A Turning Point in Junior Gold Stocks?

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Posted on 31st January 2014 by Administrator in Economy |Politics |Social Issues

A Turning Point in Junior Gold Stocks?

By Doug Hornig, Senior Editor

It’s not exactly news that gold mining stocks have been in a slump for more than two years. Many investors who owned them have thrown in the towel by now, or are holding simply because a paper loss isn’t a realized loss until you sell.

For contrarian speculators like Doug Casey and Rick Rule, though, it’s the best of all scenarios. “Buy when blood is in the streets,” investor Nathan Rothschild allegedly said. And buy they do, with both hands—because, they assert, there are definitive signs that things may be turning around.

So what’s the deal with junior mining stocks, and who should invest in them? I’ll give you several good reasons not to touch them with a 10-foot pole… and one why you maybe should.

First, you need to understand that junior gold miners are not buy-and-forget stocks. They are the most volatile securities in the world—”burning matches,” as Doug calls them. To speculate in those stocks requires nerves of steel.

Let’s take a look at the performance of the juniors since 2011. The ETF that tracks a basket of such stocks—Market Vectors Junior Gold Miners (GDXJ)—took a savage beating. In early April of 2011, a share would have cost you $170. Today, you can pick one up for about $36… that’s a decline of nearly 80%.

There are something like 3,000 small mining companies in the world today, and the vast majority of them are worthless, sitting on a few hundred acres of moose pasture and a pipe dream.

It’s a very tough business. Small-cap exploration companies (the “juniors”) are working year round looking for viable deposits. The question is not just if the gold is there, but if it can be extracted economically—and the probability is low. Even the ones that manage to find the goods and build a mine aren’t in the clear yet: before they can pour the first bar, there are regulatory hurdles, rising costs of labor and machinery, and often vehement opposition from natives to deal with.

As the performance of junior mining stocks is closely correlated to that of gold, when the physical metal goes into a tailspin, gold mining shares follow suit. Only they tend to drop off faster and more deeply than physical gold.

Then why invest in them at all?

Because, as Casey Chief Metals & Mining Strategist Louis James likes to say, the downside is limited—all you can lose is 100% of your investment. The upside, on the other hand, is infinite.

In the rebound periods after downturns such as the one we’re in, literal fortunes can be made; gains of 400-1,000% (and sometimes more) are not a rarity. It’s a speculator’s dream.

When speculating in junior miners, timing is crucial. Bear runs in the gold sector can last a long time—some of them will go on until the last faint-hearted investor has been flushed away and there’s no one left to sell.

At that point they come roaring back. It happened in the late ’70s, it happened several times in the ’80s when gold itself pretty much went to sleep, and again in 2002 after a four-year retreat.

The most recent rally of 2009-’10 was breathtaking: Louis’ International Speculator stocks, which had gotten hammered with the rest of the market, handed subscribers average gains of 401.8%—a level of return Joe the Investor never gets to see in his lifetime.

So where are we now in the cycle?

The present downturn, as noted, kicked off in the spring of 2011, and despite several mini-rallies, the overall trend has been down. Recently, though, the natural resource experts here at Casey Research and elsewhere have seen clear signs of an imminent turnaround.

For one thing, the price of gold itself has stabilized. After hitting its peak of $1,921.50 in September of 2011, it fell back below $1,190 twice last December. Since then, it hasn’t tested those lows again and is trading about 6.5% higher today.

The demand for physical gold, especially from China, has been insatiable. The Austrian mint had to hire more employees and add a third eight-hour shift to the day in an attempt to keep up in its production of Philharmonic coins. “The market is very busy,” a mint spokesperson said. “We can’t meet the demand, even if we work overtime.” Sales jumped 36% in 2013, compared to the year before.

Finally, the junior mining stocks have perked up again. In fact, for the first month of 2014, they turned in the best performance of any asset, as you can see here:

(Source: Zero Hedge)

The writing’s on the wall, say the pros, that the downturn won’t last much longer—and when the junior miners start taking off again, there’s no telling how high they could go.

To present the evidence and to discuss how to play the turning tides in the precious metals market, Casey Research is hosting a timely online video event titled Upturn Millionaires next Wednesday, February 5, at 2:00 p.m. Eastern.

 

register here for free

 

Born Libertarian: Doug Casey on Ron Paul and the Price of Freedom

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Posted on 14th October 2013 by Administrator in Economy |Politics |Social Issues

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Born Libertarian: Doug Casey on Ron Paul and the Price of Freedom

By The Gold Report

The Gold Report: Doug, we are at your conference in Tucson, Arizona, the day after former Congressman and presidential candidate Dr. Ron Paul gave the keynote speech to a sold-out crowd. How did you two first meet?

Doug Casey: It was about 30 years ago. Ron used to attend my Eris Society—named after the Greek goddess of discord—meetings in Aspen, Colorado. Everyone from Sonny Barger of the Hells Angels motorcycle club to Burt Rutan, inventor of SpaceShipOne, would meet to discuss ideas.

TGR: In those 30 years, have Ron Paul’s ideas changed much?

DC: Ron believes he was born a libertarian. He’s right. I believe in Pareto’s law—the 80-20 rule. I prefer to think that 80% of humans are basically decent, which is to say that they were born libertarian oriented. But it takes a while to crystallize what that means. Ron and I, and many others, have moved beyond gut libertarianism to a structured, intellectual libertarianism.

Some people see the same things we see through a totally different lens, however. Those people tend to be the other 20%, or perhaps 20% of that 20%, or even 20% of that 20% of that 20%. They range from being wishy-washy on ethical subjects to being sociopaths or even outright criminals. These people are at the opposite end of the spectrum from us in every way.

TGR: One of the things Ron Paul mentioned last night is that a true libertarian advocates for the freedom of everyone to do what he or she wants as long as it’s not hurting someone else. This includes people who don’t agree with your views.

DC: Exactly. As opposed to busybodies who want to tell everybody else what to do. They think they know best and are perfectly willing to put a gun to your head to make sure that you do what they think is right.

TGR: We are meeting in the midst of a government shutdown. Ron Paul called it a paid holiday for federal workers. Are we doomed to an endless cycle of these manmade crises?

DC: I would like nothing better than to see the shutdown go on forever, but unfortunately the government is only shutting down things that inconvenience people, like monuments and national parks—things that should not be owned by the government to start with. I wish they would shut down all their praetorian agencies, like the FBI, the CIA, and the NSA. Shut down the IRS. I am much more concerned about Silk Road being shut down than I am the US government being shut down.

TGR: Do you think regular people care whether government is shut down or not?

DC: Over half of Americans are living off the state, receiving more from the state than they’re putting into it, which makes them receivers of stolen property. They see the government as a cornucopia and therefore a good thing so they want it to be open and sending them checks.

The situation is fairly hopeless at this point, and it’s likely to get a lot worse before it gets better. Trends in motion, in whatever direction, tend to stay in motion until they hit a crisis, at which point they transform into something else. This trend is not only in motion, but it’s accelerating in the wrong direction.

TGR: Ron Paul said that the charade on the American people is that the two parties are different, that actually it’s not that we need a third party, but we need a second party. Your presentation compared the end of the Roman Empire to the state of the US today. Is the current political system doing a better or worse job of protecting freedom and liberty in the US compared to ancient Rome?

DC: The founders consciously modeled the US after Rome, everything from the way government buildings look to having an assembly and a senate. We are similar right down to the Latin mottos. When you model yourself after something, you eventually tend to resemble it. That partly explains why we are on the slippery slope of constant wars, less freedom, more power for the executive, destruction of the currency, and barbarians at the gate. Another part is the natural tendency of all empires to reach their level of incompetence and then decline. It’s to be expected. Entropy dictates all things wind down and degrade.

As I pointed out in my speech, America has gone through periods of what paleontologists call “punctuated disequilibrium.” Things evolve gently in one direction and then experience massive change very quickly. I’m afraid that the US might be approaching a phase similar to the one the Romans experienced before Diocletian made himself emperor. He completely changed the character of Rome; he believed that in order to save Rome, he had to destroy it.

As we go deeper into this crisis—of which we’re just currently in the early stages—there’s every chance that the American people are going to look for a savior, a strong man, probably a military person because Americans love and trust their military for some reason. I see the military as not much more than a heavily armed version of the post office, but I suspect that we’ll find someone who is the equivalent of Diocletian, who will change the whole nature of society radically in the wrong direction.

TGR: Do you believe in changing from within the system, or just getting out from under the system? Would you ever run for public office?

DC: I think the situation is beyond retrieval at this point. People generally get the government they deserve. At this point, Americans are much more interested in freebies than they are in personal freedom. They are like scared little rabbits. They’re much more interested in safety than they are in personal liberty. I think they’re going to get what they deserve good and hard over the years to come. I would much rather watch what goes on in the US on my widescreen TV in the lap of luxury in another country than be in the epicenter of things here. The system is beyond the point where it can be reformed.

And, no, I have zero desire to run for office. Plus, anyone who runs for office disqualifies himself for being in a position of power by the very fact that he wants to be in that position. My friend Harry Browne always used to say that when he ran for president on the Libertarian ticket, the first thing he’d do if he were elected would be to quit—at least after rescinding all outstanding Executive Orders and recalling all the troops. Anyway, even if Ron Paul had been elected president and if he tried to make the necessary changes, the public would have rioted, Congress would have impeached him, and the heads of the CIA, FBI, and the military would have sat him down and subtly intimated that they have the power, and he shouldn’t do anything they don’t want done—or undone.

I don’t think a change can be made at this point. I’m just interested in seeing what happens when we really get involved in a really big crisis, which I think is going to happen in the next couple of years, as we go back into the trailing edge of the economic hurricane that started in 2007.

TGR: One of the things that has come up as part of the shutdown debate is health care. Do you have health insurance? And, how would you control healthcare costs?

DC: First of all, I don’t call it health insurance because it doesn’t insure your health. That’s something that you’re personally responsible for, not some third party. I call it medical insurance. Just as I call the FDA the “Federal Death Authority,” because it probably kills more people every year than the Department of Defense does in a typical decade by slowing down the approval and hugely raising the cost of new drugs and technologies.

Getting to back to your question, no, I don’t have medical insurance. If anything goes wrong with my body, I’ll treat it as I would if something goes wrong with my car. I’ll find the best doctor elsewhere in the world where medical costs can be 20% of what they are in this country. I’ll pay for it in cash. I don’t want to have to fight with an insurance company, or the government, about what’s covered or not.

The whole idea of everybody having medical insurance is a corruption that arose during World War II when companies used insurance to attract workers. Then we had Medicare and then Medicaid. These are the reasons costs have escalated. In a free-market society, medical costs should have collapsed and gone down in the same way as the cost of computers has collapsed and gone down even as they’ve gotten vastly better. People think they need the government in medicine, but it’s been totally counterproductive. It’s done the opposite of what was intended.

TGR: One of the things Ron Paul mentioned is that his speeches on college campuses, including UC Berkeley, have been some of the most well received. Do you have hope for the next generation?

DC: Yes, there is reason for hope over the longer term. Generally, older people in this country have voted all these “benefits” for themselves, and they don’t want to have their rice bowls broken. The younger people are being turned into indentured servants to pay for these benefits. Young people are figuring this out.

Another worrisome thing is that a lot of young people have indentured themselves by taking on huge amounts of college debt; $1.2 trillion is the current number. They can’t even discharge it through bankruptcy, although many are unable to pay it. More and more are deciding that doing four years in a college to experience indoctrination from wrongheaded professors is a complete misallocation of both their time and their money.

If I had to do it again, I definitely would not go to college. I recommend others skip college, unless they need to learn a specific technical set of skills, such as doctoring or lawyering or engineering or a science where you need lab work. Most kids today, however, are going off to college for things like gender studies, political science, and English. These are things you should learn on your own, on your own time, at no cost. Meanwhile, avoid the indoctrination of the creatures who hang out in university faculty rooms who teach because they are incapable of doing anything else.

TGR: Ron Paul intimated that we’re in a middle of a revolution. You said that the solution to our problems would be less command and control and more entrepreneurs. Are the small business owners the real revolutionaries?

DC: They could and should be, but it is becoming increasingly difficult to start a business because of the regulatory and tax environment in the US. Smart people are leaving in droves. There just aren’t enough left to change things. I’m afraid we’re just going to have to let things take their course.

The main function that Ron Paul has served is educating people, which is necessary and laudable. But the odds of him succeeding in changing things are close to zero.

TGR: You talked about the role of education, and Ron Paul mentioned the power of the Internet to circulate new ideas based on the theory that ideas have consequences. Your ideas are having an impact thanks to the power of the Internet. Does that bode well for the future?

DC: It does. The Internet is the best thing that’s happened since Gutenberg invented movable type and the printing press; it’s a marvelous thing. That’s exactly why the government wants to regulate the Internet. It sees it as a huge danger.

TGR: Does suppressing ideas ever work? Is it working in China?

DC: Actually, in many ways China is freer than the US, but that’s not one of them.

If you are a businessman and you keep your nose out of politics, it actually is freer. You’ll have less taxes, less regulation in China than you would in the US. But instead of emulating the free part of China, the US government is trying to copy the Internet restrictions because it sees the Internet as a danger to the existing order. And they’re right.

TGR: But didn’t the governments of Middle Eastern countries find out that ideas have a life of their own, and they find a way to spread despite attempts to shut them down?

DC: They do, so let’s hope for the best.

TGR: Finally, Ron Paul said that things are worse than the government will admit, and the idea of economic growth this year is a dream. He said we need to be serious, but not despondent. Make financial plans, but have fun doing it. Do you agree, and are you having fun yet?

DC: I am having fun. I’m doing this not because I need the money, but because it’s amusing and it’s good karma to sow dissention in the ranks of the enemy.

TGR: Thank you for sharing your thoughts.

DC: Thank you.

This interview highlights why Doug Casey has long been a highly sought speaker: he speaks his mind clearly, and has interesting ideas worth sharing. So it’s no wonder that Casey Research Summits follow suit… and are sold out every year. Following Doug’s lead, the company has a proven record of bringing together interesting and successful individuals, from investing to economics to technology and politics.

The Summit that recently concluded was no different. With experts such as Rick Rule, James Rickards, Chris Martenson, Lacy Hunt, Catherine Austin Fitts, and many more joining keynote speaker Ron Paul, attendees at the sold-out event were treated to presentations unthinkable to those who follow the mainstream… from how to survive Obamacare to navigating shifting geopolitical trends to internationalizing one’s wealth and more.

Those who weren’t able to make it to Tucson can rest easy, though. Every minute of each presentation was recorded, and they’re being put together right now into an invaluable package: the Casey Summit Audio Collection. Every talk, every Q&A, every panel discussion—even all the audiovisual aids the speakers used—will be part of this collection, available on CD or in the convenient MP3 format.

In addition to the incisive commentary as exemplified above, you’ll get specific, actionable investment advice intended to help you thrive during these unsteady conditions. Best of all, if you preorder while the Collection is being created, you’ll enjoy significant savings. Click here to learn more and reserve your copy of the Casey Summit Audio Collection today.

Doug Casey on Internationalizing

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Posted on 18th April 2013 by Administrator in Economy |Politics |Social Issues

Doug Casey on Internationalization

By Doug Casey, Chairman

Since writing The International Man in 1976, I’ve had quite a bit to say about internationalizing yourself. The book’s subtitle was Making the Most of Your Personal Freedom and Financial Opportunity Around the World; but in going over past editions of our newsletters, I find that most of what I’ve written in recent years has been about the financial aspects of expatriation. Now seems a good time to confront the rest of the subject head on – the reasons to very seriously consider leaving your home country, and to do so now, not next year.

The International Man is long out of print, of course, and only available through used bookstores and finders (including amazon.com). While I’m obviously biased, it’s actually still an excellent read, although the world is a different place and I’ve learned a few things since 1976. The book was directed to Americans, but found a fairly broad international market – becoming, among other things, the biggest-selling book in the history of Rhodesia. That, in and of itself, provides a bit of an object lesson in how things can change, I think.

When I first went to Rhodesia in 1978, war was still raging, but I was able to find an entrepreneurial local publisher, Gordon Graham. At the time, there were still about 250,000 people of European extraction among the 6-million population. And it was clear most of them were eyeing the exits and wondering where to go.

