Saturday, August 30, 2008

A-Holes at the J-Hole

"This convention, which I routinely dub 'A-holes at the J-Hole', still makes me smile because it so perfectly describes my Disdainful And Highly Scornful (DAHS) attitude towards them all because of their Complete And Utter Failure (CAUF)…"
by The Mogambo Guru
Fortunately, I was cowering in the Mogambo Big Brawny Bunker (MBBB) when I looked at Total Fed Credit (TFC) and saw that it was up by $4.6 billion last week, which is $4.6 billion in new credit that has magically appeared in the banks, created by a special little button that the Federal Reserve can push, anytime it likes, to make credit appear, either in its own account or in the accounts of the banks. "How handy!", one thinks!
What makes this so important is that this magical, out-of-nowhere credit turns into money when someone borrows it, which inflates the money supply, which will soon (after a few iterations of the economic system) make the prices of some things go up, and then make the prices of most things go up, and then finally make the prices of everything rise in a burning, incinerating general inflation as too much money chases too few goods, and money, money, money everywhere bids up prices, more and more all the freaking time, worse and worse until the society implodes because prices are so freaking high that nobody can afford to buy things or even feed their crying, whining children, and pretty soon all that incessant children's whining and crying is driving you freaking crazy, and then there is rioting in the street when prices rise like that after the money supply is allowed to increase like that!
So you can see why I spend a LOT of time in this fortified bunker, doors locked, armed to the teeth; somebody has to baby sit those damned crying kids while their parents are rioting in the streets, and it sure ain't a-gonna be me! Hahaha!
This money supply/inflation thing is important because the world's biggest collection of idiots in the field of economics (featuring the clueless academic Ben Bernanke, chairman at the Federal Reserve) are convening at Jackson Hole, Wyoming, for the big annual conference on monetary policy where they will try and come up with some new scam or scheme that will hopefully correct the problems they caused with their last scam or scheme, which predictably failed.
This convention, which I routinely dub "A-holes at the J-Hole", still makes me smile because it so perfectly describes my Disdainful And Highly Scornful (DAHS) attitude towards them all because of their Complete And Utter Failure (CAUF), an acronym that I used to see only on my Annual Employee Performance Evaluations, so you are talking to an expert of a guy who knows what CAUF really means, first-hand!
The theme of the Jackson Hole seminar this year, (and you gotta have a "theme" if you are going to sell T-shirts and coffee mugs as souvenirs!), is this week's proud winner of the coveted Mogambo Award For Sheer Economic Crap (MAFSEC). The theme and winning entry is "Maintaining Stability in a Changing Financial System"! Hahaha!
The Lex Column in the Financial Times describes Ben Bernanke's address at the Jackson Hole confab with a little disdain of his own, as he reports, "The Fed chairman's last speech - delivered, appropriately enough, in a Hole - was on 'maintaining stability'", which I gather is apparently to be achieved through keeping "Wall Street on life support until it wakes up into a nightmarish world of tighter regulation - the central thrust of his Jackson Hole address." Gaaaahhh!
This corrupt commingling of Wall Street with the banks at the control of the Fed is scary enough to warrant bringing back the Glass Steagall Act without delay and throwing Bill Clinton and Robert Rubin into prison for having repealed it in the first place.
But before I could get up a lynch mob or even mild interest in anybody, I was distracted by another part of the speech by Mr. Bernanke that is even more horrifying, as he is apparently "banking on recession hammering commodity prices enough to see off the inflationary threat posed by negative real interest rates at home and looser monetary conditions in emerging markets." Hahahaha!
I can't stop laughing! This is so bizarre, so "theater of the absurd", that my mind is stuck in laughing mode! Hahahaha!
Jim Puplava at humorously explains,"Now, if you follow the logic here, they're saying commodity prices are weakening because of slowing economic growth, but at the same time economic growth is going to go up because of falling commodity prices." Hahaha! That's exactly what they are, apparently, counting on! Hahaha!
Now I am really laughing hard that the Federal Reserve actually thinks that a spontaneous recession will offset negative real interest rates and massive growth in the world's money supply! Hahaha! I am laughing so hard that my stomach is starting to hurt and I think I might have peed in my pants! Hahaha!
Of course, everybody in the office sees my paralyzed-with-laughter condition, and they decide to seize the opportunity to steal some of the twelve color-coded staplers that I have neatly arranged on my desk, which they do just because they keep "losing" their own stupid staplers, which I say just proves that they are stealing office supplies, the thieving, lying bastards.
It's sort of like how the Federal Reserve is stealing all the buying power from our money, except that with a stapler you can at least bind two pieces of paper together, while the theft of the buying power by the Fed just makes the stapler cost more.
"Maintaining Stability in a Changing Financial System"? What a load of crap!

Mogambo Sez.................

Intaxicating Rebate

"The worst inflation in consumer prices is, in case you were wondering, in Venezuela, suffering a terrifying 33.7% inflation, followed by Pakistan at 24.3%, with Japan being the best at 2% inflation! A 2% inflation is the best in the world! Yikes!"
by The Mogambo Guru
The Leading Indicator, which is supposed to presage economic conditions up to a year in the future, fell dramatically in July, going down to 101.2 from 101.9, which is a hell of a big loss. This means, as one can readily deduce from the title "Leading Indicator", that the economic situation down the road, say nine months to a year or so, looks bleak.
The Coincident Indicator, measuring economic conditions Right This Very Minute (RTVM), was actually a little positive, as it blipped up the minimum amount possible (one tick), taking this indicator up a little to 106.8 from 106.7. Not very impressive.
Finally, as you would expect from rampant inflation that is raging everywhere, the Lagging Indicator (which is where you find burdens and inflation), zoomed to 112.1 from 111.7! Wow! Big move!
A lot of that inflation is probably because of food prices skyrocketing, which may have been what prompted Junior Mogambo Ranger (JMR) Dan B. to say that even with commodities rising, "There is very little focus on agriculture", which he thinks is a big mistake, and that things are so bad, and likely to get worse, that his watchwords are "Dirt, Diesel and Gold"!
Even with all of this exposure to the terrifying inflations raging around the world, I was still stunned to see that The Economist magazine's table of "Economic and financial indicators" for the 50-or-so largest economies in the world shows that we ALL have raging inflation in consumer prices!
Even Japan! Japan, where inflation has been negative for a decade and was the sole bright spot in the whole table as concerns inflation, now has 2% inflation!
The worst inflation in consumer prices is, in case you were wondering, in Venezuela, suffering a terrifying 33.7% inflation, followed by Pakistan at 24.3%, with Japan being the best at 2% inflation! A 2% inflation is the best in the world! Yikes!
Historically, this is the same 2% inflation that was the historical beginning of the "warning zone" of inflation, that narrow band that provided a little leeway before hitting the "danger zone" of 3% inflation! Now inflation is typically running in the double digits, and nobody cares! Hahaha!! We are all so, so, so freaking doomed!
You can probably tell by the way I am now talking to you through a speakerphone from the Mogambo Impervious Bunker (MIB), and how I am looking at you through the crosshairs of a periscope, that this is not only Bad, Bad News (BBN), but that I am very freaked out of my frightened little pea-brain mind about it, too, which explains why I was carefully lining up the crosshairs right between your squinty little eyes and my finger was on the trigger when I suddenly realized that "shooting first and asking questions later" is not a conscious act, but something that just "happens" because you are just (pause) so (pause) freaked (pause) out. Like right freaking now!
And if you want more inflation, look at the inflated prices of houses, which reminds me that Junior Mogambo Ranger (JMR) Ajit V. sent some humorous neologisms that were created by combining parts of two existing words, and some of them fit the current situation exactly, such as "Cashtration (n.): The act of buying a house, which renders the subject financially impotent for an indefinite period of time." Hahaha! Good one!
I naturally thought that this was going to be a clever lead-in to another new word in the same vein, but this time referring to how the prices of houses are falling dramatically, with something like, "Screwedage payment (n.): monthly payment on a mortgage for a house on which you owe more than the damned house is worth, but you can't just walk away, and so you have to sit in it, night after night, thinking about how you can't afford this damned house, and how it and these damned expensive kids are dragging you into the financial gutter, and what you really, really want to know is two things; one, who is responsible since nothing is ever your own fault, and two, who do you sue, or, alternatively, give those damned kids to?"
Well, no such luck on the house or kids thing, but it did have the "it's funny-because-it's-true" new word "Intaxication: Euphoria at getting a tax refund, which lasts until you realize it was your money to start with." Hahaha!
At first I laughed at this, too, as you can tell by the way "Hahaha" is actually written right after it, and I remember that I cheerfully said, "Let's have a toast to intaxification, and to all the 'stimulus checks' that we will receive in the years to come!"
Then I downed a shot of Wild Turkey, wiped my slippery, slobbery lips on my sleeve, and was getting ready to be a really nice guy and helpfully tell the guy sitting next to me at the bar that he looked like one of those common Earthling morons who is NOT buying gold, silver and oil in response to the monetary mayhem happening all around them, which proves that he is an idiot who is as stupid as he looks, and my advice is to go home, sober up and spend some time at to get a little smarts about real Austrian economics, when I suddenly realized, "Hey! It never was my money, as I owe more than I can pay, and creditors have first lien! It was the money of somebody else, and yet it belonged to yet someone else, and then to someone else, on and so on, until you find that, at the end, it was the bank's money! It's all the bank's money, in the final analysis! Hahaha!"
The moral is that using the money in the meantime to buy gold, silver and oil, which WILL belong to me, so as to make a huge, huge profit (HHP) when their prices soar due to the stupidity of governments and bankers, seems such a delicious revenge.
And how could you turn such a tasty dish down? Whee!

