But who knows, if enough Americans beat the drum for Paul Ryan, this country may actually have a future.
Regards,
Doug Hornig, Casey Research
for Whiskey & Gunpowder
March 3, 2010
Paul Ryan Could Save America was originally featured on Whiskey and Gunpowder
There is a silver lining to every snowstorm — getting to know your neighbors both good and bad. With forty inches on my block this week, I’ve learned a lot about my neighbors and, strangely enough, socialism.
My corner of Baltimore seems like a good place to ride out a storm. After all, innumerable cars are plastered with Obama bumper stickers, and windows display signs like “Universal Healthcare Now.” In essence, it’s a very liberal neighborhood in an extremely liberal state. What better neighborhood to be in times of need, right?
The architecture ranges from early 19th to early 20th century row homes, which as a result demands parallel parking. This isn’t a great inconvenience most of the time, but with the snow, it’s an absolute nightmare. First the clouds drop forty inches. Then the city snow plow piles another mountain from the street onto your car.
Successfully liberating the vehicle from its icy prison can take hours. After leaving the spot, anyone can take the laboriously freed space. Restoring regular parking conditions quickly requires everyone chipping in for the common good.
During this street clearing process, my neighbors sorted themselves into four groups:
1. The Saint (1% of the neighborhood) — Every couple of blocks resides a truly amazing human being living to serve others. He’s shoveling out his neighbors’ cars, dumping bags of rock salt down the whole street, and passing out shovels like he owns a hardware store.
2. The Good Citizen (15% of the neighborhood) — A caring person doesn’t just shovel enough snow to drive away. He carves out the front and back. After leaving his spot, someone else can parallel park without digging. If everyone did this, normal parking would resume in a day — if not less.
3. The Self-Interested Person (70% of the neighborhood) — This guy doesn’t really care about helping anyone. He carves just enough in the front to get out. The next person must dig before parking.
4. The Malicious Creep (14% of the neighborhood) — Instead of shoveling snow to the curb, the creep stacks snow onto his neighbor’s car. This saves the creep approximately fifteen minutes while adding an hour to his neighbor’s work.
While my neighbors love Obama and universal healthcare, they obviously aren’t such good socialists on their own block. This is no surprise; everyone on earth is an armchair Mother Theresa. We all have noble thoughts at the coffee shop or over beers. But when the snow shovel has to come out, so does the truth.
So let’s face it. Universal healthcare supporters are much like the folks on my street. There are a couple of saints, a few good people, and a large chunk who are either self-interested or just plain selfish. Most support it either because they will benefit directly, or they think the tax burden will not be placed on them.
According to a recent Gallup poll only 34 percent believe that healthcare reform will personally increase their costs. Gallup also points out that most don’t think healthcare reform will benefit them personally — hence they are supposedly altruistic. But it’s not altruism when only 34 percent believe that they will do the shoveling.
You don’t think this is true? Just look at the Republican Party’s anti-universal healthcare campaign. The GOP hasn’t appealed to morality or fairness, but instead to selfish elements among universal healthcare supporters. The message is that the plan will cost more for everyone and your healthcare will get worse. So far the campaign has worked.
One can speak sweet nothings while pleasantly sitting around a warm fireplace. But in the end, a snowy day and a shovel will always reveal the selfish nature of a socialist underneath.
Regards,
Vedran Vuk, Casey Research
for Whiskey & Gunpowder
March 2, 2010
Snowstorm Recovery Reveals Truth About Socialism was originally featured on Whiskey and Gunpowder
Last week marked the one-year anniversary of the American Reinvestment and Recovery Act, or the stimulus bill, passing into law. While the debate over its success has been focused on whether or not it is stimulating the economy and on various questionable uses of funds, in my estimation this legislation is accomplishing exactly what it was intended to accomplish – grow the government.
Those of us concerned about the ever-increasing level of government debt gasped at the astonishing $787 billion cost estimates for this bill. True to form it has actually cost 10 percent more at $862 billion. We heard over and over that government could not sit around and do nothing while people lost their jobs and houses. The administration claimed that unemployment would not go above 8 percent if the stimulus bill passed. Now, a year later, the government estimates that unemployment is over 10 percent. The real number is closer to 20 percent. It appears that those promises were total fabrications in order to close the deal.
In any case, the American people know that more government spending obviously equals more government. If the goal was to strengthen the private sector, Congress would have allowed businesses and individuals to keep more of their own money through meaningful tax cuts. Outrageously, the administration claims that they did “cut taxes” by reducing withholding, and that they have stimulated the private economy by increasing the amount of money in every worker’s paycheck. What they fail to mention is they did not change the total amount of taxes due. This means that all that money not withheld from paychecks will add up to a big unpleasant surprise when returns are filed this year. Many tax preparers are already seeing shocked taxpayers having to come up with big checks to the government when they normally expect a refund. Stimulus, indeed!
The administration also claims that thousands of jobs have been created or saved by this massive spending bill, but these are just more government jobs, and counterproductive in the long run. Funding for the public sector necessarily comes at the expense of an overtaxed private economy. But, it makes sense that government would seek to expand its payroll since every new bureaucrat becomes a likely advocate for big government, when an increasing number of Americans are demanding the opposite. But the more the burden, the closer the government parasite comes to killing its host.
Rather than learning the lessons of the past year, the administration is moving full-speed ahead to do even more economic damage. With the stimulus bill set as a precedent and victory declared, another “jobs” bill is in the works. And, in order to address the unavoidable issues of our massive deficit, the administration has named a bi-partisan commission to find ways to decrease it. Tax increases on the middle class are notoriously back “on the table,” exposing that campaign promise as another instance of merely saying what the people wanted to hear. If the obvious solution to our spending problems was seriously put forth, that is, getting back to the constitutional limitations of government, I would be shocked. More likely, this will be a tactic to increase taxes and spending in a way that passes the political buck.
Regards,
Ron Paul, LewRockwell.com
for Whiskey & Gunpowder
March 1, 2010
One Year After the Government Stimulus was originally featured on Whiskey and Gunpowder
Tuesday the Fed auctioned off another $37 billion in 4-week T-bills. My first thought was that this is reminiscent of “payday loans” shops, except the rate of interest is far lower when the question is, “Buddy, can you spare $37 Bil’ until next month?” but the mechanics were very interesting again and echoed what happened in January.
There are two types of bids in these auctions: competitive and non-competitive. The non-competitive bidders agree to buy the bonds at whatever rate the Fed offers. The competitive bidders will buy the bonds only if they are paying some minimum interest rate. When the bonds are auctioned the non-competitive bids are accepted first at the lowest interest rate offered by the competitive bidders. Any bonds left after the non-competitive bids are sold to the competitive bidders in the order of increasing interest.
Last Tuesday, the lowest bid was 0.0% – no interest. The highest bid accepted was at 0.055%–almost nothing. Nearly 99% of the bids were competitive ones. This makes sense – who in their right mind would buy a bond that pays no interest? (And who DID buy a little over 1%’ worth?!) But almost 30% of the bonds went at the HIGHEST yield. This is quite unusual. How many bidders are going to guess the exact percentage down to the thousandth of a percent? This could signal the market is starting to demand higher interest rates to buy U.S. debt and we will likely have to pay more interest in the very near future, a nice traditional attitude, or at a rough cynical guess, at the very least somebody knew something ahead of time about just how high competitors were willing to go and how much money they were willing to spend. Let’s worry this one around a bit. Forget the interest, which is inconsequential. The first two questions that cross my Medieval mind are “Who was confident enough of prospective buyers’ interest in T-bills to hold off and demand ‘top’ dollar?” and “WHY did they want ten billion in short term bonds–four weeks being very short term–in the first place?” The interest isn’t even penny ante; there is almost certainly more money to be made in lightning trades.
The only answer that sprang to my mind immediately was that someone knew or had strong reason to suspect that it will be safer or more advantageous to hold one sort of government paper rather than the same government’s fiat currency very soon. On the surface, one would suppose the things are interchangeable, which only makes me wonder more what is lurking down in the murky depths. If I know that my competition is willing to buy two-thirds of what is available…and that all the bonds must be sold lest the foundation rock even more under the monetary world (and by the rules of the game)…why do I put in my top bid at 0.055%? Why not try for more, toss in .075%, perhaps, and see who blinks?
What do I really want, the interest, to keep up the sham of an auction, or to hold the T-bills for what they represent/may be worth at a later date?
Let’s let that percolate through the assorted facts and theories in our minds while we look at WHO was buying the bonds.
There are 3 types of bidders in the competitive bid world:
Historically, these are individuals or banks that are not members of the Federal Reserve System. In the last year the Fed has also bid on the T-bills it was issuing through the indirect bidder channels. This is one of the ploys that makes honest folks like us whimper, because it seems like money laundering or Dr. Seuss’ Star-Bellied Sneetches. After the money has been run through the machine several times it can be quite difficult to keep up with what is “real” and what is imaginary, even for fiat currency.
Swapping trading cards is one of the ways they have accumulated their $5.1 trillion balance sheet. Note: Indirect bidders are reported through the primary dealers. Whimper again. If the Primary Dealer doesn’t have to report that he bought, how does he explain reporting who he sold the T-bills to? “Oh, look, the cute wee elves drank the little bowls of milk we put out for them and left us certificates to sell!?”
It is…disturbing…that only 19% of the paper was bought by Direct Bidders, i.e., by foreign governments.
“Primary Dealers are required to buy whatever debt does not sell at auction. Thus it is possible, although unlikely, that the Fed just could not sell the full $37B and the Primary Dealers were forced to eat it. The reason I say this is unlikely is because $37B is a LOT of money even to organizations as big as the Primary Dealers. The Fed is NOT going to put their buddies (the Primary Dealers) in a cash flow bind if there is any way they can help it. But, if the primary dealers did get stuck with that big a chunk, it would mean that our debt is not even AA rated (as Moody’s has been reporting lately.)” comments my friend, Mike. Well…maybe. We were batting around the idea after a recent auction that there weren’t enough direct bids to cover most of the T-bills offered and speculating on the ramifications of that. It should be noted that the rules/definitions of what constitutes an “indirect bidder” have been loosened and fuzzied recently which hardens my suspicions that because our paper is being seen as less and less desirable new ways of disguising who is buying (or “buying”) are being sought. There have been rumors, let’s call them, of funds being transferred to other nations who use them to purchase/”purchase” our bonds. It could be that Citi has laid the groundwork to spring the “no withdrawals for 7 days” scheme to cover forced buys anticipated in an auction in March.
To digress only slightly into the banking situation, Citi is in bad odor this time for warning customers that effective 1 April it will “reserve” the right to deny withdrawals for seven days, almost certainly “banking days.” (See “New Meaning to Special Drawing Rights?”) Wells is in deep kimchee, WAMU and over a hundred other banks are pushing up daisies…banking in general is a pretty dicey business for anyone without a platinum parachute and/or the ability to pull strings…something like 700 banks are in the coronary ward…and FDIC is down another big hunk ($21 Bn) and gasping on the way to reaching into their $500 Bn from the Fed.
Last Tuesday, nearly 70% of the debt issued went through the Primary Dealers and will either be resold to indirect bidders or kept by the Primary Dealers. (In normal times the goal is for the Primary Dealers to be stuck with the debt to leave indirect buyers free to invest their money in the stock market and corporate bonds.) But, then again, in normal times the Treasury is not issuing debt at these levels. Or with this frequency.
The last time this much of the debt issued went through the Primary Dealers was in mid-January of this year. That did not alarm many at the time because the stock market was generally going down and it was easy to suppose Fed paper was picked up by folks selling their stocks and parking their money in T-bills for a month or two until the market returned. This time seems different-–or maybe we’re just being cautious or even paranoid.
Nearly a third of the bonds purchased by the Primary Dealers went at the highest rate (30% of $37B–the amount sold at the highest rate–about the same as 43% of $25.9B, a previous result that I discussed in an article the name of which escapes me. I write a lot of the things, you know!)
It appears that a gaudy chunk of the Primary Dealer purchase went to one person/organization. My friend, Mike, commented “That certainly could be a ‘whale’ like a George Soros or Warren Buffet sensing–or setting up–an imminent drop in the stock market and trying to protect his money – even though the stock market has been going up more or less again for the last month, but it could also be the Fed again buying through the Primary Dealer channel to hide just how bad the quality of our debt is.” It gets harder and harder to hold on to that triple-A rating. Moody’s is of the opinion that AA is pushing it. Spontaneous laughter…maybe Timmy needs to get one of those firms that run banners across the bottom of the screen offering to straighten out bad credit ratings.
Hmmm…Once may be an oddity or somebody’s accountant dropping a decimal, but we’re starting to develop a pattern that I would be inclined to label a trend if we get one more dot that belongs on the same plane. Three dots may show us who’s playin’ with the money. Recall that the Fed announced that it wouldn’t buy any more after 31 March, 2010, so in the next month Uncle Sam needs to come up with a new player in the game of “you buy mine and I’ll buy yours.”
Are you, too, starting to feel that all of this is meshing in ways investors aren’t going to like? The knowledgeable gentleman who brought these facts to my attention commented “at least a 60% chance that Direct Bidders (China, Japan, etc.) no longer want U.S. debt and we are going to start seeing bad inflation in the next few months and the ‘bad’ inflation will turn into ‘way bad’ inflation within a year because the Fed is just monetizing the debt through the Primary Dealer channel.” Optimists forecast hyperinflation no later than 2012, but only the green shoots crowd doesn’t expect it by then. That was my tentative conclusion in January, when we had an auction that looked like this. The banker boys are playing ring-around-the-rosy with electronic digits, or, to put it bluntly again, laundering fiat money.
Knowledge comes from tearing words and figures apart hunting for contradictions, nuances, and straws in the wind. We’re past the occasional straw and looking at what (honest!) is known as a “flake” of hay, a hunk ripped off for an individual animal. That’s useful terminology on more than one level: the well-positioned flakes are ripping us off, as usual, but it is also possible that some of them will be eaten in the process. If all the banks on the watch list fail the estimated bite for FDIC is something like $409 Bn, which, when added to how much it is in the red now, would wipe out c. 86% of the imaginary “special fund,” and another half a trillion dollars.