Most of the whites were native Africans, born to families that had been in the country for generations, and they felt they had just as much right to be there as the blacks. But when it comes to such things, it’s not a question of rights but of political power. Today there might be 5,000 whites still hanging on. But making what they called “the chicken run” 30 years ago was definitely the smart course. However, few of them had a “bolt hole” elsewhere. In any event, my book flew off the shelves, as people desperately scrambled for alternatives.

The problem – your problem – is that any country can turn into a 1970s Rhodesia. Or a Russia in the ’20s, Germany in the ’30s, China in the ’40s, Cuba in the ’50s, the Congo in the ’60s, Vietnam in the ’70s, Afghanistan in the ’80s, Bosnia in the ’90s. These are just examples off the top of my head. Only a fool tries to survive by acting like a vegetable, staying rooted to one place, when the political and economic climate changes for the worse. When the going gets tough, the mentally tough go elsewhere. The way your forefathers once did – at least, if you live in an immigrant-built country like the US, Canada, Australia, New Zealand, or Argentina.

I don’t know exactly when I became interested in exploring other lands. Maybe it began with reading Uncle Scrooge comics when I was a kid in the ‘50s. Uncle Scrooge (who is a fantastic character and one of the great heroes of American literature) was always taking Donald Duck and his three nephews off to an exotic clime for a high-adventure treasure hunt. Maybe it was when I wanted to be a paleontologist and read about Roy Chapman Andrews (a model for Indiana Jones) rooting for fossils in Mongolia. Or when I decided I’d like archaeology better and read about Heinrich Schliemann discovering Troy. But a couple of specific things really set the bit in my teeth.

One was when I was in Milan, looking to buy a Ferrari. The seller was a guy I remember well, Viviano Corradini, who was actually an American. I asked him why he was living in Italy. “You see this?” he said, as he veered the car way into the opposite lane and back again a couple of times, then slammed on the brakes, then accelerated – a wild little ride. “You can’t do this in the States. They’ll throw you in jail. Here, you can do anything you want!” He was right. After I bought the car we realized I didn’t have any plates, so he reached up into a closet and found some old New Jersey plates. “Here. Use these.” I did, no problem, for the next six months, all over Europe. It gave me some practical reality about not being controlled by other people’s arbitrary rules.

Another was in Switzerland, when I was hanging around for about a month with an ex-Foreign Legionnaire named Ron Schneeberger. He was planning to rob the national bank of Haiti, figuring that Papa Doc had about $50 million in negotiables sequestered there. That was a lot of money in those days. Ron reasoned, quite correctly, that if you robbed the corner liquor store, you’d get $50 and likely get killed. If you robbed an ordinary bank, you might get $5,000. But if you hit a government… who was going to pursue you?

Of course the world in general – and absolutely, positively Europe – is a bit more tightly wrapped now. And I don’t endorse the idea of reckless driving. Or of robbing national banks – at least not without the cover of being an executive with Goldman Sachs…

But the point is that, at different times, there are places that are good for doing certain things. And places where it is bad to be. Who wouldn’t have preferred to be in the USA, rather than the USSR, from 1920 to 1990? Ireland was a dismal, depressing place for decades after WW2; then in the ‘90s it blossomed. Africa was a very safe, prosperous, and enjoyable place before about 1960, when it started to degenerate into a giant hellhole.

About every country on the planet has had its good times and its bad times; that’s one reason the original Baron Rothschild sent his sons to several different ones. Some countries, like Russia, have been living at Hard Times Central since day one; others, like the US, have had good times for a long time.

A wise man, at least in my view, doesn’t allow himself to be limited by an accident of birth.

It’s most unfortunate (for them, anyway) that most people have a peasant mentality. They’re idiotically indoctrinated into thinking that their country is the best place in the world, simply because that’s where they were born. It makes sense in a way; their ancestors rarely ventured more than a day’s walk from the village where they were born. After all, there were stories of dragons and demons over the hill. Things haven’t changed much, except people have exchanged the mud hut for a McMansion. But they’ve retained that medieval serf worldview. And the CNN and BBC newscasts on their widescreens only reinforce the notion that things are dangerous outside their borders; they’re probably even more scared than their primitive ancestors. Assuming they watch anything beside sitcoms and sports.

It’s certainly possible to be happy living your whole life in the place you were born and grew up. But unless you were born a member of the lucky sperm club, it’s almost always suboptimal, and sometimes it can be disastrous. I suspect now is one of those unhappy times.

We’re of the opinion that the world at large, and the US in particular, is heading into some seriously turbulent times. The diminution of personal and financial freedom looks like a hyperbolic curve, at first with an almost unnoticeable slope, then one that gets steeper and steeper, at an accelerating rate. I think an excellent case can be made that the current crisis is an inflexion point, beyond which it goes vertical. As one of Obama’s closest counselors (and he’s a very scary guy) has said, “One can’t let a good crisis go to waste.”

A crisis (and this will be a very real one) always draws exhortations from the authorities to “unite” and “pull together” – which usually boils down to following orders and turning in those who don’t. People will want, and will get, “strong leadership.” This does not bode well for libertarians, classical liberals, and free thinkers, in general.

As the crisis deepens, it’s likely to be dangerous for someone who doesn’t agree with groupthink. Things are likely to be much mellower if you’re living somewhere they consider you a tourist, than to stay on your home turf where questions will be asked if you don’t join the hooting and panting chimpanzees that will surround you. You can absolutely plan on unwelcome social pressure in the years to come, especially as the wars expand.

Coincidental with this is going to be the near destruction of the US dollar; I just don’t see any realistic way around that eventuality at this point. The consequences of that are going to be disastrous, but it’s possible to insulate yourself from many of them. The biggest problem, and also the one most people just don’t see, is political. There is almost no way you can effectively insulate yourself if a government, and society as a whole, goes crazy.

You might argue that really tough times in the US are a long shot; the US is “different” from other countries. It’s certainly true the US has been particularly blessed for most of its existence, because it actually was different. The problem is that what made the US different from every other country – a Constitution that expressly limited the powers of the state, and an explicit acceptance of property rights and the free market – has evanesced. It’s why I refer to it as the US, which is just another country, rather than America, which was a unique and excellent concept.

In any event, I suggest you at least consider the possibility of transplanting yourself, or at least start by transplanting some assets. Don’t look at it as a negative thing. The world is your oyster. Make the most of it. This is directed not only at Americans, but at everybody, everywhere. It just seems a little more urgent for Americans, as well as for Europeans, at this point.

In many ways the world seemed to turn over a new leaf in the ’80s. Not just with the election of Reagan and Thatcher, but with the appearance of many more like them, almost everywhere. Whether it’s the “hundredth monkey” hypothesis, or whether there really is such a thing as the “spirit of the century,” the majority of people tend to hold similar views at the same time. It’s strange. From about 1980-2000, all over the world, tax rates went down, regulation was relaxed, markets were freed up. The Soviet Union collapsed, apartheid in South Africa nonviolently disappeared, New Zealand fired two-thirds of its government employees, China liberalized. Even the constipated continents of Europe and South America loosened up. It looked like freedom was in the ascendant. But it couldn’t last.

Now, certainly since September 11, 2001, the tenor of the world has changed again – radically. And the negative new trend has been supercharged by the financial crisis that began to unfold in 2007. Now practically everywhere, much higher taxes, onerous new regulations, border controls, and capital controls (to prevent the make-believe crime of money laundering), among other things, are the new order. It seems as if the clock has been turned back to the 1930s, but much worse, in that governments are much more powerful. And I fear a redux of the 1940s is in store. The whole world acted pretty much the same in the ’30s and ’40s as well, you’ll recall.

One thing I think you can plan on is foreign exchange controls. A government turns to FX controls during a currency crisis, to prevent its citizens from swapping the local currency for something foreign – transactions that would further weaken the local currency. FX controls, in effect, force people to stay with a sinking ship. But they are politically popular, for a number of reasons. They allow the government to “do something” during a crisis. They appeal to the average yahoo, partly because he doesn’t travel abroad and tends to question the patriotism of those who do. Only the rich (especially the “unpatriotic” ones) have assets out of the country, and it’s now time to eat the rich.

We’re heading into a currency crisis for the record books, and I think you can plan your life around some type of FX controls. If you don’t get significant assets out of your home country now, you may soon find it costly and very difficult to do so. Already, very few foreign banks and brokerage firms will take accounts from US persons. But although there are reporting requirements, there’s currently no law against Americans having overseas accounts, and no laws against foreign banks and brokerage firms accepting American business. Many institutions find that it’s simply not worth the aggravation and worry to deal with Americans.

At a bare minimum, you should have a meaningful amount of gold in a foreign safe deposit box. In addition, you should own some foreign property, preferably in a location where you would enjoy spending some time. These things are currently not reportable, and it would be impractical for the government to get you to repatriate that capital.

The ideal scenario, of course, is to have your main residence in one country, your assets in another, your business in a third, and your citizenship in a fourth. That isn’t practical for most. But you can certainly get assets abroad. And you may want to consider acquiring a second citizenship, which can considerably expand your options. The International Man has a lot on this topic. It’s not necessary, and often not even desirable, to establish official residency in the country where you’d like to spend time, because that risks getting stuck in its tax system. It’s usually smarter just to leave every 90 days to renew your tourist visa and not spend more than six months per year in any one country. That way you’ll be treated as a valued tourist, who should be courted, rather than as a citizen, who can be milked like a cow.

Once you do acquire another passport, the next question is whether you should renounce your US citizenship, which could give you huge tax and regulatory benefits. As everyone knows, the US is one of the few countries in the world that taxes its citizens regardless of where they may live – although it must be said that other governments seem to be moving in this direction.

The problem with renouncing your US citizenship is that the US assesses what amounts to an exit tax on Americans who do so.

Since 2004, any high-net-worth individual who renounces his citizenship is automatically assumed to have done so for tax reasons. And any individual deemed to have expatriated for tax reasons is deemed to have sold all his assets at fair market value on his last day as a US citizen. And, if the expatriate spends more than 120 days per year in the US, he can be taxed on his worldwide income and potentially is subject to estate tax.

In the near future, however, even that option may not be feasible. So let’s plan ahead…

I wrote The International Man as a guide for those who were looking for a place that could offer more of what they want. I can’t rewrite the book in this short report. But it’s worth making a few observations about the world in general, then about some areas and countries in particular.

First, there may not actually be any one “best” place, simply because you’re dealing with the human animal, who’s subject to all manner of fears, hysteria, vices, and assorted aberrations. I don’t know where Shangri-La is located. Therefore, you want some degree of diversification, so you always have a “Plan B” available.

Second, there are roughly 225 distinct political entities around the world, and there are likely to be more as time goes on. There are advantages to places that are unstable, poor, repressed, and backward, just as there are disadvantages to places that are stable, rich, free, and advanced. A lot depends on who you are and what you want to do. Try to keep an open mind.

Third, I don’t think there’s any doubt that the West – meaning North America, Europe, Australia/New Zealand, and Japan – is in relative decline. Meanwhile, places like China, India, and Vietnam are on the way up.

The reasons are simple. In the developing world, a worker earns between 1/5 and 1/30 what his counterpart does in the West. But he’s just as smart, might be even better educated, is likely to work twice as hard, and has less of an attitude of entitlement. It may be true (but less and less) that the developing country has less infrastructure. But now a number of them have telecoms, roads, airports, and such that are among the world’s newest and best, while many of those in the West are falling apart. At the same time, the general level of taxes and regulation tends to be much lower in developing countries; that’s a big reason why they’re developing. Part of the better social ambiance is reflected in people being free of debt; they may not make much, but they save something like 10% to 20% of what they do make. So, instead of a mountain of debt that must be paid off, there’s a growing pool of savings to be invested.

The days of automatically having the odds tilted in your favor simply because you were born an American are coming to an end. By the end of this century, wages will be more or less normalized the world over. Americans also have had a huge advantage in speaking English, the world’s most commonly spoken language, its lingua franca, and the language of science, business, aviation, entertainment, and other fields. But that advantage is also diminishing, as almost every educated person now has English as a second language. Most Americans have only English.

Negatives? Many of these places have large bureaucracies, as a legacy from buying into various strains of socialism imported from Europe. There may not be much regulation (of the type we have in the West), but there are still plenty of forms that need to be processed and approved. In order to make things happen, bribes must be paid. I’ve discussed the ethical implications of paying bribes in the past, but suffice it to say that as developing countries become freer and wealthier, bribery and general corruption will likely diminish. At the same time, as the US becomes less free and wealthy, bribery and general corruption will greatly increase.

I think it’s incumbent upon any self-directed free man to go where he can most fully realize himself. But where that is depends on who he is. And sometimes happenstance plays a part. I’m reminded of one of my favorite scenes in Casablanca. Claude Rains, as Renault the police inspector, asks Bogart:

“Rick, how’d a guy like you ever wind up in Casablanca?”

“I came for the water.”

“But there’s no water in Casablanca – this place is a desert…”

“Yeah, I was misinformed.”

Doug Casey is chairman of Casey Research and a highly sought-after speaker on investments and the economy. At 2 p.m. EDT on Tuesday, April 30, you can hear him discuss how to legally move your assets abroad in a special web event, titled Internationalize Your Assets. Joining him will be Euro Pacific Capital Chief Global Strategist and CEO Peter Schiff; GoldSilver.com founder and owner Michael Maloney; World Money Analyst Editor Kevin Brekke; and Casey Research Managing Director David Galland.

Get the details and register here.

ASLEEP AT THE WHEEL

134 comments

Posted on 18th March 2012 by Administrator in Economy |Politics |Social Issues

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Americans have an illogical love affair with their vehicles. There are 209 million licensed drivers in the U.S. and 260 million vehicles. The U.S. has a higher number of motor vehicles per capita than every country in the world at 845 per 1,000 people. Germany has 540; Japan has 593; Britain has 525; and China has 37. The population of the United States has risen from 203 million in 1970 to 311 million today, an increase of 108 million in 42 years. Over this same time frame, the number of motor vehicles on our crumbling highways has grown by 150 million. This might explain why a country that has 4.5% of the world’s population consumes 22% of the world’s daily oil supply. This might also further explain the Iraq War, the Afghanistan occupation, the Libyan “intervention”, and the coming war with Iran.

Automobiles have been a vital component in the financial Ponzi scheme that has passed for our economic system over the last thirty years. For most of the past thirty years annual vehicle sales have ranged between 15 million and 20 million, with only occasional drops below that level during recessions. They actually surged during the 2001-2002 recession as Americans dutifully obeyed their moron President and bought millions of monster SUVs, Hummers, and Silverado pickups with 0% financing from GM to defeat terrorism. Alan Greenspan provided the fuel, with ridiculously low interest rates. The Madison Avenue media maggots provided the transmission fluid by convincing millions of willfully ignorant Americans to buy or lease vehicles they couldn’t afford. And the financially clueless dupes pushed the pedal to the metal, until everyone went off the cliff in 2008.

America is proving itself to be insane as described by Albert Einstein:

“Insanity: doing the same thing over and over again and expecting different results.”

The 2008 cataclysm was created by the voracious greed and avarice of Wall Street, sustained by corrupt politicians in Washington, non-existent regulation by banking regulators, Federal Reserve easy money policies, unspoken guarantees of Fed bailouts if Wall Street excess risk taking blew up, and millions of delusional Americans with an unlimited credit line. Excessive debt created the problem. Adding debt is the present solution to the problem. And the accumulation of debt will lead to a tipping point that destroys the U.S. dollar and topples the Great American Empire.

This spiral of government sponsored debt financed debacles has shockingly accelerated as we have supposedly been experiencing an economic recovery for the last two years. The 2008 financial meltdown was the result of too much debt peddled to too many people who never had the means or intentions to repay the debt. The Wall Street peddlers of debt didn’t care if it got repaid because they had already packaged it, bribed Moodys and S&P to rate the toxic garbage as AAA, and sold it to their “clients”. Then they made derivatives bets that it wouldn’t be repaid and raked in billions more as their Ponzi scheme unwound. There was just one problem with their master plan. The Wall Street titans made their derivate weapons of mass destruction so complicated and confusing that their own evil organizations of Harvard MBAs didn’t understand them. Enough hubristic CEOs existed at enough financial firms (AIG, Lehman, Bear Stearns, Citicorp) to bring the entire system crashing down as the toxic derivatives intertwined every major institution in the worldwide banking cabal.

