currency debasement – Page 2 – The Burning Platform

Oh What a Tangled Web We Weave

If this doesn’t piss you off, nothing will. Let’s just solve all our problems by making the BIG LIE official policy of the Government (as if it isn’t already!). Now the FED is going to set it QE4EVA policy based on unemployment – which figures are just as big lies as the “official” CPI rate which understates inflation by a minimum of 7% (Official CPI year over year: 2%, true year over year is 9%). So what do we do? Modify the way the CPI is figured, yet once again, so any adjustments to payments made based on the “official” CPI will be lower – saving the Goobermint money and putting the greased pole to anyone receiving benefits.

Now benefits from Medicare, Medicaid, welfare, Obamaphones, SNAP and Social Security are going to have to be reformed and probably cut. But WHY IN HELL CAN’T THE GOVERNMENT BE HONEST AND SAY, “Hey guys and girls, we’re going broke and can’t afford these entitlements.” instead of LYING about it, not reducing Gooberment spending, fraud and abuse, cut Federal salaries (especially the automatic pay raises CONgress awarded themselves) and everyone share the pain?

This “suggestion” sucks and John Rubino calls them on it..

Hat tip to John Rubino

By the age of 12 or so, most people have learned through bitter experience that dishonesty is hard to pull off, because one lie tends to require more lies, until the complexity of the situation exceeds the liar’s ability keep everything straight.

This is just as true for governments as for individuals, especially when it comes to money. A currency that holds its value over long periods of time is nice but restrictive, because it limits a government’s ability to fight multiple wars and buy votes with generous social programs. So every government eventually resorts to monetary inflation, which is a combination of theft and deceit – or fraud, as it’s known in legal circles. By creating large amounts of new currency, a country lowers the value of each piece of currency in the hands of citizens, thus secretly taxing them to run the government. Then, to mask the effects of this stealth tax, governments distort their reported economic statistics to portray a world that’s healthier than the one most people experience. The goal is to siphon off as much wealth as possible while keeping the victims docile for as long as possible. The longer the con runs, the richer the people at the top become.

Eventually the gap between government reports and individual experience grows so wide that the lie is revealed and the scam ends, either through some sort of revolution or a financial collapse or both. A sign that we’re approaching that point is the following article, in which Time Magazine advocates making a heretofore-unspoken part of the con explicit government policy:

Fixing Inflation Adjustments Is the Smart Way to Shrink the Deficit

Let’s face it: There’s no way to reduce America’s budget deficit that won’t hurt someone, and that pain can’t be limited only to the rich. A payroll tax, passed in 2010, is scheduled to expire at the end of this year, for example, and that will cost middle-class households anywhere from $600 to $1,200. In addition, more than 20 million taxpayers could become subject to the alternative minimum tax (AMT), adding several hundred dollars to their annual tax bills on average. On the spending side, budget cuts would not only reduce government services but could also eventually cost tens of thousands of Americans their jobs.

But there are other ways to make progress on the deficit over the long term that would be a lot less painful and would also be politically viable. In my last column, I wrote about the estimated $30 billion a year that the Federal government could save by getting really tough on fraud. Even more could be done, though, by changing the inflation adjustments for government spending.

Cost-of-living adjustments (COLAs) are used throughout the U.S. economy – for union contracts and income tax brackets, as well as for government entitlements. It may seem only fair to adjust contracts and government programs for inflation – otherwise recipients would see their standard of living steadily erode over time. But there are a lot of ways to adjust for inflation. Moreover, the most commonly used gauge, the Consumer Price Index (CPI), may overstate the adjustment needed. Switching to a more conservative measure could save as much as $200 billion over the coming decade.

The most commonly proposed change is to replace the CPI with another index called the “chained CPI.” Basically, inflation is calculated based on putting together a basket of commonly bought goods and services and then tracking the price increases for them. In reality, though, people don’t consistently buy the same things. If one particular item – steak, for example – gets very expensive, people will typically buy something cheaper instead, such as chicken. The chained CPI takes into account the substitution of cheaper items for things that get too expensive, and is therefore arguably more accurate than the regular CPI. It also rises a little bit more slowly.

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The result of replacing the regular CPI with the chained CPI would be slightly slower increases in monthly Social Security payments and some other government benefits. The new measure would also modestly boost tax revenues. The reason: tax brackets are indexed to inflation and would ratchet up more slowly if the chained CPI were used to adjust them. For many taxpayers, that would mean that some of their income would fall in a higher bracket.

Further savings could come from changing the formula used to calculate initial Social Security benefits. Because Social Security was originally designed to mimic a pension plan rather than look like a welfare entitlement, initial benefits are pegged to retirees’ earnings over their working lives. Because the general standard of living improves over time, wages and salaries normally outpace inflation – and so do initial Social Security benefits. (After benefits have begun, further increases are based on a more usual cost-of-living adjustment.) Some economists have long argued for altering the formula for initial benefits. Keeping the current more generous earnings-based calculation for lower-income retirees but switching to an inflation-based calculation for the more-affluent half of the population could eliminate half of the Social Security deficit over the next 75 years.

Such fixes to benefit plans are not uncontroversial. When a recent Republican budget proposal included changes to the way the Federal government calculates inflation, the idea was swiftly rejected by some Democrats. Opponents of the idea objected that retirees face higher inflation than the average American because of health-care costs and that some of the tax increases would fall on the middle class. It’s true, of course, that altering inflation adjustments will limit future benefit increases and cause an upward creep in income taxes. But the idea that the Federal deficit can be brought down to sustainable levels without anyone giving up anything is simply unrealistic. Hiking tax rates on the rich alone will raise enough revenue to cut the deficit only by about 8%. In the end, simple arithmetic ensures that the bulk of deficit reduction will come from the middle class – the challenge is to minimize the pain.

