Obama's Lies

Obama Lie No. 1 — I will tax just the rich.
There is no such thing as a tax on just the rich. Taxes on wealthy people affect everyone.
Remember, Obama defines anyone making over $90,000 a year as "rich."
Joe the plumber discovered that Obama thinks Joe's rich too. Under Obama, he won't be able to hire new employees and grow his business.
Joe's not alone. Obama says he'll strip away the FICA cap at $90,000 for every worker. That means every dollar you earn over that amount, you'll pay 7 percent!
Obama Lie No. 2 — I want to give a tax cut to the middle class.
Baloney!
Obama says he will let the Bush tax cuts expire. That's an automatic 5 percent (maximum) tax increase on almost all taxpayers.
Plus middle class folks pay capital gains taxes. Obama has said he wants to almost double them from a low of 15 percent to almost 30 percent.
He wants to hike the dividend tax, and he also has promised taxes on gas and energy.
Obama also wants to dramatically increase the estate tax, which had almost disappeared. There goes your idea of sharing your wealth with your kids in the future.
Obama Lie No. 3 — I want to make America more secure.
Another outright lie.
In an age when crazies like Iran's Ahmadinejad are building ballistic missiles and promise to "destroy" the United States and Israel, Obama has promised to gut the missile defense program created by President Reagan.
"I will cut investments in unproven missile defense systems," Obama said.
He has promised to cut "tens of billions" of dollars from the Defense Department. In an effort to make us more "secure," Obama plans to disarm us.

Obama is not just a danger to our economy, with his plans to raise taxes and spend $800 billion in new programs.
He is a radical out to reshape America beyond recognition.
He is so radical he even backed driver's licenses for illegal aliens — even though such a move would help future terrorists move freely in the United States.
Even Hillary Clinton opposed his radical plan.
But Obama not only touted such a plan running for president, he pushed for giving illegals driver's licenses as a state senator in Illinois.
He is also the most pro-abortion candidate in the history of the country. In 2001, as a state legislator in Illinois, he opposed a bill to protect live-born children — children actually born alive! He was the only Illinois senator to speak out against the bill.
He opposes gun rights. He has long history of trying to deny ordinary citizens access to guns.
He originally backed Washington D.C.'s total ban on private handguns — a ban that was overturned. The NRA rated him an "F" on gun positions and says he is one of the most dangerous anti-gun politicians in the nation.
Never forget that Obama is a Harvard-educated elitist. To him, we Americans are simply "bitter" and he has mocked us saying "[they] cling to their guns and their religion."

As With All Socialists, There's Gonna Be Some Disappointment

Barack Obama lays plans to deaden expectation after election victory

Barack Obama’s senior advisers have drawn up plans to lower expectations for his presidency if he wins next week’s election, amid concerns that many of his euphoric supporters are harbouring unrealistic hopes of what he can achieve.
The sudden financial crisis and the prospect of a deep and painful recession have increased the urgency inside the Obama team to bring people down to earth, after a campaign in which his soaring rhetoric and promises of “hope” and “change” are now confronted with the reality of a stricken economy.
One senior adviser told The Times that the first few weeks of the transition, immediately after the election, were critical, “so there’s not a vast mood swing from exhilaration and euphoria to despair”.
The aide said that Mr Obama himself was the first to realise that expectations risked being inflated.
In an interview with a Colorado radio station, Mr Obama appeared to be engaged already in expectation lowering. Asked about his goals for the first hundred days, he said he would need more time to tackle such big and costly issues as health care reform, global warming and Iraq. “The first hundred days is going to be important, but it’s probably going to be the first thousand days that makes the difference,” he said. He has also been reminding crowds in recent days how “hard” it will be to achieve his goals, and that it will take time.
“I won’t stand here and pretend that any of this will be easy – especially now,” Mr Obama told a rally in Sarasota, Florida, yesterday, citing “the cost of this economic crisis, and the cost of the war in Iraq”. Mr Obama’s transition team is headed by John Podesta, a Washington veteran and a former chief-of-staff to Bill Clinton. He has spent months overseeing a virtual Democratic government-in-exile to plan a smooth transition should Mr Obama emerge victorious next week. The plans are so far advanced that an Obama Cabinet has been largely decided upon, with the expectation that most of his senior appointments could be announced shortly after election day.
Yet Mr Obama and his aides are under no illusions about the size of the challenges the Democrat will inherit if he enters the Oval Office. Tom Daschle, the party’s former leader in the US Senate and a strong contender for the post of White House chief-of-staff in an Obama administration, said last month that the winner next week would have only a 50 per cent chance of winning a second term in 2012.
Not only will the next president take office with the country sliding into a potentially long recession — and mired in debt — but the challenges abroad are immense. There is an unfinished war in Iraq, a worsening situation in Afghanistan and an unstable and nuclear-armed Pakistan to contend with. Iran appears intent on acquiring the bomb and there remains the ever-present threat from al-Qaeda and Islamic extremists.
If he wins, Mr Obama will inherit a Democratic-controlled Congress, and might even have the benefit of a 60-seat filibuster-proof “supermajority” in the Senate. Such a scenario would allow him to push through legislation largely unfettered by Republican opposition. Yet it also means that should the country still be mired in recession in three years’ time, voters — who have short memories — will probably blame him and the Democrats on Capitol Hill. Those stakes have led Mr Obama to conclude that while expectations need to be tempered, big things need to be achieved very early in his first term, when he will still have the political capital to achieve some of his most ambitious legislative goals.
Having promised “real” change, the pressure will be on him to deliver. In the Colorado interview, Mr Obama added: “The next president has got to come quickly out of the box.”
The early priorities being lined up if he takes power are a mixture of symbolism and substance. He plans to make a major address in a big Muslim country early in his first term. Having pledged on the campaign trail to close Guantanamo Bay, he is also determined to make early moves to rid America of the controversial prison. Yet what to do with the remaining inmates looms as an intractable problem, as many of their home governments refuse to allow them to return.
Mr Obama’s first legislative goals will be to follow through on his pledge to cut taxes for the middle class and raise them for the wealthiest Americans, and to push through a hugely expensive Bill to provide near-universal health insurance.

Nicely Said.................Especially Now

Quote of the Week'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, - the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.

'Thomas Jefferson 1802

Gold Has Failed Us So Far....Can It Come Back?

Gold’s Cheap… Gold Miners Are Ridiculously Cheap
Graham Summers
Do you own gold yet?
During the last market rout, the price of gold plunged from $900 an ounce to $690 an ounce. The talking heads, seeing this, announced that gold is no longer a safe haven or a storehouse of value.
They’re wrong.
The idea that gold has somehow lost its safe haven qualities due to a temporary drop in price is beyond idiotic. To claim this is to ignore the role gold has played for well over five millennia. What are the odds that this has suddenly changed?
No, this recent drop in gold has come almost entirely from downward pressure in the “paper” gold markets—the COMEX and Gold ETF (GLD). And this downward pressure has come from two trends:
Institutional liquidations
The dollar’s rally
Hedge funds, pension funds, and even mutual funds have been slammed with redemptions in the last year—mutual funds alone have experienced $967 billion in redemptions since the beginning of 2008.
In order to meet these redemptions, funds have resorted to liquidating portions of their portfolios. Gold—which the stock-centric crowd never really believed in anyway—was one of the first items to go. And since the “paper” gold market is relatively small—the total value of gold on the Commodity Exchange in New York (COMEX) is roughly $5 billion—it doesn’t take much capital to crush gold in the “paper” markets.
As for the dollar’s rally, the Feds’ interventions and hyperinflationary money printing will put an end to this sometime in the not so distant future. You can’t add $6 odd trillion in liabilities to the US balance sheet, start trading in un-secured commercial paper markets—as the Fed did with its TARP facility—and increase the monetary supply at an annualized rate of more than 300%—the pace of money printing maintained by the Feds during the last month—and NOT kick the dollar in the face.
No, the dollar rally will end sooner rather than later. When it does, the last obstacle standing between a raging Bull market in gold and gold mining shares will have been removed.
Speaking of miners…
While gold has been hammered, gold mining stocks, particularly juniors, have been truly creamed. The explanation here is much the same as for gold: liquidations. However, while the gold paper market may be roughly $5 billion, gold juniors as individual plays are even smaller. So it takes even less money to beat these stocks down.
Because of this, today, gold mining stocks are currently trading at levels you only see at the end of BEAR markets. Taken as a whole, the sector is at its second cheapest level relative to the price of gold since 1984.
It’s an absurd situation. Gold is undergoing a correction during a bull market… while gold miners— basically real estate companies sitting atop gold—are trading as if they just ended a bear market in gold. This won’t last forever. At some point both the institutional liquidations and the dollar’s rally will end. When they do, gold miners will explode upwards.