What??!! No Krugerrands??

World's Largest Gold Refiner Runs Out of Krugerrands
By Claudia Carpenter
Aug. 28 (Bloomberg) -- Rand Refinery Ltd., the world's largest gold refinery, ran out of South African Krugerrands after an ``unusually large'' order from a buyer in Switzerland.
The order was for 5,000 ounces and it will take until Sept. 3 for inventories to be replenished, said Johan Botha, a spokesman for Rand Refinery in Germiston, east of Johannesburg. He declined to identify the buyer.
Coins and bars of precious metals are attracting investors as a haven against a sliding dollar and conflict between Russia and its neighbor Georgia. The U.S. Mint suspended sales of one- ounce ``American Eagle'' gold coins, Johnson Matthey Plc stopped taking orders for 100-ounce silver bars at its Salt Lake City refinery and Heraeus Holding GmbH has a delivery waiting list of as long as two weeks for orders of gold bars in Europe.
``A lot of people are worried about the dollar, they're worried about inflation and now we have geopolitical risk with what's happening in Russia,'' said Mark O'Byrne, managing director of brokerage Gold and Silver Investments Ltd. in Dublin. O'Byrne said his company's sales are up fourfold this year, heading for a record since its founding in 2003.
Gold rose to a record in March and is 25 percent higher than this time last year, while the dollar dropped 7.4 percent against the euro. Silver is up 15 percent in the period.
Salt Lake
French Foreign Minister Bernard Kouchner said European Union leaders meeting in Brussels Sept. 1 will discuss sanctions against Russia after it recognized the independence of two regions of Georgia. U.K. Foreign Secretary David Miliband said yesterday Russia was trying to ``redraw the map'' of Europe.
Johnson Matthey's Salt Lake City refinery doesn't have the capacity to meet investor demand for 100-ounce silver bars, said spokesman Ian Godwin in London. He wouldn't comment on whether the company may expand capacity or end production.
The refinery usually gets orders for 1,000 ounce bars from banks and silver grains from jewelers, Godwin said.
Rand Refinery has manufactured, marketed and delivered more than 46 million ounces of Krugerrands since the gold coin was introduced in 1967, according to the company's Web site. Krugerrands are minted at the South African Mint from gold coin blanks supplied by Rand Refinery.
Gold for immediate delivery rose $2.29 to $829.19 an ounce by 5:24 p.m. in London. Silver gained 10.5 cents to $13.60.

Nicely Said................

"As always, the lesson of political history is the same: Save us from our saviors." -James Bovard

FDIC is broke and looking to "borrow" money from Treasury - but Treasury doesn't have money to loan.It will come from taxpayers through Fed Reserve

FDIC may borrow money from Treasury: report
Wed Aug 27, 2008 2:23pm EDT
(Reuters) - Federal Deposit Insurance Corp (FDIC) might have to borrow money from the Treasury Department to see it through an expected wave of bank failures, the Wall Street Journal reported.
The borrowing could be needed to cover short-term cash-flow pressures caused by reimbursing depositors immediately after the failure of a bank, the paper said.
The borrowed money would be repaid once the assets of that failed bank are sold.
"I would not rule out the possibility that at some point we may need to tap into (short-term) lines of credit with the Treasury for working capital, not to cover our losses," Chairman Sheila Bair said in an interview with the paper.
Bair said such a scenario was unlikely in the "near term." With a rise in the number of troubled banks, the FDIC's Deposit Insurance Fund used to repay insured deposits at failed banks has been drained.
In a bid to replenish the $45.2 billion fund, Bair had said on Tuesday that the FDIC will consider a plan in October to raise the premium rates banks pay into the fund, a move that will further squeeze the industry.
The agency also plans to charge banks that engage in risky lending practices significantly higher premiums than other U.S. banks, Bair said.
The last time the FDIC had borrowed funds from the Treasury was at nearly the tail end of the savings-and-loan crisis in the early 1990s after thousands of banks were shuttered.
The fact that the agency is considering the option again, after the collapse of just nine banks this year, illustrates the concern among Washington regulators about the weakness of the U.S. banking system in the wake of the credit crisis, the Journal said.

Ron Paul: 'There's no difference' between McCain and Obama

Former Republican presidential candidate Ron Paul has declined to endorse either John McCain or Barack Obama, and he told CNN's Kiran Chetry on Thursday that he sees "no difference" between them because both espouse foreign policies that only create more threats to our national interests.Chetry asked Paul, "Do you think it's a valid argument ... that a John McCain administration would be a four-year extension of the Bush administration?""Sure, but I think that's what's going to happen with Obama, too," Paul replied. "There's no difference." "Their foreign policies are identical," Paul explained. "They want more troops in Afghanistan. They want to send more support to Georgia to protect the oil line there. Neither one says bring home the troops from Iraq from the bases -- you know the bases are going to stay there, the embassy as big as the Vatican, that's going to remain. So their foreign policies are exactly the same. They're both very, very aggressive with Iran. So I would say there's no difference.""How would you handle these global threats, then, if it's not to send our troops there and make sure that we're protected?" Chetry asked."We create the threats!" Paul replied emphatically. "Why are we on the borders of Russia provoking the Russians? I mean, the Georgians initiated the military attack against these enclaves where there were mostly Russians. ... It's the fact that we're over there that we create these crises.""Isn't it part of our duty, though, to support these fledgling democracies that ask for our help?" asked Chetry."No, it's not our responsibility to do that," Paul said firmly. "We should endorse the principle but not send troops and money. ... Once we get over there, we just aggravate the situation.""We bombed Serbia in order for Kosovo to become independent," Paul concluded. "Now the Russians are doing the same thing. ... It's this total inconsistency."

News reporter arrested in Denver for shooting video on a public sidewalk. Why? Because he was documenting who attended a "big-donor" event for the Dem

ABC Reporter's Attorneys Want All Charges Dropped
Civil Rights Groups Calling for Renewed Protection of First Amendment Rights

From the Blotter
Aug. 28, 2008—
Lawyers for an ABC reporter and civil rights groups are demanding that Denver police drop all charges against a reporter who was arrested yesterday while trying to shoot video on a public sidewalk outside the Brown Palace Hotel in Denver.
Asa Eslocker and a camera crew were attempting to film and talk to Democratic senators and VIP donors leaving a private meeting at the hotel as part of a nightly news series on the corporate lobbyists and wealthy donors at the Democratic National Convention. Police arrested Eslocker and charged him with trespassing, failure to follow a lawful order, and interference with a police officer.
Eslocker's attorneys said Thursday that their client is "innocent of all three crimes."
"He and his news crew were standing on public sidewalks covering an event of public significance and performing a press function protected by the First Amendment," said a statement issued today by Eslocker's attorneys, Daniel Recht and Steven Zansberg.
Video of the arrest shows a cigar-smoking Denver police sergeant, accompanied by a team of five other officers, first put his hands on Eslocker's neck, then twisting his arm behind him to put on handcuffs.
"Frankly, we are outraged at the conduct of the individual officers. Their interactions with Mr. Eslocker are captured on tape." (click here to read the full statement by Eslocker's attorneys)
Civil rights groups also reacted today saying Eslocker's arrest is the latest in a series of incidents at the DNC that exemplify an assault on the First Amendment.
"Arresting a reporter for simply doing his job is both unconstitutional and un-American," said Anthony Romero, Executive Director of the American Civil Liberties Union. "That free speech is curtailed during the Democratic National Convention underscores the need for continued protection of civil liberties, regardless of the party in power."
Reporters Without Borders echoed calls for the charges to be dropped.
"The use of unnecessary force and the arrest of a journalist who was reporting an important political story is deeply troubling and unacceptable," the group said.
Attempts by ABC News to reach a press contact for the Denver police department were not successful.
Denver police Lt. Ron Saunier told the Associated Press that "the Denver Police Department is committed to looking into each and every allegation of unnecessary force," Saunier said.
Saunier said authorities have tried to accommodate the news media this week. "One instance with the media shouldn't paint the entire event," he said.

July Money Goes Boom!