Analysts work with what we’ve got and keep dumping data in the hopper. Our..inner minds?…extrapolate from the handful of puzzle pieces we have and test hypotheses and conjectures, worrying bits of data that don’t appear to fit anywhere, and leaping blithely over several missing steps when necessary to form working hypotheses. If the picture appearing weren’t so unpleasant I would be enjoying myself because quite a few bits are slotting into my mental grid very neatly. A reader asked recently that I write an article on how I think and analyze, and the one- sentence answer is “Accumulate a lot of information and impose order on it.” In time we learn to deduce what the probable structure is and keep that hypothesis in mind until something disproves it. Not closing our minds in the process! We’re trying to discover the truth, not pushing global warming.
Facts that indicate we’re in for–at best–the Greater Depression with strong possibilities of civil unrest or even dictatorship have been accumulating for several years, now. All that has varied are the time table and speculation on which pillar will collapse first placing further stress upon the remaining supports. Every additional strain makes the aging system that much more rickety, and here in the Whiskey Bar we’ve been expecting the collapse of the commercial real estate bubble–and the collapse of the bond market. One odd recommendation I haven’t found a logical home for in the emerging picture is taking physical possession of stock certificates. Helpless gesture; I didn’t think anyone who dealt in round lots ever wanted to hold those things. Don’t we just leave them “in street name?” Ideas, anyone? A simple answer is a pitying, “You were a trader, so you never planned on holding anything you bought for more than a few months to a year or so. People who are in it for “growth” or “investment” should keep up with such papers in case the computers all go out.”
I expect the bond market to go first, and soon. As Abraham Lincoln asked, “How then will I fill my coffers?” If the Washington gang can’t sell paper to cover creating “money” out of thin air, where will they go for funds? My call is the GRA, a grab for the fifteen trillion held in private retirement accounts of one sort and another. I’m no Miss Cleo, but the sheer relief of “solving” the projected debt now and through perhaps 2020 will almost certainly set off an even bigger bender of government spending. Hurrah, hurrah, they don’t have to decide between shutting down a lot of useless, detrimental government programs and throwing Grandma out when she needs an MRI…can put off whether to make trial lawyers or union/government pensions take the next hit…can put off cutting welfare programs while inflating their way out…They think. Some day soon we’ll discuss Juan and Eva ruling Argentina.
Sorry, Charlie, as the old tuna commercial went. The only way from here is down, down, down.
The above was my first draft, which I sent to Pete (the Middle East expert), Mike (who sent me the basic figures, darling man that he is) and our own Tex Norton, before leaving the matter to bubble through my brains. Today is when things really started to pop. Tex wrote back thanking me for the “brilliant” thought that there may come a time when an instrument denominated in dollars may be worth more than the face value–and my mind bonged “Ka-ching! Like silver ‘dollars’ being worth more than FRN.” I thanked Tex prettily but started writing that I’m not fully responsible for what the gremlins in the gray matter do. Just as I prepared to write that I didn’t know why that such a disparity in relative value might be, my brain smacked me firmly. Of course I can account for how it might be that a short-term T-bill could suddenly be worth more than face value.
Two things were obvious instantly and my brain added, smugly, “And don’t forget Hugo Chavez.” Right. He devalued lately, but there is a tiered system; what your money is worth depends on where you are spending it. Brain also said, “GM, yoyo.” Right; what your stock was worth after the government takeover depended upon whether you were union, management, or Joe Nobody who owned 22 shares. The “obvious” reasons were what we know about legislation with short sections that exempt “certain corporations located in New Jersey” or American Samoa, and SPQ-USA, where Senators rail loftily over bonuses they had already approved in previous legislation. Ayn Rand, of course, and the “frozen” railway bonds which could be melted by those with pull and cash. Piece of cake.
The fix is in, and in time to come–perhaps very shortly–some bonds may be more valuable than other pigs. My advice is that we NOT buy T-bills because that’s bound to be a mug’s game; the rules will be written carefully to benefit only connected players, and not for the man in the street or even the Whiskey Bar.
Regards,
Linda Brady Traynham
March 1, 2010
Gaming Imaginary Money was originally featured on Whiskey and Gunpowder
I logged 9,814 air miles. Took four different flights. Spent a total of 54 hours traveling. All to meet with a man they call “Mr. GO Deep…”
“Mr. GO Deep” is the go to guy in offshore oil development. Oil companies pay him HUGE consulting fees in hopes to identify the next deep or ultra deep offshore oil deposits.
Yet in my recent trip down to Brazil, “Mr. GO Deep” sat at a table with me — just me — for two solid hours, explaining what he’s doing in the energy world. And why, while offshore Brazilian oil is good, there’s another deep sea play with even better oil prospects. Then he handed me off to several of his able staff, who were equally generous with their time and perspective. A first-class act, in every respect.
Here’s what I’ve found, along with a few ideas of how you can take advantage of the secrets he shared…
Meet “Mr. GO Deep” – The GO TO Man in Deep Oil Discoveries
The man I’m talking about is Marcio Mello — the always-ebullient Brazilian geochemist and CEO of Brazil’s HRT Petroleum Co. I first met Marcio back at last year’s American Association of Petroleum Geologists (AAPG) convention. He wowed the crowd with a discussion of the oil potential of the South Atlantic.
“The Namibian offshore is analogous to that of Brazil,” Marcio stated, with slides and hard data to back it up. Then he showed his proprietary research into natural offshore oil seeps off Namibia, and the geochemistry that demonstrates immense hydrocarbon potential. As for the reservoirs, he showed a slide of proprietary seismic data. “And look at this turbidite stuff,” he yelled, as a couple hundred seasoned geologists in the room both gasped and chuckled.
Indeed, Namibia is destined for oil riches. “But Namibia,” said Marcio, “is way underexplored. So you can put down a little money for the concessions and get very rich.”
Any mention of “very rich” makes my ears perk up. When I questioned Marcio further about the offshore Namibia deposits, he was gracious enough to invite me down to see his facilities in Brazil.
Here’s What I Found About Namibia…
I looked at seismic. I saw geochemistry. I saw satellite data. I saw gravity and magnetic maps. If there’s a frontier spot on earth where you can say that drilling risk is low for wildcat development, it’s offshore Namibia. (You just have to be sure to drill in the right place.)
Nothing is easy, of course. There aren’t a lot of wells offshore Namibia. Just a handful. But we know there’s a giant natural gas field at Kudu in the south, immediately north of the Namibian territorial line with South Africa. So there’s a hydrocarbon system out there. Now we know there’s gas, so where’s the rest of it? As Marcio says, “If I see a little baby, I look for its mama.”
After a week in Brazil, I can say something significant. It’s that right now, some people (guess who) know more about the deep regions offshore Namibia than Petrobras knew about the deep Campos Basin off Brazil before it drilled the Tupi discovery and found 12 billion barrels of oil.
The Secret Finding Namibia’s Oil
To understand what Marcio brings to the table – and his secret for finding deep oil plays — you first have to understand how big oil companies think about exploration…
There are a couple of different exploration philosophies among big oil companies. One philosophy is that the oil company gains an offshore concession and works the heck out of that concession. It puts big bucks into seismic, seismic and more seismic. Then it drills the biggest structure on the concession and MAYBE finds oil.
Or maybe not. Maybe the oil company drills a dry hole, because there’s a big structure with no oil. There are all sorts of geological reasons why this might happen. The bottom line is, “You have a wine bottle, but there’s no wine in it,” as Marcio says.
Another exploration philosophy is that an oil company gains an offshore concession and looks across the entire region for evidence of a petroleum system. Where did the oil and gas originate? Where’s the “oil kitchen”? What are the migration pathways? Where could that oil be now? After a lot of work at the REGIONAL level, then the company hones in on its concession and drills — and it’s not necessarily the big structure. Maybe it drills lower down, like in the oil kitchen.
I’m telling you things that people have spent BILLIONS of dollars learning the hard way. This is information that took Petrobras years to develop. Marcio had an uphill fight at Petrobras for a long time, working to replace “turbidite” thinking (a prolific kind of oil-bearing formation) with “petroleum systems” thinking.
Today, this “petroleum systems approach” is the kind of thinking that Marcio brings to the table.
Why Namibia’s Oil Is Even More Promising Than Brazil’s
If you’re a long time Whiskey reader, you already know I’m very bullish on Brazilian oil opportunities. But there are some things that make the Namibian oil plays even better. Allow me to explain…
Brazil is about to pass a set of new petroleum laws that will put its entire pre-salt region under the jurisdiction of a new national oil company (NOC), meaning NOT Petrobras, which is publicly owned. Future pre-salt deals will be along the lines of production sharing arrangements (PSAs) with the NOC, which private oil companies HATE because they can’t book the reserves and impress Wall Street.
There are all sorts of issues about how much interest Petrobras will get in future Brazil offshore concessions (30% is the current number). And how Petrobras will be the operator, on behalf of the NOC, of all future pre-salt plays off Brazil. It’s going to be complicated, if not hairy!
The bottom line is that if an international oil company wants to look for big oil fields, like pre-salt plays and find and book those huge volumes of oil, it has to go somewhere else.
Where else? Why… Namibia, of course! Offshore Namibia, you can get 10 times the acreage for 1/10th the price. For now..
There are many ways for you to take advantage of this discovery. First, if you’re looking for a home run opportunity, try searching some of the smaller oil companies with concessions in Namibia. You’ll want to look mainly at ones that are pure plays, though. A second, less exciting but safer way to play it would be to look at some of the big oil service companies that provide the drill bits, rigs, and hardware for general deep sea oil discoveries.
Until we meet again,
Byron King
Whiskey & Gunpowder
February 26, 2010
Could Namibia Be Ten Times Better Than Brazil for Oil? was originally featured on Whiskey and Gunpowder
The European Union and the United States should consider the successful freedom model of Swiss confederation government rather than the failed top down examples of other nations and empires. Few would question that Switzerland is the most secure, stable, and freedom-oriented nation in the world but it is time to ask what is so unique about the Swiss.
The answer is there is nothing particularly different about the nation or its people. They like to work hard, play hard and provide a good life for their families. So do the citizens of most other nations when given the opportunity.
They prefer peace and diplomacy to war and aggression but will fight to defend their independence and liberties. They prefer a stable currency, low taxes, financial privacy, economic prosperity and a government that represents and defends the people. Again, these are not unusual wants but few nations and governments provide an opportunity for these basic human needs and rights to flourish.
So why is Switzerland different? Here are some examples of why the Swiss government model works and the European Union and American Union have failed to deliver on their big-government utopian promises.
National Expansion By Voluntary Association vs Force — The term “Willensnation” is a Swiss concept of national growth and expansion by attraction through the voluntary association of neighboring principalities, cities, and individuals. This makes Switzerland a nation created by acts of free will rather than force. Growth by attraction of those willing to be part of the Helvetian Confederation rather than war and invasion have served the Swiss well over the last few hundred years of peace and prosperity.
How totally different from the American model of “manifest destiny” and military aggression which is how most of the national expansion of the United States took place. The growth of the Union was followed again by force with the outright invasion of the Southern states that decided to leave by Lincoln’s armies during the War Between the States.
The history of Europe has been far worse than the US both historically and now with the EU. Today the citizens in most European nations were never allowed the opportunity to vote on throwing away their national sovereignty and coming under EU rule. Whether these nations can voluntarily withdraw is still an open question.
Tax Competition vs Forced Tax Harmonization — In Switzerland the vast majority of taxes are collected at the canton (state) level while the federal income tax level is quite small and comparable to state tax rates in the United States. This allows different cantons and even localities in individual cantons to dramatically compete for residents, corporations, businesses and even retirees.
The tax difference can range over 20% of income from high-tax cantons like Zurich and Geneva to low-tax jurisdictions like Zug. Tax competition keeps the cantonal governments lean and productive and the politicians honest. Retirees from outside Switzerland can even create a type of low-bid competition for a set amount or percentage tax rate between cantons. This is the ultimate in tax competition.
In the US, there is little reason to move or locate businesses in specific states because the majority of the parasitic tax burden is universal at the federal level. The tax difference between the few states with no income tax and the others is minimal and with most states and cities on the verge of bankruptcy like the federal government, taxes will be rising everywhere.
It is the same with the failing European Union. The EU preference is a harmonized tax rate that guarantees a steady supply of revenue to governments and politicians and the ultimate goal is to end low-tax jurisdictions so there will be no tax competition. For example the EU requires a VAT tax of at least 15% in each country whether the nation or people want or need this burden on top of already crushing income tax rates.
Competing Currencies vs Currency Monopoly — In Switzerland, most retailers, hotels and restaurants will gladly price your purchase in Swiss francs or the Euro depending on your preference. Change is given in Swiss francs but the freedom to choose your preferred currency is usually available. Recently, in the Zurich train station, Burger King was even accepting dollars on a one to one basis with the Swiss franc.
Contrast Swiss currency competition to the silence from US political establishment when Ron Paul called for currency competition here in the US. Private entities like the Liberty Dollar people are threatened and imprisoned just for attempting to offer a gold and silver alternative to the Federal Reserve’s fiat paper dollars which have an intrinsic value of absolute zero.
Here the European Union nations do have a possible alternative to the Euro. Each nation should again issue their own currency and allow it to circulate with the Euro with each national central bank or treasury pegging the national currency in a range relative to the Euro just like the Swiss central bank does.
While much has been written about how the EU is threatened by the government debts and questionable accounting methods used by nations including Portugal, Ireland, Greece and Spain, why should the concern stop here? Today’s Greece, could be tomorrow’s UK, France and even the United States. Few of the western democracies have a monopoly on corrupt politicians or out-of-control national debts.
Ultimate Citizen Control vs Political Establishment — In Switzerland, the voters ultimately rule over the politicians and political elites due to the political rights of referendum and initiative. Is the majority always right, of course not as Thomas Jefferson warned about the dangers of democracy and mob rule but at least they aren’t always wrong like politicians controlled by special interests. Switzerland has a very weak “confederation model” central government with most of the programs, regulations and taxes handled at the local level. This way programs benefit the people rather than powerful federal politicians and interests like in most other nations.
Switzerland has a neutral non-interventionist foreign policy because this is the will of the people. This is why the Swiss waited 50 years to join the United Nations even though most of the UN organization is based in Geneva.