What has happened since those dark days of 2008 is mind blowing in its epic proportions and epic stupidity. To quote Doug Casey, “Not only haven’t we done the right thing, we’ve done the exact opposite of the right thing.” It is absurd and ultimately suicidal to cure a debt disease by administering massive doses of more debt. But that is exactly what those in power have done. The National Debt has risen from a $9.7 trillion to $15.6 trillion, a 61% increase in three and a half years, while our real GDP has grown by $244 billion, a 1.9% increase. Not exactly a fabulous return on investment. But at least there are 7 million less people employed today than there were at the peak in 2008. Plus, senior citizens and middle class savers have seen $450 billion of annual interest income they were earning in 2008 pilfered from their savings accounts and handed to the Wall Street banking elite through Ben Bernanke’s ZIRP.

The Federal Reserve has tripled their balance sheet (actually your liability) from $950 billion to $2.9 trillion. Various other Federal government controlled bureaucracies (Fannie Mae, Freddie Mac, FHA) have stealthily subsidized hundreds of billions in losses on behalf of the criminal Wall Street banks. Other Federal government run agencies (BLS, BEA, CBO) exist solely to massage, manipulate, misuse, and malign economic data and financial projections in order to muddle, misinform and mislead the American people about the true nature of our ongoing economic calamity. Propaganda and obfuscation are the scheme of choice by the powers that be. They are counting on decades of government run public education to insure that millions of non-critical thinking dullards will be unqualified or uninterested in the truth about our grim economic prospects. The oligarchy’s master plan has centered on houses, automobiles, and the illusion of a jobs recovery.

Whenever I’m trying to understand the motivations of the sociopathic Washington politicians, Wall Street bankers and mega-corporation CEOs, I always come back to the words of master manipulator Edward Bernays:

“The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. …We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons…who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind.” Edward Bernays, Propaganda, 1928

The relatively small number of wealthy men thinks they are smarter than the masses and can manipulate them through their control of the government, the financial system and the media. The players in this game remain the same, but they have switched positions. The debt accumulation which led to the 2008 collapse was heavily concentrated on the books of the ruthless Wall Street psychopathic banks and on the backs of a readily pliable public. Today, the Federal government and the Federal Reserve have switched positions with their banker puppet masters, essentially shifting all past and future debt onto the backs of the American middle class. The Federal Reserve Flow of Funds Report, issued two weeks ago, reveals the extent of this blatant scheme to screw the American people in order to save and further enrich the Wall Street psychopaths who won’t be satisfied until their looting and pillaging leads to complete collapse and the world erupting into a world war. The despicable facts are as follows:

  • Total U.S. credit market debt has RISEN from $50.9 trillion in 2007 to $54.1 trillion as of 12/31/11, a $3.2 trillion increase.
  • Household debt has declined from $13.8 trillion in 2007 to $13.2 trillion as of 12/31/11. The mainstream media would point to this $600 billion decline as proof that Americans have embraced austerity and have learned their lesson. Of course that would be a lie. The Wall Street banks have written off $200 billion of credit card debt and the 5 million completed foreclosures extinguished another $800 billion of mortgage debt. The truth is that consumers have continued to pile up debt.
  • Much has been made of corporate America being flush with cash. If they are so flush, why have they added $900 billion of debt since 2007, an increase of 13% to an all-time high of $7.8 trillion?
  • The revealing data shows up in the financial company data. These Wall Street national treasures have reduced their debt from $17.1 trillion in 2008 to $13.6 trillion as of 12/31/11. How were they able to do this, while writing off $1 trillion of consumer debt?
  • You guessed it. They dumped it on the American taxpayer. The Federal government increased their debt from $5.1 trillion to $10.5 trillion. And our old friends called government sponsored enterprises (Fannie, Freddie, Student loans) increased their debt from $2.9 trillion to $6.2 trillion. Wall Street banks and millions of deadbeats who chose to game the system and live the good life have effectively foisted their $4.5 trillion of debt upon the backs of middle class taxpayers who lived within their means. Another $4.2 trillion has been pissed down the toilet by Obama with his $800 billion Keynesian porkulus program, home buyer tax credits, cash for clunkers, green energy boondoggles, 47 million people on food stamps success story, 99 weeks of unemployment, doubling of SSDI membership, and his multiple wars of choice in the Middle East.

The average hard working, taxpaying American has been enslaved in debt of such proportions that they will never be able pay it off. Your share of the $15.6 trillion National Debt is now $50,000, and growing by $4,500 per year. Your share of the future unfunded liabilities, created by the people you elected, is approximately $350,000. This crushing burden is in addition to the $13.8 trillion of mortgage, credit card, student loan, and auto loan debt Americans have accumulated in the last three decades of delusion. Forty percent of all credit card users do not pay-off their credit card every month and carry an average balance of $16,000 at an average interest rate of 15%. Good to see the Wall Street banks passing along some of their 0% borrowing windfall to their “customers”.

Source: TF Metals Report     

Pedal to the Metal

You may have noticed the corporate mainstream media, crooked politicians and lying Wall Street shills attempting to pound the economic recovery storyline into the consciousness of a terminally distracted populace. This is part of the Bernays inspired master plan of a small cabal of powerful men to control the public mind and keep our mass consumer society functioning smoothly so these corporate fascists can continue to gorge upon the carcass of a once vital republic. Decades of mass media consumer indoctrination, dumbing down of children through public school education and the conscious manipulation of attitudes and opinions of the malleable masses has succeeded. The invisible government of the rich and powerful has effectively converted responsible citizens into mindless consumers of products, bought with debt, peddled by associates of the invisible government. The crowded shopping malls, automobile showrooms, and restaurants are a testament to the power of propaganda and the intellectual bankruptcy of a vast swath of the American population.

Only psychopaths would encourage and condone behavior that would financially enrich themselves while destroying the lives and personal wealth of millions. The invisible government (Wall Street bankers, D.C. political hacks, mega-corporate executives, mass media titans) exhibits all the traits of a psychopath as described in a recent Harvard Business Review article:

  • Glibness and superficial charm
  • Lack of empathy
  • Consistent decisions in their self-interest, even where it is ethically questionable
  • Chronic, sometimes transparent lies, even with regard to minor things
  • Lack of remorse
  • Failure to take responsibility for their actions, and instead blaming others
  • Shallow emotions
  • Ignoring responsibilities
  • Persistent focus on gratifying their own needs at the expense of others
  • Conning and manipulative behavior

Do you recognize any of these traits in our president (Obama), congressmen (Weiner, McCain) Wall Street bankers (Dimon, Blankfein), corporate CEOs (Immelt), and mass media titans (Murdoch)? These people and many more like them will stop at nothing to further their self-serving agenda. They are intelligent and highly skilled at lying and manipulation. They lack empathy and don’t care what others think as they relentlessly pursue riches and power no matter the damage they inflict upon the people they so casually abuse, scorn and look down on. These are the people attempting to convince you that the path to economic recovery is through increased spending by consumers, utilizing debt supplied by them.

The entire recovery theme is a sham, financed by the Federal government with your tax dollars and the tax dollars of future unborn generations. I’ve arrived at this conclusion after pondering what I’ve been seeing with my own two eyes and through the insightful analysis found in the non-mainstream media (Zero Hedge, Jesse, Mish and many others). The mantra being pounded relentlessly by the mainstream media is that retail sales are booming and the unemployment rate has declined significantly, therefore an economic recovery is at hand. The chart below reveals the dramatic surge in vehicle “sales”. The annual pace is all the way back to 15 million, from the low below 10 million in 2009. The brief surge in mid-2009 was due to Obama’s highly successful Cash for Clunkers program that cost taxpayers $2.8 billion or $24,000 per car sold. It was highly successful for Government Motors (GM) and their union workers (Obama voters).

This rapid surge in auto sales has also resulted in a boost to overall retail sales, which have reached an all-time high. Automobile “sales” make up 18% of the retail sales number, by far the largest segment. The “record” retail sales are the result of surging gasoline sales, swelling food inflation, and a somewhat confusing cascade of car sales. It’s somewhat confusing until you realize how and why the 50% rise in vehicle sales has been accomplished by our Bernaysian masters. Retail sales in the first two months of 2012 are up 8.2%, led by a 9.2% wave of motor vehicle sales. Auto sales are at levels last seen in early 2008. This seems peculiar, since there are still 7 million less employed people in the country than in early 2008 and the real median household income is 9% lower than it was in early 2008. Real average hourly earnings have fallen for the last three months and are 1.2% lower than they were in October, 2010. A critical thinking person might ask himself, how could American households with less jobs and lower wages increase their purchases of automobiles by 50% in the last two years?

The answer is just what you expected. A phenomenal amount of debt peddled to people without the means or intent to ever repay the debt by the usual suspects: Ally Financial, Capital One, Wells Fargo, JP Morgan and Bank of America. These fine upstanding institutions control 25% of the auto loan market. They doled out $24 billion of new car loans in the 4th quarter of 2011, with an outpouring of loans to those downtrodden subprime borrowers and an extension in the average loan length beyond 6 years. Subprime borrowers now account for 45% of all auto loans. As a refresher, subprime borrowers generally have little or no assets, have a history of late payments or defaulting on obligations, and have low incomes. No worries there. When has making hundreds of billions in subprime loans ever caused a problem before. Ally Financial CEO Michael Carpenter had this to say about the market:

“We have seen crazy, irrational competition in the subprime end of the marketplace, which is one reason why more banks are targeting the lower end of the market.”

Bank of America and Capital One increased their market shares of the auto loan market by 40% in the 4th quarter as they attempt to keep up with Ally Financial in reckless lending to deadbeats. If you aren’t familiar with Ally Financial, then you should be. You own 74% of this POS. Here is a brief summary:

  • GMAC, after contributing mightily to the financial crash of 2008 through their reckless subprime mortgage (Ditech) and auto lending and requiring a $16 billion bailout from American taxpayers, changed its name to Ally Financial in 2009. It’s sort of like John Dillinger using acid to try and change his fingerprints.
  • Ally Financial provides financing for all GM and Chrysler customers and dealers and is the market share leader in auto lending.
  • Ally Financial still owes the American taxpayers $12 billion.
  • Ally Financial is a ward of the Federal government and will do anything it is told to do by Obama. The recent foreclosure fraud settlement required Ally to pay $250 million to the customers it defrauded. They will only pay $110 million based on their inability to pay $250 million. Sounds like a company that should be increasing their subprime loan portfolio. Obama and his minions instead received a commitment from a lender they own and control to cut principal for delinquent borrowers and refinance underwater borrowers. And Obama didn’t even offer us a cigarette afterwards.
  • Ally Financial, along with Capital One, failed the Federal Reserve stress test last week. Ally, Capital One, Bank of America, and Citicorp are dead banks walking. Brilliant bank analyst Chris Whelan succinctly sums up their fate after analyzing the Federal Reserve stress test results:

“When you get to junior liens and HELOCs you will understand why I have been saying that Ally Financial and BAC need to be restructured. With a plus 20% loss rate on second liens, Ally has substantial capital issues to put it mildly. But look at C right behind them with a loss rate in the mid-teens followed by BAC. Yikes. This type of loss rate is typical for credit cards and both of these second lien portfolios are > $100 billion.

And the real lesson, dead friends, is that the good old USA is a subprime nation, a society of individuals whose aggregate probability of default is probably around a “B” to “CCC.” Convert the loss rates in the stress tests to bond ratings using the break points from Moody’s or S&P and tell me what you see.

Last point on Ally Financial: Yikes. Probably the weakest results of the whole group. Memo to POTUS: File Ch. 11, sell auto biz and bank to GM in 365 sale. Liquidate ResCap. Declare success. But do not be surprised if BAC follows if Ally goes into bankruptcy. The one thing that the Fed almost completely ignores is the vast financial risk facing BAC and Ally, and to a lesser degree, WFC, JPM and C.”

When you understand this background, anecdotal evidence that seems absurd starts to make sense. I spend two hours per day on the road and have plenty of time to observe my surroundings. I drive through the Mantua section of West Philadelphia every day. The average household income in this neighborhood is $16,000. The average home value is $25,000. The true unemployment rate exceeds 40%. At least 20% of the properties are vacant and the neighborhood resembles Baghdad. Last week, I counted six brand new vehicles with registration tags in their back windows in a one block radius of this neighborhood. Every block has newer model Ford Expeditions, GMC Sierras, BMWs, Acuras, Cadillacs, and Mercedes sprinkled among the squalor. Someone is loaning these people the money to buy these $40,000 vehicles or approving them for leases. This neighborhood puts the SUB in subprime. No financial firm worth spit would make a six year $35,000 auto loan to someone in this neighborhood unless they were instructed to do so by the Federal government or were guaranteed that the future loss would be borne by someone else – YOU.

The GM, Chevy and Chrysler car dealer ads in my local paper actually have the following headline in bold:

Have credit problems? NO PROBLEM

Most of the ads don’t even list the prices of the vehicles. They either tout the 72 month 0% financing or they list the monthly lease cost. It seems that virtually any vehicle can be leased for $300 per month or less these days. This might explain why 25% of all vehicles are leased today. In reality, 25% of the cars being “sold” today are really just being rented for three years. Both the lessors and lessees are basing these transactions upon delusions and assumptions which will likely blow up in their faces and again cost – YOU.

An auto lease payment is based upon interest rates, the cost of the car, subsidies from the auto makers, and the expected residual value of the vehicle at the end of the three year lease. When have financial companies ever miscalculated any of these assumptions? How about 2001-2002 and 2008-2009? The reason auto leases are ridiculously low is because Ben Bernanke’s zero interest rate policy is providing free money to Ally Financial and the rest of the Wall Street zombie banks and creating huge mal-investment – Again. The auto makers see no risks, as the used car market has been extremely strong for the last year and they anticipate continued strong demand for cars as they come off their three year leases. Therefore, they have estimated the residual values three years out at a very high level. The strong used car market may have been slightly impacted by the destruction of 700,000 vehicles under Obama’s Cash for Clunkers debacle. The combination of excessively low interest rates and excessively high residual value estimates leads to ridiculously low lease rates. The sales statistics for the first two months of 2012 reveal why this will blow up in the faces of lessors and the predictably incompetent financial drug dealers.

Feb-12

% Chg Feb’11 YTD 2012
Cars

612,145

23.9

1,080,466

Midsize

304,601

25.6

532,818

Small

225,061

26.5

397,838

Luxury

81,476

22.7

147,647

Large

1,007

-85.8

2,163

Light-duty trucks

537,251

7.6

982,217

Pickup

148,956

13.8

273,430

Cross-over

225,621

0.4

412,974

Minivan

64,849

15.3

111,764

Midsize SUV

54,827

15.3

101,813

Large SUV

16,783

-5.4

31,566

Small SUV

13,926

24

25,951

Luxury SUV

12,289

12.4

24,719

 

It seems the delusional American public and their love affair with big SUVs, pickups, and their 8 cylinder luxury wheels will continue until they are hit over the head with the baseball bat of $5 a gallon gas. The Madison Avenue Bernays disciples have molded the minds and formed the opinions of millions of easily influenced, financially ignorant superficial Americans into believing the vehicle they drive is a true measurement of success. These people choose being up to their eyeballs in auto debt or perennial renters of luxury vehicles to appear prosperous to their neighbors and coworkers rather than actually achieving real success through the time honored tradition of earning more than you spend and saving the difference. The fact is that 80% of all the vehicles being sold in the U.S. are SUVs, pickups, crossovers, minivans, and larger cars that get 25 mpg or less.

As gas prices continue to rise towards $5 per gallon, a war with Iran looming in the near future, interest rates beginning to rise, and the country headed back into recession (MSM is wrong about the recovery), the car makers are poised to again experience enormous losses. Auto makers will have a sense of déjà vu as they have committed an epic blunder by overestimating the future value of the gas guzzlers they have been leasing. As a result, when the leases expire and auto makers take back the SUVs and pickups that get 15 mpg and attempt to resell them, the losses will run into the billions of dollars. There will be no one buying used gas guzzlers, with gas costing $5 per gallon. As the millions of subprime borrowers realize they can’t afford car payments, paying 40% more for gas, and trying to put food on the table, auto loan delinquencies will soar. This is as predictable as the housing market collapse in 2005. None of this matters to the psychotic governing elite who only care about the illusion of recovery today. These vampire squids will not be satisfied until every drop of blood is sucked out of the national carcass.