Worth Reading 100 times

What about Wealth Redistribution?

Tibor R. Machan

Ever since Senator Obama’s brief exchange with “Joe the Plumber,” there has been plenty of mention of wealth redistribution in the major media. Then came the recovery of a 2001 interview in which the Senator faulted the framers of the U. S Constitution, and the Founders who authored the Declaration of Independence, for not including a right of everyone to be helped with redistributed wealth. As some have noted, this was all discussed in connection with the Civil Rights legislation which Senator Obama also faulted for its lack of attention to wealth redistribution--maybe reparation, as some have interpreted him. But the central point was more general, clearly.It is useful, then, to consider just what wealth redistribution is all about. But to do that, we need to consider briefly what wealth is and what amounts to its initial distribution such that some favor its being redistributed. Wealth is whatever someone owns that he or she and others consider valuable, useful to themselves or others. The ownership, in turn, can arise from working on what is given in nature or by way of earnings from marketable labor, or from gifts and inheritance from those who had earnings in the first place, or from good fortune (as when one wins the lottery or unexpectedly finds oil beneath his land), etc. There is an ancient dispute about whether such ownership is best regarded as private or as public. At first the dispute was carried on in terms of what type of ownership, private or public, would be most useful or productive. Aristotle gave his defense of private property as follows: “For that which is common to the greatest number has the least care bestowed upon it. Every one thinks chiefly of his own, hardly at all of the common interest; and only when he is himself concerned as an individual. For besides other considerations, everybody is more inclined to neglect the duty which he expects another to fulfill; as in families many attendants are often less useful than a few." (Politics, 1262a30-37)The historian Thucydides made a similar point when he spoke about owners of public property. He wrote that “[T]hey devote a very small fraction of the time to the consideration of any public object, most of it to the prosecution of their own objects. Meanwhile, each fancies that no harm will come to his neglect, that it is the business of somebody else to look after this or that for him; and so, by the same notion being entertained by all separately, the common cause imperceptibly decays. (Thucydides, The History of the Peloponnesian War, bk. I, sec. 141).It was, however, not until the English philosopher John Locke laid out his theory of natural rights that more than a utilitarian case was produced in favor the right to private property. For Locke once someone mixes his or her labor with something in the wilds, that thing stops being public--or God’s--and becomes, as a matter of morality, his or her private property. This is because the work invested is properly rewarded with ownership. Thereafter the owner has the right to hold on to the property, exchange it from something else with willing others, give it as a gift to someone, bequeath it to his or her offspring, and so forth. (As to wealth come by via luck, no one is justified to take it from those who are lucky, it can be inferred, otherwise people themselves could be enslaved with impunity.) A very important feature of Locke’s idea, however, was that property doesn’t belong to the king, state, or government but to private individuals. It is they who work on elements of the natural world, of what is not owned by anyone else, so they are free to obtain it, hold it, trade it, etc. For others to stop them is wrong, a violation of natural rights.Many have criticized all these ideas, especially people who hold that everything belongs to everyone together and so wealth may not be freely used and distributed by individuals, only by "the community." But, as Aristotle and Thucydides and many others since them have made clear, this idea is seriously flawed and entirely impractical. It leads to the tragedy of the commons, of people all grabbing what they want from the common wealth and failing to use it productively.Both for moral reasons--the “first come, first gain” principle--and for practical ones--community ownership leads to wastefulness--the principle of private property rights gained influence in Western societies, in their legal and economic systems. This is one main reason that when Senator Obama suggested that what this country needs is systematic wealth redistribution--routinely taking from private owners their wealth and having governments distribute it to non-owners--many folks took umbrage. This is quite an un-American, anti-free market capitalist idea and sounds more like what is preached by socialists and communalists (even communists).Of course wealth redistribution is a big part of existing American society but it is usually defended for special reasons, not as a general policy. Senator Obama elevated what seemed to most to be an exception in this country to a central feature of the society. And his opponent, of course, couldn’t effectively criticize him because Republicans have been just as willing to redistribute wealth as Democrats, albeit not advocate it as a systematic feature of the legal system as Senator Obama did.

The Public Wealth

The Bush gang's parting gift: a final, frantic looting of public wealth
The US bail-out amounts to a strings-free, public-funded windfall for big business. Welcome to no-risk capitalism

In the final days of the election many Republicans seem to have given up the fight for power. But don't be fooled: that doesn't mean they are relaxing. If you want to see real Republican elbow grease, check out the energy going into chucking great chunks of the $700bn bail-out out the door. At a recent Senate banking committee hearing, the Republican Bob Corker was fixated on this task, and with a clear deadline in mind: inauguration. "How much of it do you think may be actually spent by January 20 or so?" Corker asked Neel Kashkari, the 35-year-old former banker in charge of the bail-out.
When European colonialists realised that they had no choice but to hand over power to the indigenous citizens, they would often turn their attention to stripping the local treasury of its gold and grabbing valuable livestock. If they were really nasty, like the Portuguese in Mozambique in the mid-1970s, they poured concrete down the elevator shafts.
Nothing so barbaric for the Bush gang. Rather than open plunder, it prefers bureaucratic instruments, such as "distressed asset" auctions and the "equity purchase program". But make no mistake: the goal is the same as it was for the defeated Portuguese - a final, frantic looting of the public wealth before they hand over the keys to the safe.
How else to make sense of the bizarre decisions that have governed the allocation of the bail-out money? When the Bush administration announced it would be injecting $250bn into US banks in exchange for equity, the plan was widely referred to as "partial nationalisation" - a radical measure required to get banks lending again. Henry Paulson, the treasury secretary, had seen the light, we were told, and was following the lead of Gordon Brown.
In fact, there has been no nationalisation, partial or otherwise. American taxpayers have gained no meaningful control over the banks, which is why the banks are free to spend the new money as they wish. At Morgan Stanley, it looks as if much of the windfall will cover this year's bonuses. Citigroup has been hinting it will use its $25bn buying other banks, while John Thain, the chief executive of Merrill Lynch, told analysts: "At least for the next quarter, it's just going to be a cushion." The US government, meanwhile, is reduced to pleading with the banks that they at least spend a portion of the taxpayer windfall for loans - officially, the reason for the entire programme.
What, then, is the real purpose of the bail-out? My fear is this rush of dealmaking is something much more ambitious than a one-off gift to big business: that the Bush version of "partial nationalisation" is rigged to turn the US treasury into a bottomless cash machine for the banks for years to come. Remember, the main concern among the big market players, particularly banks, is not the lack of credit but their battered share prices. Investors have lost confidence in the honesty of the big financial players, and with good reason.
This is where the treasury's equity pays off big time. By purchasing stakes in these financial institutions, the treasury is sending a signal to the market that they are a safe bet. Why safe? Not because their level of risk has been accurately assessed at last. Not because they have renounced the kind of exotic instruments and outrageous leverage rates that created the crisis. But because the market will now be banking on the fact that the US government won't let these particular companies fail. If they get themselves into trouble, investors will now assume that the government will keep finding more cash to bail them out, since allowing them to go down would mean losing the initial equity investments, many of them in the billions. (Just look at the insurance giant AIG, which has already gone back to taxpayers for a top-up, and seems likely to ask for a third.)
This tethering of the public interest to private companies is the real purpose of the bail-out plan: Paulson is handing all the companies admitted to the programme - a number potentially in the thousands - an implicit treasury department guarantee. To skittish investors looking for safe places to park their money, these equity deals will be even more comforting than a triple-A from Moody's rating agency.
Insurance like that is priceless. But for the banks, the best part is that the government is paying them to accept its seal of approval. For taxpayers, on the other hand, this entire plan is extremely risky, and may well cost significantly more than Paulson's original idea of buying up $700bn in toxic debts. Now taxpayers aren't just on the hook for the debts but, arguably, for the fate of every corporation that sells them equity.
Interestingly, mortgage fund giants Fannie Mae and Freddie Mac both enjoyed this kind of unspoken guarantee before they were nationalised at the start of this crisis. For decades the market understood that, since these private players were enmeshed with the government, Uncle Sam could be counted on to always save the day. It was, as many have pointed out, the worst of all worlds. Not only were profits privatised while risks were socialised, but the implicit government backing created powerful incentives for reckless business practices.
With the new equity purchase programme Paulson has taken the discredited Fannie and Freddie model and applied it to a huge swath of the private banking industry. Again, there is no reason to shy away from risky bets, especially since the treasury has made no such demands of the banks (apparently it doesn't want to "micromanage".)
To further boost market confidence, the federal government has also unveiled unlimited public guarantees for many bank deposit accounts. Oh, and as if this were not enough, the treasury has been encouraging the banks to merge, ensuring that the only institutions left will be "too big to fail", thereby guaranteed a bail-out. In three ways, the market is being told loud and clear that Washington will not allow the financial institutions to bear the consequences of their behaviour. This may be Bush's most creative innovation: no-risk capitalism.
There is a glimmer of hope. In answer to Senator Corker's question, the treasury is indeed having trouble dispersing the bail-out funds. So far it has requested about $350bn of the $700bn, but most of this hasn't yet made it out the door. Meanwhile, every day it becomes clearer that the bail-out was sold to the public on false pretences. Clearly, it was never really about getting loans flowing. It was always about doing what it is doing: turning the state into a giant insurance agency for Wall Street, a safety net for the people who need it least, subsidised by the people who will most need state protections in the economic storms ahead.
This duplicity is a political opportunity. Whoever wins on November 4 will have enormous moral authority. It should be used to call for a freeze on the dispersal of bail-out funds, not after the inauguration but right away. All deals should be renegotiated, this time with the public getting the guarantees.
It is risky, of course, to interrupt the bail-out process. Nothing could be riskier, however, than allowing the Bush gang their parting gift to big business - the gift that will keep on taking.