For similar reasons, this is why the Swiss have a stable currency, why individuals can buy stock in their central bank, why they have financial privacy and a low crime rate. The Swiss people demand this from their government or else the people will act. They can nullify a law or legislation by referendum or pass legislation through the right to actually create legislation and laws by-passing parliament with the right of initiative.
Again, this is a direct contrast to the United States where everything runs downhill from the federal government to the states, local jurisdictions and ultimate the people sort of like a political sewer system. Our representative democracy does not allow direct citizen control or oversight at the federal level and this is why the will of the people is usually ignored other than with false rhetoric at election time.
The EU should act as a decentralized confederation of sovereign states similar to the Swiss Confederation as did America’s first government, the Articles of Confederation if it wants to prosper and benefit the nations of Europe. Each nation should be given the opportunity to vote on membership, to have the option of maintaining their own currency and uniqueness of their nation.
Time to Look at a Successful Political Model — Both America and the upstart European Union would do well to look at the Swiss model of limited government over state jurisdictions rather than the failed dictatorial and fascist models which are all too prevalent in history. Freedom, liberty and independence have survived to a remarkable degree in Switzerland for hundreds of years despite the hatred and fear both near and far from nations and politicians more interested in looting their citizens than in promoting liberty and limited, efficient government.
We are in the death throes of the grand experiment of top down, special-interest-controlled government and fake prosperity based on unlimited debt. The time is up for Brussels, sell-out national politicians and Washington. I hope the political elites and international financial interests who screwed the people of the world and future generations all for short-term profits and political gains will be held accountable.
How About Freedom? — Finally, it is time for the nations and peoples of the world whether occupied by corrupt political elites or foreign troops to demand what the Swiss have had for centuries: a government of their own, controlled by the citizens that works to benefit the nation instead of outside interests. I truly believe unique Switzerland has the government model which holds the key to freedom, prosperity and independence for many nations in the world today.
Now is the time to work, build and restore a limited government which promotes freedom and free-markets rather than force in governing and solving problems. George Washington, Thomas Jefferson and our founding fathers would do no less and we can do no more.
Regards,
Ron Holland, Lew Rockwell.com
for Whiskey & Gunpowder
February 25, 2010
Why the Failing US and EU Should Follow the Swiss Government Model was originally featured on Whiskey and Gunpowder
Most people think that “special drawing rights” have something to do with the IMF and don’t affect anyone below the top levels of the banking industry and heads of state if they have ever even heard of them. We here in the Whiskey Bar not only know what SDR are but we keep a leery eye on banksters and pranksters in general.
Some of us advised long ago pulling a big hunk of cash out of the bank every Friday afternoon just in case yours is “it” in the next round of “Friday Surprise.” No harm done, you can always redeposit on Monday if the doors are open, and interest paid on checking and savings accounts is so close to infinitesimal that withdrawals make a very sensible and economical insurance policy. Mind, we are regarded as a little paranoid, and sometimes we get superior smiles when we point out that the suggestion has been made that SWAT teams be put in banks to insure orderly withdrawals…and then they doubled the amount covered by the perilously near insolvent FDIC…and today there was confirmation of a twist on other “precautions,” although short of a bank “holiday.”
What if someone refined SDR on the personal level to mean “the ability to cash a check at your local bank?”
John Carney reports in Business Insider:
“Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change,” Citigroup said on statements received by customers all over the country.”
Some of us are cynical enough to suppose that means “seven business days,” which is actually nine days for almost all banking institutions. And that Citi wouldn’t disclose this information if it were not required to do so. And that this means that when a Citi customer walks up to an ATM during such a ban on withdrawals it isn’t going to disgorge money upon swiping a debit card and entering a PIN number, either. Gee…it may well mean that Citi will not honor checks written to the electric company, your mortgage company, your country club, or your gym, either. You will notice that their bland statement does NOT say that you will not merely be denied the right to write a check for cash. It uses the inclusive “withdrawal from all checking accounts.” That “ALL” in there may not be a bank holiday but it is certainly more than a lost weekend if you are unable to access your funds.
Before continuing I’m going to put in a plug for my favorite bank, First Convenience. They actually mean it! I have my choice of two locations nearby, inside WalMart and in the Kroger’s grocery store we frequent, and at least one other farther away. (BoA has one in the twin cities. Wells has one.) FC is open from seven a.m. until seven p.m.–six days a week! The slackers are only open from noon until four on Sunday. THIS is real convenience for a night owl, being open hours I’m in town in locations most of us visit anyway.
Their hours and locations are not the only reason I cherish First Convenience. I don’t think they are likely to go under, and I really like being on close personal terms with my bank manager who is available between those vital hours of normal closing time Friday and possible opening hours on Mondays following at traditional banking institutions. I always stop and pass time with Kenny and the girls, even when I have no business. Perhaps at that level they won’t know anything interesting before those who are watching the monetary situation do…but perhaps they will. I am informed that there are rules and matters bank managers and brokers are forbidden to tell clients, but I think I’m empathic enough to recognize a shattered bank manager or that if he said on Saturday, “Mrs. T! You didn’t make your usual Friday withdrawal!” when we both knew I had, that I’d “get” it, no rules broken. As Robert Heinlein observed, “Sure, the game is rigged, but you can’t win if you don’t play.”
This is banking as I knew it 50 years ago; I called Kenny a couple of weeks ago to be sure he had enough spare cash to pay for the bulldozer we bought before I sent the former owner over with my idea of a pretty big check. Storefront banks don’t always have big piles of bills in their small vaults and they appreciate a little advanced notice to accomodate customers. He did, big smiles all around. If YOU can’t get your bank manager on the ‘phone immediately, try First Convenience. (No, I don’t own stock in FC.)
Here is another interesting aspect: “‘The seven day notice policy only applies to customers in Texas,’ Ira Stoll reports at The Future of Capitalism. ‘It was accidentally included on customer statements nationwide.”
How very interesting. Only Texas is being targeted? Accidentally included? Does all their billing come out of one location, such as Dallas? Unlikely. Posssible, of course.
“Whatever the explanation, it doesn’t exactly inspire confidence in Citi,” Stoll writes. “But it’s hard to believe a bank would be sending out a notice like that on its statements.” No kidding. Are we to suppose that the preponderance of Citi’s funds are in checking accounts in Texas?! Well, Texans certainly brag about how rich (other) Texans are, and we have more than our fair share of millionaires and a billionaire or three, but I can’t see that sequestering local funds for up to nine days would solve a bank-shaking event. It would, of course, buy a considerable hunk of time.
This “mistake,” if such it is, does allow Citi to take the policy nationwide at any time. “You were informed,” they can say loftily.
Let’s go back to that intriguing, “While we do not currently exercise this right and have not exercised it in the past…” Hmmm. Passing lightly over the fact that few of us would entrust our capital to banks unwilling to hand them over on demand…For years banks have put holds of up to two weeks on deposits (a length of time that may have made sense when such things were handled by snail mail instead of electronically), which can be justified by the supposition that not all bank drafts will be honored by the fiduciary institutions upon which they are drawn. (Remember to tell your kids to cash local checks at the bank upon which they are drawn; sometimes you have to settle for cashier’s checks instead of cash if the amount is large, but your bank should accept that at face value since a CC guarantees the funds. Amazing what our children don’t know and might need to. I learned recently how very easy it is to change where your Social Security check goes–at least if you do it the way I did, which was to waltz into Kenny’s office and tell him what I wanted. One ‘phone call from him, done while I waited, was all it took. Confirmed, checks now going to FC.)
We have been tracking the problems of Citi–as well as BoA, Wells, and others–and marveled over a giant bank that made a “profit” only because of the bailout and used half of those profits for bonuses.
I consulted a friend in the industry and got this back: “No light…I imagine it is just precautionary should a bank run happen for whatever reason. Have bonus figures been released? If not, this may be the concern. Texas is a strong market for Citi. Citi is also very smart with holding money to maximize interest. For example, Citi chooses to do 401K matches annually in one allotment vs matching each paycheck deposit.” Hey, a few dollars here, a few dollars there, if you’ve got enough employees you’re talking real money.
If you can keep the float on all deposits even once for “seven days” that ought to pay the champagne bills, at least.
Still…”only in Texas.” There is something very odd going on, and perhaps it is “nothing” more than Citi being ahead of the curve and others will follow. Perhaps the regulation which obliges Citi to inform customers that it may or may not hand over their funds on demand stipulates a particular warning period.
Curioser and curioser…what forces a course like this, one which seems sure to cause a slump in share value and a rash of account closings?
Big banks make me nervous these days. At present I’m using small, local chains of fewer than a dozen banks that do not make loans on strip malls or MacMansions, and a military credit union that doesn’t do so, either. At the very least I think we should all scan this month’s statements from all banks carefully. If your bank has the gall to tell you that it has the authority to decide, capriciously, not to disgorge your funds on demand, I’d find another bank.
Citi may be in bigger trouble than we have deduced or they may be first with an idea intended to be a boon to bankers that bodes ill for our ability to conduct business as usual. Or, just possibly, this has something to do with the Fed’s decision (see my archived “They’re Going to Kill the Fed”) to stop purchasing treasury bonds on 30 March, 2010.
Gold, silver, and energy still look like the best places to stash our simoleons, but a hefty deposit under your mattress might be very comforting any time after April 1st if you’re still a Citi customer by then.
Regards,
Linda Brady Traynham
February 25, 2010
P.S.: We have always suspected that the fall of the dollar could be set off by some slight event; usually I put that as “China turning loose the butterfly.” The only way I can account for Citi’s announcement on what I know (other than the article referenced above) is so absurd I hesitate to “pen” it. I am really a very modest lady, for all my eccentric, colorful ways, and moving and shaking in my life usually means letting the fast-growing goat girls in to be fed and shaking up a gallon of calves’ milk replacer if we’re out of goat juice, or a little belly-dancing practice.
It would be interesting to know when the statements were printed, because no matter how ludicrous it sounds (and it really does), the fact remains that I wrote an article on the Republic of Texas for W&G and in less than a week my “count” on Google has more than tripled, and now Citibank has declared that slightly over a month from now it may or may not let Texans have money out of their checking accounts!
I guess it COULD be that the “right” person read the case for reclaiming Texas independence and decided the “right” to freeze all accounts for a week might be useful sometime. That is about as likely as me writing the economic equivalent of the Harry Potter series, but strange things happen in this world. Or it could be that Sherlocke Holmes is always right. If we can eliminate everything else, what remains, no matter how unlikely, is the truth. My money’s on devaluation of the dollar being right around the corner, but it is always possible that we’ll sing Judas’ song from Jesus Christ Superstar: “The world’s in ruins around us, and all because of you.”
I don’t think this is an April Fool’s joke. In all likelihood the analysis was right in the article on declaring the Fed–a private corporation–bankrupt in the near future. Too big to fail? Nonsense. It already has. ROFL…either way, maybe we’ll get a Nobel in Economics. LBT
A New Meaning to Special Drawing Rights? was originally featured on Whiskey and Gunpowder
Now… about that ‘recovery’…
It’s true that there are some signs of “stabilization.” The unemployment rate is not getting badder as fast as it was a few months ago. And house prices seem to have stopped falling – for the moment.
It’s also true that the economy managed to register positive ‘growth’ in the last quarter… mostly thanks to government spending and inventory restocking.
The trouble is, all of these things are consistent with a depression — especially a depression that the feds are fighting every inch of the way. In the 1930s, there were several years of growth… and there were great years for the stock market too. Then, things fell apart again. The nation ended the ‘30s not one penny richer than it had been when it began them.
And Japan has seen some good years and some bad years, too, since its depression began in 1990. Oddly, Japan’s population is falling… so in per capita terms, Japan’s downturn hasn’t really been so bad. Per person, the Japanese got richer over the last 10 years.
It’s also true that we use the term ‘depression’ a bit differently than most economists. Most economists believe GDP growth represents increasing prosperity. They think a depression is merely a recession, with negative GDP growth, that lasts longer and goes more deeply than normal.
Our definitions are better:
A recession is a pause during a period of growth. A depression marks the end of the period of growth… giving the economy a chance to make adjustments so that a new period of growth may begin.
GDP growth alone is a fraud. The gross number just doesn’t tell you anything worth knowing. It doesn’t really matter how fast an economy is growing. What counts is how fast it is growing per person… and whether that ‘growth’ is real or phony.
Growth is not the same as prosperity…
Someday, we promise you, modern economists will be ranked below doctors who bled their patients to death and jungle tribes who threw maidens into volcanoes. They are quacks.
These imposter economists think they can fix a recession and prevent a depression. When the private sector stops spending they urge the public sector to step in and replace the missing private spending. That, in a nutshell, is Keynes’ theory.
A nutshell is the appropriate container. Because there’s a world of difference between private spending and government spending. Private spending is voluntary; people choose to spend their money on things they really want. When the government spends, on the other hand, it is merely squandering stolen property. It may look like private spending. But it’s not at all the same thing. You can hand out checks to people; it’s not the same as when people earn money. You can build bridges and airports too… but they are only valuable to the extent that they are used efficiently. And you can hire all the government employees you want; they don’t necessarily add to the sum of human happiness or wealth (most likely they subtract from it!).
Just look at societies that put everyone to work. There was no unemployment in Cambodia under the Khmer Rouge! Or in the Soviet Union. North Korea is another good example today. They all show that putting people to work for the government doesn’t make them rich… it makes them poor.
Yet, these modern economists — Martin Wolf at The Financial Times, Paul Krugman at The New York Times, Bernanke, Summers and Geithner in Washington — believe that they can control and cure a depression. All they have to do is to keep the GDP expanding… and keep unemployment from rising. How? Just spend money!
The GDP calculators can’t tell a phony expense from a real one. Whether the government spends money to do something that is not worth doing… or hire someone who is not worth hiring… or just gives away money to someone who is not worth giving money to… the GDP quants don’t know the difference. They think one dollar spent is as good as any other…
… Even if it is a dollar that didn’t exist! (Don’t get us started on that one… )
And who knows if a job is worth doing? Only the person who pays for it. That’s the trouble with government employment; the people who pay the bills don’t make the hiring decisions.