Unfortunately, tinkering with inflation adjustments will be little help with other runaway costs – most significantly health care, which presents even greater long-term budget problems than Social Security does. Advances in medicine often make treatment more expensive. In addition, health care is labor intensive, and in all service sectors it’s hard to offset rising labor costs with the sort of productivity gains that can be achieved in manufacturing. Doctors can only see so many patients an hour, teachers can only correct so many papers, and there’s a limit to how fast a pianist can play the minute waltz.

But where rising costs are chiefly the result of inflation adjustments, fine-tuning those mechanisms may be the least painful way to start bringing down the long-term deficit. The spending cuts that are currently scheduled to go into effect next year in the absence of a budget deal look horrific and could result in 7% to 9% reductions in a broad range of Federal programs. Surely it seems more rational to minimize the need for such sudden, deep, and indiscriminate cuts in the near term by accepting smaller increases in government spending over the coming decades.

Some thoughts:
This is a perfect example of how lying sometimes corrupts both liar and victim. The honest approach to a situation where there’s not enough wealth would be to explain that everything from the military empire to the welfare state will henceforth have to live smaller. But that’s both hard to say and hard to hear, which makes the lie relatively painless for both sides. Just keep telling citizens that they’ll get everything they expect, while actually giving them a little less each year. Government gets the inflation-generated resources it wants, and the recipients of government spending get to pretend for a while longer that they’re taken care of. The problem is pushed into the future for tomorrow’s leaders and the children of today’s recipients to deal with.

Put more clearly, US voters are enabling the liars because – despite the mounting evidence that the lies are coming at our expense – we prefer the comfort of those lies to the harsh reality of no more free money for the lifestyles we thought were our birthright.

The result of dishonest public policy being enabled by voters in denial is a corrupt society, where lying – as in the article reprinted above – becomes acceptable public policy. We’re not far from the old Soviet joke, “we pretend to work and they pretend to pay us.”

ARE YOU SEEING WHAT I’M SEEING?

Is it just me, or are the signs of consumer collapse as clear as a Lowes parking lot on a Saturday afternoon? Sometimes I wonder if I’m just seeing the world through my pessimistic lens, skewing my point of view. My daily commute through West Philadelphia is not very enlightening, as the squalor, filth and lack of legal commerce remain consistent from year to year. This community is sustained by taxpayer subsidized low income housing, taxpayer subsidized food stamps, welfare payments, and illegal drug dealing. The dependency attitude, lifestyles of slothfulness and total lack of commerce has remained constant for decades in West Philly. It is on the weekends, cruising around a once thriving suburbia, where you perceive the persistent deterioration and decay of our debt fixated consumer spending based society.

The last two weekends I’ve needed to travel the highways of Montgomery County, PA going to a family party and purchasing a garbage disposal for my sink at my local Lowes store. Montgomery County is the typical white upper middle class suburb, with tracts of McMansions dotting the landscape. The population of 800,000 is spread over a 500 square mile area. Over 81% of the population is white, with the 9% black population confined to the urban enclaves of Norristown and Pottstown.

The median age is 38 and the median household income is $75,000, 50% above the national average. The employers are well diversified with an even distribution between education, health care, manufacturing, retail, professional services, finance and real estate. The median home price is $300,000, also 50% above the national average. The county leans Democrat, with Obama winning 60% of the vote in 2008. The 300,000 households were occupied by college educated white collar professionals. From a strictly demographic standpoint, Montgomery County appears to be a prosperous flourishing community where the residents are living lives of relative affluence. But, if you look closer and connect the dots, you see fissures in this façade of affluence that spread more expansively by the day. The cheap oil based, automobile dependent, mall centric, suburban sprawl, sanctuary of consumerism lifestyle is showing distinct signs of erosion. The clues are there for all to see and portend a bleak future for those mentally trapped in the delusions of a debt dependent suburban oasis of retail outlets, chain restaurants, office parks and enclaves of cookie cutter McMansions. An unsustainable paradigm can’t be sustained.

The first weekend had me driving along Ridge Pike, from Collegeville to Pottstown. Ridge Pike is a meandering two lane road that extends from Philadelphia, winds through Conshohocken, Plymouth Meeting, Norristown, past Ursinus College in Collegeville, to the farthest reaches of Montgomery County, at least 50 miles in length. It served as a main artery prior to the introduction of the interstates and superhighways that now connect the larger cities in eastern PA. Except for morning and evening rush hours, this road is fairly sedate. Like many primary routes in suburbia, the landscape is engulfed by strip malls, gas stations, automobile dealerships, office buildings, fast food joints, once thriving manufacturing facilities sitting vacant and older homes that preceded the proliferation of cookie cutter communities that now dominate what was once farmland.

Telltale Signs

I should probably be keeping my eyes on the road, but I can’t help but notice the telltale signs of an economic system gone haywire. As you drive along, the number of For Sale signs in front of homes stands out. When you consider how bad the housing market has been, the 40% decline in national home prices since 2007, the 30% of home dwellers underwater on their mortgage, and declining household income, you realize how desperate a home seller must be to try and unload a home in this market. The reality of the number of For Sale signs does not match the rhetoric coming from the NAR, government mouthpieces, CNBC pundits, and other housing recovery shills about record low inventory and home price increases.

The Federal Reserve/Wall Street/U.S. Treasury charade of foreclosure delaying tactics and selling thousands of properties in bulk to their crony capitalist buddies at a discount is designed to misinform the public. My local paper lists foreclosures in the community every Monday morning. In 2009 it would extend for four full pages. Today, it still extends four full pages. The fact that Wall Street bankers have criminally forged mortgage documents, people are living in houses for two years without making mortgage payments, and the Federal Government backing 97% of all mortgages while encouraging 3.5% down financing does not constitute a true housing recovery. Show me the housing recovery in these charts.