July incomes drop by largest amount in 3 years

WASHINGTON (AP) — Personal incomes plunged in July while consumer spending slowed significantly as the impact of billions of dollars in government rebate checks began to wane.
The Commerce Department reported Friday that personal incomes fell by 0.7 percent in July, the biggest drop in nearly three years and a far larger decline than the 0.1 percent decrease that analysts had expected.
Consumer spending edged up a modest 0.2 percent, in line with expectations, but far below June's 0.6 percent rise. When the impact of rising prices was factored in, spending actually dropped by 0.4 percent in July, the weakest showing for inflation-adjusted spending in more than four years.
The July performance for incomes and spending reinforced worries that the economy, which posted better-than-expected growth in the spring because of the rebate checks, could stumble in coming months as their impact fades.
Some economists worry that overall economic growth, which rose at a 3.3 percent annual rate from April-June, could come in at less than half that pace in the current quarter, and could actually dip into negative territory in the final three months of this year and the first quarter of 2009. Back-to-back declines in the gross domestic product would meet one rule of thumb for a recession.

Privacy In Switzerland

Switzerland Still Has the Guts to Fight for Your Privacy - Even if UBS Doesn't

Two months ago a U.S. District Court judge in Miami, Florida, authorized the U.S. Internal Revenue Service to go after information from Switzerland's largest bank, UBS. In other words, the court gave its blessing for the IRS to go on a fishing expedition for supposed American tax evaders at UBS. In my opinion, the court was wrong to make this blanket assumption. But then again, I have already stated my views on the invalidity of this U.S. court trying to override the Swiss laws.In any case, the court order allowed the IRS to serve a summons on UBS. In short, the IRS wants information (including identities) on 19,000 Americans with UBS accounts in Switzerland. It's important to note that UBS has extensive operations and thousands of employees in the United States.
UBS May Have Hung Their American Clients Out to Dry... But Switzerland Isn't Budging
This court order came about because the UBS private bankers may have been stupid enough to advise wealthy Americans on how to evade taxes (at least according to the IRS). The UBS situation was the subject of a series of noisy, demagogic anti-tax haven hearings in the Democrat-controlled U.S. Senate last month.At the time I wrote: "The big question now is whether UBS, the supposed giant of Swiss banking, will have the guts to take a strong stand based on the Swiss bank secrecy laws and fight for the principle of its clients' financial privacy...""Even if UBS is willing to abandon its American customers to the IRS, I suspect that official Switzerland...[is] going to stand and fight for their basic bank secrecy laws -- laws that have been revised and updated to accommodate reasonable law enforcement requirements."Well, UBS went beyond abandoning their American clients in one respect. They announced then and there that the Swiss-based UBS is abruptly ending its private banking services to Americans. In other words, if you're an American banking in Switzerland at UBS, you're out of luck. In fact, thousands of Americans with UBS accounts were suddenly left high and dry. Our Swiss banking contacts tell us that other Swiss banks are refusing to accept UBS American clients seeking new banks there. They obviously don't want to inherit alleged UBS tax evasion problems with the IRS.U.S. clients are especially nervous because the UBS statement said it would work with the U.S. government to identify the names of its clients who may have engaged in "tax fraud." (That phrase has special meaning in Swiss law because tax evasion per se is not a crime in Switzerland.)
You Can't Shake the Swiss Government
But as I predicted, while the spineless UBS bends, the Swiss government is standing firm. That official firmness may be cloaked in the diplomatic Swiss language (that has made Switzerland so famous) but it's still a firm stance nonetheless.Example: This week the Swiss government informally asked the U.S. not to pressure UBS for client data located within the Alpine country. Swiss State Secretary Michael Ambuehl told his U.S. counterparts that any request for client data must be decided by the Swiss government. It's a government issue because UBS would be breaching Swiss bank secrecy law by voluntarily revealing bank account records."I reaffirmed the offer by the Swiss government to cooperate constructively with the U.S.,'' Ambuehl said in his Bern office on Aug. 19. "I underlined, however, that we expect them not to take unilateral steps against UBS to obtain information which is located in Switzerland as long as the agreed, bilateral legal cooperation is ongoing.'' This was undoubtedly a reference to the Swiss-U.S. mutual tax treaty and the mutual legal assistance treaty (MLAT) between the two countries.
Tax Evasion Isn't a Crime in Switzerland
"UBS is seeking to address these requests with both Swiss and U.S. government authorities within the legal framework for intergovernmental cooperation and assistance established between Switzerland and the U.S.,'' a UBS spokesman said in Zurich.According to Swiss law, bank secrecy can only be lifted in connection with a criminal offense, such as tax fraud or money laundering. But tax evasion isn't a crime in Switzerland. Should the finance ministry agree that UBS release the account details, then account holders will be informed before their details are handed over. This gives them the option to go to court to oppose the release, a Swiss official said.Ambuehl said pressure from the U.S. and the European Union for Switzerland to amend bank secrecy laws hasn't increased. He also sees no need to revise them, because they include "strict internal rules and good external cooperation.''
No One Is Abandoning Swiss Policy Here
An alarmed Teodoro Cocca, formerly with Zurich University's Swiss Banking Institute said at the time of the UBS revelations: "This is a direct and coordinated attack on the heart of the Swiss financial system. This is a long-term threat that will not go away, and there is not too much Switzerland can do."It appears that the professor was right about the gravity of the situation, but wrong to think that the Swiss government would supinely abandon the cornerstone of their banking success - strict bank secrecy.There is a great deal the Swiss can do to defend their laws - and they are doing it.By the way, it's worth noting that The Sovereign Society has NEVER recommended UBS. We have always thought they were too cavalier with their client's privacy. Indeed for the last decade, we have advised U.S. depositors considering Swiss banks to avoid UBS AG and any other Swiss bank with U.S. based branches, affiliates or banking operations, other than a mere "representative office." However, that doesn't mean you should abandon the country of Switzerland altogether. As you can see, Switzerland still has some of the strongest banking laws in the world - and the local Swiss government is even willing to take on American politicians to keep that bank secrecy their policy.

Uh-Oh.........Mad Max Is Coming!!!

The Western World Running on “E”
Western nations — the U.S., in particular — are now experiencing the bow wave of a profound change in the current and future availability of oil. According to recently published data, oil output from all major Western oil companies is on an ominous decline trend. Exxon Mobil, for example, announced that its average oil output has fallen by 614,000 barrels per day in 2008.
Western oil majors like Exxon are finding it harder than ever to identify new prospects and successfully complete new oil projects. This comes despite the fact that the oil industry is flush with profits from upstream operations, and is eager to expand.
BP’s Thunder Horse project in the Gulf of Mexico, for example, is finally coming online in 2008, with an anticipated output of nearly 250,000 barrels per day. But this one project has taken almost 20 years to complete, at a cost in excess of $6 billion.
And Chevron’s recent success with its Jack 2 project in the Gulf came at a cost of over $240 million for just one test well. And this prospect is still years away from being a successful oil-producing prospect.
These sorts of developments have implications far beyond the Peak Oil argument, as valid as that thesis may be.
One of the key reasons for the decline in oil output from major Western companies is world politics. In the 1990s, the key strategic development in the wake of the fall of the Berlin Wall and the decline of communism was the trend toward globalization. Much of the world opened up to the West figuratively, as well as literally. And the oil industry was one beneficiary, making significant investments in unexplored or underexplored regions from South America to the Caspian Sea.
But the key strategic development in the first decade of the 2000s has been, arguably, the concept of “resource nationalism.” That is, in the many nations that were formerly friendly toward Western companies, the attitudes toward foreign investment have fundamentally changed. Western oil companies have found themselves squeezed in resource-rich areas.
Western companies have experienced outright nationalizations, such as what occurred with Exxon Mobil and ConocoPhillips in Venezuela. Or Western companies have been shown the door through intimidation and bullying legal tactics under the guise of “tax laws” or “environmental enforcement,” such as what happened with Shell Oil Co. at its Sakhalin project in Russia.
Even Brazil has shown its nationalistic teeth to foreign investment. Recently, Brazil withdrew numerous areas from prospective lease sales after it became apparent that the odds of finding oil were quite good. Why not just save it for Petrobras?
Whatever the case might be, Western companies have been shunted aside or, in the best cases, forced to renegotiate contracts on less favorable terms. The traditional model of resource development, in which Western companies obtain legal title and control over oil and gas deposits in the ground, is fighting a losing battle. Assertive host governments are gaming the rules to favor their state-owned national oil companies (NOCs).
As recently as the late 1970s, Western oil companies controlled well over half of the world’s oil production. But now the NOCs — such as Saudi Aramco, National Iranian Oil Co., Kuwait Oil Co., Petroleos de Venezuela, Petroleos Mexicanos (Pemex), etc. — control over 85% of the world’s oil resources. Western majors control about 7% of the world’s oil resource base.