Ally Financial is part of the Federal Government and is being used to promote the agenda of the governing elite. They join Fannie Mae, Freddie Mac, and the Federal student loan peddlers as the primary tools of the corporate fascist powers that control this country. The nominal private ownership of these companies is a sham, as the state dictates how they will be run and who they will benefit. This corporate fascist empire is built upon an unholy alliance between big banks, big business, big media and big government, with each protecting and enriching each other. The psychopaths who are drawn to these organizations want to control people. They desire power, wealth, and the ability to manipulate public opinion. Their tactics include spreading fear and an atmosphere of paranoia in order to convince the populace that more government action will improve their lives. We are headed towards economic and financial collapse as these psychopaths will never willingly reverse course and the majority of our population has become so degraded (have you been to a Wal-Mart lately) that they are incapable or unwilling to confront the psychopaths.

Doug Casey in the latest Casey Report explains how evil and stupidity are a deadly combination:

“I would like to suggest that what really distinguishes political elites from normal people is not just a predilection for stupidity but a real capacity for evil. Evil might best be defined as the intentional and usually gratuitous commission of acts that are cruel or unjust. A person who commits many evil acts is a sociopath. The sociopaths who are naturally drawn to government eventually come to dominate it. They’re very dangerous people. They reset the social mores of the country they control. After a certain point, a critical mass is reached, and it’s GAME OVER. I suspect we’re approaching that point.”

The next time you hear a government drone, Wall Street shyster, or corporate mainstream media whore declare we are experiencing an economic recovery try not to laugh out loud. Their agenda doesn’t include making your life better. You are not in the club. Prepare accordingly.  



 

DOUG CASEY – “PRESIDENTIAL CANDIDATES ARE PATHETIC CLOWNS”

2 comments

Posted on 16th February 2012 by Administrator in Economy |Politics |Social Issues

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Doug Casey has respect for only one presidential candidate. Guess which one.




 

(Interviewed by Louis James, Editor, International Speculator)

L: Doug, with all the US election gossip in the news, readers are wondering what we make of the circus. The Republicans haven’t settled on which walking ethical disaster they are going to pick as their candidate, and neither of us thinks the only decent man in that contest – Ron Paul – will get the nod. With recent economic numbers seeming to bolster the president, your fear that the Democrats could pick a left-wing general instead of Obama seems to be evaporating. So, what do you think – is it looking like four more years of Obama?

Doug: Well, as Clinton correctly said, “It’s the economy, stupid.” This is hands-down the determining factor in how most people will vote. Unfortunately, most people don’t have a clue what actually makes for a strong economy. In the unlikely event that the economy does not exit the eye of the storm this year, my guess is that people will vote for Obama. The economy seems better to those who are not looking too closely; it’d be “Don’t change horses midstream” and “Steady as she goes” type thinking.

L: But if you’re right about the economy exiting the eye of the storm?

Doug: Then the Republicans should have a shot. But the leading candidates, other than Ron Paul, as you mentioned – Romney, Gingrich, and this horrible new contender, Santorum – are all extremely dangerous, rabid warmongers. On top of that, Santorum appears to be something of a religious fanatic who poses a dangerous threat to the social fabric of US society. Of course all of them thump the Bible, catering to Americans’ atavism; the US is the by far the most religious of the world’s developed countries… so maybe Santorum is what they want.

L: We’ve talked about Ron Paul before; still no hope there?

Doug: No. It’s a pity, because he’s the only real antiwar candidate consistently polling at significant numbers – 15% to 20%. He’s also the only real voice for fiscal sanity, rolling back the police state, deregulating the economy, and many other positive things. But he’s got no chance. He speaks fairly well for the libertarian minority in the US, but certainly not for the entitlement-mentality majority, and not even for the majority of Republican voters. The Republicans have become the warfare party, and Dr. Paul doesn’t fit in. The Democrats have long been the welfare party, so he doesn’t fit in there either. It’s just not going to happen for Ron – not because of any fault with him, but because the whole system is so corrupt and the electorate is so degraded. If the US is to be compared with ancient Rome, then we’re far beyond the days of the early republic, when heroes like Horatio and Cincinnatus could provide inspiration and save the day. We’re more at the stage where US leaders resemble emperors of the third century, every single one of whom was a disaster. Men like Elagabalus and Caracalla, and finally Diocletian, who transformed the empire into a proto-feudal police state out of desperation. Leaders tend to reflect their constituency, and the state of a country. The US empire is in severe decline.

But let’s talk about Obama. I’ve been accused of being soft on Obama, even though he’s arguably an even worse president than Baby Bush was. I’ve even been accused of pandering to racism, because I haven’t lambasted Obama in the same way I used to take pleasure in lambasting Bush

L: If you did lambaste Obama, I’m sure you’d be criticized for speaking ill of the first black US president. But if you also get criticized for not calling him out, you’re damned if you do and damned if you don’t.

Doug: Yes, saying anything unkind about the first black US president is clearly proof of racism. [Laughs] That just shows how completely degraded political discourse in the US has become. Pundits don’t see people as people to be praised or criticized on the merits of their words and deeds, but as members of groups. A president, in this view, should not be judged on his ideas, policies, and actions, but on which groups he can be seen as part of.

It also helps to be totally vapid, so no one can find any dirt on you; I suspect that’s Santorum’s main virtue. And smarmy – like Mitt Romney and Rick Perry smiling at each other during the “debates” when they each really wanted rip the other guy’s lungs out. Anyway, they aren’t real debates, where ideas are discussed intelligently and explored fully. They’re just charades where the candidates try to remember good quips and funny one-liners that their handlers have written for them.

L: The refusal to judge a person based on his or her own merits is pure groupthink.

Doug: Exactly. One of the driving forces of this prison planet we live on. The candidates just want to be alpha monkeys, in order to lord it over the beta monkeys.

Back to Obama. It’s interesting to observe that in spite of some of his rather extreme positions on some things, he doesn’t act aggressively, like his Republican competitors would do. He’s slick, with everything he says couched in reasonable-sounding language. He never comes across as a radical. Yet bad ideas seem to seep out of the White House like swamp gas in the night. They rarely change greatly from one moment to the next, but mutate slowly like a cancer, eventually building up a fog of deceit in reasonable-sounding, smarmy doublespeak, so that it’s hard for most people to know what’s right. That was the nice thing about Bush: he was outspoken, albeit in a stupid kind of way. He constantly stuck his foot in his mouth, so it was hard to take him seriously.

However, I take Obama very seriously. Everything he has put forward has been terrible policy. And he’s surrounded himself with about 20 “czars,” all of them hardcore statists. I think the practice started with Jerome Jaffe – the drug czar under Nixon – but it’s gotten out of control under Obama. Strange, I don’t see the word “czar” anywhere in the Constitution…

L: As for specific policies, there was, for starters, his healthcare reform; he managed to take the US further down the road to socialized medicine than anyone since Lyndon Johnson.

Doug: Yes, he took that title away from Baby Bush, who added the massive prescription drug benefit for Medicare recipients. But I have to object when you say “health care,” because what we’re really talking about is medical treatment, which is care when you’re sick. It’s not actually health care, which is about eating well, exercising, and things that keep you from getting sick.

L: I know, I know… that’s just the terminology of the day; I should know better than to let the enemy define the terms. For example, I’ve long thought that it’s a mistake to use the word “capitalism” when discussing the free-market system. Capitalism was Marx’s term, and not only was his view of capital as wrong-headed as the labor theory of value, it mistakenly encourages the idea that industrialists have more power in the marketplace than their customers. Just ask the former heads of General Motors, IBM, Kodak, Xerox, and other fallen giants if they had more power than the customers who stopped consuming their products. “Consumerism” is a dirty word in today’s world, but it’s a more accurate word for free enterprise, if you want to define it in terms of who calls the shots.

Doug: It’s critical to be careful with your words; these collectivists and statists have won half the war if you let them define the terms. That’s why we so often start these conversations with a definition. The sloppy and undefined use of words leads to sloppy and undefined thinking, and that leads to stupid and destructive actions.

L: So, should we define Obama?

Doug: That’s hard to do. You know, it’s funny. When Trump was running, I criticized him. It’s hard for me to say anything good about Trump under any circumstances – but he at least had the brass to ask questions about Obama that other public figures wouldn’t touch, questions about who Obama really is and how he seemed to appear from nowhere. To my knowledge, no one has stepped forward to identify themselves as a school friend, or even a college friend of his. I’m not a conspiracy theorist, but I have to say that as far as I know, none of these questions have been satisfactorily answered.

L: You don’t need to believe any conspiracy theories to notice that there’s something odd about the man. He seems like a big zero to me, not a big O. Even when he’s reading the speeches people write for him to pull on the population’s heartstrings, he comes across almost completely wooden. Sometimes I’m sure he’s pausing not where there are commas or periods, but where the lines wrap on his teleprompter. He has the personality of a frozen mackerel.

Doug: It’s interesting that you point that out – I’ve often wondered if the special interests behind him couldn’t come up with anyone better. I’m not saying he has to be another George Carlin or Dave Chappel, but it would be nice to see that someone is home. Obama is so flat, I can’t even be sure whether he’s intelligent or not, although I initially assumed he was very smart. With Baby Bush, it was clear that he actually lacked intelligence. With Obama carefully plodding through his teleprompted speeches, I actually can’t tell if he’s smart or not. He was president of the Harvard Law Review, which would seem to argue for intelligence, but that could have been finessed as well. And exactly who paid for all his schooling and related expenses? I honestly don’t know who we’re dealing with.

L: It’s almost as though he were literally a puppet. Maybe there really is no Obama.

Doug: He’s an empty suit. But then, so are Romney and all of the guys who actually stand a chance of becoming president of the US. This actually softens my dislike of Gingrich, among those who seem to have a chance this time around. He’s outspoken. A lot of his ideas are manifestly dangerous or goofy, but at least he comes out and says them – at least he actually has ideas – and that makes him interesting at times. Nor does he attempt to hide his arrogance. There’s something to be said for exposing your vices as opposed to hiding them; hidden vices are much more dangerous, like hidden IEDs.

L: Something to be said for entertainment value?

Doug: Sure, although it’s entertainment on the level of farce. There’s no element of nobility in any of these people. The ancient Greek tragedians wouldn’t have considered putting any of them in a play: These aren’t great men with tragic flaws; they’re pathetic clowns. They’re all play-acting, pretending to be something their pollsters think the electorate wants, pandering to the unwashed mob.

If they were to appear in a play, Perry might be cast as an assistant manager at a Target store, Gingrich as the vice principal at the local community college, Romney as an aspiring actor who wants to play the father in a 1950s-style sitcom, Santorum as goody-goody DMV employee, and Obama as a community organizer… whatever that is. Ron Paul is too authentic to appear in such a low farce.

Anyway, to escape from their lackluster lives, they go bowling together on Wednesdays. Even though they’re quite similar – or maybe because they’re basically so very similar – they don’t like each other and get into arguments centering on two things: each other’s poor character and their uninformed and unsound political and economic views. You could just use lines from the debates and Obama’s speeches for the dialogue.

But I fear it would be a boring show unless Saturday Night Live or The Onion did it. No way would Aeschylus or Sophocles touch the material; they liked heroic characters with tragic flaws. It’s impossible to write good tragedy about nonentities.

Obama seems to lack any personality – unlike, say, Clinton, who’s a genuinely engaging guy, even though his ideas are almost as uniformly bad as Obama’s. I have to ask myself: What kind of a person can become president of the US at this point? Clearly no one with strong principles will ever make it, partly because such a person can’t make the insipid, inoffensive, statements that appeal to the lowest common denominator. I wonder where they find these people? It might be a good new reality show – call it The Lowest Common Denominator.

L: Okay, but we’ve probably crossed the line to making personal attacks – though I think those who presume to rule over others deserve greater public scrutiny of their persons and ideas. Let’s get back to policy. “Cash for clunkers” was, if I’m not mistaken, an idea backed by the Obama administration, and in my view a clear attempt to simply open the spending spigots to try to bribe the electorate.

Doug: Yes, that was a great idea. Subsidize the destruction of perfectly good vehicles with billions of borrowed dollars, in order to keep mismanaged auto companies afloat. Then there was the housing credit, which induced scores of thousands of people to get into the collapsing housing market at taxpayer expense. And keeping interest rates near zero, in a desperate attempt to keep old bubbles inflated; that will just inflate new bubbles while it destroys the currency. Obama is disaster incarnate for the economy. Everything he’s doing – and pushes the Fed to do – is not only the wrong thing, but the exact opposite of the right thing, as we’ve commented on many times. I honestly can’t think of a single good thing about Obama. There must be something… perhaps he neither kicks his dog nor beats his child. But he’s a sociopath; he’s got all the signs of one that I spell out in this month’s Casey Report… just like Clinton. But not so much like Bush, who was helpful in defining the often fine line between “stupid” and “evil.”

L: What about foreign policy? He did bring the troops home from Iraq. I wish he’d bring them all home, but that was a step in the right direction, wasn’t it?

Doug: Yes, bring them home so they can practice the bad habits they picked up as invaders in the Middle East as cops in the US. But it’s true – he did get US troops out of Iraq. On the other hand, the Obama administration has put new troops in other places, like Uganda and Australia, participated in the bombing of Libya, and who knows what he’ll do if Egypt falls apart. He may yet intervene in Syria, where the US is already sending arms to the insurgents. I suspect he and his minions are now negotiating with the Taliban mainly to arrange a semi-graceful exit for the troops next year from Afghanistan. It wouldn’t do to have a running gun battle while the last people are evacuated from the embassy in Kabul, holding on to the skids of helicopters, like in Saigon. And it looks like they’ll start a war with Iran.

L: Yes, he can hardly claim to be a man of peace when he likes to take credit for ordering the extrajudicial execution of Osama Bin Laden.

Doug: What are you talking about? Don’t you know he was awarded the Nobel Peace Prize? Actually, I’m glad he got it: it serves to fully discredit the prize as an overrated scam. And how about this new National Defense Authorization Act that allows the military to detain US citizens indefinitely? That was hardly a bill a defender of civil liberties would sign into law.

Obama, whoever and whatever he is, is just bad news all around. If he’s reelected, people are going to get exactly what they deserve. That’s one good definition of justice, and you have to be in favor of justice. The only problem is that it’s unjust for the maybe 20% of the population who’ve fought against the descent of the US into a police state.

L: So… if the economy doesn’t blow up and the election is likely to go to the Democrats and not the Republicans, do you think that a guy as boring as Obama can actually get reelected?

Doug: If the economy doesn’t blow up, I do think Obama will be reelected. Most US citizens are recipients of government largess of one sort or another these days, and they won’t vote for Republicans who might cut or reduce their handouts. And maybe Americans want witless and boring; that makes things seem normal. It’s grasping at a straw… appearance rather than reality.

Though I still think that if the Democrats really wanted to lock in a win, they’d get a left-wing general to run. It’s a scary world out there, and people want security, not just in their pocketbooks, but from all the threats they’ve been told are menacing them from all around the world. Americans have apotheosized the military. They idiotically believe it’s efficient, when actually it’s just a heavily armed version of the post office or the TSA. And they idiotically believe it isn’t corrupt – even though all the top generals are politicians first and Pentagon spending is like a billboard advertising corruption.

L: Do you think that could actually happen? Obama seems pretty strong with his supporters – wouldn’t he have to be caught in the closet with a sheep or something like that to lose his party’s nomination?

Doug: That’s probably right, so again, if the economy doesn’t blow up, we’ll likely get four more years of Obama. Even if the economy really blows up, the possible Republicans are so unappealing that it’s hard to believe any of them could get traction. That and the fact that half the country relies on government benefits that they fear a Republican would take away means we might get four more years of Obama anyway. Although there’s no chance elected Republicans will actually cut spending; Republicans are chronic hypocrites who talk the talk in order to gull naïve voters in the diminishing middle class. Perhaps we’ll get The General only after the Greater Depression has a lot more people living in tent cities. And after the US has bombed and been counterattacked by Iran – and maybe had a few more wars as well. A “strong” leader will have great appeal in 2016.

L: The Man on a White Horse. Sigh. Investment implications?

Doug: Well, I do think the economy will take a nosedive soon, in which case the recommendations are the same as we’ve been making. We’re not a trading service – entirely apart from the fact that I don’t believe in trading. But, under the four more years of Obama scenario, we’ll almost certainly see massive inflation, which would be bullish for industrial metals and could even be good for stocks in general, even though I don’t think they are cheap at this point in time. There could be many new bubbles created by the massive amounts of liquidity they’d have to pump into the economy, and we’ll watch out for those.