Existing home sales are at 1998 levels, with 45 million more people living in the country today.

New single family homes under construction are below levels in 1969, when there were 112 million less people in the country.

Another observation that can be made as you cruise through this suburban mecca of malaise is the overall decay of the infrastructure, appearances and disinterest or inability to maintain properties. The roadways are potholed with fading traffic lines, utility poles leaning and rotting, and signage corroding and antiquated. Houses are missing roof tiles, siding is cracked, gutters astray, porches sagging, windows cracked, a paint brush hasn’t been utilized in decades, and yards are inundated with debris and weeds. Not every house looks this way, but far more than you would think when viewing the overall demographics for Montgomery County. You wonder how many number among the 10 million vacant houses in the country today. The number of dilapidated run down properties paints a picture of the silent, barely perceptible Depression that grips the country today. With such little sense of community in the suburbs, most people don’t even know their neighbors. With the electronic transfer of food stamps, unemployment compensation, and other welfare benefits you would never know that your neighbor is unemployed and hasn’t made the mortgage payment on his house in 30 months. The corporate fascist ruling plutocracy uses their propaganda mouthpieces in the mainstream corporate media and government agency drones to misinform and obscure the truth, but the data and anecdotal observational evidence reveal the true nature of our societal implosion.

A report by the Census Bureau this past week inadvertently reveals data that confirms my observations on the roadways of my suburban existence. Annual household income fell in 2011 for the fourth straight year, to an inflation-adjusted $50,054. The median income — meaning half earned more, half less — now stands 8.9% lower than the all-time peak of $54,932 in 1999. It is far worse than even that dreadful result. Real median household income is lower than it was in 1989. When you understand that real household income hasn’t risen in 23 years, you can connect the dots with the decay and deterioration of properties in suburbia. A vast swath of Americans cannot afford to maintain their residences. If the choice is feeding your kids and keeping the heat on versus repairing the porch, replacing the windows or getting a new roof, the only option is survival.

All races have seen their income fall, with educational achievement reflected in the much higher incomes of Whites and Asians. It is interesting to note that after a 45 year War on Poverty the median household income for black families is only up 19% since 1968.

Now for the really bad news. Any critical thinking person should realize the Federal Government has been systematically under-reporting inflation since the early 1980’s in an effort to obscure the fact they are debasing the currency and methodically destroying the lives of middle class Americans. If inflation was calculated exactly as it was in 1980, the GDP figures would be substantially lower and inflation would be reported 5% higher than it is today. Faking the numbers does not change reality, only the perception of reality. Calculating real median household income with the true level of inflation exposes the true picture for middle class America. Real median household income is lower than it was in 1970, just prior to Nixon closing the gold window and unleashing the full fury of a Federal Reserve able to print fiat currency and politicians to promise the earth, moon and the sun to voters. With incomes not rising over the last four decades is it any wonder many of our 115 million households slowly rot and decay from within like an old diseased oak tree. The slightest gust of wind can lead to disaster.

Eliminating the last remnants of fiscal discipline on bankers and politicians in 1971 accomplished the desired result of enriching the top 0.1% while leaving the bottom 90% in debt and desolation. The Wall Street debt peddlers, Military Industrial arms dealers, and job destroying corporate goliaths have reaped the benefits of financialization (money printing) while shoveling the costs, their gambling losses, trillions of consumer debt, and relentless inflation upon the working tax paying middle class. The creation of the Federal Reserve and implementation of the individual income tax in 1913, along with leaving the gold standard has rewarded the cabal of private banking interests who have captured our economic and political systems with obscene levels of wealth, while senior citizens are left with no interest earnings ($400 billion per year has been absconded from savers and doled out to bankers since 2008 by Ben Bernanke) and the middle class has gone decades seeing their earnings stagnate and their purchasing power fall precipitously.

The facts exposed in the chart above didn’t happen by accident. The system has been rigged by those in power to enrich them, while impoverishing the masses. When you gain control over the issuance of currency, issuance of debt, tax system, political system and legal apparatus, you’ve essentially hijacked the country and can funnel all the benefits to yourself and costs to the math challenged, government educated, brainwashed dupes, known as the masses. But there is a problem for the 0.1%. Their sociopathic personalities never allow them to stop plundering and preying upon the sheep. They have left nothing but carcasses of the once proud hard working middle class across the country side. There are only so many Lear jets, estates in the Hamptons, Jaguars, and Rolexes the 0.1% can buy. There are only 152,000 of them. Their sociopathic looting and pillaging of the national wealth has destroyed the host. When 90% of the population can barely subsist, collapse and revolution beckon.

Extend, Pretend & Depend

As I drove further along Ridge Pike we passed the endless monuments to our spiral into the depths of materialism, consumerism, and the illusion that goods purchased on credit represented true wealth. Mile after mile of strip malls, restaurants, gas stations, and office buildings rolled by my window. Anyone who lives in the suburbs knows what I’m talking about. You can’t travel three miles in any direction without passing a Dunkin Donuts, KFC, McDonalds, Subway, 7-11, Dairy Queen, Supercuts, Jiffy Lube or Exxon Station. The proliferation of office parks to accommodate the millions of paper pushers that make our service economy hum has been unprecedented in human history. Never have so many done so little in so many places. Everyone knows what a standard American strip mall consists of – a pizza place, a Chinese takeout, beer store, a tanning, salon, a weight loss center, a nail salon, a Curves, karate studio, Gamestop, Radioshack, Dollar Store, H&R Block, and a debt counseling service. They are a reflection of who we’ve become – an obese drunken species with excessive narcissistic tendencies that prefers to play video games while texting on our iGadgets as our debt financed lifestyles ultimately require professional financial assistance.