All the while, oil output from mature regions is in decline. From the North Sea to the Alaska North Slope, the Western oil companies are faced with lower volumes from existing oil holdings. And there is a much thinner book of potential business elsewhere in the world. According to Amy Myers Jaffe, who studies the oil business from her chair at Rice University, “This is an industry in crisis.”
This sense of crisis also helps explain why Western oil companies are fighting to expand their options for offshore drilling in the U.S., as well as to expand access to areas like northern Alaska. The U.S. offshore, and other frontier areas such as the Arctic National Wildlife Refuge (ANWR) are among the few options remaining for Western oil companies.
So one key point that the Western oil industry makes is that its resource base and reserves are in decline. And over the medium to long term, this means that the economic importance of the Western companies will erode. Despite any plans or efforts at conservation and efficiency, as well as a large-scale shift to alternative energy sources, the Western world will become increasingly dependent on NOCs for oil.
From the standpoint of energy and strategy, this will not be a good thing for the West.

Nicely Said.....................

"I came into this world, not chiefly to make this a good place to live in, but to live in it, be it good or bad." -Henry David Thoreau

Tuesday, August 26, 2008

The Inflation Monster Reareth...........

The Inflation Story Nobody Is Telling You...

The vast majority of consumers see "inflation" as what we're paying for groceries, gas, a Starbucks coffee, and electricity.
Yes, it's true that rising prices for these necessities has been the poster child for inflation lately. But there's much more to inflation than just forking over more at the gas station or coffeehouse. When it comes to Europe, wage push inflation plays a crucial role.
Producers Pass the Inflation Buck to You - the Consumer
Producer prices are simply the costs required to produce goods and services. Naturally, when producers have to pay higher costs to produce goods, they'll demand higher prices for the goods they're selling. In other words, they pass their higher costs to you, the buyer.
Rising commodity prices tend to be a big reason why producers' costs rise. More money spent in production means smaller profit margins at current prices. If a producer wants to make up for shrinking profit margins but can't control his input costs, then he must pass on these costs in the form of higher prices. Excess money creation is what drives this type of inflation, affording higher prices.
No doubt, this is exactly why rising energy costs have been such a huge driver of the inflationary environment we've trudged through over the last several months.
The debate is heating up among whether this global inflationary period is coming to an end. I tend to believe it is. But, more importantly, economic growth and available credit across the globe is rolling over at the same time surging commodities have left inflation concerns on everyone's mind.
For this reason central bank policy makers are struggling.
The cost of energy has buoyed the cost for producers, consumers, and everyone in between. But what happens when this pressure eases for a considerable stretch of time?
Inflation Is a Little Bit Different on the Other Side of the Pond
They don't serve ice cubes in their drinks. They can drive on the left-hand side of the road. And inflation is also a little bit different in Europe. Despite this fact, inflation analysis in these respective regions often focuses on generalities and overlooks one particular difference. Let me explain...
Let's focus only on two countries and two central banks: The Federal Reserve and the European Central Bank. If you haven't been hiding under a rock for the last year, then you probably have some kind of idea how their respective policies vary.
The Federal Reserve has knocked off more than 3% from its benchmark interest rate in the last year. In that same time, the European Central Bank has mostly stood its ground, mixing in one rate hike of 25 basis points that brought its benchmark up to 4.25%.
And if you've been following my currency articles lately, you also probably know that this monetary policy discrepancy has been a boon to the euro, and a detriment to the buck. For many months, even years now, the relative performance of each currency has been primarily based upon expectations for this rate differential to change.
As you might imagine, inflation expectations play an enormous role in monetary policy expectations. Even though inflation has received plenty of attention over the last several months, many analysts have neglected an important difference between European inflation and U.S. inflation.
Now's the time to pay closer attention.
What All the Analysts Have Missed Over the Last Few Months
In the last few weeks, commodity prices (particularly crude oil) have cracked. With that abrupt downturn also came a reprieve in inflation expectations. And that's got many accepting the potential for a lasting shift towards even lower prices and less inflation pressure.
With that in mind, the dollar has managed to rally on two simple facts:
The U.S. Federal Reserve has already lopped off a considerable portion of its benchmark interest rate. So they're now ahead of the rate-cut curve, which has helped maintain some growth in the U.S. relative to Europe.
2. The European Central Bank will be forced to bailout their deteriorating economy by cutting their benchmark interest rate.
Up until this point, the European Central Bank had a good reason to keep fighting inflation. But with commodity prices easing up, now may be the time for ECB policy makers to take action. Here's why they've struggled...
Why Hasn't the ECB Joined the Worldwide Rate Cutting Party Yet?
With many threats to global growth and concerns over several Eurozone member countries, many have been surprised the ECB has gone so long without letting up on the interest rate front. After all...
~The Federal Reserve has made several moves to lower rates
~The Bank of Canada has followed suit
~The Bank of England has gotten the ball rolling
~So has the Reserve Bank of New Zealand
The Reserve Bank of Australia is likely next
If you're wondering why the ECB hasn't budged, look no further than labor unions. Simply put: Wage contracts put in place via labor unions have employees' wages moving higher in lock-step with inflation.
There's really no thought to profitability (the point when workers typically consider demanding higher wages). In other words, rising headline inflation fuels this wage-spiral. And this wage-spiral spurs greater headline inflation. And it continues on like this. That's something Ben Bernanke hasn't had to deal with.
You see, the Fed has been able to react to weakening growth by cutting interest rates. The plan: As growth moderates, or rolls over, inflation is likely to follow. But that assumption is more difficult to make when you've got rising wages keeping prices unnaturally high. The ECB hasn't yet been able to make that assumption. Its interest rates remain high.But here's what you should expect...
When the ECB finally decides to cut rates, they will do so substantially and they will do so quickly. It will be their way of reloading. Because we know, with the labor unions continually eroding profit margins and forcing prices higher, the ECB will need some fire power for their next inflation shoot-out.
If they cut back rates now, they'll be able to hike rates and combat inflation when the time comes again. All you need to do is be prepared to act accordingly.

While The Education Sysstem Screams For More And More Money............

SAT Scores Remain at 10-Year Low
For a second straight year, SAT scores for the most recent high school graduating class remained at the lowest level in nearly a decade, a trend attributed to a record number of students now taking the test.
The 1.52 million students who took the test is a slight increase from last year but a jump of nearly 30 percent over the past decade. Minority students accounted for 40 percent of test-takers, and 36 percent were the first in their families to attend college. Nearly one in seven had a low enough family income to take the test for free.
"More than ever, the SAT reflects the face of education in this country," said Gaston Caperton, president of the College Board, which owns the test and released the results Tuesday.
The class of 2008 scored an average of 515 out of a possible 800 points on the math section of the college entrance exam, a performance identical to graduating seniors in the previous year.
Scores in the critical reading component among last spring's high school seniors also held steady at 502, but the decline over time has been more dramatic: the past two years represent the lowest reading average since 1994, when graduating seniors scored 499.
By comparison, the highest average reading score in recent decades was 530 by the class of 1972, although that score dropped dramatically within five years to near present levels. The latest math average is just five points below the 35-year high of 520, reached three years ago.
Those historical highs are tempered by the test's more selective reach a generation ago, said Jim Hull, a policy analyst for the Center for Public Education, which is affiliated with the National School Boards Association.
"You only had the best of the best taking the test," he said. "The SAT has become far more inclusive."
Average scores also remained constant on the writing portion of the SAT, which was added to the entrance exam in 2006. For the second year in a row, the average score was 494 — a three-point drop from its debut year.
The writing test is still a work in progress, with many colleges waiting for several years of data before factoring that portion into admissions decisions.
But the College Board released data Tuesday suggesting that scores on the newest portion of the exam are the most accurate gauge of first-year success in college. Studies by the University of Georgia and the University of California support the group's findings, it reported.
Males on average scored four points higher than females on the reading section (504 vs. 500) and 33 points higher on the math test (533 vs. 500), but females on average outscored their counterparts on the writing test, 501 to 488.
Average ACT scores released earlier this month showed a slight decrease, for the class of 2008 — 21.1 compared to 21.2 a year ago, on a scale of 1 to 36. With 1.42 million test-takers, the rival exam still lags behind the more-entrenched SAT, but is growing at a faster rate.
That trend is only likely to continue, said SAT critic Bob Schaeffer of the National Center for Fair and Open Testing, who called the new three-part SAT a "flop." Nearly 800 colleges now consider the SAT an optional test for admissions, according to the group.

Hillary's Loss: SOC Was Totally Wrong When We Thought She Was Inevitable. But I don't Think This Will Be The Last We've Heard From Her......