On a more fundamental level, whatever they do and whatever amount of paper money they throw at an economy suffering from decades of distortion and malinvestment, I just don’t think it’s possible to return to real prosperity without going through the wringer first. Even with massive liquidity injections, life for the average guy is not going to get better, it’s going to get worse. I expect chaos, but I’m not looking forward to it. Chaos will present opportunities, but it’s also quite unpleasant and inconvenient.

L: Okay, but let’s say Helicopter Ben starts throwing billions of bushels of new $1,000 and $10,000 bills out of his fleet of helicopters – where would be the best place to stand with a net to catch some of those?

Doug: Well, in spite of my many differences with him, I am partial to what Warren Buffett says about investing in basic businesses. You want to be an owner of a well-run business that produces simple things everyone needs and wants – even if their standard of living is collapsing. But the key is to buy such companies at bargain-basement prices – to succeed as a speculator, you have to buy low and sell high.

L: Hm. Well then, in addition to our usual calls on the precious metals and energy, this seems like a good time to point out certain sectors within the tech markets. New innovations that make things better/faster/cheaper would be even more in demand in a depression, and new medical devices and treatments are always going to be things people want and need, regardless of economic conditions.

Doug: Right. And stepping back from intelligent speculation to intelligent investing – because they’re two different methodologies – I want good, solid companies. High dividends, low P/E ratios, and solid growth are the holy grail. But I think it’s too early to buy. Too much turmoil and uncertainty ahead, even for the best-run companies with the most essential goods and services. I’d rather buy after we’re in the middle of the turmoil, not before it appears.

I also feel compelled to remind readers of the urgency of diversifying the political risk in their lives by internationalizing. This is the best sort of thing discussed over a cigar and nice glass of wine, which maybe readers will join me for at our upcoming Harvest Celebration in Argentina. I understand that there are few a still spots left.

L: Okay then. A look at the situation from a slightly different angle. Thanks for your thoughts.

Doug: A pleasure, as always. I know you’re in the Congo as we speak. Perhaps next time we can talk about Africa…

KEYNESIAN SOLUTIONS – AFTER TOTAL FAILURE – TRY, TRY AGAIN

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Posted on 23rd August 2011 by Administrator in Economy |Politics |Social Issues

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“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.” – John Maynard Keynes – The Economic Consequences of the Peace

  

While Barack Obama vacations on Martha’s Vineyard this week he’ll be thinking about his grand vision to save America – again. There is one thing you can say about Obama – he’s predictable. He promises to unveil his “new” plan for America in early September. The White House said Obama will give a speech after the September 5 Labor Day holiday to outline measures to boost hiring and find budget savings that surpass the $1.5 trillion goal of a new congressional deficit-cutting committee. It is heartening to see that Barack has turned into a cost cutter extraordinaire. He should be an inspiration to the Tea Party, except for one little problem. The plan he unveils in a few weeks will increase spending now and fret about spending cuts at some future unspecified date.

I can reveal his plan today because the White House has already leaked the major aspects of his plan. He will call for an extension of the Social Security payroll tax cut of 2% for all working Americans. This was supposed to give a dramatic boost to GDP in 2011. Maybe it will work next time. He will demand that extended unemployment benefits be renewed. Somehow providing 99 weeks of unemployment benefits is supposed to create jobs. It’s done wonders thus far. He will propose some semblance of an infrastructure bank or tax cuts to spur infrastructure spending. It will include a proposal for training and education to help unemployed people switch careers. He will attempt to steal the thunder from the SUPER COMMITTEE of 12 by coming up with $2 trillion of budget savings by insisting the Lear jet flying rich fork over an extra $500 billion.

You may have noticed that followers of Keynesian dogma like Paul Krugman, Larry Summers, Brad Delong, Richard Koo, John Galbraith, every Democrat in Congress, and every liberal pundit and columnist have been shrieking about the Tea Party terrorists and their ghastly budget cuts that are destroying our economy. They contend the stock market is tanking and the economy is heading into recession due to the brutal austerity measures being imposed by the extremists in the Republican Party. There is just one small issue with their argument. It is completely false. It is a bold faced lie. This is 2011. The economy has been in freefall since January 1. No spending cuts have occurred. Nada!!! As the CBO chart below reveals, the horrendous slashing of government will amount to $21 billion in 2012 and $42 billion in 2013. Of course, those aren’t even cuts in spending. They are reductions in the projected increases in spending. Politicians must be very secure in the knowledge that Americans are completely ignorant when it comes to anything other than the details of Kim Kardashian’s wedding and who Snooki is banging on Jersey Shore.

 

I’d like to remind the Harvard educated Keynesian economists that Federal government spending is currently chiming in at $3.8 trillion per year. Federal spending was $2.7 trillion in 2007 and $3.0 trillion in 2008. Keynesians believe government spending fills the gap when private companies are contracting. Obama has taken Keynesianism to a new level. Federal spending will total $10.8 trillion in Obama’s 1st three years, versus $8.4 trillion in the previous three years. Even a Harvard economist can figure out this is a 29% increase in Federal spending. What has it accomplished? We are back in recession, unemployment is rising, forty six million Americans are on food stamps, food and energy prices are soaring, and the middle class is being annihilated. The standard Keynesian response is we would have lost 3 million more jobs, we were saved from a 2nd Great Depression and the stimulus was too little. It would have worked if it had just been twice as large.

The 2nd Great Depression was not avoided, it was delayed. Our two decade long delusional credit boom could have been voluntarily abandoned in 2008. The banks at fault could have been liquidated in an orderly bankruptcy with stockholders and bondholders accepting the consequences of their foolishness. Unemployment would have soared to 12%, GDP would have collapsed, and the stock market would have fallen to 5,000. The bad debt would have been flushed from the system. Instead our Wall Street beholden leaders chose to save their banker friends, cover-up the bad debt, shift private debt to taxpayer debt, print trillions of new dollars in an effort to inflate away the debt, and implemented every wacky Keynesian stimulus idea Larry Summers could dream up.  These strokes of genius have failed miserably. Bernanke, Paulson, Geithner and Obama have set in motion a series of events that will ultimately lead to a catastrophic currency collapse. We have entered the 2nd phase of the Greater Depression and there are no monetary or fiscal bullets left in the gun. Further expansion of debt will lead to a hyperinflationary collapse as the remaining confidence in the U.S. dollar is exhausted. We are one failed Treasury auction away from a currency crisis.

John Maynard Keynes argued the solution to the Great Depression was to stimulate the economy through some combination of two approaches: a reduction in interest rates and government investment in infrastructure. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.

It sounds so good in theory, but it didn’t work in the Depression and it hasn’t worked today. It is a doctrine taught in every business school in America with no actual results to support it. Who needs facts and actual results when a good story believed and perpetuated by non-thinking pundits will do? Every Keynesian play in the playbook has been used since 2008. The American people were told by Obama and his Keynesian trained advisors that if we implemented his $862 billion shovel ready stimulus package, unemployment would peak at 7.9% and would decline to 6.5% by today. The cascade of recovery was going to be jump started by a stimulus package that equaled 27% of the previous year’s entire spending. Obama’s complete package was implemented. The outcome was an eye opener. If you show a Keynesian this chart, their response would be: “Imagine how bad it would have been if we didn’t spend the $862 billion.”

 

John Maynard Obama got everything he asked for in January 2009. He had both houses in Congress and did not need to consult Republicans to pass his Keynesian $862 billion porkulus bill. It seems that $252 billion, or 29% of the package was nothing more than transfer payments. Of course, according to Keynesians, the $252 billion should have had a multiplier effect when it was handed out. I think they were right. Obama was able to multiply the number of people on food stamps in January 2009 from 32 million to the current tally of 45.8 million. The monthly food stamp transfer payment has gone from $3.6 billion to $6.1 billion. Keynesians should be thrilled by this success story.

 [Review & Outlook]

Obama’s Keynesian dream bill included:

  • $1 billion for Amtrak, the federal railroad that hasn’t turned a profit in 40 years.
  • $2 billion for child-care subsidies.
  • $50 million for that great engine of job creation, the National Endowment for the Arts.
  • $400 million for global-warming research.
  • $2.4 billion for carbon-capture demonstration projects.
  • $650 million on top of the billions already doled out to pay for digital TV conversion coupons.
  • $8 billion for renewable energy funding.
  • $6 billion for mass transit that had a low or negative return on investment.
  • $600 million more for the federal government to buy new cars. Uncle Sam already spends $3 billion a year on its fleet of 600,000 vehicles.
  • Congress earmarked $7 billion for modernizing federal buildings and facilities.
  • The Smithsonian received $150 million.
  • The Department of Education got $66 billion, more than the entire Education Department spent a just 10 years ago. $6 billion of this subsidized university building projects.

Obama declared in December 2008 there were shovel ready projects across the land that would create immediate jobs. Too bad he didn’t tell the American public only $30 billion of the $862 billion mountain of pork was earmarked for highways and bridges. Obama declared his stimulus would create 3.5 million jobs, later changed to “create or save”. There were 144 million Americans employed in January 2009. Today, there are 139 million Americans employed. Obama gives the term “success story” a new meaning. The Keynesians had their chance and now they want a do-over. Sorry, that isn’t how it works in the real world. As Speaker Nancy Pelosi put it, “We won the election. We wrote the bill.” No truer words have ever been spoken.

As we know, that was only the beginning of our Keynesian debt nightmare. Let’s do some critical thinking and assess the results of Obama’s other Keynesian solutions:

  • The Homebuyer Tax Credit cost taxpayers $27 billion or $43,000 per additional house sold. The Keynesians handed 3.9 million people $7,000 to do something they were going to do anyway. They lured first time home buyers into the market. Since the credit expired, median home prices have fallen $15,000 and continue to fall. This wonderful government program has created more underwater homeowners and did nothing to stabilize the housing market or home prices.
  • Cash for Clunkers cost taxpayers $3 billion. An incremental 125,000 cars were sold at a cost of $24,000 per car. This Keynesian dream program lured more people into debt and warped the used car market by destroying used cars and driving up prices for poor people who couldn’t afford a new car. There were no carryover benefits except for government controlled union car makers.
  • Obama’s HAMP program allocated $11 billion to supposedly allow 4 million homeowners to modify their mortgages, reduce their monthly mortgage payments and avoid foreclosure. HAMP has proven a colossal failure that has done more to harm than help debt-laden homeowners. It has achieved slightly more than 500,000 permanent modifications, 40% of which the Treasury expects to default. Far more borrowers have dropped out of the program than successfully achieved permanent loan modification. These borrowers, along with those who later default, will often be left with larger outstanding debt, worse credit scores, and less home equity.
  • Obama even handed $30 billion to the largest homebuilder corporations in the country, run by billionaires like Bob Toll, by allowing them to carry back their losses and wipe out tax liabilities in prior years. This did wonders for the housing market. It did stimulate bonus payments for the CEOs of these companies.
  • Billions of tax revenue was lost by handing out $1,500 tax credits for people to buy new windows, doors, and appliances they were going to buy anyway. We are still waiting for that multiplier effect.

The usual suspects are now declaring that we can’t make the same mistakes FDR made in 1937 resulting in a dramatic downturn in 1938. As usual, the Keynesian storyline about the Great Depression is false.

Depression Keynesian Fallacy

One thing to remember is that while the depression that started in 1929 may have come to a bottom in 1933, it took a long time to recover. There was a cyclical recovery in 1937, and why was that? Roosevelt had the good luck to have been elected dead flat at the bottom. So it wasn’t his policies that cured the last depression, it was luck and good timing, combined with the fact that they were creating a lot of money after Roosevelt took the dollar off the gold standard. That resulted in a false recovery, from 1933 to 1937, and it went downhill again. – Doug Casey   

 

Keynes′ theory suggested that active government policy could be effective in managing the economy. Rather than seeing unbalanced government budgets as wrong, Keynes advocated what has been called countercyclical fiscal policies, that is, policies that acted against the tide of the business cycle: deficit spending when a nation’s economy suffers from recession or when recovery is long-delayed and unemployment is persistently high—and the suppression of inflation in boom times by either increasing taxes or cutting back on government outlays. He argued that governments should solve problems in the short run rather than waiting for market forces to do it in the long run. Keynes had too much faith in the wisdom of politicians and Federal Reserve bankers. They mastered the art of deficit spending, but fell a little short on paying off the debts during boom times. About $14.6 trillion short so far.

The Great Depression had the same origins as our current Greater Depression. The three Republican administrations of the 1920s practiced laissez-faire economics, starting by cutting top tax rates from 77% to 25% by 1925. Non-intervention into business and banking became government policy. These policies led to overconfidence on the part of investors and a classic credit-induced speculative boom. Gambling in the markets by the wealthy increased. While the haves got richer, millions of have-nots lived below the household poverty line of $2,000 per year. The rip roaring party came to an abrupt end in October 1929, with the Great Stock Market Crash.

Between 1929 and 1932, the market fell 89% from its high. The Keynesian storyline is that Herbert Hoover’s administration did nothing to try and revive the economy. It took Franklin Delano Roosevelt and his New Deal Keynesian policies to save the country. It’s a nice story, but entirely phony. Between 1929 and 1933 the Hoover administration increased real per-capita federal expenditures by 88%, not exactly the austerity measures described in fantasy stories concocted by the mainstream media.  

Bureau of Economic Analysis National Income and Product Accounts Table

Table 1.1.6A. Real Gross Domestic Product, Chained (1937) Dollars [Billions of chained (1937) dollars]
 
 1929 
 1930 
 1931 
 1932 
 1933 
 1934 
 1935 
 1936 
 1937 
 1938 
 1939 
Gross domestic product
87.3
79.8
74.6
64.9
64.0
71.0
77.3
87.4
91.9
88.7
95.9
Personal consumption expenditures
63.1
59.7
57.8
52.6
51.5
55.1
58.5
64.5
66.8
65.8
69.4
Gross private domestic investment
12.2
8.1
5.1
1.5
2.3
4.1
7.6
9.7
12.2
8.0
10.3
Net exports of goods and services
0.8
0.4
0.2
0.0
-0.1
0.2
-0.5
-0.3
0.1
0.9
1.0
Government consumption expenditures and gross investment
9.2
10.2
10.6
10.2
9.9
11.1
11.5
13.4
12.8
13.8
15.0

 

The Great Depression officially lasted from 1929 until 1940. What is not well known is that real GDP was at the same level in 1936 as it had been in 1929. In no small part because real GDP soared by 37% between 1933 and 1936. The unemployment rate in 1929 was 5%. In 1936, even after real GDP had recovered to pre-depression levels, the unemployment rate was still 15%. It spiked back to 18% in 1938 and stayed above 15% until World War II. Tellingly, in 1936, private domestic investment was 21% below the level of 1929. 

By contrast, government expenditures surged by 46% between 1929 and 1936. With the government creating new agencies and employing people in make-work projects, private industry was crowded out. The extensive governmental economic planning and intervention that began during the Hoover administration swelled drastically under Roosevelt. The bolstering of wage rates and prices, expansion of credit, propping up of weak firms, and increased government spending on public works prolonged the Great Depression.

The facts powerfully contradict the notion endorsed by Krugman and other Keynesian devotees that the supposed 1937-38 Depression within the Great Depression was caused by Roosevelt slashing spending. In fact, real GDP only dropped by 3.5% in 1938 and rebounded by 8.1% in 1939. What actually collapsed in 1938 was private investment, which fell 34%. By contrast, government spending declined by only 4.5% in 1938, proving that Roosevelt did not drastically cut spending. To the extent that he eased up on the accelerator, it was by cutting back on useless jobs programs like those provided by the Works Progress Administration and the Public Works Administration. Austerity did not derail the recovery.

The reason private investment collapsed in 1938 was Roosevelt’s anti-business crusade. He denounced big business as the cause of the Depression. In March 1938, FDR appointed Yale University law professor Thurman Arnold to head the antitrust division of the Justice Department. Arnold soon hired some 300 lawyers to file antitrust lawsuits against businesses. Arnold launched cases against entire industries, with lawsuits against the milk, oil, tobacco, shoe machinery, tires, fertilizer, railroad, pharmaceuticals, school supplies, billboards, fire insurance, liquor, typewriter, and movie industries.