What you can’t ignore today is the number of vacant storefronts in these strip malls and the overwhelming number of SPACE AVAILABLE, FOR LEASE, and FOR RENT signs that proliferate in front of these dying testaments to an unsustainable economic system based upon debt fueled consumer spending and infinite growth assumptions. The booming sign manufacturer is surely based in China. The officially reported national vacancy rates of 11% are already at record highs, but anyone with two eyes knows these self-reported numbers are a fraud. Vacancy rates based on my observations are closer to 30%. This is part of the extend and pretend strategy that has been implemented by Ben Bernanke, Tim Geithner, the FASB, and the Wall Street banking cabal. The fraud and false storyline of a commercial real estate recovery is evident to anyone willing to think critically. The incriminating data is provided by the Federal Reserve in their Quarterly Delinquency Report.

The last commercial real estate crisis occurred in 1991. Mall vacancy rates were at levels consistent with today.

The current reported office vacancy rates of 17.5% are only slightly below the 19% levels of 1991.

As reported by the Federal Reserve, delinquency rates on commercial real estate loans in 1991 were 12%, leading to major losses among the banks that made those imprudent loans. Amazingly, after the greatest financial collapse in history, delinquency rates on commercial loans supposedly peaked at 8.8% in the 2^nd quarter of 2010 and have now miraculously plummeted to pre-collapse levels of 4.9%. This is while residential loan delinquencies have resumed their upward trajectory, the number of employed Americans has fallen by 414,000 in the last two months, 9 million Americans have left the labor force since 2008, and vacancy rates are at or near all-time highs. This doesn’t pass the smell test. The Federal Reserve, owned and controlled by the Wall Street, instructed these banks to extend all commercial real estate loans, pretend they will be paid, and value them on their books at 100% of the original loan amount. Real estate developers pretend they are collecting rent from non-existent tenants, Wall Street banks pretend they are being paid by the developers, and their highly compensated public accounting firm pretends the loans aren’t really delinquent. Again, the purpose of this scam is to shield the Wall Street bankers from accepting the losses from their reckless behavior. Ben rewards them with risk free income on their deposits, propped up by mark to fantasy accounting, while they reward themselves with billions in bonuses for a job well done. The master plan requires an eventual real recovery that isn’t going to happen. Press releases and fake data do not change the reality on the ground.

I have two strip malls within three miles of my house that opened in 1990. When I moved to the area in 1995, they were 100% occupied and a vital part of the community. The closest center has since lost its Genuardi grocery store, Sears Hardware, Blockbuster, Donatos, Sears Optical, Hollywood Tans, hair salon, pizza pub and a local book store. It is essentially a ghost mall, with two banks, a couple chain restaurants and empty parking spaces. The other strip mall lost its grocery store anchor and sporting goods store. This has happened in an outwardly prosperous community. The reality is the apparent prosperity is a sham. The entire tottering edifice of housing, autos, and retail has been sustained by ever increasing levels of debt for the last thirty years and the American consumer has hit the wall. From 1950 through the early 1980s, when the working middle class saw their standard of living rise, personal consumption expenditures accounted for between 60% and 65% of GDP. Over the last thirty years consumption has relentlessly grown as a percentage of GDP to its current level of 71%, higher than before the 2008 collapse.

If the consumption had been driven by wage increases, then this trend would not have been a problem. But, we already know real median household income is lower than it was in 1970. The thirty years of delusion were financed with debt – peddled, hawked, marketed, and pushed by the drug dealers on Wall Street. The American people got hooked on debt and still have not kicked the habit. The decline in household debt since 2008 is solely due to the Wall Street banks writing off $800 billion of mortgage, credit card, and auto loan debt and transferring the cost to the already drowning American taxpayer.

The powers that be are desperately attempting to keep this unsustainable, dysfunctional debt choked scheme from disintegrating by doling out more subprime auto debt, subprime student loan debt, low down payment mortgages, and good old credit card debt. It won’t work. The consumer is tapped out. Last week’s horrific retail sales report for August confirmed this fact. Declining household income and rising costs for energy, food, clothing, tuition, taxes, health insurance, and the other things needed to survive in the real world, have broken the spirit of Middle America. The protracted implosion of our consumer society has only just begun. There are thousands of retail outlets to be closed, hundreds of thousands of jobs to be eliminated, thousands of malls to be demolished, and billions of loan losses to be incurred by the criminal Wall Street banks.

The Faces of Failure & Futility

My fourteen years working in key positions for big box retailer IKEA has made me particularly observant of the hubris and foolishness of the big chain stores that dominate the retail landscape. There are 1.1 million retail establishments in the United States, but the top 25 mega-store national chains account for 25% of all the retail sales in the country. The top 100 retailers operate 243,000 stores and account for approximately $1.6 trillion in sales, or 36% of all the retail sales in the country. Their misconceived strategic plans assumed 5% same store growth for eternity, economic growth of 3% per year for eternity, a rising market share, and ignorance of the possible plans of their competitors. They believed they could saturate a market without over cannibalizing their existing stores. Wal-Mart, Target, Best Buy, Home Depot and Lowes have all hit the limits of profitable expansion. Each incremental store in a market results in lower profits.

My trip to my local Lowes last weekend gave me a glimpse into a future of failure and futility. Until 2009, I had four choices of Lowes within 15 miles of my house. There was a store 8 miles east, 12 miles west, 15 miles north, and 15 miles south of my house. In an act of supreme hubris, Lowes opened a store smack in the middle of these four stores, four miles from my house. The Hatfield store opened in early 2009 and I wrote an article detailing how Lowes was about to ruin their profitability in Montgomery County. It just so happens that I meet a couple of my old real estate buddies from IKEA at a local pub every few months. In 2009 one of them had a real estate position with Lowes and we had a spirited discussion about the prospects for the Lowes Hatfield store. He assured me it would be a huge success. I insisted it would be a dud and would crush the profitability of the market by cannibalizing the other four stores. We met at that same pub a few months ago. Lowes had laid him off and he admitted to me the Hatfield store was a disaster.