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

"Government does a hideous job of molding souls. The state is good at simple tasks, like killing people and seizing their wealth. It has far more trouble reaching inside individuals and making them good." -Doug Bandow

Brutal Gold Stocks

80 Years History Of Brutal Gold Stock Corrections
Boris SobolevOctober 25, 2008
The severity and the speed of the crash which occurred in the precious metals stocks caught us and practically everyone by complete surprise. The meltdown surpassed everybody’s expectations and has no historical precedents.
However, when looking at the past 80-year history, there are a number of bear markets that carry some similar characteristics to the crash of 2008. The following six bear markets saw very significant corrections in mining stocks:
In 1929, there were no gold mining indices to speak of. The best indicator for the precious metal stocks was Homestake Mining, the biggest gold producer at the time. In the year of the crash, Homestake fell by just 30%. Other mining stocks fell by 50% or more. After the initial drop, gold stocks turned out to be the best performers. In that deflationary time, gold was as good as cash. In the following decade, which was marked by the Great Depression, Homestake rose by over 700%.
In 1939, precious metals stocks peaked together with the broad market. A severe bear market followed, lasting until 1942, as World War II raged on. In the course of 37 months, the newly formed Barron’s Gold Mining Index (BGMI) fell by 67.3%. A sharp rebound followed in 1943, as the epic Stalingrad battle was won and Allies made greater progress in winning the war. In the following 17 months, the index appreciated by 94%. However, it took about 20 more years for the BGMI index to overtake its 1939 highs.
The following major bear market happened in the 21-month period between 1968 and 1970 as gold stocks were digesting its huge gains made is the 1960s. The BGMI index fell by 61.2% but made a partial recovery relatively quickly, gaining 68% in 10 months. Thereafter, consolidation continued for two more years until a huge rally began in 1973.
Another major bear market occurred in 1975 / 1976, after impressive gains made in 1973/1974. Over the course of 24 months, BGMI fell by 68.4%. The index retraced less than a third of its losses in the following six months and remained range-bound for about a year and a half before embarking onto a gigantic rally which quadrupled the index in two short years.
After the 1980 peak in gold, a 19-month bear market ensued. The $XAU index fell by a deadly 77.4% from 1980 to 1982. But the rebound that followed in 1982 was equally impressive as mining stocks recovered almost all they lost during the previous bear market. In just 7 months into early 1983, gold stock indices tripled – one of the most impressive rallies of modern times. This is despite the fact that gold was then trading at a much lower level than in 1980.
The latest and the longest bear market occurred between 1996 and 2000. In the period of 55 months $XAU fell by 73.1%. It took five years for $XAU to return to its 1996 highs.
In the past year, the ultimate high for $XAU was 209.28 set on March 14 on the Bear Stearns developments. In July, $XAU made a double top, hitting 206.21. From this level to a low set on Friday of 63.52, the total decline is now 69.2% in just three months.
While a couple of major bear markets showed slightly greater losses than what we have today, the decline in the 2008 bear market occurred in the shortest span of time ever, making it into a crash of largest proportions and without any precedents over the past 80 years.
For the past few weeks, it has felt as if the bear market in precious metal stocks cannot get any worse. But it has gotten worse, worse and much worse. It has been as if the precious metals mining and exploration companies are all going out of business imminently.
Yes, it would be foolish to say that it cannot get worse from here. But both math and history are on our side. It is now very probable that a sharp multi-week rebound of at least 50% to 100% is near. The bigger question is how long will it take the $XAU and the juniors to climb back to its 2007/2008 highs. The $XAU would have to rise by 220%, while many juniors would have to rise 500%, 1000% or more.
From the above historical observations we can conclude that major gold indices such as the $XAU, $HUI, BGMI and others can recover to their prior highs very quickly, sometimes even in less than a year. We can expect this today as well especially if gold begins to climb higher. However, most juniors (which now number in thousands) will never see their prior peaks of glory. Many of them will go out of business, others will be acquired, others will merge. The entire junior stock landscape is going to be redesigned. But high quality, cash rich junior producers and explorers which sit on good deposits will undoubtedly have a bright future.

Ol'Patrick Said It Best!

"I know not what course others may take; but as for me, give me liberty, or give me death!" -Patrick Henry

More American Assets Up For Sale

Meanwhile, the U.S. government is beginning to advertise for new bailout money: “We are making it clear to sovereign wealth funds,” Deputy Secretary of the Treasury Robert Kimmitt said yesterday, while seeking help in the Persian Gulf, “that we are open to investments that are done on a commercial, not political, basis, and that do not raise security concerns.”
Kimmitt hinted he may have found some takers already: "We think that they are continuing to look very closely at opportunities in the United States. We have a number of cases before the Committee on Foreign Investment right now… Every investor that I've spoken with here and elsewhere had been in the United States within the past month, looking for opportunities.”
Who would have thought even three months ago -- besides your cranky editors of The 5, I mean -- that Wall Street would be holding a global garage sale this fall?

Swiss In Fight With Germans (Again)

Life Imitates Art: War Declared on Switzerland
Last week, tax-hungry officials from the increasingly socialist countries of Germany and France declared another round in their long running war on Switzerland.
Their aim once again was against traditional Swiss bank secrecy, which the Franco-German politicians claim is little more than a cover for massive tax evasion. As usual, they didn't offer any proof for this claim.
Over several centuries and during two World Wars, peaceful Switzerland always has maintained its traditional neutrality. It's kept out of numerous wars involving both France and Germany, usually with the latter attacking the former.
The last time a war of sorts was declared against Switzerland was in George and Ira Geshwin's 1930 Broadway musical hit, Strike Up the Band. In the musical, the plot centered on a Babbitt-like American cheese tycoon who tries to maintain his monopoly on the U.S. market by convincing the United States government to declare war on Switzerland.
I suspect that the current effort by France and Germany will be just about as successful, (but much less entertaining), as Gershwin's spirited musical militarism.
Another Skirmish - Another Show!
Reacting to these renewed pressure from European Union officials, the Swiss government vehemently defended its tax system and its financial privacy.
This may look just like another episode in the decade-old, anti-Swiss political road show, but there's one new tactic. This time, EU cronies are using the current world economic disruptions as bogus proof that tax havens cause recessions! Please.
Tax-hungry politicians have repeatedly criticized Switzerland for its low taxation and banking secrecy laws. Biased critics claim that these laws provide European citizens with loopholes for evading taxes in their own countries.
Naturally, these anti-Swiss demagogues ignore the fact that Switzerland participates fully in the EU tax directive program. This means Swiss officials already collect taxes from foreign account holders and pay it to their home EU governments.
The most recent criticism coincides with a rapidly spreading global financial crisis that has prompted governments worldwide to spend billions of dollars to bailout ailing banks. With a recession looming in the U.S. and Europe, governments are grasping at any straw to stop a sharp fall in tax income.
Swiss Banks Don't Know the Meaning of the Word "Surrender"
Economists doubt, however, Switzerland will give up its banking secrecy or radically adjust its tax laws. They're saying the country is strong enough to defend itself against the EU's complaints. They note that Switzerland, as a member of the Organization for Economic Cooperation and Development (OECD), can effectively veto any decision by the OECD to blacklist it.
According to EU estimates, the world's tax havens, not including Switzerland, have attracted around US$5 trillion to US$7 trillion in assets because of low or nonexistent taxation. Swiss banks manage around US$4 trillion in assets, about 50% from foreign individuals and institutions.
At present, only three European countries (God bless them!) - Liechtenstein, Monaco and Andorra - are on the OECD's tax haven blacklist.