Modern economists don’t even bother to think about it. All they care about is the unemployment rate… not about whether the job is actually useful or efficient. Want to boost the job rate? Easy. Just hire people. Does this make people better off? Of course not.
The Financial Times had a full page in its Wednesday edition devoted to China’s empty towns. Bloomberg has been on the story too.
It is the story of what actually happens when government meddles in an economy.
Last year, China ordered its banks to lend money to infrastructure programs in order to offset the worldwide financial meltdown. The banks responded, doubling their lending.
Observers in the West were stunned… and envious. If only we could ‘get things done’ like that, they lamented. If only our governments had more authority and control over the economy!
But let us go back a year and put ourselves in the shoes of the bankers. They must have had loan requests. Some of them they must have judged worthy of funding, others not. But how was it possible that the number of project deemed creditworthy doubled in the space of a few months?
Well, it didn’t happen. Instead, the Chinese government merely changed the rules of the game. The banks, under pressure to loan out money, reacted by lending it out… to marginal projects. Now, we’re beginning to read about them in the paper — mostly towns without any people. Just wait until China blows up. Then, we’ll read about banks without money. Stores without customers. And businesses without a prayer.
Regards,
Bill Bonner
The Daily Reckoning
February 24, 2010
Quack Economists and the Fraud of GDP was originally featured on Whiskey and Gunpowder
Wow! Did you notice? The IMF didn’t get any bids for its latest offer to auction 191.3 tonnes of the remaining gold that it wants to sell. Apparently the Central Banks of the world have shown a distinct lack of interest in the proposed bullion sale.
Gold game-over, correct? Not exactly.
Recall that India bought 200 tonnes of gold late in 2009 along with Sri Lanka and Mauritius; each of which also bought small amounts at the same auction. The IMF sale is purportedly based on the IMF’s desire to raise funds to help poor countries. I’ll leave a discussion of that ill-conceived notion for discussion at another time. The fact remains that the gold is for sale and apparently no buyers are willing to step-up and be counted. At least, not publicly counted. Wonder why?
There are probably as many excuses as there are potential buyers. One Philip Klapwijk, executive chairman of GFMS, the London-based precious metals advisor, thinks the IMF’s decision underlines a general lack of buying interest now that gold exceeds $1100 per troy ounce. After noting the publicity that India, in particular, received as a result of their purchase last year, it’s quite possible that other potential buyers simply don’t want to risk any adverse publicity.
China has been reported to be buying gold for quite some time as well as encouraging its citizens to also accumulate gold. It appears that China’s purchases thus far are from local mines within the country. One would think, therefore, that China would be a prime potential buyer for the IMF sale. Could it be that China doesn’t want to rock the US dollar-weakness boat? If China stepped up to the plate, the interpretation could be made that China had lost confidence in their US Treasury holdings. Possibly. It has been widely reported that Russia has also been accumulating gold and, therefore, presents a highly potential IMF-sale buyer. Russia doesn’t have the same US dollar exposure as does China, so their reluctance to step-forward is not immediately obvious.
Still another potential deal-killer is the outright disclosures themselves. Prior IMF sales have included specifics including the name of the buyer, the quantity purchased and the price paid. Gold is extremely volatile. Should the price decrease after such a purchase, the buying entity could then be ridiculed for having over-paid. Recall the ridicule still being heaped, rightly so, on PM Gordon Brown who, while still Chancellor of the Exchequer of Great Britain, managed to sell Britain’s gold stash at the very bottom of the market? You have to admit it takes real talent to be that stupid.
For at least the last two (2) decades, approximately 400 tonnes per year have been sold by central banks. Presuming this year will be no exception, an additional 191.3 tonnes on top of a 400 tonne average is not a small percentage increase. While the IMF has repeatedly stated that they wish to avoid disruption in the gold market and that they plan “phased sales,” what amounts to an almost- 50% increase in volume is certainly a major consideration.
It is also important to acknowledge that European gold sales have recently diminished. If this trend continues, an additional 191.2 tonnes sold could be somewhat insignificant. The jury is still out.
Where does that put us? Do we keep what we’ve accumulated, sell or buy more? To answer that question, you need to go back to basics. Recall why you started accumulating gold in the first place. Has anything changed? Is the dollar now stronger? (Well yes it is, but that is probably a short-lived phenomenon). Have the underlying ground rules changed? Since the world is awash in fiat, has anything really changed to cause you to panic out of your gold? Do I even have to address this question?
Yesterday, February 18, 2010, the Federal Reserve announced that they were increasing the Fed Discount Rate. That was certainly a surprise – at least to most observers. Was it meaningful? I suggest it was not meaningful. Recall that the Discount Rate is completely different from the Fed Funds Rate. The Discount Rate applies to the interest cost of overnight borrowing. If one bank finds itself short on reserves, it borrows from another bank overnight to keep itself within the required percentage reserves. The next day, it covers its needs for reserves and repays the loan. The Fed Funds Rate, on the other hand, refers to the rate banks must pay to borrow from the Federal Reserve. The Fed Funds Rate is much more critical to the actual cost-to-borrow rates businesses and individuals pay. What just happened is unimportant unto itself, but perhaps is more important from a perception viewpoint.
You’ve heard that perception is more important than reality. The immediate reaction to the Fed move was strictly perception because it certainly had no bearing on basic interest rates. Investors want to “know” that the dollar is being protected; that it is being supported; that it is not being sacrificed for the sake of covering the madcap spending spree from Washington DC. On the one hand, we know that the Discount Rate doesn’t affect dollar strength. On the other hand, the fact that the Fed would raise the Discount was apparently interpreted as meaning the Fed would also, some day, any day now (NOT), increase the Fed Funds rate, too, and thus protect the declining dollar. I submit that is why the market reacted positively. It certainly was not a reaction based on fundamentals. Perception works, at least for short time periods.
The argument for owning gold is that it offers an inflation hedge. With world-wide fiat money in circulation that is being increased in volume at the whim of the respective issuing governments, anyone interested in preserving their accumulated wealth must take pro-active measures to protect their positions. One way has been to stash capital in assets that tend to maintain value regardless of debased currencies. Gold has met that need for thousands of years. It’s unlikely that anything will occur to change that protection in the near future. Is this not still the basic protection we seek?
I’m always pleased when what passes for main-stream beliefs pokes fun at my investment portfolio. That tells me I’m still on the correct path to prosperity. I accumulated gold all through the 1970s as protection from the falling dollar. Recall that Nixon killed the dollar on August 15, 1971 when he closed the gold window. Anyone paying attention could then predict the outcome. Gold rose.
As gold rose in price, more and more folks became aware. In early January, 1980, several of us were having lunch at a restaurant when our waitress asked about our line of work. When we mentioned investment advisory, she volunteered as how she’d just taken a 2nd mortgage on her home and bought gold. After she left our table, I said “Guys, it’s time to sell!” I actually sold that afternoon – at $750 per ounce. That was $750 on the way up to the top at $850 before it crashed. Sold too soon, right? Wrong. Never be greedy. It was obvious by that time that the general public had become aware of gold and were now buying. In fact, it was a buying frenzy. As Bernard Baruch was fond of saying, “When the shoe-shine boy starts touting stocks, it’s time to sell.” We’re nowhere near that gold sell-point yet.
Yes, you now see more and more commercials advertising gold investments. At the same time, you see more and more ads from folks who will buy your “junk” gold. There are even Tupper-ware-type parties where neighbors bring their “junk” gold to sell to a visiting buyer. Then the sellers brag how happy they are that they were able to get rid of their “junk” gold and get real cash they can now spend. No mention is ever made that the price they were paid was far below the prevailing spot price of the underlying gold. What a deal!
Is gold in a bubble? Possibly, but if so, it still has a long way to go before the top is reached. The top will make itself known if you simply watch the market actions. In the meantime, what else can you do, if not invest in gold, to help protect your accumulated wealth?
Cheers,
Tex Norton
February 24, 2010
Follow the (Gold) Money was originally featured on Whiskey and Gunpowder
Tracking the numerous ongoing bullish factors for gold is quite a chore. There are, quite literally, so many compelling arguments for holding our favorite metal that I used to catalog them each month in our letter.
The reason there are so many “reasons” is because gold is unlike any other asset. It…
How many assets can you say have all those characteristics?
In spite of gold’s recent correction, the reasons haven’t decreased. In fact, the case for holding gold is stronger than ever. And over the past two weeks, a few “reasons” have surfaced that have fallen mostly under the radar. These, I believe, portend a higher gold price. In fact, it is catalysts like these that could end up in our children’s history books that, in retrospect, were obvious to see…
1. For the first time ever, China has invested in GLD, the gold exchange-traded fund. Their sovereign wealth fund, China Investment Corporation, recently invested $155 million in the ETF. The amount represents only 0.05% of the sovereign funds’ $300 billion, meaning there’s a lot more where that came from.
Those mainstream lemmings who predicted China was done buying gold now have to deal with the reality that this move more likely signals they are closer to the beginning — and not the end — of a long-term strategy to diversify into gold.
2. The Prime Minister’s Office in India is creating a stream-lined process so that the country’s state-owned corporations can “aggressively pursue the acquisition of strategic mineral resources.” The Indian government, normally known for thick-layered bureaucracy, has created a centralized body that will have “rapid strategic and decision making powers.” This is telling, both from the perspective that they see some urgency to the matter, and that the acquisition targets are minerals.
Given the country’s historic propensity to own gold, it’s not a stretch to think the yellow metal will be high on the list of “strategic investments.” Recall their government purchased almost half the IMF gold for sale last year in one fell swoop.
The upshot? Don’t be surprised to soon hear of India following China’s lead of buying precious metal companies and resources.
3. “Iran is now a nuclear state,” declared President Ahmadinejad last week. The Islamic republic has produced its first batch of high-level enriched uranium, which they claim is solely for electricity purposes but can also be used to create material for atomic weapons if enriched to 90%. In response, the U.S. imposed new sanctions, and the U.N. is considering adding more of its own sanctions, too.
The West recently proposed that Iran export its uranium for enrichment and then have it returned as fuel rods for a reactor. Iran demanded changes to that plan, which were rejected, so claimed they had “no choice” but to start enriching to higher levels on their own. “God willing,” declared Ahmadinejad, “daily production will be tripled.”
I’m sure this will all just blow over, right?
4. The U.S. government must inflate. Here’s another reason we think that sooner or later inflation trumps deflation… by 2020, government economists project that entitlement benefits (Social Security, Medicare, etc.), along with interest payments on the national debt, will devour 80% of all federal revenues.
This assumes entitlement benefits don’t grow, which, of course, they are. The overall national debt, meanwhile, will rise to 100% of GDP within a few years, an alarming level by any measure. Even Moody’s warned that our credit status could lose its triple-A rating if the nation’s finances don’t improve, an unheard-of prospect just a few years ago.
So, we’re abruptly fleeing our debt-adding habits, right? As you probably heard last month, Obama signed legislation that raised the cap on government debt from $12.4 trillion — already close to being breached — to $14.3 trillion to permit more borrowing. As Doug Casey has pointed out numerous times, this is the exact opposite of what the government should be doing and will have serious inflationary ramifications.
There’s only one way out: devalue the dollar to reduce the debt burden. And the direct result of that is a rising gold price. We may very well see another round of deflation, but the endgame is inflation.
What I would point out is that any one of these reasons would be sufficient for wanting to put some gold in your portfolio. It’s the cumulative effect that’s potentially scary, one that argues we should be overweight precious metals at this point in history. The reasons are numerous and, in my opinion, overwhelming.
Regards,
Jeff Clark
Senior Editor, Casey’s Gold & Resource Report
February 23, 2010
1,001 Reasons to Own Gold was originally featured on Whiskey and Gunpowder
If you were in charge of the educational system, what would you do and why? Mull that one over while I tell you how I would go about it, and I’ll make it easier by stipulating grandly that price is no object.
Snicker. Will people never stop falling for my sucker bets? Very seldom does money expended on education equal excellence of outcome, as Washington, D. C., has been demonstrating for decades. No doubt you remember that Hillary Clinton had a free hand revamping the schools of Arkansas, resulting in a national rating of dead last, so we can conclude that lawyers aren’t necessary either.
Our computers have a wonderful feature that allows us to reconfigure to the last time at which they were running correctly. This strikes me as a good, high tech idea, so let’s figure out when we last had good schools that defined “educating the children” as something other than phoney self-esteem, rebellion against parental values, and submission to authority.
It is neither vain nor hyperbole to say that your children, if they finish four-year college degrees, are extraordinarily unlikely to know as much as my generation did after being graduated from high school about the time Fidel Castro overthrew Fulgencio Batista. At that time many college diplomae did not guarantee the level of erudition possessed by HS graduates in the early thirties. In the Fifties the white illiteracy rate was 5%, but the graduates of all-black Kemp High School were only a point behind. This next story is like trying to explain that there was a time when there was no MacDonald’s or iPods, but there wasn’t any other ethnicity in a town of about 40,000. The school board nearly had a nervous breakdown when the first three Hispanic students showed up because they couldn’t decide what to do with them. (DO try to see this as funny because it IS.) You see their problem: you can’t build a highschool for three kids; you can’t send them to Kemp because they aren’t black, but they shouldn’t be in lily-white Stephen F. Austin, either…eventually, they put them over with us. The only girl spent her entire time with her head hunched low probably because she didn’t know what else to do. One of two brothers was very quiet, but Anastasio Hererra was a tall, handsome, outgoing, very bright young man and he made a place for himself easily. Stash was not only my lab partner in Chemistry but went on to become the first Hispanic elected to the “state” legislature! We’re proud of him, and I had dinner with “Andy,” as he is known now, and his wife not long ago.
That is merely an interesting anthropological sidenote. The important part is what we were taught at SFA. Every last student from my class of about 400 was graduated honestly (although three of the boys had to do summer school) and Nancy whatever-her-name-was who got pregnant in the 9th grade and had to drop out — and we’re still talking about it fifty years later. Back then the white illegitimacy rate was 5%; for blacks it was 25%. The current rates have gone to 25% and 80% respectively. I took 3 years of Latin, 4 of Algebra, Geometry, Chemistry and real biology, not keeping a small shark alive all year and then watching the teacher dissect it — an actual course in Houston two years ago. We had our hands in formaldehyde frequently from the very start. Every student was required to master typing and those not going to college had to take two years of bookkeeping and shorthand, and guess what? They had sufficient skills to get office jobs whether they had spent the morning on academic subjects and afternoons as apprentices or not. Speech was required, and I studied Physics, Spanish, Texas and US History. Driver’s Ed? I think there was such a course, but I learned at home, like most kids. Home Ec? Don’t be ridiculous. We were being educated, not baking cookies, something else I learned at home. Our books were full of facts, not political correctness and “diversity.”