I pulled into the Lowes parking lot at 11:30 am on a Saturday. Big Box retailers do 50% of their business on the weekend. The busiest time frame is from 11:00 am to 2:00 pm on Saturday. Big box retailers build enough parking spots to handle this peak period. The 120,000 square feet Hatfield Lowes has approximately 1,000 parking spaces. I pulled into the spot closest to the entrance during their supposed peak period. There were about 70 cars in the parking lot, with most probably owned by Lowes workers. It is a pleasure to shop in this store, with wide open aisles, and an employee to customer ratio of four to one. The store has 14 checkout lanes and at peak period on a Saturday, there was ONE checkout lane open, with no lines. This is a corporate profit disaster in the making, but the human tragedy far overrides the declining profits of this mega-retailer.

As you walk around this museum of tools and toilets you notice the looks on the faces of the workers. These aren’t the tattooed, face pierced freaks you find in many retail establishments these days. They are my neighbors. They are the beaten down middle class. They are the middle aged professionals who got cast aside by the mega-corporations in the name of efficiency, outsourcing, right sizing, stock buybacks, and executive stock options. The irony of this situation is lost on those who have gutted the American middle class. When you look into the eyes of these people, you see sadness, confusion and embarrassment. They know they can do more. They want to do more. They know they’ve been screwed, but they aren’t sure who to blame. They were once the very customers propelling Lowes’ growth, buying new kitchens, appliances, and power tools. Now they can’t afford a can of paint on their $10 per hour, no benefit retail careers. As depressing as this portrait appears, it is about to get worse.

This Lowes will be shut down and boarded up within the next two years. The parking lot will become a weed infested eyesore occupied by 14 year old skateboarders. One hundred and fifty already down on their luck neighbors will lose their jobs, the township will have a gaping hole in their tax revenue, and the CEO of Lowes will receive a $50 million bonus for his foresight in announcing the closing of 100 stores that he had opened five years before. This exact scenario will play out across suburbia, as our unsustainable system comes undone. Our future path will parallel the course of the labor participation rate. Just as the 9 million Americans who have “left” the labor force since 2008 did not willfully make that choice, the debt burdened American consumer will be dragged kicking and screaming into the new reality of a dramatically reduced standard of living.

Connecting the dots between my anecdotal observations of suburbia and a critical review of the true non-manipulated data bestows me with a not optimistic outlook for the coming decade. Is what I’m seeing just the view of a pessimist, or are you seeing the same thing?

A few powerful men have hijacked our economic, financial and political structure. They aren’t socialists or capitalists. They’re criminals. They created the culture of materialism, greed and debt, sustained by prodigious levels of media propaganda. Our culture has been led to believe that debt financed consumption over morality and justice is the path to success. In reality, we’ve condemned ourselves to a slow painful death spiral of debasement and despair.

“A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, and fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death.” – Chris Hedges

WE ARE THE ROMAN EMPIRE

I love reading MSM articles that blather on with trivialities while missing the big picture. It costs 2.4 cents to make a penny. It costs 11.2 cents to make a nickel. The article provides all kinds of facts but fails to reach the logical conclusion that 100 years of currency debasement by the Federal Reserve has reached its point of no return. The Romans methodically reduced the metal content of their coins as their empire slowly and methodically declined. The price of all metals continue to rise in dollars as the Federal Reserve prints them at hyper-speed. There is no way to produce a penny or a nickle for less than the value of the coin. We’ve passed the point of no return. The USD has lost 97% of its purchasing power since 1913, as man made inflation has destroyed the middle class. We are the Roman Empire in its final death throes.

Obama wants cheaper pennies and nickels

The U.S. Mint is facing a problem — especially during these penny-pinching times. It turns out it costs more to make pennies and nickels than the coins are worth.

And because of that, the Obama administration this week asked Congress for permission to change the mix of metal that goes to make pennies and nickels, an expensive recipe that has remained unchanged for more than 30 years.

To be precise, it cost 2.4 cents to make one penny in 2011 and about 11.2 cents for each nickel.

Given the number of coins that the mint produces — 4.3 billion pennies and 914 million nickels last year alone, those costs add up pretty quickly: a little more than $100 million for each coin.

But even though Treasury has been studying new metals since 2010, it has yet to come up with a workable mix that would definitely be cheaper, and it has no details yet as to what metals should be used or how much it would save to do so.

Even if a cheaper metal can be used, it might not take the cost of a penny down to less than a penny.

Just the administrative cost of minting 4.3 billion pennies costs almost a half-cent per coin by itself, leaving precious little room to make a penny for less than a cent, no matter the raw material used.

The raw material cost of the metals used in a current penny is only about 0.6 cents per coin, according to prices quoted on the London Metal Exchange, and a breakdown of a penny’s composition from the mint. The mint paid 1.1 cents on average for the metal used in a penny in 2011, but that is the cost of ready-to-stamp blanks from the supplier, not raw material traded on commodity markets.

Funny money? 11 local currencies

There have been times in recent years when a run-up in zinc and copper priceshas taken the raw material value of a penny above one cent.

That’s the case for a nickel today. Its more expensive metal mix means the raw materials in each are worth almost 6 cents per coin, based on current market prices. (States eye silver and gold currencies)

Despite popular belief, since 1982 pennies have only been copper plated, not copper through and through. Much less expensive zinc makes up 97.5% of the mass of a penny, the rest is a copper coating.