O'Neill's Own Words

AN INTERVIEW WITH PAUL O’NEILL

From the companion book to I.O.U.S.A.( A Sound Of Cannons Recommendation!)
Paul O’Neill says he enjoyed being the 72nd secretary of the U.S. Treasury (2001 – 2002), even though the job lasted only 23 months. O’Neill, who has been analyzing the U.S. budget since he went to Washington, served in the Bureau of the Budget, which later became the Office of Management and Budget in the White House.
O’Neill came to American government in 1961 as a management intern, and stayed for 16 years through the Kennedy, Johnson, Nixon, and Ford administrations. The last 10 years of his tenure were spent at what was the Bureau of the Budget, which became the Office of Management and Budget. There he became deeply involved in the issues of fiscal policy, budget balance, budget making, and helping presidents choose priorities for how we spend the nation’s money.
Then he moved to the private sector in 1977. In 2000, he was asked by President Bush 43 to come back to the government and be the Secretary of the Treasury, which he did for 23 months before he got fired for having a difference of opinion.
Q: When you took over at Treasury, how would you characterize the financial health of the United States? Are you surprised at where we are today?
Paul O’Neill: When I moved into the Treasury as the 72nd secretary, what we inherited from the Clinton administration was an economy that had been rolling itself into a modest recession for a year and a half. By that time, the dot-com bubble had burst and the economy had slowed down, and we actually had some negative quarters that we didn’t really know about until Clinton was gone and Bush 43 was in charge. But on the fiscal policy front we were in a condition where we had, for the first time in a long time, a budget that was in surplus.
I have to hasten to add that while it was in surplus, it was not in surplus on a federal funds basis. It was only in surplus because the trust funds were bringing in a lot of money and together, with federal funds and the trust funds, the Clinton administration was able to claim three years of budget surpluses, which we hadn’t seen since 1969. That was a year where we were in budget surplus with the use of the trust funds. The last year I think that we were actually in surplus on a federal funds basis, without using trust fund money, was in 1960, so we’d been at this now for 47 years of basically living beyond our means – especially if you think federal funds ought to be in surplus without using the trust fund money to calculate balance.
So in 2001, when Bush 43 took over and I took over at the Treasury, we were in a total surplus condition, and arguably (I think this was a correct argument) we needed to reduce taxes because taxes had crept up to the point where something like 20 or 21 percent of the GDP was being effectively taken by federal government. Traditionally, our level has been someplace around 18 percent or maybe 18.3. So I think it was correct to say that we could afford to have a tax cut, which President Bush 43 had run on in the 2000 election, and he set out to deliver what he promised in the election and I think that was okay. The reason that I agreed to come in as Treasury secretary was because I saw lots of things in our economy and our society that needed to be done, and I was encouraged to believe that Bush 43 was up for the difficult political things that needed to happen to make course corrections. Those course corrections still include fixing the Social Security and Medicare trust funds, and fundamentally redesigning the way the federal tax system works. I thought there was some prospect that President Bush would entertain the difficult political choices that needed to be made in order to act on these things, and I spent a lot of time thinking about these things over a period, better part of 40 years, so I was anxious to have a go at it.
Q: How did it go?
Paul O’Neill: The first part was the easiest part. Cutting taxes is always a cinch – it’s only a debate about who gets the credit and how big the cut is. But then we had 9/11 and it really changed where we were. The economy was still slow, although we were actually having positive growth in the fourth quarter of 2001.
But there was still a lot of energy and President Bush himself was bringing this energy that we need additional tax cuts. I honestly didn’t think that was the right thing to do, because I continue to believe we needed the revenue that we were then collecting to work on the Medicare/Social Security problems. To work on fundamental tax redesign after 9/11 while worrying about whether there was going to be another attack or a series of attacks would cost hundreds of billions of dollars. So I was against further tax reductions at the time, especially as we got into 2002, as I became more concerned that we were also going to need money since it looked to me like we were sliding into a war with Iraq. I argued during the second half of 2002 we should not have another tax cut because we need the money to work on important policy issues that would shape the nation going forward, and we needed to have, in effect, rainy day money for the prospect of Iraq and another set of attacks like 9/11.
That was not a popular view, and in fact, it led to a conversation with the vice president where he basically told me, “Don’t worry about further tax cuts, it’s okay. Ronald Reagan proved that we don’t have to worry about deficits.” Which is really a shock to me because whatever you may think about Ronald Reagan, I don’t think he or anyone else has proved that it’s possible to ignore not just deficits, but federal debt as well. I think it is true that you can be sanguine about deficits for a short period of time, but you can’t be sanguine about mounting debt for the United States of America. When we, the Bush 43 administration took over, we had something over $ 5 trillion, maybe $ 5.6 trillion worth of national debt. Today [Fall 2007] I think the number’s $ 8.8 trillion. That’s not an innocent change, it is a monumental change in the debt service that we have to do in addition to and on top of all of the other things that our country needs to do.
Q: Toward the end of 2002, you wrote a report that said that the current debt wasn’t the problem; it was the debt that we are stepping toward. Shortly thereafter you were asked to leave. Can you explain to me what happened the day you were fired?
Paul O’Neill: During 2002 I found myself being at odds with where policy seemed to be going, I kept arguing that we couldn’t really afford another tax cut and that we didn’t need one, since the economy was doing fine. But my problems were not just differences about tax policy and social policy and fixing Medicare and Social Security. I kept asking almost every week, of the people from the CIA who briefed me, you know, where’s the evidence for weapons of mass destruction? I see all of these allegations and projections of trends from 1991 and what we knew in 1991, but I didn’t see anything I considered to be evidence. One of the things I’ve been trained to do for a long period of time is to know what you know and to differentiate that from what you suspect or what someone alleges, so I kept being a pain in the neck and asking, “Where’s the evidence? There’s no evidence, there’s nothing I believe.”
Early in the administration, at a National Security Council briefing, there were a bunch of photos put on the table and it was alleged that this satellite picture of what looked like a warehouse that you could find anywhere in the world was a production center for weapons of mass destruction. I said, I’ve spent a lot of time going around the world, producing goods all over the world, and have seen a lot of factories and warehouses. How can you tell me this one is a center for producing weapons of mass destruction? There’s nothing here that tells you that? You may assign it that, but there’s nothing here that tells you that.
One of the things I found really interesting out of this experience is that even today, people that I have a lot of regard for their intellect, like Bill Clinton, still say they believed the evidence was there. I’ve never had this conversation with him, but it’s hard for me to believe a guy who’s as smart as he is doesn’t know the difference between an allegation and evidence – especially someone who’s trained as he is as a lawyer. I’ve been astounded, this is a bipartisan thing – people on both sides don’t seem to get the difference between evidence and what they call intelligence, which I would call not intelligence, just a bunch of fabrications. So I was working my way to the margins of what endurance that people had for me, both in economic policy and in everything else I encountered. I have to admit some of the things that I said during this period probably ought to have been tempered. For example, we were struggling with trying to get the International Monetary Fund and the World Bank out of the business of effectively bailing out private sector lenders who’d given money to developing countries with the expectation that the people of the United States and other tax-paying people around the world would bail out the private sector lenders. I said (probably not very advisedly), “Before we give any more money to Argentina, we ought to make sure it’s not going to go to a Swiss bank account.”
Which was, I admit, not very diplomatic, but it was true – and interestingly enough, in a few weeks a guy who had been the president of Argentina said, without any prompting from me, “Well it was true he had money in a Swiss bank account, but it was all his own.”
So in any event, as we moved past the election in 2002 and we had this continued conversation, a really heated conversation with the vice president about what I considered to be the inadvisability of a further tax cut, I got a call, early in December. I was in my office having a meeting with a group of people and my secretary came in and said, “The vice president’s on the phone and would like to talk to you. The vice president said, “The president’s decided to make some changes, and you’re one of the changes. What we’d like to do is have you come over and meet with the president and basically say that you’ve decided to go back to the private sector, that you’re ready to quit your involvement with the Treasury.”
I said I didn’t think I needed another meeting with the president, thank you very much. I thought I’d had plenty of meetings, and I thought he probably didn’t need a meeting and I certainly didn’t need a meeting. And I also said to him, “You know, I’ve been going along now for 65 years or so and, you know, for me to say that I’ve decided to leave the Treasury to go back to the private sector is a lie, and I’m not into doing lies. And so what I want to do is issue a press release tomorrow morning before the markets open so that they’ll have time to digest this news in case it creates any stir. And I’ll send the president a note telling him I’m resigning.”
And I think he was surprised by that. He didn’t try to argue me out of it, I think probably because he’d known me long enough to know that it wouldn’t do any good, that I’d made up my mind and that was it.
Q: What did it feel like to get fired?
Paul O’Neill: Well, it’s a first in my life – I’d never been fired before, I’d only been promoted to ever-higher levels of responsibility. But it was okay with me because I would have really been uncomfortable arguing for policies I didn’t believe in. One of the things I actually said to President Bush and Vice President Cheney when they asked me to come and have lunch with them, and to ask me to serve as the secretary of the Treasury, was that I had reservations about doing this. And one of the reservations I had was that, having been the CEO of a very big corporation for 13 years and the president of a very big corporation for the period before that, I wasn’t sure how easy it was going to be for me to knuckle under when I thought the policy was wrong. The thing I didn’t know is how difficult it would be to knuckle under if you thought the policy was not well vetted, that it was decided on the basis of ideology instead of what was right for the country. At that point I really thought the decisions were not being made on the basis of what was right for the country, they were being made on the basis of what was right for getting reelected.
It’s probably altruistic, but I thought for a long time we need presidents who are so devoted to doing the right thing with and for the American people that they’re prepared to lose for their values and to hang their values out in public for everyone to see them.
Q: Let’s revisit the conversation that you had with Vice President Cheney prior to you being fired. Can you discuss the difference of opinion that you had in regard to tax cuts and deficits?
Paul O’Neill: Sometime after the election – it must have been mid-November – there was a meeting of the Economic Policy Group, including the vice president. As we sat at the table in the Roosevelt Room, we talked about where we were and where we were going. If I remember right, Glenn Hubbard made a presentation that was displayed on the screen at the front of the Roosevelt Room and showed where we were going and what different tracks looked like and GDP growth and the rest, including the effects of the proposed third tax cut. I made the argument, which I had been making over and over again since maybe June or July, that it was not advisable to have another tax cut because of the need to fix Social Security and Medicare and to have some money to smooth the fundamental redesign of the tax system. We needed to have in effect rainy-day money in the event that we had another 9/11 event – and at that point it looked like maybe we were going to go to Iraq, and it was not going to be cheap to do that.
So I argued that we should not have another tax cut because the economy was going to be in positive territory and doing okay through the next couple of years anyway without another tax cut, and there were all of these other compelling reasons not to risk a deficit and not to risk adding more to the national debt. And the vice president basically said, “When Ronald Reagan was here, he proved that deficits don’t really matter and so it’s not a consideration or a good reason not to have an additional tax cut.” I was honestly stunned by the idea that anyone believed that Ronald Reagan proved in any fashion, certainly not inconclusive fashion, that deficits don’t matter. I think it is true on a temporary basis that a nation can have a deficit and have a good reason for having a deficit. I think the Second World War there was no way we could avoid having a deficit, but when we came out of the Second World War we started running budget surpluses again and did that through the ’50s and into 1960. It’s interesting, it’s really only been in the last 40 years or so that we’ve accepted the notion that it’s a bipartisan thing that we don’t have to have fiscal discipline.
A year ago there was this signing ceremony in the Rose Garden for the new Medicare prescription drug entitlement, and it’s going to cost us trillions of dollars. This event was not unlike any of the others in the Rose Garden on a nice sunny day, with the president sitting at the signing table with a bunch of grinning legislators behind him taking credit for this “great gift” they’re giving the American people. But none of their money was going to get given to make this happen, because the federal government doesn’t have any money that it doesn’t first take away from the taxpayers.
There was no mention of the fact that this in effect was a new tax on the American people, and we didn’t know how we were going to pay for it. It was only grinning presidents and legislators taking the credit for a gift, which strikes me as a ridiculous continuing characteristic of how we do political business in our country.
Q: If we couldn’t afford it, why did we give it to the people?
Paul O’Neill: If you can get 51 percent of the people in the Congress to agree with the President’s leadership initiative to say we ought to do this, that’s all it takes. And I think it’s regrettably true there are a lot of people who don’t understand that when they get a gift from the American people, it’s from the American people and it can only be paid for with taxes over time. I think the confusion is aided and abetted by the fact that it doesn’t feel like we’re paying for it. It’s a lot like running up credit card debt: As long as you can pay the interest charges on your credit card debt, you can live way beyond your means. In fact, we as a nation are living way beyond our means, and for a period of time, there’s no doubt we’ve demonstrated you can get away with it. But I think we only need to look at the fate of other countries who’ve lived beyond their means for a long time to see you inevitably get into trouble.
If you look at Germany in 1923, they got to a point where their currency was so worthless that you needed a wheelbarrow to haul the currency that was needed to buy a loaf of bread. You get inflation where people stop investing in your national debt, when they say, “We’re not going to loan you money because you’re not going to be able to pay it back.” It’s the same thing that happens to individuals and families. When you get extended to the point that you can’t service your debt, you’re finished.
You know, so you go through a calamity – either you go through a terrible inflation, which is a way of having a national bankruptcy, and you destroy accumulated income and wealth, and in fact you have a taking from all the people because suddenly their financial assets are worth nothing. You know, are we going to have that right away? No. But should the people who are in positions of political leadership know that and anticipate it and do something about it for the American people, you bet – and now is the time to begin doing something about it.
One of the difficult aspects of this debt problem is that it’s not very transparent to people who are unschooled in fiscal and monetary policy. In a way, this problem’s a little bit like the famous example of if you throwing a frog into boiling water. If you throw him into the already boiling water, he jumps out right away. But if you put the frog in the pot of cold water and turn the heat on under it, the frog will let itself be boiled because it doesn’t respond to slow increase in temperature. Our debt problem is something like that. If we wait until we have a calamity and financial markets shut us off because we’ve exhausted their belief that we can service additional debt, it’s too late.
This is a problem that we need to deal with without letting the heat be turned up some more.
I would hope we can demonstrate we’re intelligent people that don’t wait until they create a calamity in their country before they deal with problems that are obvious to anyone who’s ever studied economic policy and fiscal policy and monetary policy. You only need to look around the world to see places like Argentina, Turkey, and Germany after World War II whose governments have effectively achieved a meltdown condition. Knowing this can happen to modern nations, we should not let it happen to ours.
Editor’s Note: The above was taken from the companion book to the critically-acclaimed documentary I.O.U.S.A. . Included in the book you’ll find interviews from some of the most revered voices in the nation, including Warren Buffett; former Treasury Secretaries Paul O’Neill and Robert Rubin; Pete Peterson, CEO of The Blackstone Group; Congressman Ron Paul (R-Texas); and bestselling Empire of Debt author Bill Bonner. Defiantly non-partisan, the empowering solutions outlined in these pages are a must-read for any American who wants to help change “business-as-usual” in Washington as a new administration heads towards the Oval Office.