Why Hillary lost? Study finds Americans prefer male leaders

WASHINGTON — Men and women agree that women are more honest, intelligent, compassionate, outgoing and creative, according to a survey out Monday. But men still get a significant edge as leaders — and from both sexes.
The finding, in a survey commissioned by the Pew Research Center, may help to explain why Hillary Clinton isn't making an acceptance speech this week and why acceptance of women as leaders in politics and business has been slow.
Among men and women whom Pew surveyed, a large majority — 69 percent — thought that men and women made equally strong leaders. But only 6 percent said women made better leaders while 21 percent said men did. Men and women held those views almost equally.
"You've got a public that on some level has a complex mix of views on this subject: admiring of women, admiring of traits that they associate with leadership, (but) not yet admiring of women in top leadership roles," said Paul Taylor, the lead author of the report and the executive vice president at the research center.
He said the researchers hadn't "cracked the code" for the contradictory findings.
The findings are based on phone interviews with 1,060 men and 1,190 women from June 16 to July 16 by Princeton Research Survey International. The margin of error was plus or minus 2.3 percentage points.
Respondents, who were questioned about eight leadership traits, rated men and women as equal on two of them: being hardworking and ambitious. Men ranked higher only in decisiveness.
Only a few more men than women thought men made better leaders. The margin was also small for women who chose men.
Carol Hardy-Fanta, the director of the Center for Women in Politics and Public Policy at the University of Massachusetts in Boston, said that women yielded too much when they favored men over women as leaders.
"If women are not distinguished from men in their view of men and women in politics, then there is no hope for change," she said. She said that America's bias for male leaders cost Clinton the election.
Researchers conducted a separate analysis to see whether respondents had skewed their answers to avoid appearing prejudiced. They found no such hidden bias.

US Postal Service Losing (Even More) Money

Tough economic times hurt post office
By BETSY TAYLOR – 1 day ago
ST. LOUIS (AP) — The U.S. Postal Service could lose about $2 billion this year due to tough economic times, and it needs to change to meet the demands of the public, Postmaster General John Potter said Monday.
Potter told the National Association of Postmasters of the United States at their convention in St. Louis that the postal service is grappling with issues that many businesses are facing — like how to handle high fuel prices.
"We simply cannot control it," he said. But, he pointed to the postal service's large fleet of alternative-fuel vehicles as a positive step.
Potter praised postmasters and postal workers for their commitment to service and reliability, but said more needs to be done to reduce bureaucracy, cut costs and embrace technology.
"We're probably going to lose somewhere in the neighborhood of $2 billion this year," he said. "If we don't act, we'll lose $2 billion or more the following year."
Earlier this month, the Postal Service reported it lost $1.1 billion in its third quarter ended June 30. Operating revenue was $17.9 billion, down $437 million, or 2.4 percent, compared with the same period last year. Operating expenses totaled $19.0 billion, an increase of $178 million from the third quarter last year.
Total mail volume was 48.5 billion pieces, a 5.5 percent drop from the same period last year.
For the first nine months of its fiscal year, then agency said it lost $1.13 billion.
Postage rates rose a penny in May to the current 42-cent price. Another increase is expected next May, with the amount to be announced in February. Any increase is limited to the rate of inflation.
Potter said Monday improvements to the postal service's Web site and better bar-code technology for mail should yield improved results. He said there are also opportunities to increase the amount of advertising that's done through the mail, and said working with small and mid-sized businesses was the postal service's biggest opportunity for growth.
The keynote speaker, U.S. Rep. Jo Ann Emerson, R-Mo., expressed concern that financial concerns could threaten rural post offices. She said they should remain open, as they often serve as a community's communication hub and help towns preserve their identities.
"I believe very strongly that our rural communities are a whole lot more than a 5-digit or 9-digit zip code," she said.
Larry Jacobs, the retired postmaster of Bloomington, Ind., said there are safeguards in place to make it hard to close a post office because they are so often integral to keeping small towns thriving.

US Mint Fires Back Up......

U.S. Mint resumes gold coin orders on limited basis
Mon Aug 25, 2008 12:08pm EDT
NEW YORK (Reuters) - The U.S. Mint said it must allocate the American Eagle bullion coins among dealers to cope with overwhelming demand as it resumed taking orders for the popular coins on Monday.
"The unprecedented demand for American Eagle gold one-ounce bullion coins necessitates our allocating these coins among the authorized purchasers on a weekly basis until we are able to meet demand," the U.S. Mint told its authorized American Eagle dealers in a memo dated August 22.
Last week, soaring demand forced the U.S. Mint to suspend temporarily sales of the American Eagles, creating a shortage in the one-ounce version of the coins, which are also available in other weights and denominations.
American Eagle gold coins have been popular novelties among collectors and investors since their introduction in 1986. The coins offer people an easy, tangible way to invest in the gold market, as opposed to buying an exchange-traded fund or other financial instrument.
Coin dealers from the United States and Canada reported a surge in buying of bullion coins and other gold products since prices plummeted from highs last month, contributing to supply fears.
The buying spree and the subsequent shortage of the Eagles have improved momentum in gold as market participants interpret it as a sign of increasing retail investor interest in gold and other precious metals.
The Mint said that it will equally divide its Eagles inventory available for sale each week into two equal pools, with the first allocated equally among all authorized dealers, and the second pool distributed according to the dealers' past sales performance.
Allocation will continue for the American Eagle silver bullion coins, another popular item, the U.S. Mint said.
In addition, the Mint said that it currently has inventory for American Buffalo one-ounce 24-karat gold coins, American Eagle gold fractional coins, including the half-ounce, quarter-ounce and 1-10th ounce, and American Eagle Platinum in all denominations.
Spot gold traded at $822 an ounce on Monday, sharply below its all-time high of $1,030.80 on March 17.

Russian Chest Thumping

MOSCOW, Aug 26, (Thomson Financial) - Russia is not afraid of a new Cold War taking hold and is ready for "anything," Russian President Dmitry Medvedev said on Tuesday in a television interview.
"We're not afraid of anything (including) the prospect of a Cold War. Of course we don't need that ... Everything depends on the stance of our partners and the world community and our partners in the West," Medvedev told the Russia Today channel in comments translated into English.
Asked whether Russia was ready for the consequences of recognising Abkhazia and South Ossetia, Medvedev said: "If they want to preserve good relations with Russia, they will understand the reason for taking such a decision and the situation will be calm."

I Love It When Ottomans Comment On World Affairs

Turkish prez says US must share power in ‘new world order’
Aug 16, 2008
For controversial Turkish President Abdullah Gül, the recent war in Georgia signals a “new world order” that will emerge from the rubble of South Ossetia and force the United States to share its power, The Guardian[2] reported.
Gül said America’s inability to prevent Russia’s invasion shows that the US can no longer shape world politics as it once did.
“I don’t think you can control all the world from one centre,” Gül said. “There are big nations. There are huge populations. There is unbelievable economic development in some parts of the world. So what we have to do is, instead of unilateral actions, act all together, make common decisions and have consultations with the world. A new world order, if I can say it, should emerge.”

The geopolitical turmoil in the Caucusus — a region between Europe and Asia that includes the nations of Georgia and Turkey — has placed Turkey in a difficult position between pleasing its neighbor Russia and not hurting its relationship with the US.
The conflict in Georgia proved Turkey’s tenuous position regarding energy when Russian tanks cut the flow of oil to Turkey from a pipeline running through Georgia, Reuters reported.
Turkey’s energy problems have forced it to seek gas from Russia and Iran, prompting an outcry from Washington.
Gül spoke to The Guardian shortly before a meeting with Iran’s President Mahmoud Ahmadinejad.
The US warned Turkey on Thursday against striking an energy deal with Iran after learning of the two presidents’ meeting, Financial Times reported.
US officials claim the deal will undermine international efforts to curb Iran’s nuclear program.
“Such a deal by Turkey with Iran would send the wrong message at a time when the Iranian regime has repeatedly failed to comply with its UN Security Council and IAEA obligations,” the US state department said.
Gül said he doesn’t want Iran to have nuclear weapons, but he “doesn’t want to think about” the United States attack on Iran.
“I don’t want to think about that. Everybody should take a lesson from what happened in Iraq,” he said. “Diplomatic solutions are always better than hard solutions.”

Created Societies: Interesting Concept

Two Examples of Scientifically Created Artificial Societies: Japan and Soviet Russia

Monday, Aug 25, 2008
“No sharp line can be drawn between scientific technique and traditional arts and crafts. The essential characteristic of scientific technique is the utilization of natural forces in ways not evident to the totally uninstructed.” - Bertrand Russell, 1931 (p137)
This article will describe the creation of two artificial societies including the design and implementation of a new religion specifically for that new planned society as discussed in Bertrand Russell’s 1931 book The Scientific Outlook [1]. The two societies described are: Japan following their 1867 revolution and Russia following the Bolshevik revolution.
Bertrand Arthur William Russell, 3rd Earl Russell (1872-1970) was a renowned British philosopher and mathematician who was an adamant internationalist and worked extensively on the education of young children. This included running an experimental school in the 1920’s with his second wife Dora Black. He was the founder of the [2] Pugwash movement which used the spectre of Cold War nuclear annihilation to push for world government. Among many other prizes, Russell was awarded the [3] Nobel Prize in Literature in 1950 and UNESCO’s (United Nations Educational, Scientific, and Cultural Organization) [4] Kalinga prize for the popularization of science in 1957.
[5] Part 1 of this series examined science as power-thought and the use of scientific technique to increase the power of an elite scientific minority over the unscientific masses. [6] Part 2 examined the composition of the society of experts who would use scientific technique to dominate the masses. At the forefront of this society of experts is the expert “manipulator”, whom Lenin is the archetype. This society would also aim to conceal its power and influence behind political veils like democracy. [7] Part 3 explored the application of scientific technique to education with an emphasis on the distinction between education for the “governing class” and “working class”. [8] Part 4 looked at the use of education, the Press, radio and Hollywood as forms of propaganda. [9] Part 5 examined the use of behaviourism, psycho-analysis and physiological manipulation as applied to education. [10] Part 6 examined the application of scientific technique to the reproduction of human beings including the separate breeding techniques to be applied to the “governing class” compared with the “working class”. [11] Part 7 explored the changes to freedom and equality in the scientific society. This includes changes in the relationship between individual freedom and the collective good, freedom of speech and the Press, freedom to choose ones own career and the freedom to have children. [12] Part 8 examined the changes to free trade and labour in the scientific. Including the removal of competition and the choice between pre-determined work or prison.