Nickels actually have much more copper in them — 75% copper and 25% nickel, the same mix it has always had.

The mint did make steel pennies for one year — in 1943 — when copper was needed for the war effort. And steel might be a cheaper alternative this time. Steel is roughly one-quarter the price of zinc on the London Metal Exchange.

Treasury had already made a cost-saving move in December when it stopped making dollar coins.

With 1.4 billion surplus presidential dollar coins sitting in bank vaults waiting to be circulated, and American consumers showing little appetite to start using the coins, Treasury estimates the halt in production of the coins will save about $50 million a year.

Check commodity prices

Treasury spokesman Matt Anderson said Treasury has the authority to stop making the dollar coins on its own, but it can’t change the mix of metals in pennies without permission.

As for the suggestion of some that the penny be abandoned altogether, Anderson said only “that is not a proposal we have put forward.”

WHERE’S OUR OIL PRICE COLLAPSE?

Make no mistake about it, without plentiful, cheap, and easy to access oil, the United States of America would descend into chaos and collapse. The fantasies painted by “green” energy dreamers only serve to divert the attention of the non critical thinking masses from the fact our sprawling suburban hyper technological society would come to a grinding halt in a matter of days without the 18 to 19 million barrels per day needed to run this ridiculous reality show. Delusional Americans think the steaks, hot dogs and pomegranates in their grocery stores magically appear on the shelves, the thirty electronic gadgets that rule their lives are created out of thin air by elves and the gasoline they pump into their mammoth SUVs is their God given right. The situation was already critical in 2005 when the Hirsch Report concluded:

“The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.”

In the six years since this report there has been unprecedented oil price volatility as the world has reached the undulating plateau of peak cheap oil. The viable mitigation options on the demand and supply side were not pursued. The head in the sand hope for the best option was chosen. The government mandated options, ethanol and solar, have been absolute and utter disasters as billions of taxpayer dollars have been squandered and company after company goes bankrupt. The added benefit has been sky high corn prices, dwindling supplies and revolutions around the world due to soaring food prices. The last time the country went into recession in 2008, the price of oil plunged from $140 a barrel to $30 a barrel in the space of six months. I’d classify that as volatility. We’ve clearly entered a second recession in the last six months. So we should be getting the benefit of collapsing oil prices.

But, a funny thing happened on the way to another oil price collapse. It didn’t happen. WTI Crude is trading for $87 a barrel, up 23% since January 1. Unleaded gas prices are up 54% in the last year and 43% since January 1. Worldwide oil pricing is not based on WTI crude but Brent crude, selling for $113 per barrel, only down 10% from its April high of $125. The U.S. and Europe consume 40% of all the oil in the world on a daily basis. Multiple European countries have been in recession for the last nine months. The U.S. economy has been in free fall for six months.

Some short term factors will continue to support higher oil prices. The Chinese continue to fill their strategic petroleum reserve, Japan is still relying on diesel generators for electricity post-tsunami, and the Middle East is developing a love affair with the air conditioner. But, it’s the long term factors that will lead to much higher oil prices for myopic oblivious Americans.

John Hussman describes the situation on the ground today based upon six economic conditions presently in effect:

There are certainly a great number of opinions about the prospect of recession, but the evidence we observe at present has 100% sensitivity (these conditions have always been observed during or just prior to each U.S. recession) and 100% specificity (the only time we observe the full set of these conditions is during or just prior to U.S. recessions).

With 40% of the world in or near recession, how come oil prices are still so high and much higher than last year, when the economies in Europe and the U.S. were expanding? The number of vehicle miles driven in the U.S. is still below the level reached 43 months ago and at the same level as early 2005. The price of a barrel of oil in early 2005 was $42. The U.S. is using the same amount of oil, but the price is up 112%. It seems the U.S. isn’t calling the shots when it comes to the worldwide supply/demand equation.

It would probably be a surprise to most people that U.S. oil consumption today is at the same level it was in 1997 and is 10% lower than the peak reached in 2005. This is not a reflection of increased efficiency or Americans gravitating towards smaller vehicles with better mileage. Americans are still addicted to their SUVs and gas guzzling luxury automobiles. It’s a reflection of a U.S. economy that has been in a downward spiral since 2005.

1996	18,476.15	3.89 %
1997	18,774.07	1.61 %
1998	18,946.01	0.92 %
1999	19,603.83	3.47 %
2000	19,717.92	0.58 %
2001	19,772.60	0.28 %
2002	19,834.31	0.31 %
2003	20,144.82	1.57 %
2004	20,833.01	3.42 %
2005	20,924.36	0.44 %
2006	20,803.93	-0.58 %
2007	20,818.37	0.07 %
2008	19,563.33	-6.03 %
2009	18,810.01	-3.85 %

If the U.S. isn’t driving oil demand in the world, then why are prices going up? There are three main factors:

Dramatic increase in demand from China and other developing countries.
A plunging U.S. Dollar
Peak oil has arrived

Surging Developing World Demand

The Energy Information Administration issued their latest forecast and it does not bode well for lower prices:

Despite continued concerns over the pace of the global economic recovery, particularly in developed countries, the US Energy Information Administration expects worldwide oil consumption to increase this year and next spurred by demand in developing countries. US oil consumption, however, is forecast to contract from a year ago. Worldwide oil demand, led by China, will increase by 1.4 million b/d in 2011 to average 88.19 million b/d and by 1.6 million b/d in 2012, outpacing average global demand growth of 1.3 million b/d from 1998-2007, before the onset of the global economic downturn.