One obvious way for our children to learn what we know is to teach them ourselves — if there is the interest and a parent who can remain at home, the latter being an increasingly rare luxury. The home-schooling movement has been growing for some years now and perusal of the top scores on the SAT yearly will reveal the efficacy of this method. Time and again those scores demonstrate that high achievement is found in two groups: those who are home-schooled and those who have a cultural heritage of valuing education. Clearly it is not possible to provide every child Chinese parents (although many of the methods tried by legislators and unions are about that impractical) but home schooling is within the reach of many.
Given no restrictions on cost virtually all of us would enroll our children in the best private schools available — and a major goal of the Republic of Texas is to reduce taxes to the point that you can afford to send your children to the Academy of the Sacred Heart or Harlingen Military Academy or any other school of your choice. It is a given of free market capitalism that where there is demand supply will be forthcoming because there is profit to be made. Our goal will be to provide true school choice over a very wide range without taxing those who do not have children enrolled in various institutions of learning. TANSTAFL, people. There is absolutely no reason why any of us should pay for the education of the children of others. We can anticipate that private schools will both expand and spring up to meet the need — and their standards will of necessity remain high because parents will demand what will be seen clearly as value for their money. Already Academies offering music, sports, and lab sciences have been established to round out the curricula of those being schooled at home. The tuition must be an excellent swap for safety and not having to put together home biology and chemistry laboratories.
You might ask, “What about traditional neighborhood schools?” By all means, if you and your neighbors want your children to walk to nearby Travis Elementary, pool the dollars you choose to spend on their education, hire your own teachers, buy your own books, pay your own utilities, and make your own repairs. You have no right to demand that from your neighbors. Remember, we are talking of a Republic where over a hundred taxes have disappeared, including income and property taxes, fuel, alcohol, and cigarette taxes. In such a nation individual families will be able to afford whatever means of education they prefer including hiring a governess or a tutor. Yes, some people earn more income than others — and guess what? Some of us hold that what you earn is yours to spend as you like.
However, we will suppose that there are those whose income is so small that at least one “public” option is deemed necessary. Here, too, there is a simple free-market solution. Subject matter appropriate to each grade level should be made available on public TV and run twenty-four/seven. Would that be for free? Of course not! Nothing is for free. Make the sacrifice and get cable TV. However, we do have a public fund from taxes on oil production which will be more than ample. This method would be very inexpensive to set up and quite economical to broadcast. Find the very best, most erudite, most interesting teachers, choose from old textbooks for the basics, and each lecture and other segment need be recorded only once. A particular advantage of having phonics-based reading taught constantly is that this is the best and only hope for those currently illiterate to learn to read quickly, easily, and well. The length of this article precludes regaling you with details of how I know such a reading program would work, having developed and copyrighted mine twenty-years ago. If enough of you want to know I will write a separate article on it. For now, just go with the concept that reading, arithmetic, geography, and history can be taught beautifully in the comfort of your own home. Chuckle…take it from someone who has been rescuing illiterate nine-year-old boys for a very, very long time: little boys cannot sit still and do anything else. If your bright, wiggly son is sprawled on the floor eating cheese and crackers, playing with his Vroom-Vroom cars, and patting the dog he can learn a great deal more quickly. I never require my remedial students to sit still and be quiet! Sitting inhibits their learning, strains their composure, and reminds them constantly of every bad classroom experience they have ever had. Test their beginning knowledge? Whatever for?! It is far easier and far less stressful to start with “B is the name of this letter but the work it does is making the sound ‘buh.’” The child feels good when he actually knows something, he sees reading as a system that makes sense, and, sure enough, if he pays even moderate attention he will learn. Gentle laughter…the first lesson starts, “It isn’t your fault that you can’t read, and it still won’t be your fault if I don’t teach you. That would be my fault for not explaining how correctly. However, no one has failed to learn in twenty years and you aren’t going to, either. It’s even going to be a lot of fun!” And it is. I make it fun. How long does it take? Usually a couple of hours twice a week for three to six weeks, depending upon how badly the kiddo has been abused and confused by being expected to learn to read English when it is taught as though it were Chinese ideographs and not a phonetic language.
In addition, such instruction can be made available easily and inexpensively through the home computer. This would be particularly useful as the students advance and allow for inter-active testing. Remember: we’re going to clean the reading mess up first. So far as I’m concerned — should I be named Secretary of Education anywhere — you may have your HS diplomas any time you are able to pass all the exams. I don’t care if you are nine or ninety, only that you can demonstrate mastery of reading, writing, arithmetic, history, algebra, civics, “keyboarding,” and such other subjects as I deem wise and necessary. (Hey, anyone else who wants to set up a course of study, have at it. For fun, ask Google to show you an 8th grade exam purported to have been given in Kansas about 1870. Bear in mind that eighth grade was as high as school went, then. I can pass it, but I doubt that I could cover myself in glory, and I have three degrees and have done graduate work in five fields! Why? For fun, of course! Other than contract work after the children were older — editing, writing instructional materials, and doing analytical project reports — I was a classic stay at home Donna Reed housewife. We all adored summers because I taught the kids daily…) Hey, I probably won’t demand more than 90%.
Now, I do not suppose that my plan will be popular with teachers’ unions because we won’t need nearly as many teachers, will we? The best will be employed privately, and it may be that those who school at home personally or through multimedia might like to hire a retired teacher once a month or once a week to do the icky things like give tests and soothe any anxious feelings that Mama isn’t doing a fine job. The rest of them can take up more productive work or move to some state that still thinks class size and money are important.
We don’t have classes that are too big or too few teachers; modern public schools teach the wrong things with the wrong methods. Well, sure, if you insist I’ll agree modestly to let you call me a genius but the simple truth is that all of the kids in my schools learned well, and all the kids over at Kemp did nearly as well. I wasn’t even Valedictorian or Salutatorian, despite being the class nerd! (BITTER subject! PE was a required subject, and I am and always have been an Olympic class klutz. It doesn’t matter if you make all A’s, that courtesy “C” you get for showing up, suiting out, showering, and trying not to have a nervous breakdown destroys your GPA. I assure you, if the game involves a ball, sooner or later I will get hit with it. In eight miserable years no teacher ever succeded in teaching me to play even one sport acceptably.)
That only leaves us one small problem: those whose native tongue is not English. Once again, the experience of many decades and having attended quite a few different schools suggests an answer: put all those who need it in special schools where English is taught and don’t let them out until they have learned. Spanish is as simple as phonetic languages get, and almost anyone can be taught to read it in about fifteen minutes. Teach the kids to read and carry on instruction in arithmetic in Spanish while focusing on English. English is the language of business and they must learn it, but understanding how to read Spanish will be a great help when they get to English because the basic principle is the same: see the letters, say the sounds, and run them together to get words you know that make sense where you find them. Any kiddo with an average American television addiction has at least an 8th grade working vocabulary. The “test” I just gave you develops enormous reading comprehension because the student is concentrating on whather or not what he said makes sense; if it doesn’t, he made a mistake. He isn’t trying to tell “cat” from “dog” by appearance, that being what “Look-Say” is all about. He already knows most of the words he needs to read a wealth of material, and once he has mastered my idea of the basics (ALL there is to know) he can use a dictionary. He already knows it isn’t “The princess sayed.” It ought to be, but we have an agreement to say “sed” when we see “said.” D’you know, there are only about two dozen of those little horrors and your preschool child knows all of them?! Yup. You won’t hear one say, “I loave you, Mot-her.” The only word Andrew, then 5, missed on an eighth-grade Reading Assessment Test was “carburetor.” He didn’t know that Americans say “CAR-buh-rayccb-tor,” so he read it as “car-bew-ret-or.” Which it should be. How long does it take to go through the ten rules of reading and about 250 sounds and letter combinations encompasing everything there is to know about what reading really is and how we really do it? About an hour and a half! After that the child masters one segment at a time. Takes about six weeks, working just a little every day, to teach a child who has not been exposed to “Look-Say.” Think of all we can teach in those endless hours they won’t spend for five years learning to read somewhere between third and eighth-grade level in most cases. Further, an extensive study done in Seattle showed the 90% (you read that right: 90) of all juveniles who went before a judge that year were functionally or totally illiterate. Do you suppose there is a correlation, there?
Right now you and I are usually the sole guardians of what our children and grandchildren are learning. If we can regain responsibility for choosing the schools and teachers they have even if we lack the luxury of teaching them ourselves test scores will rise again. Unless you would prefer to argue that children today are inherently more stupid than those born about 1940? Obama cut a program in DC which provided $7,000 vouchers for a few lucky kids. The kids learned, and each voucher saved $4000 that would be spent if they were in vastly inferior public schools. Parents loved it, the children delighted in it, but unions and statists loathed it. The argument was the same — although unspoken — as at the time of the Industrial Revolution: “Send them to school? Teach them to read? Whatever for?! They’ll get ideas above their stations.”
For over fifty years our schools have been under the control of those who lean very far left. The only way to take them back is through propositions, referenda, or restoring the Republic. That’s either republic, folks, the Republic of Texas or the republic the founding fathers set up and hoped we would be able to keep.
Regards,
Linda Brady Traynham
February 23, 2010
Educating the Masses was originally featured on Whiskey and Gunpowder
Basically, Greece is broke. The Greek politicians spent too much money. (Really? Who would’ve thought?) Aided by the wizards of Goldman Sachs, the monetary magicians managed to mask the Greek problem for 10 years or so. But now the solvency problem in Greece is too big to sweep under the rug.
Unlike in the past, the debt markets won’t just roll all that Greek debt over to some future time. No more kicking the can down the road for others to deal with. Beware of Greeks bearing gifts, right?
In Greece, they’re faced with the hard fact that they have too much government and not enough productive economy.
Even with their backs to the wall, the Greek politicians won’t make painful budget cuts. Greece needs a miracle — if not a bailout — just to keep the lights burning and the civil servants paid.
Oh, and just as an aside… Does this seem similar to what’s going on in California, or New York, or Michigan, or maybe even the whole United States of America? As that ancient Greek philosopher Plato once noted, “If the sandal fits, wear it.”
What’s happening in Greece is a dress rehearsal for the tragic drama that’ll play out in the U.S. over the next generation or so. Too much government, too many obligations and not enough money to pay for it. To use a Greek concept, it’s destined. Something has to give, and my bet is that sooner or later, the U.S. dollar will go Greek on us.
Now for some irony. (That’s a Greek word, from eirōnikós, meaning dissembling or insincere.) The Greek bailout has led to a drop in the value of the euro relative to the U.S. dollar. So the Greek monetary crash has been bad for the euro and good for the buck — for now.
But people everywhere want only so many dollars. Then what? Greece’s problems have created a floor under gold and silver prices, and by extension beneath the precious metal miners. That floor is spreading outward, and supporting energy prices as well. (So what’s bad for Greece is basically good for the OI portfolio.)
After Hubris Comes Nemesis
Where do things go from here? We’re in the opening scenes of this Greek drama. There’s much more excitement ahead.
The European Union is 10 years into its common currency, the euro. And the bad habits of decades past are starting to show up and spoil the party.
British commentator Ambrose Evans-Pritchard unloads with both barrels. “The last two weeks have cruelly exposed the Original Sin of monetary union,” he states, “that EMU [European Monetary Union] was launched without an EU treasury or debt union. This will be tested again and again by bond vigilantes.”
Europe, Greece and the euro should be so fortunate as to have to deal only with bond vigilantes. James Howard Kunstler posed the question a different way, asking, “What happens to the vaunted peacefulness of contemporary Europe now that the narcotic of universal prosperity is wearing off… New animosities [may] burble out of those lovely old streets.”
“Narcotic” or not, there’s open speculation that the euro will fail as a currency. British Member of Parliament Daniel Hannan, writing in the U.K. Telegraph, leaves no doubt about his opinion. ”The euro won’t last!” he declares. “It has only ever known prosperous times! This is its first trial, and it will fail! After its hubris comes its nemesis! Woe, woe, woe sings the chorus.”
Not to be outdone by the chorus, the German Bundestag has drafted an opinion stating that a grant of aid to Greece is illegal. Thus, per German diktat, state bodies are forbidden to purchase the debt of another state in any manner whatsoever. Thus do the Germans dig deep — to their inner Prussian desire for order — and hurl down the gauntlet. Nichts for the Greeks.
Can you fault the Germans? Germany is a nation of high industrial productivity and strong monetary discipline. It can’t abide, and will not subsidize, the free-spending habits of the fiscal libertines down in Greece (not to mention Italy, Spain and Portugal). The usually polite German magazine Der Spiegel pulls no punches last week, entitling one article “Lies, Damned Lies and Greek Statistics.”
Another German newspaper, the Frankfurter Allgemeine, summed up national sentiments when it asked why German taxpayers should bail out a country that thinks it impolitic to raise the retirement age to 63. “Should Germans have to work in the future until 69 instead of 67 so that Greeks can enjoy early retirement?”
Who wrote that, Count Bismarck? Ouch.
The German Comparison
Compared with Greece — and with most other countries of the world — Germany has its economy and government spending under control. Not only that, the German fiscal and monetary house is in order after paying out big money for the past 20 years to integrate the former East Germany into the unified nation. It’s been a long, expensive, even painful effort.
Meanwhile, Germany has achieved national prosperity by following a path that seems odd in this age of globalization and guilt-free outsourcing. For example, Germany has strong labor unions. The unions have bargained for high wages and excellent benefits for industrial workers. It makes for expensive production costs.
And Germany has a strong environmental movement. Among other things, the Green Party has been instrumental in Germany closing down much of its nuclear power capacity. The environmental emphasis makes for another element of economic handicap in a cutthroat world where pennies count in every element of unit cost.