Obama Is Against You protecting Your Own Wealth

Obama Says: "Shut Down" All Tax Havens
Well, he's finally come right out and said it. Yes, he has.
Democrat presidential candidate, Barack Obama, speaking on October 23rd in Indianapolis, again attacked "big corporations" who use "tax loopholes" offshore - but he also made clear that he wants "to shut tax havens" down.
If you would like to hear the farthest Left member of the U.S. Senate advocate an end to tax havens, spoken in his own smooth baritone, click here, then click on "Listen Now."
Of course, Obama - who can draw 100,000 adoring Europeans in socialist-leaning Berlin - is not yet Dictator of the World.
He has no power, as yet, to ban tax havens worldwide or change the internal bank secrecy laws of sovereign nations such as Switzerland and Panama. But a President Obama could impose currency controls on dealings with selected countries, ban Americans from moving cash offshore, and even confiscate assets under emergency decrees and the nefarious PATRIOT Act.
The young Illinois senator has made crystal clear that high among his goals in an Obama Administration will be: 1) the curtailment, if not abolition of tax havens worldwide; 2) an end to all business and personal financial privacy; 3) automatic exchange of tax information among all national tax collectors; 4) nullification of bank secrecy laws, and; 5) public records of all hitherto private beneficial ownership of trusts, foundations and corporations.
Alexis de Tocqueville predicted Obama's ilk way back in 1835 when he wrote: "The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money." And so the New Deal motto has been revived: "Tax, tax, spend, spend, elect, elect."