China is now consuming over 9 million barrels per day. This is up from an average of 7 million barrels per day in 2006. Platts, a global energy analyst, put China’s 2010 figures at 8.5 million barrels per day, up 11.43% from the previous year. The forecast for China’s crude throughput in 2011 is an average of 9.24 million barrels per day up 8.5% from 2010. In the first seven months of this year, total crude throughput stood at average of 8.95 million barrels per day.

Standard Chartered Bank predicts that, by the year 2020, China will overtake all of Europe as the second largest consumer of oil in the world, and should catch up to the U.S. by the year 2030 as China’s demand continues to rise while U.S. demand is expected to be flat. Chinese crude imports grew 17.5% in 2010 to 4.79 million barrels per day. China is importing 55% of its oil today versus 40% in 2004.

China’s oil consumption per capita has increased over 350% since the early 1980s to an estimated 2.7 barrels per year in 2011. Consumption per capita has risen nearly 100% in just the past decade. Oil consumption per capita in the U.S. currently ranks among the top industrialized nations in the world at 25 barrels per year. However, today’s consumption levels are approximately 20% lower than they were in 1979. The chart below paints a picture of woe for the United States and the world. China overtook the United States in auto sales in 2009. They now sell approximately 15 million new vehicles per year. India sells approximately 2 million new vehicles per year. The U.S. sells just over 12 million new vehicles per year. In China and India there are approximately 6 car owners per 100 people. In the U.S. there are 85 car owners per 100 people.

They call China, India and the rest of the developing world – Developing – because they will be rapidly expanding their consumption of goods, services and food. There will certainly be bumps along the way, as China is experiencing now, but the consumption of oil by the developing world will plow relentlessly higher. China isn’t the only emerging country to show big increases in per capita consumption. The growth in consumption for several other countries far outpaces China. Consumption per capita in Malaysia has nearly quadrupled since the mid-1960s. Consumption in Thailand and Brazil has more than doubled to roughly 5.7 barrels and 4.8 barrels per year, respectively.

Developed countries, especially those in Western Europe, have experienced substantial declines in oil consumption. Today’s per capita consumption in Sweden is roughly 12 barrels per year, down from 25 barrels per year in the mid-1970s. France, Japan, Norway and U.K. all use less oil on a per capita basis than they did in the 1970s. These countries have been able to drive down the consumption of oil by taxing gasoline at an excessive level.

Americans pay 43 cents in taxes out of the $3.70 they pay at the pump for a gallon of gasoline. A driver in the UK is paying $4 per gallon in taxes out of the $9 per gallon cost. Gasoline costs between $8 and $9 per gallon across Europe today. The extreme level of gas taxes certainly reduces car sizes, consumption and traffic. Too bad the mad socialists across Europe spent the taxes on expanding their welfare states and promising even more to their populations. Maybe a $6 per gallon tax will do the trick. Forcing Americans to drive less by doubling the gas tax is a quaint idea, but it is too late in the game. Europe is still made up of small towns and cities with the populations still fairly consolidated. Biking, walking and small rail travel is easy and feasible. The sprawling suburban enclaves that proliferate across the American countryside, dotted by thousands of malls and McMansion communities, accessible only by automobiles, make it impossible to implement a rational energy efficient model for moving forward. We cannot reverse 60 years of irrationality. Even without higher gas taxes, the price of gasoline will move relentlessly higher due to the stealth tax of currency debasement.

A Plunging US Dollar

The US dollar has fallen 15% versus a basket of worldwide currencies (DXY) since February 2009. This is amazing considering that 57% of the index weighting is the Euro. If you haven’t noticed, Europe is a basket case on the verge of economic disintegration. The US imports a net 9.4 million barrels of oil per day, or 49% of our daily consumption. Our largest suppliers are:

Canada – 2.6 million barrels per day
Mexico – 1.3 million barrels per day
Saudi Arabia – 1.1 million barrels per day
Nigeria – 1.0 million barrels per day
Venezuela – 1.0 million barrels per day
Russia – 600,000 barrels per day
Algeria – 500,000 barrels per day
Iraq – 400,000 barrels per day

These eight countries account for over 70% of our daily oil imports. You hear the “experts” on CNBC declare that our oil supply situation is secure because close to 60% of our daily usage is sourced from North America. The presumption is that Canada and Mexico are somehow under our control. There is one problem with this storyline. US oil production peaked in 1971 and relentlessly declines as M. King Hubbert predicted it would. Mexico will cease to be a supplier to the U.S. by 2015 as their Cantarell oil field is in collapse. Most of the oil supplied from Canada is from their tar sands. Expansion of these fields is difficult as it takes tremendous amounts of natural gas and water to extract the oil.

The rest of the countries on the list dislike us, hate us, or are in constant danger of implosion. When the Neo-Cons on Fox News try to convince you that Iraq has been a huge success and certainly worth the $3 trillion of national wealth expended, along with 4,500 dead and 32,000 wounded soldiers, you might want to keep in mind that Iraq was exporting 795,000 barrels of oil per day to the U.S. in 2001 when the evil dictator was in charge. Today, we are getting 415,000 barrels per day. Dick Cheney was never good at long term strategic planning.

We better plant more corn, as our supply situation is far from stable. Maybe we can install solar panels from Obama’s Solyndra factory on the roofs of the 65 Chevy Volts that were sold in the U.S. this year, to alleviate our oil supply problem. The reliability and stability of our oil supply takes second place to the price increases caused by Ben Bernanke and his printing press. The average American housewife driving her 1.5 children in her enormous two and a half ton Chevy Tahoe or gigantic Toyota Sequoia two miles to baseball practice doesn’t comprehend why it is costing her $100 to fill the 26 gallon tank. If she listens to the brain dead mainstream media pundits, she’ll conclude that Big Oil is to blame. The real reason is Big Finance in conspiracy with Big Government.