Then there’s the fact that Germany imports most of its raw materials, certainly a lot of its energy. Germany even imports large amounts of natural gas from Russia — a nation with which the Germans have had some unpleasant dealings over the past century. So energy and input costs are high, as well.
When you look at it, the Germans are not at all out of line to balk at bailing out Greece. But it still gets back to what it means for the future of the euro. And if the euro fails, what does it mean for the dollar? By extension, if the euro fails, what does it do to precious metals, energy resources and the firms that extract these substances? It’s something to think about.
Until we meet again,
Bryon King
February 22, 2010
Greece, Germany, Gold, Oil and the Dollar was originally featured on Whiskey and Gunpowder
Last July while many of us were in Vancouver attending the Agora Financial Symposium, the Congress of the USA passed yet another increase in the mandatory Minimum Wage. I wrote about it at the time (see Why Minimum Wage Means Maximum Slavery).
In that article, I pointed out that as the government-required minimum wage increases, fewer and fewer new jobs become available and existing jobs disappear. Feeling the ‘heat,’ the Feds are now contemplating still another “stimulus” to create the very jobs they destroyed last summer. I predict their current efforts will be another abject failure.
Step back for a moment and view the overall economic conditions now faced by Americans. Well-documented economic shenanigans by banks and brokerage firms caused a major melt-down in our economy. In their attempt to survive, many businesses cut back on expenses including labor. Simply put, jobs were lost. The official rate of unemployment nation-wide skyrocketed to over 10%. The true rate of unemployment is now at 20% when you include all the folks who have simply given-up looking for a job or are reduced to part-time work. And this is now the point at which the unintended consequences begin.
Still another government program (pogrom?) has been in effect for decades: Unemployment Insurance. The benevolent intention was to provide a “helping hand” to folks who’d lost their jobs during that period in which they looked-for and obtained other employment. In our current malaise, those benefits have been extended and extended. Benefits can now be collected for up to 40 weeks and an extension to that “limit” is also being considered by Congress. So let me ask you: If you can be paid for not-working, do you really have a sincere desire to look for new employment? Are you not more inclined to relax, bide your time and hope that you can ultimately find that high-paying replacement job? Moral hazard anyone? (Editor’s note: a splendid young former marine–two tours–I’ve known all his life is using his $870 after withholding every two weeks to finance college this semester, which I suppose to be an unintended consequence, indeed!)
Want to know how to very quickly reduce unemployment to near-zero? Eliminate unemployment benefits all together. Heartless as that may sound, consider what is now going on behind the scene.
You’ve been laid-off. You had what passed for a good job at a good rate of pay. Now you can’t find another job that you 1) Like, and 2) Pays you what you want to be paid. So you remain unemployed. You’re unemployed NOT because you can’t find work, but because you can’t find a job that meets your unrealistic (in today’s economic circumstances) requirements. Since Uncle Sugar is willing to pay you unemployment benefits for up to 40 weeks, no big rush to take just-any-job, is there? This is yet another moral hazard created by our government.
Do you suppose the folks in Washington don’t know this? Since they do know, the question remains: Why do they pursue what they know won’t work? Ah, again, we simply follow-the-money.
Washington is comprised of politicians. Politicians spend their entire careers primping (pimping?) for their next election. Virtually everything they do and consider doing is predicated on getting themselves re-elected. Nothing that might be in second place even comes close. How they approach that objective varies from person to person, but one thing is common among all. They try to win points with potential voters who will support their re-election. Enter you as an out-of-work voter. What can I, the politician, do for you to convince you to help re-elect me in my next run for re-election? Why, I can pay you to do nothing. I can pretend to be on your side against the “greedy employers” who are only looking out for themselves. I can pretend to help you buy time while you look for that elusive job that pays you far more than the current market will bear. I can help make you feel special. I can pretend that I care about your welfare. Just remember my name when it becomes your turn to vote. That’s all I ask.
The game called politics simply pits the “ins” vs the “outs.” Those that are in do everything they can think of to stay in, and those that are out do everything they can think of to get in. That’s the entire game. Period. If something positive gets accomplished in the process, well that’s an unexpected side benefit. Unfortunately, under normal circumstances, far more goes wrong than goes right. This, then, is the result of the law of unintended consequences.
Sound cynical? You know it’s true. But since it’s not your ox that’s being gored, why should you care? After all, you’re the one getting the free unemployment ride.
Human nature demands that you look-out for number one. That’s natural. That’s rational. What is not rational is to ignore the fallout that occurs when you try for a free lunch at someone else’s expense. Not smart. That’s the action that comes back to bite you when you’re not looking and least expect it.
In a recent article, Chris Mayer of Agora Financial’s Capital and Crisis newsletter wrote about what he called the Yellowstone Booms and Busts. He noted that “In the late 1800s, Yellowstone National Park’s game population — its elk, bison, antelope and deer — began to disappear. So in 1886, the U.S. Cavalry took over management of the park. And its first order of business was to help bring back the game population.”
Well, you can already guess what happened. “The surging elk and deer populations ate a lot more. This caused the plant life to diminish. Aspen trees, for instance, started to disappear, eaten by the numerous elks. This hurt the beaver population, which depended on the aspen tree. The beavers built fewer dams. The beaver dams were important in helping prevent soil erosion by slowing the flow of water from the spring melt. Now the trout population took a hit, because it didn’t spawn in the increasingly silted water. And so on and so on…”
I referenced this brief account because it is usually easier to understand the concept when it is presented in a detached manner. Yet the identical domino effect occurs every time some artificial interference prevents a natural occurrence from taking place. When government steps in and tries to do something that would not otherwise take place, far-flung consequences also occur. We never know in advance what those might include. We can, however, make an educated guess.
In this case, no jobs will result from government efforts to create jobs. It is also reasonable to expect that the opposite will occur. Fewer jobs will be available because of government interference with the free market. Government efforts will utilize funds that might otherwise have been available for businesses to use as capital with which to create jobs. Governments simply do not create jobs. Private industry creates jobs. Governments create interference with job creation. But government job creation “sounds good!” Too bad it simply just doesn’t work.
What does work? You’ve heard the answer many, many times. Have government just get out of the way and let private industry do their thing in a free market environment. Period.
That statement doesn’t set well with the political class, however. Henry Blodget, of all people, posted a short article by Joseph Stiglitz on February 17, 2010 entitled We Need a Second Stimulus Now, Says Nobel Laureate Stiglitz, or Americans Will Be Unemployed for Years. No, Mr. Stiglitz and Mr. Blodget. That is exactly what we DON’T need. A second Stimulus will simply prolong the high unemployment for years. Government getting out of the way and allowing private industry to correct the government-created problems is the only way the unemployment problem can be solved quickly. Fortunately, the reader responses to this article were overwhelmingly critical of Stiglitz’s position, too. That tells me the American Public is no longer easily bamboozled by the political solution.
As I’ve been considering this no-jobs problem, a Broom Hilda cartoon from perhaps 30 years ago came to mind. To paraphrase from memory, Broom Hilda is sitting in her rocking chair while a friend is reading to her from that day’s newspaper. “The government announced today that a massive new government spending program will be established. It will employ hundreds of new government workers at a cost of millions of dollars. ‘We don’t really expect the program to accomplish anything, said a spokesman, but what the heck, it’s not our money.’ Broom Hilda then gulps and her friend responds “I made-up that last part just to see if you were listening.” In the final frame, Broom Hilda remarks “Now tell me you made-up the first part, too!” I’ve always been impressed that a clever political cartoonist can present in just one to perhaps four frames a concept that otherwise takes 1500 words of prose to develop. If we adjust that cartoon for the intervening inflation over the past 30 years, that cartoon today would read “thousands of new government workers costing billions of dollars.” Scary indeed.
Yet, isn’t that exactly what Washington is doing these days? The cartoon would be funny if it were not so true. Just throw more money at each and every problem. Don’t give any thought as to whether or not additional money is the solution. Just make it look to the public as though we’re doing something.
The year 2010 is what is called a mid-term election. You can already see the “I want to be re-elected” class starting to scramble. Several notable politicians have announced they will not run for re-election. I guess they no longer wish to expose themselves to the embarrassment of being defeated at the polls. Wouldn’t it be interesting if most of the so-called incumbents were simply defeated in their bid for re-election? That’s not a permanent solution, but it sure sounds like a good start.
Cheers,
Tex Norton
February 22, 2010
Next Up: The No-Jobs Bill was originally featured on Whiskey and Gunpowder
Ever since the War Between the States (circa 1860), there hasn’t been a serious (or at least widespread) move for succession from the United States. However, there is a call by some for the State of California to be removed. Have you heard about this?
As you may know, California is bankrupt. That ball got rolling back in December 1994, when Orange County declared bankruptcy. Once one of the most prosperous districts in the state, it watched a pool of riskily invested and highly leveraged money go south, and the game was up. After losses totaling $1.6 billion, a liquidity trap was sprung from which Orange County’s Treasurer Tax-collector Robert Citron could not escape.
Although considered somewhat of an isolated incident, it wasn’t long until related problems began to emerge. Now the state faces endless traffic jams, aging schools and hospitals, falling cash accounts and an annual budget more dependent on volatile tax revenues than at any time in state history. And it looks like the crunch will come to a head under Gov. Arnold Schwarzenegger. But here’s the real problem.
All by itself, California is the eighth-largest economy in the world. So its bankruptcy would spell trouble for those that are interconnected with it — especially neighboring states that depend on California’s economic machine for their own growth.
But does California care? It doesn’t seem that way. Its state budget is larger than any other in the United States ($56 billion). And yet that still isn’t enough money to keep it out of trouble. It refuses to live within its means, and is determined to borrow at ever-increasing levels. For proof, remember that California voters rejected a bill that was really called, “The California Live Within Our Means Act.”
Why the arrogance? Perhaps it believes the Fed will step in with a bailout. After all, billions and billions have been given to private corporations… why shouldn’t a state benefit equally — especially if it would sink the U.S. economy otherwise?
But the corporate bailouts came with strings attached. So it’s easy to see the government telling the state to take action to get out of its mess. Reduce spending, cut programs and implement austerity programs until California’s budget is actually balanced.
Then make the very real threat to exorcise it from the Union if it doesn’t comply.
I’m sure you’re saying, “Wait, wait, hold the phone! Nobody is talking about this. There’s no chance that California is going to be kicked out of the United States”
And I am sure that you’re right. But we’ve heard very similar language used when it comes to talking about Greece and the European Union. And, in fact, that’s what today’s commentary addresses. Is it more likely that Greece will be removed form the European Union than that the state of California will be removed from the United States? After all, there are some similarities that make the comparison of the two cases worth considering.
Will California Go Greek?
Each party, Greece and California, are members of a union or conglomerate of political entities. Each one shares a united currency with the others in the union. Each one has particular trade interrelations as well as financial interrelations with others in the union. Lastly, each is “bankrupt,” and that has a certain dilatory effect on those around it.
As you may know, Greece has gotten a lot of bad publicity of late, and it has really hurt the euro — down around 10% in the last few months alone. Does the negative position of the Greek economy warrant such a drag on the European Union as a whole? Generally, they are only considered to be about 2–3% of the economy as a whole. California, on the other hand, is a little more than 10% of the U.S. economy as measured by GDP.
Thus, in theory, Greece should only drag down the euro by 3% on balance, but California should drag down the U.S. dollar by 10%. Overall, then, the USD should have fallen total of 7% against the euro… all things being equal.
But the problem is — all things are NOT equal. Here’s why.
California is a part of a 235-year-old republic. Even though it has not been a member for that same period, it nevertheless is a part of a union that has stood many difficult tests of time.
On the other hand, the European Union is still an experiment. It is barely out of adolescence, and we don’t know yet if it will even grow to stand among the older economies of the world. Also, even though both parties are entities in union structures, the structure of each union is different and addresses problems differently. The long and short of it is that California’s position in the United States is significantly more substantial than that of Greece in the European Union.
So right now California looks like a keeper and Greece a goner. If Europeans are reluctant to break up their happy (till now) Union, they only have a few options:
1. The European Union offers “solidarity” but no financial support.
2. The European Union offers a unified fiscal support from all members.
3. The European Union designates the stronger countries to subsidize the Greeks.
4. A mixture of numbers 2 and 3. Many have maintained that a bailout would be a violation of the Maastricht Treaty, the paperwork that created the European Union. However, the treaty itself is somewhat like a vicious dog that has no teeth or claws.
Here is an excerpt from the consolidated treaty, a piece that is commonly called the “No Bailout Clause”: The Community shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of any Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project. There you have it… NO BAILOUTS.
However, when a member does get into fiscal hot water, that language is no longer effective or applicable. At that point Article 100 takes over. It reads: Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken. NOW, there you have it… BAILOUTS PERMITTED.
I only give you that so you are aware that bailouts can and will be formulated in the upcoming disasters. And they do not violate the treaty itself.
However, the bigger question remains, if the European Union allows fiscal support for Greece, does that mean carte blanch permission for others to run to the EU money window and collect assistance for their carefree spending days?
It certainly seems to me that if the European Union makes this decision, which, as we have seen, is fully allowable by law, it will lose all credibility. And that may be the only thing that stands between them and ruination of the Union. It may end up collapsing on itself, even if no members ever leave, and its downfall will be the loss of confidence in the currency.
So then, how much further could the euro fall? Could it go all the way to parity? Most certainly. But before that point we will likely see many waxing and wanes of each side of the currency pair. We see a little rebound in risk appetite.
But what does all this mean for the United States and its currency?
The United States
Philosophically and economically, the United States is on a rendezvous with history… unfortunately, the path we are taking is a crash course. Many people have to come realize that we are nearing the end of a gigantic global economic experiment. No one has really walked this particular path before. A circumstance where every major nation in the world (and many minor ones too) is utilizing paper currency that has no backing of any value except for the promise of the issuing government. And we have all come to see what that is worth.
And as the saying goes, the bigger they are, the harder they fall. No currency is bigger than the U.S. dollar. No economy is bigger than that of the United States. When it comes, great will be the fall of it. Fortunes will be made. But so long as it remains the reserve currency, it is very difficult (although not impossible) for it to collapse.