Paul Krugman’s recent veiled yearning for a war or staged crisis to revive the economy through spending to fight the war is another Keynesian fallacy perpetuated by the mainstream media. These mindless non-critical thinking talking heads actually believe World War II ended the Great Depression. Doug Casey obliterates their fantasy:

“People say that World War II cured the Depression, but in fact, it made it worse. As bad as things were in the ‘30s, they were worse during the war in the ‘40s. You couldn’t get shoes. You couldn’t get gasoline. You couldn’t get tires. You couldn’t get just about anything that was being used for the war. The war prolonged and deepened the Depression. The thing that ended the Depression was not the war but the fact that since people could not consume, they were forced to save. That delayed consumption resulted in a huge amount of savings, and that’s what caused the recovery in the late 1940s.

 

The fact that the entire world was left in smoldering ruins after World War II, except for the United States, may have contributed slightly to our recovery from the Great Depression.

According to Murray Rothbard, in his book America’s Great Depression, the artificial meddling in the economy was a disaster prior to the Great Depression, and government efforts to prop up the economy after the crash of 1929 only made things far worse. Government intrusion delayed the market’s correction and made the road to complete recovery more difficult. Today’s myopic politicians, captured monetary authorities and Harvard trained Keynesian economists have learned the wrong lessons from the Great Depression. The upshot will be a second Greater Depression and further impoverishment of the dwindling middle class. The implications of more wasteful government stimulus programs, more quantitative easing and more debt are: further debasement of the currency and ultimately a hyperinflationary collapse. The great economist John Maynard Keynes understood currency debasement:

“There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

How to Cut Spending While Actually Increasing Spending

“Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.” – John Maynard Keynes – The Economic Consequences of the Peace

Obama’s plan to revive America will be announced with great fanfare in two weeks. We know for sure he will propose these two brilliant ideas:

  • Extending unemployment compensation again at a total 2012 cost of $65 billion. Because we know that paying people to not work creates millions of jobs. The multiplier effect is off the charts. Why work when you can watch The View and chow down on cheese doodles purchased with your SNAP card for 99 weeks?
  • Extending the payroll tax cut at a total 2012 cost of $100 billion. This was supposed to give a dramatic boost to the economy in FY11. Have you noticed any boost? A Keynesian will argue, “Imagine if we hadn’t done it.” A critical thinker might ask: Is it prudent to increase the unfunded Social Security liability by another $100 billion and hand the bill to future unborn generations, so we can buy a new IPod 2 today?

It is a certainty that Obama will announce an infrastructure bank or some variation to spur investment in our national infrastructure that is crumbling by the day. Top Keynesian, and architect of the Obama stimulus plan, Larry Summers has been blathering about this for months. Even though the first stimulus plan was sold as an infrastructure plan, they mean it this time. As usual, the storyline is false. You can’t drive anywhere in this country and not be inconvenienced by road widening, bridge building, and repaving projects. The Keynesians act like infrastructure projects are highly unusual and need new Federal dollars to jump start the engine. The fact is that every Federal, State and municipal government has a capital fund that is budgeted every year. Most of the projects have multiple year lead times. They require planning and coordination. The reason we have 160,000 structurally deficient or obsolete bridges and thousands of miles of crumbling underground pipes is because politicians decided to spend their budgets on something more useful like train museums, murals, turtle crossings, and studies on the mating habits of ferrets.

The country has lost approximately seven million jobs since 2007. Five million of the jobs were lost in sales industries and manufacturing industries. There are 139 million jobs in America today and only seven million, or 5% of all jobs, in the construction industry. How do Keynesians expect to revive the job market with an infrastructure bank that will benefit, at most, 5% of the U.S. workforce? Let me guess. They will propose billions of new spending on education so they can retrain sales clerks from Wal-Mart into architects for designing 160,000 new bridges.

Barack Obama will stand in front of the American people and lie. He is a born again cost cutter, who will propose new spending. As anyone with a calculator can figure out, the two guaranteed proposals from his upcoming speech will increase spending by $165 billion in 2012. If you go back to the handy dandy chart from the CBO showing the “horrific spending cuts” from the recent debt ceiling deal you will see  these “cuts” total $122 billion between 2012 and 2014. Barack will wipe out all of the supposed savings through mid 2015 with his new Keynesian plan. But don’t worry. His plan will have huge spending cuts in 2017 after his hoped for 2nd term is finished. Keynesians always promise to cut spending once their current emergency ends.     

The Keynesians had their chance. They controlled the Presidency and both houses of Congress. A Keynesian runs the Federal Reserve. They implemented everything they proposed. The $862 billion porkulus program, the $700 billion TARP program, home buyer tax credits, energy efficiency credits, loan modification programs, zero interest rates, QE1 and QE2. They increased social welfare transfers for Social Security, Unemployment Compensation, food stamps, Medicare, Medicaid, and Veterans by $600 billion since 2007, a 35% increase in four years. No one has foiled their plans. The Tea Party didn’t really exist until 2010. They didn’t lose the House until November 2010. They cannot blame the Tea Party extremists, but they do.

The Keynesians have successfully increased Federal spending by $1.1 trillion, or 41% since 2007, and are running deficits exceeding 10% of GDP, but they call the Tea Party extremists. Domestic investment is still 9% below 2008 levels as the Federal government has crowded out the small businesses that create the jobs in this country. And now the Keynesians declare we need more stimulus, more programs, more debt, more quantitative easing and lower interest rates. It just wasn’t enough the first time. You have to give the Keynesians credit. Despite the utter absolute failure of every scheme they have implemented, they will worship their models and theories until they successfully collapse our economic system. Then they’ll blame the Tea Party terrorists who foiled their plans.

None of the Keynesian solutions worked during this crisis, just as they didn’t work during the Great Depression. The solution was simple, yet painful. The banking system needed to be saved, not the banks. The bad debt needed to be purged from the system. Wall Street criminals needed to be prosecuted. Bondholders and stockholders needed bear the losses from their foolish investments. Saving and investment in the country needed to be encouraged, while borrowing and consuming needed to be discouraged. Our leaders have failed to lead. The American people have failed to accept the consequences of their actions. And now we are going to pay a heavy price as Ludwig von Mises predicted:

“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.”

 

STREET FIGHTING MAN

4 comments

Posted on 27th July 2011 by Administrator in Economy |Politics |Social Issues

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I’ve posted this March 2009 article by Doug Casey a number of times in the past. With the recent info about military exercises in our communities, I was reminded of his article. The sections about Civil Unrest and particularly how sociopaths are drawn into the police and armed forces at times like these. His points about the Germans being a highly educated society with centuries of creating art, literature, and architecture needs to be understood. If it happened in Germany, it can happen here.

Street Fighting Man

From Doug Casey
Chairman, Casey Research
Published Jul 29, 2009

For decades, Doug Casey, legendary contrarian investor and financial best-seller author, has been foretelling the advent of a “Greater Depression.” Recently, as we are drawing closer to feeling its full impact, Doug has been elaborating on the economic ifs, hows, and whats of the imminent crisis. In this article, he focuses his, as usual, politically not-so-correct musings on how it will change the face of American society.

Longtime readers know my standard response to questions about the severity of the Greater Depression: It’s going to be worse than even I think it’s going to be. “Coming Collapse” books will undoubtedly accumulate into an entire genre in the next few years, as they did a generation ago. This time it’s not just fear mongering, although things won’t get as bad as in James Kunstler’s book The Long Emergency and certainly not as rough as in the movies Road Warrior or I Am Legend. But it’s a good bet that a lot more is going to change than just some features of the financial system. Let’s engage in a little speculation as to the shape of things to come.

I’ve long believed that this depression would not only be much different but much worse than the unpleasantness of the ’30s and ’40s. In those days, only a few people were involved in the financial markets; now almost anyone with any assets at all is a player. In those days, there were no credit cards, consumer debts, or student loans; now those things are ubiquitous. It’s true that nobody will lose any money because of bank failures this time around; instead, everybody is going to suffer a loss from a collapse of the U.S. dollar, which is much worse.

In the ’30s and ’40s, the U.S. population was still largely rural in character, including people living in the cities. The average American was just off the farm and had a lot of practical skills as well as traditional values. Now he has skills mainly at paper shuffling or in highly specialized technologies, and it doesn’t seem to me that the values of hard work, self-reliance, honesty, prudence, and the rest of the Boy Scout virtues are as common as they once were. In those days, the U.S. was a creditor to the world and the world’s factories to boot; now there are perhaps 8 trillion dollars outside the U.S. waiting to pour back in, and the country is all about consuming, not producing. Even with what the New Deal brought in, there was vastly less regulation and litigation, leaving the economy with much greater flexibility to adjust and innovate; today, few people do anything without consulting counsel.

Of course things are immensely better today than 80 years ago in at least one important way: technology. I love technology, but unfortunately, improvements in that area do nothing to prevent an economic depression or many of the ancillary problems that will likely accompany this one. In fact, it can be a hindrance in some ways.

So, accepting the premise of a depression, let’s examine some of its likely consequences.

Civil Unrest

I’ve puzzled over who will go into the streets as the depression deepens and when they’ll do it. Nikolai Kondratieff, of Long Wave fame, was of the opinion that the natives tend to get restless at economic peaks (like the late 1960s, when riots broke out all over the world) and at economic troughs (like the 1930s, when the same thing happened). His reasoning is not dissimilar from that of Strauss and Howe, authors of The Fourth Turning. At peaks, people are just feeling their oats, which can evidence itself domestically in riots inspired by rising expectations, and internationally in optional sport wars, like that in Viet Nam. Such peak-time disturbances are troublesome but don’t really threaten society. That’s largely because when times are good, people feel they have a lot to lose and they believe things can get even better. In prosperous times, people don’t usually feel like overthrowing the government or transforming the basis of society.

Not so at economic troughs. People believe they have little to lose, they’re eager to hang those they believe responsible for their problems, and they’ll listen to radical or violent proposals. We’re now just entering what will likely be the worst economic trough since the Industrial Revolution.

But why do humans tend to riot when the going gets rough? How can they think that solves anything? Do they believe it’s going to make their jobs or money reappear? Perhaps I ask that question only because I can’t see myself rioting. You and I might discount the thought of Americans going wild, because we wouldn’t likely join them. But we’re not, I suspect, the average American. People, throughout history, have always been prone to violence when times get tough. Is there any reason that should change now?

Recently, there have been — really for the first time in this downturn — reports of large, angry demonstrations all over the world. The UK, France, Eastern Europe, now China. If a place like Iceland, as placid and homogeneous as any in the world, can blow up, then any place can. And probably will.

A rioter is typically an angry person looking for vengeance because he blames someone else for his problem. So far, rioters seem to be directing their attention at governments. Correct target, of course, but they don’t have the rationale quite right. They’re not angry because governments inflated the currency, promoted fractional reserve banking, and nurtured all the cockamamie socialist programs that caused this crisis. Not at all; they rather liked all that. They’re angry only because their governments haven’t adequately protected them from the consequences of what they did. So as conditions worsen, we can expect governments worldwide to pull out absolutely all the stops to show they’re “doing something.” And round up scapegoats to satisfy the mob and divert anger from themselves.

I fully expect civil unrest to spread everywhere, simply because the depression will spread everywhere. It will be worst in places that have been most overextended, most debt leveraged, most urban, and have the largest numbers of unemployed workers — the U.S., Europe, and China.

In the last couple of generations, most rioters in the U.S. have been students who basically just raise some hell on their campuses and inner-city blacks who burn down their own neighborhoods. Maybe the students who’ve wasted a huge amount of time and money in gender studies and sociology will get angry as they figure out they’re not going to have jobs when they graduate — forget about making $100,000 plus as an investment banker. Maybe blacks, who have apparently been hurt the worst by subprime lending and still may be the last hired and first fired, will take to the streets. Maybe. But I think it’s more likely the turn of the Mexicans and other Latinos. They’re the ones raided by la migra and stopped at checkpoints, whether they’re legal or not. They’re the ones who may be implicated in the wave of violence flowing up from northern Mexico. There is a real strain of revanchist nationalism throughout their community that hopes for the reconquista of lands the Anglos stole in the 19th century. And they have all the other problems you might expect with an ethnic underclass.

But will ordinary middle-class Americans riot? I don’t expect it until later in the game. Union members will be treated well by the Obama regime. And most whites live in the suburbs; it’s tough to get people who live in detached houses out into the streets. Ozzie and Harriet just don’t seem likely to burn down their house, even if the bank owns it. Besides, a lot of the parents are on Prozac and their kids on Ritalin. Of course, on the other hand, most of the people who perpetrated mass murders over the last 25 years were on some type of psychiatric drug.

Is there a catalyst that could turn your neighbors into a mob? Two possibilities are gun control and higher taxes, discussed below. But my guess is that riots will be headed off by the police, who are far more numerous, militarized, and better equipped than ever before, and by the military itself. You may think the cops and the military (and today most cops are exmilitary) would never turn on their fellow citizens, but you’d be wrong. Cops and soldiers are far more loyal to their colleagues and their organizations than they are to either some constitution or, absolutely, the mob that’s throwing bricks and bottles at them. They are also among the forces pumping for gun control.

Gun Control

This issue is potentially explosive. Although, sadly, gun culture in the U.S. isn’t nearly what it was even a generation or two ago, it’s still pretty strong in some regions. Most states make the open or concealed carrying of handguns a simple matter, and there’s evidence lots of people are taking advantage of it. Personally, I find it hard to fathom the psychology of people who want to disarm society. From a strictly practical point of view, the idea of having to engage in hand-to-hand combat, half naked, with an intruder in the middle of the night is most unappealing. Especially since the odds of that happening are going way up in the near future. Everyone should have a gun in his nightstand, at a minimum.

But that’s only a fraction of what gun ownership is really about. A free person should have the right to possess whatever he desires. End of story. And only slaves, or those with a slave mentality, comply with no thought of resistance when they’re told what they can or cannot own, especially if compliance means disarming themselves.

I’ve often wondered what would have happened in Germany after Kristallnacht if every Jew had been armed. None were, of course, because strict gun control had been imposed shortly after Hitler came to power, and like good little lambs, the population complied with the law. But my guess is that few would have defended themselves against the Gestapo anyway. Partly because they would have figured they were certain to get into serious trouble if they resisted, and partly because they couldn’t imagine the fate that actually awaited them. It wasn’t until the Warsaw Ghetto uprising in 1944, very late in the game, that people could finally read the writing on the wall and summoned the courage to fight.

If you follow these things, you’ll note that there’s been a lot of buzz about severe firearms regulation since Obama’s inauguration. Bills are being discussed about things like a national firearms registry, reinstituting the so-called “assault weapons” ban, requiring secure locks on all weapons, prohibiting the import of ammunition, and levying a substantial tax on ammunition, among other things. No outright prohibition, because they know that would catalyze gun owners. But they keep dialing up the pressure, moving toward a de facto ban.

I’ll guess there are at least two to three million Americans who adhere to a couple of succinct mottos: 1. You can have my gun when you pry it from my cold, dead fingers, and 2. It’s better to be tried by twelve than carried by six. This is a group that could catch fire at some point. But I don’t think it’s imminent, simply because the chances of outright prohibition of gun ownership are slim. The analogy of the frog in a gradually heating pot is apt. The taxpayer must also feel like a frog.

Tax Revolt

State and municipal governments all over the country are operating with rising outlays and radically declining incomes and so are running large deficits that add to their already massive debt. Since they can’t print dollars, they’ll raise taxes further, as New York and California have recently done. Most people don’t have any philosophical objection to taxes; they accept them, considering them part of the human condition, like disease or death. That’s unfortunate, of course, in that taxation is neither moral nor necessary. But such fine points of philosophy absolutely never enter the public debate.

What will be debated is the level of taxation. The last time we had widespread agitation on taxes was during the last serious recession, in the late ’70s. The result was things like Prop 13 (which capped property taxes in California for some homeowners) and the Reagan tax reforms.

I expect there will be serious whining about taxes this time around as well, but little will come of it. To start with, like every other organism on the planet, government puts its own interests first; society comes in a distant second. Actually a distant third, after powerful individuals who are wired to politicians and bureaucrats, and groups that hire the right lobbyists. Every level of government is more desperate for money than ever. Your taxes are going through the roof, and you’re going to see lots of new ones. Don’t expect any support from Boobus americanus. About half don’t earn enough to pay income tax. Most are net tax beneficiaries. And low taxes have somehow become associated with the late disastrous crackup boom and the corrupt Bush regime. So a popular tax revolt looks like a real long shot.