“As we approach modern times, the changes deliberately brought about in social structure become greater. This is especially the case where revolutions are concerned. The American Revolution and the French Revolution deliberately created certain societies with certain characteristics, but in the main these characteristics were political, and their effects in other directions formed no part of the primary intentions of the revolutionaries. But scientific technique has so enormously increased the power of governments that it has now become possible to produce much more profound and intimate changes in social structure than any that were contemplated by Jefferson or Robespierre. Science first taught us to create machines; it is now teaching us by Mendelian breeding and experimental embryology to create new plants and animals. There can be little doubt that similar methods will before long give us power, within wide limits, to create new human individuals differing in predetermined ways from the individuals produced by unaided nature. And by means of psychological and economic technique it is becoming possible to create societies as artificial as the steam engine, and as different from anything that would grow up of its own accord without deliberate intention on the part of human agents.
Such artificial societies will, of course, until social science is much more perfected than it is at present, have many unintended characteristics, even if their creators succeed in giving them all the characteristics that were intended. The unintended characteristics may easily prove more important than those that were foreseen, and may cause the artificially constructed societies to break down in one way or another. But I do not think it is open to doubt that the artificial creation of societies will continue and increase so long as scientific technique persists. The pleasure in planned construction is one of the most powerful motives in men who combine intelligence with energy; whatever can be constructed according to a plan, such men will endeavour to construct. So long as the technique for creating a new type of society exists there will be men seeking to employ this technique. They are likely to suppose themselves actuated by some idealistic motive, and it is possible that such motives may play a part in determining what sort of society they shall aim at creating. But the desire to create is not itself idealistic, since it is a form of the love of power, and while the power to create exists there will be men desirous of using this power even if unaided nature would produce a better result than any that can be brought about by deliberate intention.” - 204
“There are in the world at the present time two Powers which illustrate the possibility of artificial creation. The two Powers in question are Japan and Soviet Russia.” - 206
“Modern Japan [1930] is almost exactly what it was intended to be by the men who made the revolution in 1867. This is one of the most remarkable political achievements in all history, in spite of the fact that the purpose which inspired the innovators was simple and such as every Japanese might be expected to sympathize with. The purpose was, in fact, nothing more recondite than the preservation of national independence. China had been found impotent to resist the Western Powers, and Japan appeared to be in like case. Certain Japanese statesman perceived that the military and naval power of the Western nations rested upon Western education and Western industrial technique. They decided to introduce both, with such modifications as Japanese history and circumstances demanded. But whereas industrialism had grown up in the West with very little assistance from the State, and scientific knowledge had developed very far before the Western Governments undertook the task of universal education, Japan, being pressed for time, was obliged to impose education and science and industrialism by governmental pressure. It was clearly impossible to effect so great a change in the mentality of the average citizen by mere appeals to reason and self-interest. The reformers, therefore, skilfully enlisted the divine person of the Mikado and the divine authority of the Shinto religion on the side of modern science. The Mikado had been for centuries obscure and unimportant, but he had already been restored to power once before in the year A.D. 645, so that there was a precedent of respectable antiquity for what was being done. The Shinto religion, unlike Buddhism, was indigenous to Japan, but had been for ages thrust into the background by the foreign religion imported from China and Korea. The reformers very wisely decided that in introducing Christian military technique they would not attempt to introduce the theology with which it had hitherto been correlated, but would have a nationalistic theology of their own, Shinto, as now taught by the State in Japan, is a powerful weapon of nationalism; its gods are Japanese, and its cosmogony teaches that Japan was created sooner than other countries. The Mikado is descended from the Sun Goddess, and is therefore superior to the mere earthly rulers of other States. Shinto, as now taught, is so different from the old indigenous beliefs that competent students have described it as a new religion. As a result of this skilful combination of enlightened technique with unenlightened theology, the Japanese have succeeded not merely in repelling the Western menace, but in becoming one of the Great Powers and achieving the third place on the sea.
Japan has shown extraordinary sagacity in the adaptation of science to political needs. Science as an intellectual force is sceptical and somewhat destructive of social coherence, while as a technical force it has precisely the opposite qualities. The technical developments due to science have increased the size and intensity of organizations, and have more particularly greatly augmented the power of Governments. Governments have, therefore, good reason to be friendly to science, so long as it can be kept from dangerous and subversive speculations. In the main the men of science have shown themselves amenable. The State favours one set of superstitions in Japan, and another in the West, but the scientists both in Japan and of the West have, with some exceptions, been willing to acquiesce in governmental doctrines, because most of them are citizens first, and servants of truth only in the second place.
In spite of the extraordinary success of Japanese policy, there are certain unintended effects which are likely in time to cause serious difficulties. The sudden change of habits and of conscious opinions has induced a certain nervous strain, at any rate in the urban part of the population. This may produce a tendency to hysteria in time of national stress; indeed, such a tendency was shown in the massacres of Koreans that occurred after the earthquake of Tokio. What is more serious, the position of Japan demands the growth of both industrialism and armaments. Owing to the expense of the latter the industrial workers are poor; they tend, consequently, to acquire a rebellious mentality, and the circumstances of their work make it difficult for them to preserve that close family organization upon which Japanese society is built. If Japan should become engaged in an unsuccessful war, these stances might produce a revolution analogous to the Russian Revolution. The present social structure in Japan is likely therefore in time to become unstable, but it may be that the same skill which has rendered possible the triumphant career of Japan throughout the last seventy years will enable the Japanese to adapt themselves to changing circumstances gradually without any violent upheaval. The one thing that seems fairly certain is that, whether gradually or by revolution, the social structure in Japan will have to be profoundly modified. Remarkable as it is, therefore, it is not a perfect example of scientific construction. I do not mean by this that it could have been bettered at the time, but only that it is not in all respects a model for the future.” - 206
Soviet Russia
“The attempt at scientific construction which is being made by the Soviet Government is more ambitious than that which was carried through by the Japanese innovators in 1867; it aims at a much greater change in social institutions, and at the creation of a society far more different from anything previously known than is that of Japan. The experiment is still in progress, and only a rash man would venture to predict whether it will succeed or fail; the attitude both of friends and enemies towards it has been singularly unscientific. For my part, I am not anxious to appraise the good or evil in the Soviet system, but merely to point out those elements of deliberate planning which make it so far the most complete example of a scientific society. In the first place, all the major factors of production and distribution are controlled by the State; in the second place, all education is designed to stimulate activity in support of the official experiment; in the third place, the State does what it can to substitute its religion for the various traditional beliefs which have existed within the territory of the U.S.S.R.; in the forth place, literature and the Press are controlled by the Government, and are such as are thought likely to help it in its constructive purposes; in the fifth place, the family, in so far as it represents a loyalty which competes with loyalty to the State, is being gradually weakened; in the sixth place, the Five Year Plan is bending the whole constructive energies of the nation to the realization of a certain economic balance and productive efficiency, by means of which it is hoped that a sufficient degree of material comfort will be secured for everyone. In every other society of the world there is enormously less central direction than under the Soviet Government. It is true that during the war the energies of the nations were, to a considerable extent, centrally organized, but everyone knew that this was temporary, and even at its height the organization was not so all-pervasive as it is in Russia. The Five Year Plan, as its name implies, is supposed to be temporary, and to belong to a time of stress not wholly unlike that of the Great War, but it is to be expected that if it succeeds, other plans will take its place, since the central organization of the vast nation’s activities is too attractive to the organizers to be abandoned readily.
The Russian experiment may succeed or may fail, but even if it fails, it will be followed by others which will share its most interesting characteristic, namely, the unitary direction of a whole nation’s activities. This was impossible in earlier days, since it depends upon the technique of propaganda, i.e., upon universal education, newspapers, the cinema, and the wireless. The State had already been strengthened by railways and the telegraph, which made possible the rapid transmission of news and concentration of troops. In addition to modern methods of propaganda, modern methods of warfare have strengthened the State as against discontented elements; aeroplanes and poison gasses have made revolt difficult unless it obtains the support of aeronauts and chemists. Any prudent Government will favour these two classes and take pains to secure their loyalty. As the example of Russia has shown, it is now possible for men of energy and intelligence, if they once become possessed of the governmental machine, to retain power even though at first they may have to face the opposition of the majority of the population. We must therefore increasingly expect to see government falling into the hands of oligarchies, not of birth but of opinion. In countries long accustomed to democracy, the empire of these oligarchies may be concealed behind democratic forms, as was that of Augustus in Rome, but elsewhere their rule will be undisguised. If there is to be scientific experimentation in the construction of new kinds of societies, the rule of an oligarchy of opinion is essential. It may be expected that there will be conflicts between different oligarchies, but that ultimately some one oligarchy will acquire world dominion, and will produce a world-wide organization as complete and elaborate as that now existing in the U.S.S.R.” - 209

Arctic Invaders Coming......