Ben Bernanke is responsible for Americans paying $4 a gallon for gasoline. Zero interest rates, printing money out of thin air to buy $2 trillion of mortgage and Treasury bonds, and propping up insolvent criminal banks across the globe have one purpose – to deflate the value of the U.S. dollar. The rulers of the American Empire realize they can never repay the debts they have accumulated. They have chosen to default through debasement. It’s an insidious and immoral method of defaulting on your obligations. Let’s look at from the perspective of our two biggest oil suppliers.

A barrel of oil cost $40 a barrel in early 2009. The U.S. dollar has declined 30% versus the Canadian dollar since early 2009. The U.S. dollar has shockingly declined 20% versus the Mexican Peso since early 2009. How could the mighty USD decline 20% against the currency of a 3rd world country on the verge of being a failed state? Ask Ben Bernanke. Our lenders can’t do much about the continuing debasement of our currency, but our oil suppliers can. They will raise the price of oil in proportion to our currency devaluation. Since Bernanke’s only solution is continuous debasement, the price of oil will relentlessly rise.

Peak Oil Has Arrived

“By 2012, surplus oil production capacity could entirely disappear, and as early as 2015, the shortfall in output could reach nearly 10 MBD. At present, investment in oil production is only beginning to pick up, with the result that production could reach a prolonged plateau. By 2030, the world will require production of 118 MBD, but energy producers may only be producing 100 MBD unless there are major changes in current investment and drilling capacity.” – 2010 Joint Operating Environment Report

We’ve arrived at the point where demand has begun to outpace supply and even the onset of another worldwide recession will not assuage this fact. World oil supply has peaked just below 89 million barrels per day. Supply has since fallen to 87.5 million barrels per day, as Libyan supply was completely removed from world markets. The International Energy Agency is already forecasting worldwide demand to reach 90 million barrels per day in the second half of 2011 and reach 92 million barrels per day in 2012. The IEA warns that “just at the time when demand is expected to recover, physical limits on production capacity could lead to another wave of price increases, in a cyclical pattern that is not new to the world oil market.”

The world is trapped in an inescapable conundrum. As supply dwindles, prices increase, causing global economies to contract, and temporarily causing a drop in prices, except the lows are higher each time. The drill, drill, drill ideologues do nothing but confuse and mislead the easily led masses. We have 2% of the world’s oil reserves and consume more than 20% of the daily output. We consume 7 billion barrels of oil per year.

Drilling for oil in the Arctic National Wildlife Refuge in Alaska and areas formerly off limits in the Outer Continental Shelf will not close the supply gap. The amount of recoverable oil in the Arctic coastal plain is estimated to be between 5.7 billion and 16 billion barrels. This could supply as little as a year’s worth of oil. And it will take 10 years to produce any oil from this supply. The OCS has only slightly more recoverable oil at an estimated 18 billion barrels and the BP Gulf Oil disaster showed how easy this oil is to access safely. The new over hyped energy savior is shale gas. The cheerleaders in the natural gas industry claim that we have four Saudi Arabias worth of natural gas in the U.S. This is nothing but PR talking points to convince the masses that we can easily adapt. The amount of shale gas that can be economically produced is far less than the amounts being touted by the industry. The wells deplete rapidly and the environmental damage has been well documented. And last but certainly not least, we have the abiotic oil believers that convince themselves the wells will refill despite the fact that there is not one instance of an oil well refilling once it is depleted.

I wrote an article called Peak Denial About Peak Oil exactly one year ago when gas was selling for $2.60 a gallon. I railed at the short sightedness of politicians and citizens alike for ignoring a calamitous crisis that was directly before their eyes. Just like our accumulation of $4 billion per day in debt, peak oil is simply a matter of math. We cannot take on ever increasing amounts of debt in order to live above our means without collapsing our economic system. We cannot expect to run our energy intensive world with a depleting energy source. There is no amount of spin and PR that can change the math. Un-payable levels of debt and dwindling supplies of oil will merge into a perfect storm over the next ten years to permanently change our world. The change will be traumatic, horrible, bloody and a complete surprise to the non-critical thinking public.

“In the longer run, unless we take serious steps to prepare for the day that we can no longer increase production of conventional oil, we are faced with the possibility of a major economic shock—and the political unrest that would ensue.” – Dr. James Schlesinger – former US Energy Secretary, 16th November 2005

We were warned. We failed to heed the warnings. If we had begun making the dramatic changes to our society 5 to 10 years ago, we may have been able to partially alleviate the pain and suffering ahead. Instead we spent our national treasure fighting Wars on Terror and bailing out criminal bankers. Converting truck and bus fleets to natural gas; expanding the use of safe nuclear power; utilizing wind, geothermal, and solar where economically feasible; buying more fuel efficient vehicles; and creating more localized communities supported by light rail with easy access to bike and walking options, would have allowed a more gradual shift to a less energy intensive society.

We’ve done nothing to prepare for the onset of peak oil. Until this foreseeable crisis hits with its full force like a Category 5 hurricane, Americans will continue to fill up their M1 tank sized, leased SUVs, tweet about Lady Gaga’s latest stunt, and tune in to this week’s episode of Jersey Shore. Meanwhile, economic stagnation, catastrophe and wars for oil are darkening the skies on our horizon.

“Dependence on imported oil, particularly from the Middle East, has become the elephant in the foreign policy living room, an overriding strategic consideration composed of a multitude of issues. …. Taken in whole, the National Energy Policy does not offer a compelling solution to the growing danger of foreign oil dependence. … Future military efforts to secure the oil supply pose tremendous challenges due to the number of potential crisis areas. ….. Economic stagnation or catastrophe lurk close at hand, to be triggered by another embargo, collapse of the Saudi monarchy, or civil disorder in any of a dozen nations.”– America’s Strategic Imperative A “Manhattan Project” for Energy