Global Investing And Gold Have Failed Us

Global Investing will Never be the Same
It's highly likely that an entire generation of investors will never return to stocks again following the worst drubbing for equities in a single month since the spring of 1932.
It's also likely that many retirees will never buy another stock or mutual fund. And younger investors will probably shun stocks altogether because of the enormous losses suffered by benchmarks over the last 12 months - a major deterrent for new long-term investors planning for retirement or college.
Global stock markets have collapsed 25% in October - a record.
Since reaching an all-time high in October 2007, the MSCI World Index has crashed more than 45%, the S&P 500 Index is down 43% and the MSCI Emerging Markets Index is down a mind-boggling 65%.
These numbers are the worst annual returns for U.S. stocks since 1930 when the Dow plunged more than 33%. The spectacular loss of wealth, affecting both large and small investors alike, will deter investors from jumping back into stocks again for a long time.
But it's not just the huge declines over the last 12 months acting as a brick-wall deflecting long-term investment capital; U.S. and global stocks have been flat over the last ten years and adjusted for inflation have actually declined about 4% per annum.
Japanese stocks - mostly in the grip of a deflationary bear market since peaking in early 1990 - have declined 1% per annum since 1986.
Returns like those above don't exactly encourage long-term money-flows.
Mutual funds, exchange-traded-funds (ETFs), private equity funds and hedge funds have all failed miserably over the last 12 months. It's actually quite appalling that active money-managers didn't move more money into cash, Treasury bonds or apply hedges like reverse index ETFs or short-selling contracts, to protect their stocks.
Hedge funds get a big F, too. These guys are supposed to "hedge," but instead were mostly "leveraged" like hell and have been slaughtered since July. I'm not sure what these hedge funds are doing but it's certainly not hedging. Many deserve to close and many will.
As we move forward, investors must learn how to hedge their portfolios to protect against the next financial crisis - or possibly - the next phase of this bear market. That means using reverse index ETFs to cover your stock market exposure. This is a simple, cost-effective and liquid strategy that can protect your investments in a bear market.
For example, if you own stocks that you truly don't want to sell (tax reasons, great dividends, strong franchises, low prices, etc) then at least cover your exposure to neutralize your risk. Why mutual funds and hedge funds don't do this I'll never understand.
Let's suppose a portfolio has $100,000 invested in stocks; I suggest the same amount should be invested in reverse ETFs. At the very least, a one-for-one hedge should leave you flat or almost unchanged in a big market decline or rally. I did this starting in September for my U.S. managed accounts and since September 1st our portfolios have declined just 1% versus a stunning 35% loss for world markets. Sure, I'm still down 8% in 2008 but at least I won't have to work my way through a 40% draw-down like the benchmarks.
My only regret was not doing this sooner. Gold failed, gold stocks were massacred and high quality corporate bonds plunged. Only reverse indexing has worked to cushion the markets' mighty blow.

Good To See The Japanese Are As Stupid As We Are

Japan's desperate £260bn bid to kick-start economy
Japan is to give emergency cash hand-outs to every household in the country regardless of whether they are rich or poor as a part of $260bn (£159bn) blitz to kick-start the world's second-largest economy and prevent a slide back into deflation.

By Ambrose Evans-Pritchard Last Updated: 9:50PM GMT 30 Oct 2008

Japan's desperate £260bn bid to kick-start economy Photo: REUTERS
The raft of measures comes amid reports in the Japanese press that the Bank of Japan is mulling a cut in interest rates from 0.5pc to 0.25pc as soon as today, chiefly aimed at curbing any further rise in the yen exchange rate after its spectacular increase since the summer. The futures markets are pricing in a 50pc chance of a cut.
"A harsh storm seen only once in 100 years is raging," said Japan's premier Taro Aso as he unveiled the spending plans in Tokyo.
The package includes payments of $600 for a typical family of four, as well as tax relief on mortgages, in the raft of measures worth $50bn, or roughly 1.2pc of Japan's GDP. It is the second fiscal package in two months.
The government is extending a further $210bn in loan guarantees targeted at small and medium-sized firms struggling to rasie money or roll over debts as the credit crisis bites deeper.
The talk of combined fiscal and monetary stimulus helped lift Tokyo's Nikkei stock index above 9,000, ending its seemingly unstoppable slide. The bourse is still trading at levels first reached in 1983 – a warning to the rest of the world of what can happen to equities once a country succumbs to debt deflation.
Japan held rates at zero for nearly six years in its decade-long struggle against deflation. When that was not enough it resorted to "quantitative easing", a technical term for what amounts to printing money on huge scale.
The Bank of Japan had hoped to nudge the country to normal rates over time but the violence of the global credit crisis has now brought the fragile recovery to a standstill. The economy began to contract in the second quarter. The trade ministry said industrial output is likely to fall 2.3pc in October, and 2.2pc in November.
Leading exporters Toyota, Honda, Sony and Canon have all slashed earnings forecasts, while the electronics companies Hitachi and Toshiba both reported a loss over the last three months. e_SClB"We think that Japanese rates will be cut all the way to zero again, most likely in January," said Mark Williams from Capital Economics. "We expect a return to deflation next year in the wake of the collapse in global commodity prices."
Japan remains the world's top creditor nation by far with a $15 trillion pool of savings and some $3 trillion in net overseas investments. The ups and down in Japanese sentiment can have a powerful effect on world markets.
A mixed army of life insurers, pension funds, and housewives with margin trading accounts, as well as foreign hedge funds, borrowed at near zero rates during the credit bubble to chase higher yields across the world, pushing up asset prices from Australia to South Africa, Brazil and Britain.
This yen carry trade – estimated at $1.4 trillion in all its forms – has now reversed violently as flight from global markets leads to yen repatriation. This has forced up the currency by almost 40pc against the euro and sterling since August, and by almost 50pc against the Australian dollar
Those playing the carry trade with high leverage have been caught in a brutal squeeze as margin calls force investors to liquidate assets. This in turn has pushed the yen even higher, setting off a vicious circle. The yen has fallen back this week as US rate cuts and swap agreements with emerging market economies help restore a degree of global confidence, but few in Japan are yet convinced the coast is clear.
Michael Taylor, from Lombard Street Research, said Japan had enough leeway to "turn on the fiscal tap" after pursuing a tight budgetary policy in recent years, but doubted whether the latest spending package will achieve much over time.
"Japan is clearly in recession so this will help," he said. "But you need continual, increasing doses to keep things going, otherwise its just a one-shot gain."

Oil Price Is Still A Threat

World will struggle to meet oil demand
By Carola Hoyos and Javier Blas in London
Published: October 28 2008 23:32 Last updated: October 28 2008 23:32
Output from the world’s oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows.
Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.

The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term de­mand. The effort will become even more acute as prices fall and investment decisions are delayed.
The IEA, the oil watchdog, forecasts that China, India and other developing countries’ demand will require investments of $360bn each year until 2030.
The agency says even with investment, the annual rate of output decline is 6.4 per cent.
The decline will not necessarily be felt in the next few years because demand is slowing down, but with the expected slowdown in investment the eventual effect will be magnified, oil executives say.
“The future rate of decline in output from producing oilfields as they mature is the single most important determinant of the amount of new capacity that will need to be built globally to meet demand,” the IEA says.
The watchdog warned that the world needed to make a “significant increase in future investments just to maintain the current level of production”.
The battle to replace mature oilfields’ output could even offset the decline in demand growth, which has given the industry – already struggling to find enough supply to meet needs, especially from China – a reprieve in the past few months.
The IEA predicted in its draft report, due to be published next month, that demand would be damped, “reflecting the impact of much higher oil prices and slightly slower economic growth”.
It expects oil consumption in 2030 to reach 106.4m barrels a day, down from last year’s forecast of 116.3m b/d.
The projections could yet be revised lower because the draft report was written a month ago, before the global financial crisis deepened after the collapse of Lehman Brothers.
All the increase in oil demand until 2030 comes from emerging countries, while consumption in developed countries declines.
As a result, the share of rich countries in global demand will drop from last year’s 59 per cent to less than half of the total in 2030.
This is the clearest indication yet that the focus of the industry on the demand – not just the supply – side is moving away from the US, Europe and Japan, towards emerging nations.

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

This is worse than a divorce...I've lost half my assets and I still have my wife. - Wall Street quote of the week

Seems Like On halloween, America's Doom Is Sealed

But Toyota Has The Most American Auto Workers

Very Nicely Said.............

“Socialism is the phantastic younger brother of despotism which it wants to inherit. Socialism wants to have the fullness of state force which before only existed in despotism... However, it goes further than anything in the past because it aims at the formal destruction of the individual… who… can be used to improve communities by an expedient organ of government.” -Friedrich Nietzsche

Silver Problems South Of The Border

The first is from Hugo Salinas Price...one of the richest men in Mexico. I mentioned him last week when I was talking about the silver Libertad production being slashed by the Bank of Mexico. This directly affects him, as his large chain of stores in Mexico each has a branch of Banco Azteca in it...and he makes sure that they all sell the Libertad...and they do. His stores are the biggest Libertad distributors in all of Mexico. The story is an absolute 'MUST READ' and is headlined "Banco Azteca: New policy on purchase and sale of silver 'Libertad' coins."