"We have to prepare for the world coming to the Arctic," Coast Guard Adm. Gene Brooks said last week. Brooks is referring to the rapidly melting ice in the northern most portion of our planet. Whether you sympathize with Al Gore or not, there’s about half as much polar sea ice up there today than there was in the 1960s.
“At issue,” explains Chris Mayer, “are the increasingly ice-free shipping lanes that can cut shipping times by a third or more. And the oil and gas that lie in the seabed and in the shallow waters off tiny islands. The U.S. Geological Survey estimates that one quarter of undiscovered oil and gas lies in the Arctic. Suddenly, the murky borders and clouded claims long left unresolved and neglected have become important.
“A future battleground? Could be. Russians are conducting naval exercises in the Arctic. Canada sent soldiers north in the spring. More likely, at least in the short term, we’ll see a lot of novel legal arguments and history aired out in trying to establish rightful claims. The shipping lanes are a big deal, not only because they shave off a lot of time compared with existing routes, but also because the existing shipping lanes are about tapped out. There are a handful of energy chokepoints that handle nearly all of the world’s oil shipments. The fate of these chokepoints, and the consequences of failure at any point, could have huge impacts on the oil markets.”

And The Stormwatch Continues..........

“The financial storm that reached gale force some weeks before our last meeting,” uttered Ben Bernanke on Friday, “has not yet subsided."
The Fed chairman must have found inspiration for that soaring metaphor atop Grand Teton… he and a brood of monetary thinkers gathered in Jackson Hole again this year to justify current policies and have an excuse to wear fleece 24/7.
Bernanke stuck with the status quo -- the Fed is still more concerned with “downside risks to growth” than inflation. In fact, Bernanke told the world he found the recent dollar rally and commodity correction “encouraging.”
"If not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next."
That’s a big “if.” For whatever it’s worth, the market has largely interpreted Bernanke’s speech as a signal for rates to stay the same in the near term.
Economists around the country agree. 46% of American economists believe a “financial crisis” is the biggest current threat to the economy , reports the National Association for Business Economics today. While that crisis remains the most popular concern among the nation’s economists, we notice a particular change from the NABE’s last survey, in March.
Specifically, that “financial crisis” group has shrunken from 52% of respondents in March. And this time around, 16% of those surveyed said energy prices were the chief economic concern, up from 5%. Likewise, 15% said inflation is our economy’s greatest threat, up from 10% in March.
And here comes that next financial crisis: Fannie Mae and Freddie Mac are suffering from another round of bad news this morning.
First, early Friday morning, Warren Buffett puckered up for a kiss of death from the private sector. “They're looking for help, obviously,” he told CNBC. Buffett told Becky Quick that he had been approached by Fannie and Freddie for help, and that he took a pass. “The scale of help is such that I don't think it can come from the private sector."
Later that day, Moody’s downgraded Fannie and Freddie debt by five notches, to Baa3. That’s that lowest possible rating a company can garner and still be considered “investment grade.” In other words, Fannie and Freddie are one step away from being “junk” bonds. Think about that for a second… pathetic.
And this morning, we hear China’s second largest bank is dumping its Fannie and Freddie paper. China Construction Bank reduced its bond- and mortgage-backed securities by 37% at the end of July, CCB President Zhang Jianguo told reporters. That’s scaling back by “only” $1.2 billion, but it’s a trend we expect to accelerate in the near future.

Gold Reserves more important than before-Bundesbank

BERLIN, Aug 22 (Reuters) - Germany's Bundesbank on Friday rejected calls that it should sell some of its gold reserves to help boost the slowing German economy, telling Reuters financial and political uncertainty make the reserves even more important than before.
"Gold sales are not a suitable way to sustainably consolidate the public accounts," the Bundesbank said after a query about trade union proposals that it sell gold to fund some of a 25 billion euro ($37 billion) economic stimulus package.
"National gold reserves have a confidence and stability-building function for the single currency in a monetary union. This function has become even more important given the geopolitical situation and the risks present in financial market developments."
The Bundesbank is the world's second-largest holder of gold after the U.S. Federal Reserve, and has sold just 20 tonnes out of total reserves of over 3,000 tonnes in the past five years.
These sales were to allow the German finance ministry to mint gold coins, unlike the much more active sales programmes of other central banks which wanted to shift their portfolios from gold to a more diverse array of assets.
To reduce volatility in the price of gold , 15 European central banks agreed in 2004 to limit gold sales to 500 tonnes a year over the next five years.
The Bundesbank is expected to make a formal statement about any gold sale plans around September, when the final year of the Central Bank Gold Agreement starts.
"The Bundesbank reaches decisions about the nature and size of reserves autonomously. The board of the Bundesbank decides every year afresh about changes in the level of its gold holdings," the central bank said.

Russia Throwing It's Weight Around

Russia warns Moldova against "Georgian mistake"
Mon Aug 25, 2008 8:31am EDT
By Denis Dyomkin
SOCHI, Russia (Reuters) - Russian President Dmitry Medvedev warned ex-Soviet Moldova on Monday against repeating Georgia's mistake of trying to use force to seize back control of a breakaway region.
Russia sent peacekeepers to Moldova in the early 1990s to end a conflict between Chisinau and its breakaway Transdniestria region and is trying to mediate a deal between the two sides.
Transdniestria, one of a number of "frozen conflicts" on the territory of the former Soviet Union, mirrored the standoff between Georgia and its rebel regions of South Ossetia and Abkhazia until they erupted in war earlier this month.
Russia sent troops to Georgia to crush Tbilisi's military push into South Ossetia and Moscow says Georgia has now lost the chance of ever re-integrating the breakaway provinces.
"After the Georgian leadership lost their marbles, as they say, all the problems got worse and a military conflict erupted," Medvedev told Moldovan President Vladimir Voronin.
"This is a serious warning, a warning to all," he added. "And I believe we should handle other existing conflicts in this context."
As the two leaders spoke in Medvedev's Black Sea residence in Sochi, Russian lawmakers were voting non-binding resolutions urging the Kremlin to recognize Abkhazia and South Ossetia as independent states.
That would be a nightmare scenario for Moldova which fears Russia could recognize Transdniestria, a pro-Moscow region in Moldova.
Medvedev, keen to limit diplomatic damage caused by the Russian operation in Georgia, made clear Moldova had no reason to worry for now.
"We have agreed ... to meet and discuss the Transdniestria settlement," he told Voronin. "I think there is a good reason to do this today. I see good prospects of reaching a settlement."
Medvedev's spokeswoman Natalya Timakova later told reporters the two leaders had agreed to hold a fresh round of talks on Transdniestria soon.
"Russia is ready to continue its efforts towards finally solving the Transdniestrian crisis," she told reporters.
Russia is currently trying to forge a deal between Chisinau and Transdniestrian separatists which would keep the rebel region as part of Moldova but give it broad autonomy.
The Russian-brokered deal would also allow Transdniestria to leave Moldova should the former Soviet state decide to join their ethnic kin in EU member Romania.
Several years ago, Moldova rejected a similar deal under a strong pressure from NATO. But now Voronin appears to treat the Russian mediation more favorably.
The Moldovan leader told Medvedev he had indeed learned the lesson: "Thank God, during all these years...we had enough brains and reserve not to allow a similar deterioration of situation."
"Frozen conflicts are a real volcano which can blow up anytime," Voronin added. "That is why taking into account what had happened elsewhere it would be useful if we exercised again such wisdom not to allow such things to repeat in our country."

Sharpest Contraction in Modern History

Sharp US money supply contraction points to Wall Street crunch ahead

By Ambrose Evans-Pritchard
Last Updated: 3:04pm BST 19/08/2008
The US money supply has experienced the sharpest contraction in modern history, heightening the risk of a Wall Street crunch and a severe economic slowdown in coming months.
Data compiled by Lombard Street Research shows that the M3 ''broad money" aggregates fell by almost $50bn (£26.8bn) in July, the biggest one-month fall since modern records began in 1959.
"Monthly data for July show that the broad money growth has almost collapsed," said Gabriel Stein, the group's leading monetary economist.
On a three-month basis, the M3 growth rate has fallen from almost 19pc earlier this year to just 2.1pc (annualised) for the period from May to July. This is below the rate of inflation, implying a shrinkage in real terms.
The growth in bank loans has turned negative to a halt since March.
"It's obviously worrying. People either can't borrow, or don't want to borrow even if they can," said Mr Stein.
Monetarists say it is the sharpness of the drop that is most disturbing, rather than the absolute level. Moves of this speed are extremely rare.
The overall debt burden in the US economy is currently at record levels, raising concerns that a recession - if it occurs - could set off a sharp downward spiral.