It is difficult because each time it falls and gets cheap to buy, there are many who still buy it because the majority of the world’s goods are priced in U.S. dollars. So when the dollar gets cheap, so do the world’s commodities to those who are buying in currencies other than the dollar.
For us here in the United States, a cheaper dollar means more expensive everything: gas, groceries, cars… you name it. But when the dollar is cheap and other currencies are strong, it becomes a good time to stock up. Such buying will continue to prop up the dollar until a different reserve is found or created. Since such a thing will not occur overnight, the prospect for currency fluctuation over the next several decade — and our opportunity to profit from it — will be tremendous.
But make no mistake: the dollar is in trouble — one foot in the grave and the other on a banana peel.
Regards,
Bill Jenkins
February 19, 2010
Will California Be Removed from the United States? was originally featured on Whiskey and Gunpowder
Greece is the insolvent, bankrupt country that threatens to bring down the entire EU (European Union) with its exploding and toxic national debt. But it’s just one of the PIGS- Portugal, Italy, Greece and Spain. The EU is damned if they do, damned if they don’t. If they choose to bail out Greece in order to save the union, soon they’ll have much bigger bankrupt nations to deal with (Portugal and Spain are next in a long Conga line). There isn’t enough money in all the world to bail out all of them. The EU is in big trouble.
But the real problem is that Greece isn’t the worst Greek tragedy on the horizon. Greece is only “the canary in the coal mine.” The United States is one big fat Greek tragedy. We are Greece- SQUARED. All the same problems that plague Greece, plague this country- huge national deficits and debt; high unemployment; gigantic entitlement programs; too many government employees; not enough tax revenues coming in; endless bailouts and stimulus; and pension and healthcare systems (Social Security, Medicare, Medicaid) that threaten to eat every dollar of the budget. Just the interest on our national debt is enough to destroy our economy. It’s all a Greek tragedy.
America is Greece- except on a much grander scale. Our economic collapse is still a year or two down the road. Obama is laughing, celebrating, dancing and handing out gifts (stimulus, bailouts, entitlements, corporate welfare) at a big fat Greek wedding…oblivious to the the coming economic Armageddon…oblivious to the madness of his plan- to triple down on spending to save us from insolvency.
But it didn’t take Greece to warn America of the impending doom. California is our Greece. I warned long ago that Obama’s stimulus plan was a disaster. That handing out $120 billion dollars to state and local governments so that they could prevent layoffs of government employees; hire more teachers and government employees; and actually protect raises for government employees…was pure madness. I pointed out at the time that state and local governments across the USA were bankrupt and insolvent. The only possible solution was massive cuts in government spending and layoffs of government employees (just like the private sector). I pointed out that once the stimulus ran out in 2 years, we’d have the same exact problem…except with more government employee salaries, pensions and health care to pay for. All we did was kick the can down the road a bit. We delayed the inevitable economic disaster- just as Greece has done for decades, just as California has done for years. But the day of reckoning is fast approaching.
California is still insolvent and bankrupt…so are most state and local governments…now we have more government employee mouths to feed…more pensions to pay…how will we pay the even larger bill once the stimulus runs out? Where is the next stimulus coming from? How do we pay back the $2 trillion that the Fed has printed? Where are the tax revenues when everyone is a government employee?
All the king’s men…all the countries of the world…all the bankers and Goldman Sachs partners…cannot pay the bills that are coming due for America. The national debt has zoomed past $100 trillion. As a sign of things to come, our December deficit doubled in the past year. Obama’s budget pressed the pedal towards Armageddon- by spending more than all the budgets of all the Presidents that came before him, combined.
The old saying goes, “A trillion here and a trillion there…pretty soon we’re talking about real money.” Well let’s give you some perspective of the trouble we are in. Greece owes $300 billion to the banks. That amount…from a tiny country…threatens to bankrupt banks across Europe and bring down the entire EU. Yet Obama spent $800 billion in one stimulus bill last year. That stimulus by the way, created zero jobs. ZERO. He wanted to spend a trillion more on his expansion of government-run healthcare. If $300 billion can bring down the entire EU…and make big European banks insolvent…who can possibly bailout America’s $100 trillion tab? Just one state- California- is in similar shape and facing the same kind of economic collapse as Greece.
The lesson we must learn is that government cannot spend taxpayers’ money endlessly; that not everyone can work for government; that not everyone can depend on government for survival; that government cannot give raises and bonuses to government employees in a depression; that big pensions and universal healthcare bankrupt nations; that unions are poisonous to the survival of an economy; that “spreading the wealth around” is a failure whenever and wherever it’s been tried- Argentina, Greece, California. The socialist experiment is a disaster.
Now we wait…as the clock ticks…to see if we can avoid becoming the next Greek tragedy that pushes the world towards a second Great Depression.
Regards,
Wayne Allyn Root
February 18, 2010
California Is America’s Big, Fat Greek Tragedy was originally featured on Whiskey and Gunpowder
Shooters, Ron Holland is the most reading fun I’ve had since discovering C. S. Stirling, and a couple of more articles like the last two may set that mark back to C. Northcote Parkinson. Dear glory, a man who writes elegant prose, has a brilliantly logical mind, and understands the true causes of the War of the Rebellion?! I wouldn’t be surprised to learn he keeps goats, smokes, and had served with the French Foreign Legion or with our guys in Viet Nam as a gunny, making him practically perfect if anything happens to my darling Charles. (I know…odd, the things ladies find attractive…)
Ron also introduced a subject I have been itching to discuss here for at least six months, bless him.
Strangely enough, given that paean, I’m going to begin by disagreeing with my new candidate for hero. He wrote, “We need to forget the causes of the earlier War Between the States, regional differences, slavery, tariffs and other related issues.”
No, no, dear man, we must not forget the causes of the First War of the Rebellion because we are still at odds over precisely the same issues. We still have very strong regional differences and an even larger one of city rats and illegals vs. country mice; slavery now comes in the form of wage and welfare plantation, tariffs are still a big issue (see my modest archived discussion of the nasty jump in the price of tires), and consider that now, as then, the root cause was a corrupt, big money-controlled Congress that had out-run what it could confiscate from the citizens easily. Two ways of solving the problem occurred to the in-crowd back then, the first being to declare that the western border of the US was the Mississippi River permanently and pluck those caged off at their leisure, while the second was to conquer and rape the Southern states which were the wealthy area at that time.
No contest.
A population-dense industrial nation expected to find the less-populated agrarian portion of the nation far easier pickings than they turned out to be, a mistake Washington continues to make in backwaters ranging from Viet Nam to Afghanistan.
Slavery was being phased out as quickly as was feasible primarily because slaves are the most expensive–and least productive–form of labor, and let us not forget that all of the slavers were Yankees, who not only had virtually all the shipping but a great many slaves themselves. Yankees are the ones who came up with a solution to King Cotton’s demand for employees; we didn’t like it, but we had no alternative; everybody down here was already working. Lincoln’s (in)famous “Emancipation Proclamation” didn’t free a single slave in Yankee-held territory and it didn’t free any in the South at the time, either. I am not a fan of the original Illinois politico (or any of his successors), and Lincoln used the slavery issue cynically for emotional effect and spin. READ his opinion of blacks; it is well documented. (Ronald and Donald Kennedy’s The South Was Right is meticulously documented and official correspondence between Lincoln and his generals will turn your stomachs. Their idea, carried out brilliantly in war efforts and “Reconstruction” was to beat the South so far into submission that it would never recover. They were quite successful.) Ah, yesss, the Rothschilds and similar friends have made out well for centuries by funding both sides of wars while Krupps et al. provided munitions to both combatants and both stirred up conflict. That’s why I suggested investing in “defense” stocks in “Juggling Act.”
There is, indeed, a large and growing feeling that fiscal and cultural sanity can be regained only by going our separate ways. North Carolina has a vigorous movement, as do other South’n states and the Montana-Idaho-Wyoming-Utah area, and even Hawaii wants Liliuokalani’s throne and Iolani Palace back. (Chuckle…I say give it to ‘em. An island kingdom 5,000 miles from anywhere that has been firmly under the control of Democrats and the Japanese for half a century is something we need to support about as much as we do southern California.)
There is a very easy, obvious solution to getting the ball rolling, and if there is anything we have an amplitude of at present it is snow, literally and figuratively.
We start with the Republic of Texas.
Pay close attention now, because the facts I am going to give you–and they are facts–are not in any of the history books the winners have written for 150 years. Gentle smile…sounds like a good anniversary to celebrate, to me. Quite a few states would like the simple no-fault divorce the South asked for last time, but Texas has an advantage. We’ve only been living in sin all these years. That’s right: we weren’t married, or, to stop being colorful, Texas has never been a legal part of “those United States.”
1. The Republic of Texas is not, has never been, and could never have been admitted legally to the USA. There is no provision in the Constitution for annexing or admitting another nation. True, there was an unconstitutional Bill drafted to do so, but it has been buried in committee for many a long decade and had a time clause in it. No one has ever dared bring it out for obvious political reasons.
2. Our flag does not fly at the same height as that of the US in recognition of the fact that we “were” once a sovereign nation or to advertise a failing amusement park, Six Flags Over Texas, but because we are still one, albeit under occupation since about six months after the rest of the South submitted. (I started to replace “one” with a more precise “sovereign nation,” but realized that our capitol, Austin, is also a failing amusement park. And we still went into the present deepening depression last and have felt the effects least.)
3. Our current Capitol building was constructed in 1939, and in the Great Rotunda is an enormous, splendid marble and brass mosaic that proclaims proudly “The Republic of Texas.” Once again, that wasn’t “history,” it is how a lot of us see the matter. Confederate General Albert Sydney Johnston reposes in the adjoining cemetery. That was when what you think of as the “Texas” flag was foisted upon us. The true Republic of Texas flag, the Burnett, a single golden star on a field of blue, flies in front of the ranch house and quite a few other places. I don’t tilt at windmills or I would prepare a brochure to hand yahoos who fly the US flag above the false flag on a single pole.
Hopeful look. Is anyone expostulating, “Now, Mrs. Traynham, all of that was long ago and isn’t relevant?”
How relevant are treaties–nations deal with each other by treaty, as you should have learned in Civics classes, if those are still taught–between the Republic of Texas and the US? How relevant is the decision of a Federal Judge? He takes himself pretty seriously and as far as I know he is still behind the bench over in West Texas. Is 2004 recent enough for you?! Yes, indeed, you may not have heard about it through the MSM, but in this century that splendid gentleman ordered the Feds “to cease and desist hostilities against the land and people of the Republic of Texas.” The Washington gang didn’t do it–regulations and taxes being very hostile, indeed, to say nothing of troops quartered on our soil–but they went back to D. C. a very unhappy bunch.
Some of you have read my remarks about the project I was engaged upon when I realized we had better shelve it because my analysis said that we were going to have either The Greater Depression or dictatorship before we completed the last two steps (three, if you count a wide-spread education effort) to free our nation. The RoT was it. I had reached the point of preparing a packet for volunteers covering the twenty top concerns of most citizens, and in every instance the answer is “Restore the Republic.” If it will amuse you, send me your question on how an independent Republic of Texas operating under a real, unsullied Constitution would improve the lives of all those who are honest, law-abiding, hard-working, and oppressed under current conditions.
Take heart, America, in how close we are. ALL that need be done is a Resolution from the Legislature calling for a public vote on the matter, and to conduct that vote. If we have a successful outcome Texas will cease to be a “for profit corporation” subsidiary to the for profit corporation known as the federal government. (Look them up in Dun & Bradstreet, along with the Federal Reserve.) We will revert instantly to the 1837 Constitution which has been updated very slightly and quite legally to allow suffrage for females and non-whites. Well over a hundred taxes and millions of pages of regulations will be rendered null and void immediately. (One slight problem is to keep the first Legislature elected and sworn in from restoring a bunch of in-crowd regulations wholesale and thoughtlessly. See Tex Norton’s upcoming article on how and why regulations are promulgated.)
The new President–who will not be the current governor unless he or she runs for that position and wins–will have a mansion and a salary of $10,000/year! The cream of the jest is that the new Legislature cannot raise salaries effective during their terms of office. We’ve got good stuff in our Constitution. For another example, it says simply that we have to come up with a plan to educate children, and it doesn’t say a thing about forbidding prayer or teaching fifth- graders the joys of sex. I’ve got a great plan for educating the children; I figure I can volunteer to be Secretary of Education and have all half dozen choices parents will have up and running in two weeks, at which point I will resign. No salary, no staff, set it up and let it work from home-schooling to on-line schooling to private schools to smiling sweetly and telling local neighborhoods that if they want traditional “free” neighborhood schools, by all means fund them out of their personal budgets no longer subject to income tax, sales tax, gasoline taxes, cigarette taxes, or property taxes. Nothing in life is free, people.
We have just a few possibilities for President that a lot of Texans (or “Texians,” in ancient parlance) might be excited about, including Dr. Ron Paul and a conservative writer who has a ranch not far from mine, a fellow named Chuck Norris. It could be that Ross Perot could make a comeback, I suppose…
If you look at the Red vs. Blue map you will discover–no surprise–that the Bluebellies hold the major cities and the area which has been invaded by Mexicans. The Red has everything else. Yes, we tend to vote Democrat but that is ancient rebellion against “the party of Lincoln.” In all save the big cities we’re a conservative, old-fashioned, pretty self-sufficient bunch. When I was a girl we called ourselves “conservative states-rights Democrats” rather than Republicans to differentiate ourselves from the “Progressives.”
We have a year before the next Legislature meets, and a useful pastime will be seeking candidates who are receptive to the notion of disentangling ourselves from an arrogant, oppressive government (two of them, actually), and starting over. Reclaiming our freedom is do-able. If I hadn’t thought so I wouldn’t have spent over a year working out details.
If we gain our independence again Texas will become, overnight, the ninth richest country in the world. Not only can we claim a 200-mile limit for oil exploration through international law, but we have a Supreme Court Decision that says the same thing–and the railroad commission controls such funds with schools having first call. There will be lots left over. We have deep water ports and nuclear facilities, tourism, wineries, and many miles of golden corn we won’t turn into Ethanol. We have plenty of gas and sweet, light crude left; the problem at present is Greenie legislation and transportation to refineries, which we also have. Texas has far more than our “fair share” of small farms and ranches, major universities, superb medical and vetinerary schools, and our own distinctive culture. There isn’t any good way for the US to pack up a few handy airbases when we toss their minions over our borders with jovial civility. We have the only independent power grid and several vast wind farms. We even have salt domes which hold “strategic reserves,” although my numerous oil friends tell me that it will be a miracle if 25% of the contents can be recovered, and Washington can try suing us in our courts if it wants first dibs on them.