Banco Azteca: New policy on purchase and sale of silver ‘Libertad’ coins
Hugo Salinas Price
Banco Azteca, with over 800 branches in Mexico, informs us that it will apply a new policy to the purchase and sale of silver “Libertad” ounces at all its branches.
In response to the restriction on supply of silver “Libertad” coins applied last week by the Bank of Mexico, Banco Azteca will proceed as follows:
Banco Azteca will seek to attract the re-sale of silver ounces in order to satisfy, as much as possible, the strong demand forecast for the year-end.
Therefore, Banco Azteca will raise the re-purchase price of silver from the public to where the re-purchased quantities equal the quantities sold to the public, always maintaining the necessary margin to cover costs.
If the price of re-purchased silver is too high, the supply from the selling public will surpass the demand of the silver-purchasing public.
If the price of the re-purchased silver is too low, the supply from the selling public will not be sufficient to cover the demand from the purchasing public.
Banco Azteca will seek to discover the intermediate point, which will balance the supply from the selling public with the demand from the purchasing public.
Banco Azteca had been looking forward to selling 250,000 silver ounces during the Holiday season. With the cutback in supply, current policy would
cause Banco Azteca's inventory to fall to zero in the course of next week.
Sales will be much reduced, from here on, but at least the program adopted will have the virtue of demonstrating what the actual market price of silver ounces is in Mexico , independent of any relation to Comex silver prices.
Banco Azteca was informed by a source at Banco de Mexico, that the restriction of supply was due to a “very large foreign order for silver ounces”.
***
The Mexican Civic Association Pro Silver does not accept this excuse, even if it were true, because in any case providing the Mexican people with silver ounces would have to be its Number One priority, and not supplying a foreign buyer while depriving Mexicans of silver ounces.
Furthermore, this Association was told years ago by an officer of Banco de Mexico that the Mexican Mint was capable of minting up to 10 million ounces of silver coins a year.
We believe the restriction of supply in silver ounces is meant to deprive the Mexican population of the possibility of seeking refuge in silver as a protection against financial and economic carnage, and to force Mexicans into depositing their savings in the Banking System, with its risks.

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

A liberal is someone who feels a great debt to his fellow man, which debt he proposes to pay off with your money. - G. Gordon Liddy