Household debt is now 131pc of disposable income, compared with 93pc at the top the dotcom bubble, 79pc in the property boom of the late-1980s, and 62pc at the end of the 1970s.
The M3 data measures both cash and a wide range of bank instruments. It tends to provide an early warning signal of major shifts in the economy, although the US Federal Reserve took the controversial decision to stop reporting the statistics in 2005 on the grounds that the modern financial system had rendered the data obsolete.
Monetarists insist that shifts in M3 are a lead indicator of asset prices moves, typically six months or so ahead. If so, the latest collapse points to a grim autumn for Wall Street and for the American property market. As a rule of thumb, the data gives a one-year advance signal on economic growth, and a two-year signal on future inflation.
"There are always short-term blips but over the long run M3 has repeatedly shown itself good leading indicator," said Mr Stein.
He cautioned that the three-month shifts in M3 can be highly volatile.
M3 surged after the onset of the credit crunch, but this was chiefly a distortion caused by the near total paralysis in parts of the American commercial paper market. Borrowers were forced to take out bank loans instead. The commercial paper market has yet to recover.
The University of Michigan's index of consumer sentiment has fallen to the lowest level since the 1980s recession.
The US economy is without doubt facing severe headwinds going into the autumn.
Richard Fisher, the ultra-hawkish head of the Dallas Federal Reserve, warned over the weekend that growth would be near "zero" in the second half of the year.

Nicely Said................

"Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone." -Frederic Bastiat

An Investment To Keep Track Of:

Here’s something to keep your eye on: The first dry shipping ETF debuts today.
If you’re bullish on mining stocks and commodities, chances are you also think highly of the shippers of the world tasked with moving them around. And if you can’t pick your fave, check out ticker “SEA” today. It’s officially called the Claymore/Delta Global Shipping Index ETF.
Caveat emptor, of course.

Sunday, August 24, 2008

The Crisis In Words

Here’s what a credit crisis looks like on a chart:

Despite the Fed’s best efforts, the broadest measure of money supply in the U.S., including outstanding credit -- known as M3 -- has fallen off a cliff. July saw the biggest one-month drop in M3 since the government started keeping track in 1959.
“It takes new money to keep a credit bubble inflated (or to keep it from deflating),” says Dan Denning, watching events from down under. “If the figures from the Fed can be trusted, and if they show that new money isn't forthcoming, then it may be a sign of even greater financial asset deflation in the months ahead.
“Translation: It's going to get a lot worse. If stocks are cheap, they're going to get even cheaper. It means if good resource projects are good values now, they'll be even better values as the market falls.
“Not that it's an easy thing to stomach. But let's remember what we're watching here. As investors delever and pay down debts, they sell assets to raise cash. It's a bull market in cash. And money that is used to pay down debt is money that is not spent on stocks or new cars or the things people spend money on when they aren't worried about debt.”
As if to put a point on the issue, mortgage applications fell to their lowest level in nearly eight years last week. The Mortgage Bankers Association’s application index fell to 419.3 today, the worst score since December 2000 and a 61% crash in volume since February 2008. For reference, that same index peaked at 1,856.7 in 2003.
“The U.S. is not out of the woods,” chimed in Harvard professor and former IMF chief Kenneth Rogoff this week. “I think the financial crisis is at the halfway point, perhaps. I would even go further to say the worst is to come.”
Speaking at a conference in Singapore, the former head of the IMF said, “We're not just going to see midsized banks go under in the next few months; we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks… Probably Fannie Mae and Freddie Mac -- despite what U.S. Treasury Secretary Hank Paulson said -- these giant mortgage guarantee agencies are not going to exist in their present forms in a few years."
Goldman Sachs also warned today it expects this fall may not be such a great time for financials. Goldman analysts cut third-quarter and full-year forecasts for Citi, J.P. Morgan Chase, Lehman Brothers, Merrill Lynch and Morgan Stanley yesterday -- all in one fell swoop.
“We believe a major recovery is still a few quarters away," wrote lead analyst William Tanona. “We assume no or negative earnings for the majority of firms in our universe this quarter.”
Heh. Not that we disagree with Goldman on this one, but it must be nice to be able to downgrade all your major competitors. Nope, no conflict of interest there.
One last word on Goldman… quants on the other side of the building reiterated their call for $149 oil today. Back in early summer, Goldman said oil was poised for a “superspike” to $200 sometime before 2009. In June, they promised $149 barrels by the end of the year, and today they proudly claim they are holding fast.

Bears Vs. Eagles; and Not the football kind.......

Who Started Cold War II?
by Patrick J. Buchanan
The American people should be eternally grateful to Old Europe for having spiked the Bush-McCain plan to bring Georgia into NATO.
Had Georgia been in NATO when Mikheil Saakashvili invaded South Ossetia, we would be eyeball to eyeball with Russia, facing war in the Caucasus, where Moscow's superiority is as great as U.S. superiority in the Caribbean during the Cuban missile crisis.
If the Russia-Georgia war proves nothing else, it is the insanity of giving erratic hotheads in volatile nations the power to drag the United States into war.
From Harry Truman to Ronald Reagan, as Defense Secretary Robert Gates said, U.S. presidents have sought to avoid shooting wars with Russia, even when the Bear was at its most beastly.
Truman refused to use force to break Stalin's Berlin blockade. Ike refused to intervene when the Butcher of Budapest drowned the Hungarian Revolution in blood. LBJ sat impotent as Leonid Brezhnev's tanks crushed the Prague Spring. Jimmy Carter's response to Brezhnev's invasion of Afghanistan was to boycott the Moscow Olympics. When Brezhnev ordered his Warsaw satraps to crush Solidarity and shot down a South Korean airliner killing scores of U.S. citizens, including a congressman, Reagan did – nothing.
These presidents were not cowards. They simply would not go to war when no vital U.S. interest was at risk to justify a war. Yet, had George W. Bush prevailed and were Georgia in NATO, U.S. Marines could be fighting Russian troops over whose flag should fly over a province of 70,000 South Ossetians who prefer Russians to Georgians.
The arrogant folly of the architects of U.S. post-Cold War policy is today on display. By bringing three ex-Soviet republics into NATO, we have moved the U.S. red line for war from the Elbe almost to within artillery range of the old Leningrad.
Should America admit Ukraine into NATO, Yalta, vacation resort of the czars, will be a NATO port and Sevastopol, traditional home of the Russian Black Sea Fleet, will become a naval base for the U.S. Sixth Fleet. This is altogether a bridge too far.
And can we not understand how a Russian patriot like Vladimir Putin would be incensed by this U.S. encirclement after Russia shed its empire and sought our friendship? How would Andy Jackson have reacted to such crowding by the British Empire?
As of 1991, the oil of Kazakhstan, Turkmenistan, and Azerbaijan belonged to Moscow. Can we not understand why Putin would smolder as avaricious Yankees built pipelines to siphon the oil and gas of the Caspian Basin through breakaway Georgia to the West?
For a dozen years, Putin & Co. watched as U.S. agents helped to dump over regimes in Ukraine and Georgia that were friendly to Moscow.
If Cold War II is coming, who started it, if not us?
The swift and decisive action of Putin's army in running the Georgian forces out of South Ossetia in 24 hours after Saakashvili began his barrage and invasion suggests Putin knew exactly what Saakashvili was up to and dropped the hammer on him.
What did we know? Did we know Georgia was about to walk into Putin's trap? Did we not see the Russians lying in wait north of the border? Did we give Saakashvili a green light?
Joe Biden ought to be conducting public hearings on who caused this U.S. humiliation.
The war in Georgia has exposed the dangerous overextension of U.S. power. There is no way America can fight a war with Russia in the Caucasus with our army tied down in Afghanistan and Iraq. Nor should we. Hence, it is demented to be offering, as John McCain and Barack Obama are, NATO membership to Tbilisi.
The United States must decide whether it wants a partner in a flawed Russia or a second Cold War. For if we want another Cold War, we are, by cutting Russia out of the oil of the Caspian and pushing NATO into her face, going about it exactly the right way.
Vladimir Putin is no Stalin. He is a nationalist determined, as ruler of a proud and powerful country, to assert his nation's primacy in its own sphere, just as U.S. presidents from James Monroe to Bush have done on our side of the Atlantic.
A resurgent Russia is no threat to any vital interests of the United States. It is a threat to an American Empire that presumes some God-given right to plant U.S. military power in the backyard or on the front porch of Mother Russia.
Who rules Abkhazia and South Ossetia is none of our business. And after this madcap adventure of Saakashvili, why not let the people of these provinces decide their own future in plebiscites conducted by the United Nations or the Organization for Security and Cooperation in Europe?
As for Saakashvili, he's probably toast in Tbilisi after this stunt. Let the neocons find him an endowed chair at the American Enterprise Institute.