Courts? Our Constitution calls for a series of common law courts. To simplify, all that is needed to try most cases is an elected Judge/Justice, half a dozen citizens gathered at random, no lawyers allowed, and the decision of the Jury is final. No lengthy waits, no incessant appeals…and one of my bright little ideas is that we outsource prisons for anything more complicated than sleeping it off over night in the drunk tank to Mexico. This would be extraordinarily cost-effective (not that the Republic of Texas Constitution calls for coddling criminals and terrorists, and it certainly does not mandate “Miranda” warnings), and most instructive. Mexican jails are exceptionally unpleasant places, that being the point of incarceration. Recidivism rates for the survivors should be very low; in addition being sentenced for crimes of violence will carry automatic revocation of citizenship if some of us persuade the rest. Let those who are inclined moan over lousy childhoods and evil companions elsewhere because real Texans believe we are responsible for our own actions. Golly…that would mean we didn’t need parole boards or parole officers, either, further reducing the payroll…and our stance will be that Social Security checks–but not taxes–will be enforceable contracts between the US and citizens of the Republic of Texas. Our Constitution calls specifically for minting our own gold and silver money–and the first serious country to revert to the gold standard will have a commanding role in world politics. Everything that needs doing can be funded handily by a 15% tax on non-resident corporations and a 10% tax for two years on those who apply for citizenship.
The breakup of any long-term relationship is at best painful and expensive. At worst it is messy and violent. The advantage the North held last time in terms of armaments was nothing compared to the current disparity between citizens and governments the Founding Fathers dreaded would come to be. Last time, until “we” had access to arms captured on the field of battle, fortunate Southerners used the accurate sniper rifles made by Whitworth, in England, while Lincoln had the precursor to the Winchester, went to the trials for the Spencer repeating rifle and got it into the field, as well as the Colt revolving rifle, Sharps made his sniper guns, and he had Dahlgreens and Parrot to cast canons. A descendant of Dahlgreens’ technology of exterior banding to strengthen barrels is in use currently. Texas is at the same apparent disadvantage multiplied many times.
Think long and well, fellow citizens, before deciding that we cannot, in conscience and in self-preservation, do other than echo Patrick Henry. IS life so dear and peace so sweet as to be purchased at the price of chains and slavery? Forbid it, Almighty God!
Those are the words which preceded “As for me, give me liberty or give me death.” It is highly unlikely that Pharoah will let the people go in peace this time, either. It is certain that should hostilities develop once again those who do not care one way or the other will be caught in the middle. Yes, I agree with Mr. Holland that secession is the most efficient way out of the fiat currency mess and many others, but I cannot see it as an “easy” way out. I must point out as calmly as one can say such a thing that a government which staged the tragedy at Waco under the code name “Operation Showboat” might well not eschew a homegrown version of Tienamen Square if it feels threatened.
Despite the strictures of Janet Napolitano and her ilk I do not regard myself as a Bible-thumping, gun-toting domestic terrorist. I love my country and I love our heritage. A primary reason I write is because those of us who can see most clearly what American can be do so from firm grounding in what America was. If left to my own devices I would raise cattle and goats, be happy, and do private charitable good works. All I have ever asked is laissez faire and common sense.
A diplomatic solution is at hand; all the Feds have to do is abide by the court order while we have our vote unsupervised and we will all see whether ending our version of apartheid could be a rousing success. There are at least face-saving legal grounds for acquiescing while Texas and Hawaii strike out on their own. Perhaps, given a fair vote, the preponderance of citizens will come down on the side of enormous, intrusive government. A lot of us have the nerve to put the issue to a test.
Still, I fear that the growing call for secession is on the order of nuclear deterrence, which thus far has deterred nothing but nuclear wars. Heavy sigh…we’re talking about a different sort of nuclear fission, the desire of the nucleus to throw off the useless atoms which have attached themselves to our core principles. I’m no Neville Chamberlain, but the wrath of those who hold the US Constitution prisoner must be taken seriously. That is a question for individuals, whether or not “we hold these truths to be self-evident.”
Sober regards,
Linda Brady Traynham
February 18, 2010
The New Secessionists was originally featured on Whiskey and Gunpowder
Many conventional U.S. brokers are relatively clueless when it comes to gold stocks. If you asked them to name one, chances are it would be a domestic producer, one with assets located primarily in North America. But that’s not where the big money will be made over the next decade.
To start, here’s something that will make you better informed than the typical traditional broker: take a look at where gold is currently being dug up around the world.
Tally it up, and North America accounts for only 16.3% of total global gold production. In other words, 83.7% of all the new gold every year comes from outside our continent.
Further, of the 15 largest gold deposits in the world, only five are in the U.S., Canada, or Mexico. Meaning, two-thirds are in regions where you don’t get cell phone coverage and the natives don’t speak your language.
The picture gets even sharper when you see the regions where production is increasing, vs. areas where it’s declining.
Several countries where gold has been traditionally mined, such as South Africa, Australia, and the U.S., are suffering production declines, while other areas, like China and South America, are just now starting to rev up.
In other words, not only is more gold being dug up outside our borders, more is being found there, too.
This has obvious implications for the gold stock investor who recognizes that the momentum is clearly behind the emerging countries. One geologist told me that some of these prospects are like Nevada was 100 years ago; wide open and full of gold deposits just waiting to be discovered.
Yes, there is risk, but the political winds are shifting in a more pro-mining direction here as well. In the U.S., for example, some members of Congress continue to promote a bill that could dramatically harm mining in the states, while China and many parts of South America are opening their doors to foreign companies. What would you rather invest in – a country trying to woo your investment dollars or one that is scheming to find new ways to take more of them away from you?
Gaia the Earth Goddess didn’t ask where we wanted our gold and silver deposited. And it is the underexplored – and in some cases the unexplored – regions that offer the most potential for new discoveries, greater production, and thus, higher investment returns.
Regards,
Jeff Clark
Editor of Casey’s Gold & Resource Report
February 17, 2010
Sooner or Later, You’ll Invest Abroad was originally featured on Whiskey and Gunpowder
The great Anniversary Iranian Celebration–at least thus far–has had all the excitement of watching Geraldo. Nope…nothing in the basement.
It was as enthralling as Dr. Zawi Hawass opening the empty tomb, without the good doctor’s charm.
We already knew about the 20% enrichment capability, and 20% is a long way from what it takes to make enriched, satisfying noises and distinctive cloud formations. At present–again, “at present”–the celebration is precisely what I expected: a big fizzle which holds us as riveted as a speech by Castro, Chavez, or Obama.
We can read this one of three ways: that the A-man took himself seriously and is going to be so embarrassed by world opinion that he lashes out from vanity…or that he was just messing with our heads seeing if he could provoke an attack or disarm us mentally…or he’ll fling warheads around next week, once we’ve lowered our guard.
How many nukes would this chucklehead chuck if Ahmadinejad could chuck nukes? Probably all he had. How very frustrating not (apparently) to have enough to hit the Great Satan and Israel simultaneously. I’ll offer him a piece of advice, though: when you get the nerve and the hardware simultaneously, Mr. Ahmadinejad, strike the USA and the Vatican. It will be a great deal safer than thinking you can knock out all Israel will throw at you given a good excuse.
Israel already has ample reason.
Israel has more than that, beginning with a strong sense of survival and a solid year of Obama and Hillary siding with their (Israel’s) enemies. One of the few constraints on Israel for decades has been abiding by the wishes of its closest ally, Heaven help it. Time and again all outside parties including supposed allies have demanded that Isael act to its tactical and economic disadvantage. Give back territory I won fair and square when the other side attacked?! I think not. Give up part of my nation in an attempt to appease enemies? Nonsense. Restrict family growth in favor of Hamas, which is already being given millions by Clintonista, Congress, and Obama? Not in this lifetime, if I were in control, and I’m not even Jewish nor have I lived in combat conditions all my life. I wouldn’t even worry about collateral damage if my nation were attacked by ground forces and we flung the invaders back over their borders for a loss of ten. Football is our national game, and if we have to retake Pork Chop Hill several times we will. I think the Israelis are tougher than we are, and they are certainly playing on a much smaller field.
Yes, Netanyahu has a precarious coalition, but I’m moderately certain that the appeasement crowd isn’t a gaggle of cowards, just misguided; there is no diplomatic solution to the problem and never has been. Anyone expecting another Masada would be wise to find a bunker-buster-proof cave. For nearly sixty-five years Israelis have protected their tiny toehold. Every citizen is a soldier, and if we had any sense we’d be importing them (even chosen at random) as security experts. In my quaint hawkish way I think it is long past time to consider how much further it is safe to back Israel into untenable corners. It could just be that the Germans weren’t the only ones who ever considered lebensraum.
A big hunk of Jordan is part of historical Israel, and I have roundabout reason to suppose that the King of Jordan has long considered the possibility that Israel might, ah, “request” a bunch of it back. My husband was an advisor to the King for a while, and John remained vehemently anti-Israeli until his death. Of course I never questioned him about his military activities, and he certainly never told me one single thing I shouldn’t know. John was as cerebral and practical as they come, and I have never supposed that he was captivated by the hospitality his host showed and the friendliness of the population. My purely amateur conclusion is that Jordan frets frequently about what Israel may do and the effect that would have on tourism and the throne.
The Pentagon may have intended for the cessation of win-hold-win to be a threat to Congress over budget cuts, but possibly some country less aware politically might conclude that Iraq and Afghanistan count as the one war per customer and it is safe to try a little encroachment elsewhere. What do we do if Lebanon, Syria, Jordan, and/or Egypt decide to go play alongside the Palestinians? Say, “Sorry, we’re committed to only fighting one war at a time?” Respond, “In this rare instance we’ll make an exception” or pull all our troops out of Iraq and Afghanistan? No good can come from the Generals, Congress, and the President telling the world that we are tapped out financially and militarily.
Metals are up strongly and the DOW was up a tepid hundred the last time I looked which may reflect an attitude of, “Thank goodness that threat is over and we can get back to business as usual.” If so, the market reaction is a very short-sighted attitude. All calm today means is that thus far Amahdinejad did not strike at the “arrogant” West. I’m more inclined to think all four metals I track being up is indicative of a feeling that just because this firecracker fizzled doesn’t mean we shouldn’t pay attention.
We need to go find our version of Krupp to follow, I think. We can’t just track Remington, Winchester, and Federal because of the run on sporting- and hand guns and ammo for the last eighteen months. A contact on the West coast was pleased to be able to pick up a hundred rounds recently, the shortage is that bad. To those who don’t shoot a hundred rounds of nine mil or a “brick” of 500 .22 shells probably sounds like a lifetime supply or enough to stage your own version of Waco, but it really isn’t. Four friends plinking at targets could go through that amount in less than half an hour.
What we want to know is how those making NATO rounds (which can be fired using an assortment of long guns) and tanks are doing. With the increasing number of “preppers” even the MRE isn’t a good measure of military preparedness any more…General Dynamics is almost certainly a good tell-tale. Maybe chart just the Friday close on Martin Marietta, DuPont, and Bell Helicopter?
MDC suggests the turbine engines used in helicopters, tanks, and other widgets made by Lycoming–which may be affiliated with Bell, now–could prove interesting. Avco, Vickers, Pantex, BSA, maybe keep an eye on exports from Israeli Arms…they hold the patents on Uzi and the practice rounds for 120mm, 30mm armor piercing, interesting things like that. Krupp, which has been in business since the 1500s, is still manufacturing munitions and chemicals and has introduced a 17.5 cm weapon recently. I didn’t put Krupp at the top of the list because investments overseas might be a little dicey if we end up in WWIII.
Signature chuckle…you don’t expect sweet little old ladies to while away rainy afternoons attempting to work out a reasonable equivalent of Krupp as an investment, do you? There are always wars somewhere, and the Keynesian solution when all else fails is a great big war. The possibility of WWIII as a solution to the crash of the dollar…or the Chinese economy…or even Japan has been bruited about. The Middle East is a perennial running sore but it isn’t the only danger. The stakes went up when the Pentagon announced the end of the philosophy of attempting to fight two wars simultaneously, known as “win-hold-win.” Anything which causes our numerous enemies to doubt our will or our ability to wage war increases the chances of conflict.
The premise for over half a century has been that the “military-industrial complex” foments war for economic gain. We’re always interested in economic gain, although we’d prefer ours to come from a new extraction method for shale oil or foreseeing that we should get out of buggy whips and in to pneumatic tires, or short whale oil and go long LPG. I don’t buy stocks on “hunches,” but I definitely believe in investigating sectors for potential growth or signals of future events on internal nudges. So…don’t count “I’m a dinner jacket” out because he didn’t cause a gruesome mess today, but start thinking like a merchant of death far afield. If you had influence and reason to believe widespread, long-term hostilities were on the docket, what would you invest in and what would you collect?
Remember what was in short supply and/or rationed during WWII: tires, gasoline, butter, clothing, meat, cooking oil…tires would be a good bet again because they aren’t made out of rubber from Malaysia any more. Worse, they are made out of oil, and most of them are made overseas. China just might not be on our side during WWIII. We Americans have a good stockpile of automobiles if the factories are converted again to produce automatic weapons, but if you might consider picking up a set of the things that need replacing periodically, such as points, plugs, condensers, filters, belts, hoses, engine oil, power steering fluid, starter, alternator, and so forth. If we’re thinking of investments, I might talk myself into some Good Year, etc., particularly since the most popular sizes of tires more than doubled in price following Obama’s imposition of an enormous tariff.
Interesting, isn’t it, how what we want for our own personal use is probably what the nation will need if we conscript grannies and teenagers to fight an even bigger war? Shades of “What’s good for General Bullmoose is good for the country.”
Regards,
Linda Brady Traynham
February 17, 2010
Juggling Act was originally featured on Whiskey and Gunpowder