At the same time, a portion of the productive people in the country feel genuinely resentful at having to subsidize the losers and ne’er-do-wells. What are they going to do? I think they have only two alternatives. Tax evasion, which is both hard and increasingly risky, since the IRS will be hiring plenty of freshly unemployed financial workers. And expatriation. My guess is that scores of thousands of Americans are going to make “the Chicken Run” (as Rhodesians called it) in the next few years.

But the biggest danger to your personal freedom and your wealth, as well as to the U.S. as a whole, is likely to be war.

War

It always impressed me as odd that while Obama ran on a platform of ending the pointless and counterproductive adventure in Iraq, he wanted to ramp up the war in Afghanistan. What possible reason could anyone have for wanting to fight an optional war in what may be the most backward and xenophobic place on the planet? Even if every Afghan made a personal pledge of Death to America (which they eventually will, thanks to the occupation), who cares? Who cares if the Pygmies of the Ituri Rainforest or the Yànomamö of the Amazon join them? It’s strange that no one ever questioned Obama on this nonsensical and contradictory policy.

Now it seems he’s very slow in leaving Iraq. I expect the reason is that the U.S. has built elaborate bases the size of small cities that they’re loathe to leave, partly on general principles and partly because they might be needed to attack Iran or Pakistan. The Obama regime is literally asking for trouble in both places. And partly because he knows that the collaborators set up to run the Iraqi government will promptly be deposed, and probably executed, by whoever might win the civil war that would ensue if the U.S. really left. The USG is apparently set on having a stooge in charge of both Iraq and Afghanistan.

The National Security State has a life of its own. Renditions haven’t been stopped. Guantanamo still operates, as do other overseas prisons holding thousands. Military spending not only won’t be cut, it will likely rise.

Wars start for all kinds of reasons. But tough economic times probably rank number one as a cause. The 1930s were a natural overture for the ’40s. Politicians like to find a foreign enemy to blame problems on. Theft of foreign resources can seem like a good idea. And part of the economic mythology fabricated by the malevolent and repeated by the ignorant is that WWII cured the last depression.

Will there be another 9/11? It’s a good bet, but there’s no way it will involve airplanes; the 50,000 zombies employed by TSA serve absolutely no purpose except to accustom Americans to being treated like prisoners. One possibility is the surreptitious placement of one or more nuclear devices in U.S. cities. As Pakistan disintegrates, their nuclear arsenal may fall into quite irresponsible hands. Or, perhaps, devices could be procured in a number of ways from Russia, India, Israel, or North Korea. Another, much more likely scenario is a repetition of what happened in Mumbai recently. A small force of dedicated and well-armed operatives could create unbelievable havoc in a U.S. city or in several at once. And probably will. Americans just don’t appreciate how little people in the Islamic world like having aggressive, blue-eyed teenagers kick their doors down in the middle of the night, among other pranks.

You may be thinking that, with the American military the most powerful in the world, it’s not about to lose a war. I question that. The bloated military is a major factor in bankrupting the U.S., and a bankrupt country can’t win a war. Its $6 billion carriers, $1 billion B-2s and $400 million F-22s are all built to fight a kind of enemy that no longer exists. They’re sitting ducks for massive numbers of cheap missiles and jihadists that can swarm them where they’re parked. The military wanted to fight WWI with cavalry and WWII with battleships. They’re seemingly doomed to a repeat performance in the next major conflict.

In short, everything on this horizon looks very grim for a long time to come. Incidentally, the U.S. military is by far the world’s largest single consumer of oil.

Peak Oil

There hasn’t been much discussion of this since oil has come down from its July 2008 peak near $150 to its recent low of close to $30. Longtime readers know I’m philosophically quite reluctant to give credence to any theory that would seem to imply we can run out of anything. I come down firmly on the side of Julian Simon. Which is to say resources are essentially infinite, and technology and capital can solve almost any problem in the material world. That said, there are problems that need to be solved. One is presented by the geological theory of M. King Hubbert, who predicted in the 1950s that the production of light sweet crude in the continental U.S. would go into irreversible decline by the early ’70s. He was correct. He also predicted that the same would happen on a worldwide basis in the first decade of this century. It now appears production has maxed out at about 80 million barrels a day and is headed down.

This isn’t the time or place for a detailed discussion of why and how this is true. It’s certainly not the end of the world, as some appear to believe. Just a major inconvenience. Practically infinite power is available from a wide variety of sources, starting with nuclear. The problem is that oil is a particularly concentrated, convenient, and (in the past) cheap source, so the entire world’s economy has been built around it. It will take a decade or so to adjust to the much, much higher prices that will be needed to bring consumption into balance with production. And absolutely everything that relies on oil is going to become much more expensive — especially transportation (for obvious reasons) and food. Food is interesting in that mass production is highly mechanized and oil intensive, as well as fertilizer and pesticide intensive — which again rely on hydrocarbons. The oilfood problem is aggravated by so much of what we eat being shipped very long distances.

Anything is possible, of course, but I think the most likely scenario is simply a large reorientation in patterns of production and consumption as a result of $200 oil. This would be tough enough by itself. But it’s going to put tremendous extra strain on the average American at exactly the time he’s already under maximum strain from a shrinking economy.

Right now things aren’t so bad, because energy prices are low. The depression has cut oil consumption and, conveniently, prices as well. That’s taken a lot of pressure off the average American’s pocket book and at a felicitous moment. And prices may stay low for a year or so as people the world over economize. But oil consumption doesn’t need to rise to put pressure on the price; from here, the main pressure is likely to come from falling supply, not rising demand. So oil prices are likely to start heading up, for strictly geological reasons, even as the depression grows deeper. That will prove most uncomfortable. And will have significant consequences for two mainstays of U.S. culture: cars and suburbia.

Collapse of Suburbia and the Car Culture

Suburbs are creatures of the automobile. I’ve been a car buff my entire life. I love cars for their technology. I love them because they’re fun. But most of all, I love them because even more than the ship, the train, and the airplane, they liberate the average person to — cheaply and quickly – go anywhere he wants, whenever he wants. They’ve made it possible for people to break the mold of the medieval serf tied to the community he was born into. I don’t think cars are going to disappear, but the internal combustion engine is, as a result of Peak Oil, on its way out. I suspect battery power will start rapidly replacing gasoline and diesel. The problem lies in the transition, which is going to be expensive, considering the huge sunk investment in the current technology. There’s going to be an interim period, when people can’t afford to drive their pickups, SUVs, or practically anything else hundreds of miles a week to distant work places and kids’ soccer games or on promiscuous shopping trips. But neither will they be able to afford a new electric car.

American culture revolves around the car. The car facilitated the growth of suburbs and exurbs, shopping malls and big boxes, most of which will become completely uneconomical with the rapid decline of the car. That’s entirely apart from the suburbs and exurbs being exactly where people already can’t make their mortgage payments. And can’t afford to shop. They can’t get by even at current bargain oil prices in the $40 to $50 range. It’s going to be much tougher when gas is $8 a gallon; if they can get a job, they’re going to have to live within a few miles of it.

Entirely apart from that, people aren’t going to be buying much stuff to store in the houses they can’t afford. As George Carlin pointed out in his famous routine about “Stuff” (http://www.youtube.com/watch?v=MvgN5gCuLac), that’s what houses are for — storing stuff. And people are going to be liquidating what they have, not buying more, when they won’t even have a proper place to store it. I’d hate to be in the furniture business over the next decade. Even if unemployment weren’t going much higher.

Unemployment

The official numbers say unemployment is 7.6%. But just as the definition of inflation keeps evolving to accommodate a number that looks better than the reality, the same is true for unemployment figures. John Williams’ Shadow Government Statistics (www.shadowstats.com) computes the figures the way the government used to — mainly by adding back in parttime workers and those considered “discouraged.” They show 17.5% as the historically comparable unemployment figure.

Society has been living above its means for well over a generation, long enough to ingrain unsustainable patterns of production and consumption in the economy. Did everybody need/have a personal trainer 20 years ago? Was “shopping” a major recreational activity in the days before everyone had a pocketful of credit cards? Do all kitchens really need granite counter tops? I think not. As people cut down to the bare basics to enable themselves to rebuild capital, millions and millions more workers are going to have to find other things to do. And, while they’re figuring out what, cut back their consumption drastically as well.

I suspect the readjustment will push unemployment to at least the levels of the Great Depression, which would mean going past 25%. But some will argue: “Yes, but we now have a safety net to catch the fallen. That will make it less serious.” No, it will make it more serious and more prolonged as well. The so-called safety net consumes capital that could have been used productively. It decreases the urgency for each person to find a solution to his own problems. And it has given people a false sense of security, leaving them to save less for a rainy day. The looming collapse of things like Social Security and Medicare will be a bigger disaster than all the banks failing. The Social Security “trust fund,” which has been a swindle, a Ponzi scheme in slow motion, and a moral wrecking ball almost from its beginning, is going to go much deeper into the red. Before they collapse, Medicare, Medicaid, and their cousins will be expanded by some form of free care for the legions of the newly unemployed. Will doctors and nurses be made indentured servants (such as through mandatory voluntary community service) to provide care for everyone who may need it? Perhaps not as long as taxes can be raised further on the middle class.

Sorry this has all been so gloomy so far. Now that the mood is set for recounting all the problems that are going to beset us, some of you are probably saying to yourselves: “Yes, and that’s on top of global warming.”

Global Smarming

This is on just about everybody’s list of Big Problems. Except mine. I’m not a professional climatologist, or even an amateur, so I lack any technical qualifications for commenting on the subject – like almost everybody else who does, prominently including Al Gore. But my guess is that in the next decade, the global warming hysteria (and that’s exactly what I believe it is) will be viewed, with embarrassment, as one of the great episodes in the history of the delusions of the crowd.

Have you noticed that “global warming” is gradually being supplanted by “climate change”? The fact is that the earth’s climate has been changing constantly for at least 500 million years and has generally gotten much cooler over that time. It has certainly warmed since the end of the last Ice Age, 12,000 years ago, and was much warmer than now at the height of the Roman Empire. It cooled during what became known as the Dark Ages, warmed again during medieval times (when grapes grew in Greenland and northern England), and cooled again during the Little Ice Age (which ended about 200 years ago). During the ’70s, as you may recall, some magazines ran cover stories featuring glaciers intruding into New York City. And for the last ten years, it appears the Earth has been cooling, although that’s not widely reported. Change is a constant when it comes to the climate, and warmer is generally better.

Is the science “settled” on the subject? The very concept strikes me as ridiculous, in that science is rarely “settled” on anything short of it being proclaimed a law of nature. And, contrary to popular opinion, it seems most scientists with credentials in the field are either agnostic on the question or debunk the proposition of anthropogenic global warming. But the intellectual climate is such that most scientists are afraid to question out loud the reality of warming. Since almost all funding today comes from politically correct sources, namely the government and foundations, the money goes to those who are known to be looking for the “right” answers. Science has been corrupted.

Of course man can change the environment. But our power to do so is trivial next to the sun, volcanism, cosmic rays, and the churning ocean. None of those forces gets any mention in the popular press, which fixates on carbon, which has replaced plutonium as public enemy #1. Carbon may be the basis of life on earth, but it’s supposed to be our new enemy nonetheless. The masses, who don’t even know carbon is a “natural” element and think the periodic table is a piece of antique furniture now feel guilty about breathing, because exhaled breath is a source of CO2.

Interestingly, a rise in atmospheric carbon dioxide levels doesn’t precede but follows, by several hundred years, phases of global warming. Everything you hear about saving the planet through carbon credits is as ridiculous and counterproductive as recent disastrous programs to turn corn into ethanol. In any event, carbon dioxide’s effects as a greenhouse gas are completely overwhelmed by those of water vapor. God forbid anyone warns the public of the numerous dangers posed by compounds like dihydrogen monoxide (also known as hydroxic acid).

As a lifelong science buff, I find the whole subject quite interesting and am tempted to do an article on it. The reason I mention it here, however, is that the global warming hysteria, as opposed to possible cyclical global warming itself, has serious economic consequences. The chances are excellent that governments will direct scores of billions of dollars into further research, devising computer projections of catastrophe to come, and fighting the presumed warming.

Much more serious are laws they’ll pass in the war against carbon (and methane, which amounts to a war against cattle and sheep), which could retard the economy by hundreds of billions of dollars. Most serious, in the long run, is likely to be a discrediting of science itself in the eyes of the common man once anthropogenic warming is exposed as a giant false alarm.

The Political Future

We can be quite confident the economic future is going to be grim. The military future, ugly and busy. The social future, turbulent. So is it reasonable to expect politics as usual? That would be rather anomalous. Especially since the trend towards much more State power, centered strongly on the executive, has been in motion, and accelerating, for at least four generations in the U.S., even during the best of times. No surprises there. That is pretty much what observers of history from at least Plato on would expect.

In that America is recently deceased and only the United States survives, I see no reason that the trend won’t continue accelerating, to be supercharged by the next Black Swan that might land. After the next real, fabricated, or imagined 9/11-style incident occurs or major war begins, it will be surprising if a state of emergency isn’t declared. Perhaps martial law in the U.S. will, perversely, provide the impetus needed to “bring the troops home,” in that they’ll be needed more in the U.S. than in Fuhgedabouditstan or wherever.

I leave the practical implications of that entirely to your imagination. But to maintain what little will be left of domestic tranquility at that point, the authorities will almost certainly feel compelled to round up dissidents, potential troublemakers, tents, libertarians, and the usual suspects generally. It seems inevitable to me, and I’d prefer to be somewhere else when it happens. I’m loathe to make outlandish political predictions, if only because the inevitable isn’t necessarily the imminent. But if the U.S. survives the current crisis in its present form, I’ll be surprised.

As always, there’s a bright side. Obama will be a one-term president. And, as middle- and upper-middle-class Americans come to see the government less as a cornucopia — that’s inevitable, because the cupboard is empty — they’ll start to see it ever more as a predator. The government will become increasingly delegitimized in the eyes of what’s left of the middle class. But what will they do? If they still have a home in the suburbs or a condo in the city, they’re not going to burn it down like the poor. I’m not even sure they’ll riot. But they will see the discontent. New affinity groups will coalesce. And they’ll wait until something really catalyzes them. Is another revolution possible? Why not? The U.S. is just another country at this point.

I’m convinced that the nationstate, which is to say countries with governments based on geography, is on its way out fairly soon. And good riddance. Perhaps the U.S. will be among the first. What form of social organization will replace it? [Note: That will be the subject of an article soon to come in The Casey Report.]

In the near future, though, there will be a struggle between the best features of what little is left of America and the worst elements of humanity, whom we have in some abundance.

Emigrants and Sociopaths

Americans no longer appear to be a special breed. Of course absolutely every nation likes to think it’s a special, better breed – the Chinese, the Japanese, the British, the French, the Germans, absolutely everybody. It’s a stupid but universal conceit, like the one putting God (presumably Yahweh) on their side during a war.

I used to fancy Americans actually could be a cut above simply because they’re all the progeny of emigrants, and there are at least three reasons emigrants tend to be the “best” kind of people — at least from the point of view of someone who values freedom. First, emigrants tend to be more enterprising than their neighbors at home, willing to leave everything they have to pursue opportunity. Second, they tend to be harder working, since they know they’ll get nothing they don’t earn from strangers in a new land. Third, they tend to be anti-political, since political elites and conditions are usually what caused them to emigrate in the first place. Whether these things are because of a genetic predisposition or whether it’s simply a cultural artifact within some families and groups, or both, I think it’s a fact.

From the founding of the country, America has always had a strong emigrant ethos, and that’s one of the things that has made it different and better. But all things degrade and revert to the mean with the passage of time. The country is now a fugitive from entropy.

Another reason for taking a pessimistic view is that — notwithstanding the point I made above — there’s no reason not to believe there’s a fairly uniform distribution of sociopaths across time and space, including in America today. All countries, in all eras, have them — but in good times, they stay under their rocks. Who would have guessed that the Germans of the last century, who had much more than their share of writers, composers, philosophers, scientists, plain middle-class shopkeepers, and a well-educated, orderly population would have bred the Nazis? The Turks in the ’20s, the Russians in the ’20s and ’30s, the Chinese in the ’50s and ’60s, the Serbs in the ’90s, the Rwandans It would be easy to recount dozens of recent examples of perfectly ordinary countries that have gone bonkers. The fact is that your neighbor or your mailman, who pets his dog, hugs his kids, and plays softball on the weekends, might exhibit a much less appealing, indeed an appalling, side when social conditions change.

You’ve, of course, heard of the Milgram experiment, wherein researchers asked members of the public to torture subjects with electric shocks, all the way up to what they believed were lethal levels. Most of them did it, after being assured that it was “alright” and “necessary” by men in authority.

The problem arises when a society becomes highly politicized. In normal times, a sociopath stays under the radar. Perhaps he’ll commit a common crime when he thinks he can get away with it, but social mores keep him reined in. However, once the government changes its emphasis from protecting citizens from force to initiating it with laws and taxes, those social mores break down. Peer pressure and moral opprobrium, the forces that keep a healthy society orderly and together, are replaced by regulation enforced by cops funded by taxes. And sociopaths start coming out of the woodwork and are drawn to the State, where they can get licensed and paid to do what they’ve always wanted to do. It’s very simple, really. There are two ways people can relate to each other: voluntarily or coercively. The government is pure coercion, and sociopaths are drawn to its power and force.

After a certain point, a critical mass is reached. The sociopaths who are naturally drawn to government start to dominate it. They reset the social mores of the country they control. And it’s game over. I suspect we’re approaching that point.

A Happy Note

There’s no telling how bad things will actually get. The worst thing that could happen is a major war. But, barring that, what’s happened in Zimbabwe, surprisingly, actually offers cause for some optimism. I was last there a couple of years ago, when, although it was a disaster, it hadn’t descended into the absolute catastrophe that’s going on now. Still, with draconian taxes, regulations, and hyperinflation, life goes on.

Plumbers, electricians, and mechanics still repair things. Farmers still grow things — albeit on a much smaller scale. Stores still stock merchandise, even if there’s not much of it. And I just heard yesterday from an ex-Zimbabwean that some of his friends there still play polo. And Zim is about as bad as it gets. But maybe it’s also reason for pessimism. Why, out of the whole damned country, wasn’t there at least one man with the courage to shoot Mugabe?

Look at Eastern Europe. After a horrible depression that lasted from about 1930 to 1990, the whole region blossomed in the space of a decade. It went from the grimmest dystopia, a veritable hologram of Mordor itself, to being almost indistinguishable from Western Europe. It shows how quickly things can improve, as long as there isn’t a backdrop of purposeful stupidity. Try as governments may to destroy it, there’s an immense amount of capital that the world has built up over the past few centuries. Individuals and small groups will continue building their capital everywhere, notwithstanding any kind of State action. The pace of technology should continue, if not accelerate.

As someone who always looks at the bright side, the final bit of good news I can offer you in this extraordinarily troubled milieu is that things are likely to be very interesting, even quite exciting, over the years to come. Notwithstanding the well-known Chinese curse, I’m not completely averse to interesting times. And remember, you don’t have to be adversely affected by them; they set up opportunities for greater profits than even the wildest bull market.

DOUG CASEY DOES SELF IMMOLATION & OIL

12 comments

Posted on 14th July 2011 by Administrator in Economy |Politics |Social Issues

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Doug should have been reading TBP and he would have known about Thomas Ball the day after it happened. He has the same questions I had. Why was this story completely ignored by the MSM. This convinced me once and for all that the corporate MSM is in bed with the government and will report whatever they are told to report and coverup what they are told to coverup. It is up to sites like ours to report the truth.

Doug also agrees that oil prices are headed to $200 a barrel. I disagree with his unconcern with fracking. He assumes that corporations will do the right thing, follow proper safety guidelines, and be good corporate citizens. That is ridiculous. They only care about short term profits and will use their armies of lawyers to fight legitimate claims by the poor people being victimized by their greed and incompetence.

Doug Casey on Self Immolation – Individual and National

(Interviewed by Louis James, Editor, International Speculator)

L: Labas, “Dougas,” as we might say in Lithuania — sure is beautiful here! It’s 11:30 p.m. and the sun is below the horizon, but the sky is still smoldering. Where are you, and what’s on your mind this week?

Doug: It’s afternoon here in Aspen, a nice little communist town in the Rockies. From here the world seems to be turning as usual, but that’s only because the place is full of people who are so rich that they’re largely insulated from the real world, as are the parasites who live off them. We’ll have to talk about the politics and sociology of Aspen sometime. But out in the real world, the engines are grinding toward a halt on the American Titanic – but it’s still moving, so everyone thinks everything is fine. There are signs that the 2008 iceberg was bigger than the crew is telling us, however, for anyone paying attention. Did you hear about that man who set himself on fire in front of a courthouse in New Hampshire?

L: I did, but only through email from friends.

Doug: Yes, the same with me; we have the same friends. It’s truly shocking that a story like this got absolutely zero major media coverage, even though it went out on AP. In Tunisia, a fruit and vegetable street vendor sets himself on fire to protest his government making his life impossible, and it sparks a revolution that doesn’t even stop at his country’s borders. Something similar happens in the U.S. and no one even hears about it… at least not this time. In February 2010 there was a guy who crashed his plane into an IRS office: That did make the national news. But perhaps since then the word has gone out that these things shouldn’t be reported for fear of encouraging others, “national security,” or whatnot.

L: Thomas Ball wasn’t a fruit vendor, but a divorced man who apparently felt that the court system had put him in an impossible situation. [Editor’s note: Ball’s last statement is available online, subscription required.] I’m not a conspiracy theorist, but it defies belief that every single major news editor across the country decided on his own that such a striking story wasn’t news.

Doug: I know. Not a lot surprises me anymore, but this truly is shocking. In my entire life I can only remember two previous instances of self-immolation. The first was that of Buddhist monks during the Vietnam war. I didn’t know what to make of it at the time, but it sure caught everyone’s attention.

L: Why did they do it? U.S. troops on the temple steps?

Doug: No, they were protesting the rule of Ngo Diem in the south, who was Catholic and giving them a hard time. The U.S., of course, was supporting the terminally corrupt Diem regime. When, I’d like to know, has the U.S. ever supported anybody but the worst criminal available in Third-World countries? The second instance was the one in Tunisia earlier this year that touched off the Arab Spring – which is far from over, by the way. Thomas Ball is the first case of it in U.S. history – first one I’ve ever heard of, at any rate – and it received no press whatsoever, outside of acknowledgement in the local papers. The Internet picked it up, of course, but to me it seems extraordinarily serious that an event like this can transpire and not even get noticed. Instead, the headlines were dedicated to such urgent matters as that stupid congresscreature, Weiner.

L: So, are you saying that the powers that be censored the story?

Doug: If they didn’t, it’s certainly further proof of how degraded society has become in the U.S. that something like this could go unnoticed. It’s appalling – disgusting, actually. And scary, on a couple of levels.

But get this: When I was in Dubai a couple of weeks ago, a guide I’d hired to show me around had heard of the event. It was big news there that everyone heard about – it was in all the papers. So you could make the argument that the average Arab may know more about what’s happening in the U.S. than the average American does. That’s a turnaround…

L: What were you doing in Dubai?

Doug: It had been a while, and I wanted to see how things had changed since the crisis. I also went to Israel, Egypt, and Lebanon. I’ll have some articles on my findings in the Middle East in the next few issues of The Casey Report. Obviously, the area being prime oil hunting ground, I was thinking about energy-related speculations a great deal. In practical terms, energy really means oil, coal, gas, and nuclear – green energy is nice, but hydrocarbons and nuclear are the only forms of mass power that can satisfy any need, anywhere, anytime. Most particularly oil. Developments in oil affect the Middle East, and developments in the Middle East affect oil.

L: Hm. Speaking of nuclear, we haven’t talked about that since our conversation on Fukushima, and there’s been time for new market trends to become visible. What do you think?

Doug: Well, as we speak, I see that the price of uranium is $54.25 per pound. It was about $70 before Fukushima, dropped to about this level, bounced back to the high $50s, and is now fluctuating in the low $50s, so it’s definitely cheaper than it was before. But it was over $140 a pound in 2007, so it’s much cheaper than it has already been in this cycle. On the other hand, it’s still roughly six times what it was at the end of the 1990s, when it bottomed around $9. That’s pretty good performance for a commodity. Still, I’ve got to say that I think it has a lot of upside yet ahead – although keeping track of prices in dollar terms is becoming ever more tricky, as the dollar itself fluctuates wildly – mostly down – and the official CPI statistics become ever more unreliable.

The reason I’m still bullish on uranium is because, as we said before – and Fukushima notwithstanding – nuclear power is still the cleanest, safest, and cheapest type of mass power generation available. I find it quite ludicrous that the Germans have announced that they will phase out all of their nuclear plants over the next decade. Where are they going to get the power to replace the approximately 22% they get from nuclear now? Windmills aren’t going to do it. Solar doesn’t have a prayer in northern Europe. Are they going to burn more coal? That’d be great for their environment.

L: Aside from pumping sulfur into the air, coal plants emit C-14 too, and that’s radioactive. Nukes emit less. Maybe they plan to wear thicker coats and eat more cold food?

Doug: There’s a lot of radioactive material released from burning coal, including uranium. Geothermal would be nice, but Germany is not Iceland. Maybe they think they can burn more natural gas, but that’s a greenhouse issue – although the whole greenhouse gas/global warming hysteria has always impressed me as something in between a political scam, a fraud, and a new age religion. But we covered that in a prior conversation; no need to beat a dead horse. Anyway, it seems to me that the global warming hysteria actually peaked a few years ago, and will soon be just another idiotic embarrassment everyone will be anxious to forget. Especially when another hysteria catches their attention.

L: The Russians would love to see the Germans burning more natural gas.

Doug: Of course. And they wouldn’t be shy about demanding political concessions as well as higher prices when they can shut off the pipelines to Europe in the middle of the winter. The Germans will get what they deserve. But then, most everybody eventually does. I’ve got no sympathy for them; stupidity is its own reward.

L: That would literally be a cold war. No need for ballistic missiles. Looks like national self-immolation on the part of the Germans.

Doug: Right – the German reaction is clearly political grandstanding pandering to hysteria. I wouldn’t count on the policy ever being carried through to completion, and wouldn’t be the least bit surprised to see it reversed after the first winter when there’s not enough power to go around. They really have no other practical alternative… though they might try to finesse it by importing electricity from France, which produces over 75% of its power from nukes.

Meanwhile, that hysteria is certainly going to slow down nuclear power in the U.S., but as we said in our conversation after the disaster in Japan, world demographic trends leave no choice but to employ more nuclear power. That makes the current relatively low prices an opportunity.

L: In that context, we should probably mention that there was a flood in the U.S. midwest, and the Fort Calhoun nuclear power plant in Nebraska was flooded. A dike surrounding the plant was even breached, but there appears to be no sign of danger yet. Granted, the plant was shut down for maintenance at the time of the flood, but still, the thing seems to be taking the abuse as designed.

Doug: That’s right, and it bears reiterating that at this point, all of these operating plants are basically 40-year-old technology. Because of the hysteria and resultant government regulations, newer, better, and even safer designs have not been implemented. Almost all the reactors in use today are what are known as “Generation 2.” But there are probably two dozen Gen 3 and 3+ designs that could be deployed; and in a few years there will be Gen 4 units available. Some of these designs are extraordinary – from 10-50 megawatts, self-contained, with almost no moving parts, extremely small, low cost, and capable of being buried for a decade, until they need refueling.

L: So, buy uranium and uranium exploration stocks?

Doug: That’s one way to play it, and we do have a lot of exposure to uranium’s upside in our portfolio. Another, more ground-floor way to play it might be to look into thorium plays. As I understand it, thorium – element 90 on the periodic table – is actually better for power generation than uranium or plutonium. Nuclear scientists originally proposed it for power generation, but governments opted for uranium because it coincided with their weapons programs. As usual, government interference takes us down the wrong path.

L: [Chuckles] As usual. So, there’s an opportunity to invest in nuclear while it’s unpopular, and while it’s unpopular, that’s bullish for hydrocarbons.

Doug: Right. I subscribe to the peak oil theory. By that I do not mean that the world is running out of oil, but that the easy availability of conventional sweet, light crude is in decline. There’s plenty more oil to be found, but it’s a more expensive to process, heavy oil. Or it’s shale oil, or comes from tar sands, or it’s deep under the ocean, which has its own environmental issues and is neither cheap nor easy to produce.

Peak oil is a geological concept. It basically holds that all the low-hanging fruit has been picked. Now, philosophically, it rubs me the wrong way, in that I have total confidence that human ingenuity will find scores of ways to produce new hydrocarbon fuels – and lots of totally new energy sources in addition. Furthermore, the higher oil prices go, the more will be found – and the more it will be economized. So, in a free-market world, oil is a non-problem.

But we don’t currently live in that kind of world. In the meantime – let’s say the next 10-20 years – oil is an issue, for simple geological reasons. And also because, even though consumption has been basically flat in the advanced world for decades, consumption is going to grow radically in “Chindia” and the rest of the developing world. The biggest problem though is likely political, especially because of the increased political risk in the Middle East, where most of the world’s oil reserves are. You’ve got to be bullish on oil.

L: Even with the stuff at $100 a barrel?

Doug: Yes. I believe the odds favor it going to $200, even $250 a barrel before too long. I say that despite the fact I’m much more comfortable buying things when they’re manifestly cheap, and nobody wants them. But at the same time, it’s important to see the trend, and make the trend your friend. And I see no reason to believe this one is anywhere near an end.

L: Okay… But you’re also famous for predicting the coming – now started – Greater Depression. In a major, global economic reversal, wouldn’t energy consumption decrease, and hence prices drop?

Doug: That’s certainly a possibility, but China, India, and the rest of the Third World are marching, increasingly, to the beats of their own drums these days. The Greater Depression will definitely affect them adversely, but the enormous growth that has already gone on there won’t stop – despite the fact China has misallocated gigantic amounts of money in property. There could very well be a real revolution there in the next ten years. People forget that during one of the most turbulent periods in history, 1914-1946 – including, among other disasters, World War I, the Great Depression, and World War II – the world economy expanded by something like 1.8% annually. That trend will continue at one level or another, even if there’s a truly massive upset in the global economy – which I fully expect. The countries of the world will compete in using more oil; China will greatly increase its imports. India even more so. The price will necessarily rise.

So, sure, there could be a dip, especially if there’s a big financial crash, but that would not change the major underlying trend. Long-term energy demand is not dictated by speculators or other financial factors; at heart it’s based on demographic and technological trends, and those are not going to change easily nor soon. Oil in particular supplies very dense and convenient energy. It will be superceded, but not soon.

L: So if oil and gas stocks retreat on bad news, back up the truck for more?

Doug: Exactly. And it seems to me that in today’s world, in which nothing is cheap, one thing that is relatively cheap and a good value is natural gas. The reason it’s cheap is that previous high prices spurred technological developments, such as horizontal drilling and hydrofracking, that have made huge resources of shale gas economic. This vast increase in supply has made natural gas cheaper – and the time to buy commodities is when they are cheap. You have to be a contrarian, buy what’s unpopular, and sell when it’s the flavor of the day. It’s like my friend Rick Rule says: You’re either a contrarian or a victim. That’s natural gas right now – it’s cheaper, in BTUs per dollar, compared to oil, than it’s been for a very long time.

L: But there’s some risk too, especially with scare stories circulating about fracking causing gas leaks and problems on the surface. A political response could crush whole swathes of gas companies.

Doug: That’s true, and it would be true even if the scare weren’t completely unfounded hysteria, as I suspect it is. It’s mostly the same people who are so hysterically anti-nuclear who are anti new natural gas technologies. These stories about flames coming out of your water faucet have nothing to do with fracking. First, it’s freakishly rare. Second, it can and does happen naturally, for the same reason you see oil (and gas) coming to the surface all over the world, or even marsh gas bubbling up from swamps. Fracking generally occurs thousands of feet under ground; drinking water tables are close to the surface; it theoretically can have an effect, but as a practical matter does not. But I don’t want to get into a discussion of that here. Marin Katusa has covered that ground, from all points of view, as you can see here.

The technophobes of the world are a costly nuisance to everybody. But the good news is that they only drive prices up more, much to the benefit of the companies which are not affected. So, the way to play this is not with any kind of blanket approach, but with well-selected companies that should do well, based on where and how they produce their natural gas.

L: Very good. And this time I don’t have to ask you about investment implications.

Doug: Great. I love being off the hook. We’ll leave it at that, then. Talk to you next week.

L: Sure, Doug, thanks for the insights.

Doug: My pleasure.