Commentary From The Silver Boys

COMING ON STRONG
By James R. Cook
Mid-October 2008
I talk to silver analyst Ted Butler every day and lately I’ve never heard him give a more optimistic view on silver. About eight years ago he affiliated with my company and we’ve literally had thousands of conversations since then. Never was he willing to put his predictions in any kind of time frame. Now, in our private conversations, he’s telling me this is it. A price explosion is imminent. He may not want to go public with that bullish forecast, but with me it’s different. He claims the shortage in silver must now worsen and the price rise high enough to change the dynamics of silver forever.
The one thing he always told me for the past eight years was that before the big upward explosion took place, the price would be crushed. He said the big shorts would be among the first to notice a shortage in silver. They would then do everything in their power to extricate themselves from their short position. They would manipulate a big sell-off so that when those who held silver on margin were forced to sell, they would buy back their silver and thereby reduce their short position. They could never cover all of it, but they would make their short position more manageable. They would still be trapped and suffer losses when silver rose, but they would only lose a toe and not a foot.
More importantly, those who once maintained large short positions would be reluctant to do so again. They would not put their head in the noose again because they had information on silver that indicated the price must rise. This absence of short sellers would be tremendously bullish. It would mean that buyers would not find ready sellers. Nothing could be more bullish than not having anybody willing to go short.
The information that makes the short sellers queasy has to do with the enormous current investment demand that’s now superimposed on already strong industrial demand. Mostly it comes from people who believe they can profit from owning silver. That’s been augmented by nervous individuals who see silver as a safe haven and others who are concerned about inflation and a weak dollar. As Ted Butler has pointed out, this investment demand curtails the amount of silver available for industrial use. The heated demand for silver has made many silver products unavailable. It is truly unprecedented. We’ve never seen anything remotely like it.
From the beginning Ted Butler has told me the silver manipulation (which he has proved without doubt) would be ended by a shortage. That shortage appears to be unfolding. Ted claims that when that happens, the industrial users will dramatically bid up silver. In fact, he says they will panic because they must have silver, no matter what the price. Without silver, they would have to close their doors.
In the past eight years, Ted Butler has been a pioneering thinker on silver. He has shown an incredible breadth of knowledge about silver and the futures markets. For the most part, he has been phenomenally accurate on what he said would happen. He warned about the possibility of every price decline, including the last one. The only time he has been wrong is on two occasions when he thought the price correction was over sooner than it was. His amazing record of predictions and fresh insights on silver argues for everyone to pay close attention to his advice and act on his instructions to buy physical silver. This has never been more true than today when his innermost belief is that we are on the eve of a breathtaking shakeup of the silver market.
Such opportunities do not come around very often in a person’s lifetime. I’ve personally put a lot of money into silver because I see it as the greatest profit opportunity to come along in decades. There’s no guarantees in life, and without taking some risk you can’t earn a high enough return on your money to beat inflation. It’s time to have 10% to 20% of your net worth in actual physical silver. If the greatest silver expert who ever lives (no doubt a genius on the subject) is telling you this is the moment in time we’ve been waiting for, then you should act on that advice.
AN EXCEPTIONAL OPPORTUNITY
By Theodore Butler
(This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)
When fear and emotion run high, as they presently do, it often creates exceptional profit opportunities. In other words, when everyone is running scared and is concerned about risk, it is precisely the time to look for rewards as well. We are currently positioned the best I have ever witnessed for risk and reward in silver. The downside looks extremely limited and the upside looks explosive. Yes, volatility is great, but everything is lined up perfectly.
I would like to revisit a familiar theme - the suggestion that gold-heavy investors take advantage of the extreme undervaluation of silver compared to gold. This is not intended as a knock on gold, or a suggestion that gold can’t or won’t go higher. It would not surprise me if gold moved much higher. I hope that it does. Then why would I suggest that gold owners convert some of their gold into silver? For the simple reason that silver should climb much higher in value than gold. Maybe two or three times, and perhaps much more.
In fact, if silver eventually reverts to its historical ratio of 16 to 1 to gold, that means silver would have outperformed gold by more than four-fold. At that rate, every dollar invested in silver would return four times more than a dollar invested in gold. What are the chances that old ratio could return? Quite good, I think.
It has been a long time (except for a brief moment in 1980) since the world has witnessed a 16 to 1 gold/silver ratio. This is the ratio that prevailed for hundreds of years. This ratio was set arbitrarily, by government edict back when gold and silver were money. Regular readers know I don’t envision silver as being used as money again. So why would I think the ratio would move to 16 to 1, when conditions are much different today?
When the ratio was 16 to 1 there was much more silver in the world than there was gold. In fact, much more than 16 times more. That was before the industrial revolution at the turn of the last century, when it was discovered that silver was a marvelous and versatile industrial material. After the industrial consumption of the past 100+ years, there is no longer more than 16 times more silver in the world. There is now much less silver than gold. I am talking about bullion material available to the market at anywhere near current prices.
Maybe one in a million of the world’s citizens realizes that there is much more gold in existence than there is silver. If sufficient numbers of people knew this fact, gold would not be 70 times the price of silver. In fact, gold might be a lot less than 16 times the price of silver. This isn’t complicated. When enough people come to learn that there is less silver than gold in the world, they will buy silver (and maybe sell gold) until the relative price of each reflects silver’s greater rarity.
While silver’s rarity to gold is the main factor assuring that silver will climb in value compared to gold, there are other reasons. For one, the price of silver is below the cost of its primary production for many miners, while the gold price is currently above the cost of production. This suggests a contraction in silver production compared to gold. And while silver is produced as a byproduct for the majority of its production, many of the base metals, like zinc, are below the cost of production, suggesting a curtailment of supply.
Additionally, a large amount of the world’s gold inventory resides in government hands. While there does appear to be a lull in central bank gold sales, higher prices and budget pinches may induce more official gold selling in the future. This is a threat largely absent in silver, because so little is in government hands.
Further, a larger percentage of the remaining world silver inventory is in the control of publicly-owned investment entities, like ETFs, closed end funds and exchange-licensed warehouses. Such holdings are less likely to be sold than government metal. More often with these the metal goes in but rarely comes out. I estimate total world silver bullion inventories to be one billion ounces. More than 460 million ounces, or almost 50% are in publicly-held funds and exchange warehouses. In gold, two billion ounces exist in world bullion inventories, and less than 50 million ounces, or less than 2.5%, are held in publicly-owned entities. What this means is that not only is there much less silver than gold in the world, the silver is held in much stronger hands. This silver is much less likely to be sold than gold. Certainly, silver doesn’t face the threat of central bank or IMF dumping.
Silver is basically an industrial commodity, while gold is not. However, any fear of a decline in industrial demand for silver is misplaced because 70% of silver production comes as a byproduct to other types of mining, such as copper, lead and zinc. The real advantage of silver being an industrial commodity is lost in the current financial crisis. That advantage is profoundly powerful. Because silver is an industrial commodity, it is a candidate for an industrial shortage, while gold is not. We already have a widespread retail silver shortage, so a wholesale shortage is likely. What clinches the likelihood is that the world’s vast army of silver industrial consumers hold little in the way of inventories, thanks to just-in-time inventory and production practices.
When they face delays in silver shipments the industrial users will panic and attempt to build inventories all at once. I see them as a vast herd of wildebeests on an African plain, nervous and easily spooked. It won’t be the scent of a lion that sets them off, it will be a phone call from their silver supplier telling them there will be a 10 day delay. This is unique to silver and not gold.
If you are gold heavy and silver light, please fix that. If you are just silver light, fix that as well.
MEET THE NEW BOSS,
SAME AS THE OLD BOSS?
By Theodore Butler
(This essay was written by silver analyst Theodore Butler, an independent consultant. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)
It’s hard to imagine now, but there were times when I worried about having anything fresh to write about silver. Lately it has been choosing from many different topics. This week, the choice was easy. Amid the continuing swirl of major financial crises, one issue rose to the top.
On Thursday, September 25, the Wall Street Journal carried an article announcing that the Commodity Futures Trading Commission (CFTC) had opened a new investigation into allegations of manipulation in the silver market.
http://online.wsj.com/article/SB122231175151874367.html
Furthermore, on that same day, Commissioner Bart Chilton e-mailed a copy of the Journal story, along with his own comments confirming the investigation, to those who wrote to him about the issue. Both the article and Chilton’s e-mail made special note that the silver investigation was being conducted by the Division of Enforcement, and not the Division of Market Oversight, which had previously investigated the silver market. In simple terms, Enforcement is the muscle.
Whether an entire market, like silver (or gold), is manipulated or not is a matter of utmost importance. In fact, nothing could possibly be more important. Market manipulation is a violation of law and a serious crime. Market manipulation damages everyone in the long run.
Because market manipulation is the number one priority of the CFTC, any revelation that they might be investigating a manipulation in any commodity is big news. So big, in fact, that such investigations are almost always kept strictly confidential while the facts are determined. This is usually so as not to disturb the market. That the CFTC has chosen to openly reveal this silver investigation is almost unprecedented.
Moreover, what makes this silver investigation a rare event is that the allegations are of a manipulation in progress. To my knowledge, all past investigations were revealed after the manipulation itself was concluded. Not only is it rare for the CFTC (or any government agency) to reveal a serious active investigation, it is unheard of to reveal an investigation of a potential crime in progress. If a regulator suspects a crime in progress you would assume the regulator would first end the suspected crime and then finish the investigation. If the regulator didn’t think there was a sufficient evidence of an ongoing crime, then why reveal that an investigation has been opened?
I think this is why there is universal expectation (including by me) that the silver investigation will be a whitewash. I know that silver is manipulated, and I’m glad to see the CFTC investigate. But I can’t help but feel suspicious of their objectivity, because they have adamantly denied such a manipulation for more than 20 years. How can they conduct a fair investigation and not be influenced by their past findings? I have been here and done this many times, and I don’t feel like getting fooled again.
EXPLANATION, NOT INVESTIGATION
Why the CFTC is investigating a silver manipulation is somewhat of a mystery to me. I certainly didn’t ask for an investigation. I did ask you to ask for them to explain the data in their August Bank Participation Report, in my "Smoking Gun" article
http://www.investmentrarities.com/08-22-08.html
This is the report that is directly responsible for the investigation. This is the report at the heart of the matter. But there is a difference between explanation and investigation.
When I first uncovered the data in this report, a little more than a month ago, I couldn’t believe my eyes. I had studied the data in previous Bank Participation Reports for years, but that’s because I’m a silver data junkie. This is usually a nothing report. In all the years I studied this data, it seemed like a waste of time. It was an obscure report that I never heard anyone ever refer to before. But the data in the August report was so disturbing that, in order to make sure I wasn’t imagining things, I asked two trusted associates, Izzy Friedman and Carl Loeb, to review the data with no advance suggestion from me as to its meaning. I wanted their unvarnished opinion.
When they confirmed that this was the clearest case of manipulation possible, I faced a new dilemma. I was inclined to believe that the data was in error. I suspected the CFTC would retract the data. So I was worried about being publicly embarrassed for making a big deal out of what may have been a clerical error. But the more I matched this data against the weekly Commitment of Traders Report (COT) data, I could see the data was accurate. Certainly, if the data was incorrect, the CFTC would have said so by now.
The data is clear - one or two U.S. banks sold short the equivalent of 140 million ounces of silver in one month. That’s more than 20% of world annual mine production. Less than three U.S, banks sold more than 10% of world annual mine production of gold simultaneously. The price of silver and gold then collapsed by an historic amount. These same banks have used the sell-off as an opportunity to buy back as many of their short positions at a giant profit. Those are the facts.
It is important to put these numbers into perspective, in order to appreciate their significance. One way to do that is by comparing what just took place in silver to other commodities. If one or two U.S. banks sold short, in a period of one month, the equivalent of 20% of world annual production of corn, that would equal one million futures contracts. (25 billion bushels x 20% divided by 5000 bushels). Since the entire open interest in corn futures is one million contracts, a sudden short sale of that amount would crush the price.
If one or two U.S. banks sold short 20% of the world annual production of crude oil, that would be the equivalent of 6 million NYMEX futures contracts. (30 billion barrels x 20% divided by 1000 barrels). Since the entire open interest on the NYMEX is around 1 million contracts, a sudden sale of 6 times that amount would drive the price of oil to ten cents a barrel. It would also be market manipulation beyond question.
The CFTC doesn’t need to investigate. They only need to explain why their own data fails to prove manipulation in silver and gold. Save the taxpayer some money and all of us some time. This needn’t take days, weeks, or months. This should take, literally, minutes. Why maintain and publish the data in the Bank Participation Reports if the CFTC won’t recognize an obvious manipulation that is a crime in progress.
THE COTS
The latest COTs confirmed the one thing I was hoping and expecting them to confirm, namely, that the biggest shorts continued to cover their short positions in gold and silver. What makes their short covering most noteworthy is that the buybacks in the most recent report occurred on a sharp rise in price, some $3 in silver and $120 in gold for the reporting week. This tells me that the big short, the U.S. bank(s), is serious about getting out of as much of its massive silver short position as it can.
From the time of the August Bank Participation Report, the big shorts have now covered nearly all of the gold short position put on during July. Therefore, the manipulation in gold was a complete success. In silver, while the manipulation must be considered a success, because the big short has covered an impressive amount, it has not covered all of its manipulative short position. In looking at the structure of the COTs, it does not appear to me that much further liquidation can occur to the downside. To say that the COTs are structured bullishly, would be a gross understatement.
IMAGINE
My mentor, Izzy Friedman, recently asked me to turn the clock back to a year ago, and then try to imagine that we would have a severe retail silver shortage. A shortage that now seems to be spreading to gold. It’s a powerful and profound thought process.
This silver retail shortage is completely underappreciated. I don’t think there could be more clear proof that silver has been manipulated in price. The talk that it’s "only" a retail shortage and not a wholesale shortage is silly. The silver retail shortage is so widespread in scope, it’s only a matter of time before it spreads to the wholesale sector. That’s especially true considering the record inflows into the silver ETFs. When the wholesale silver shortage hits, it will make a mockery of any CFTC investigation into manipulation.
The reason I believe the retail shortage is not truly appreciated is because of the boiling frog syndrome. Put a frog into a pot of cold water and increase the heat gradually to a boil and he won’t jump out. Because the silver retail shortage has been so persistent and gradual for the past year, we have grown accustomed to it. Most dealers have little to sell. Nowadays, it’s news when a dealer gets in a supply of silver, which is invariably sold out quickly. Guess what? That’s not normal, and just because it has been a gradual development doesn’t make it normal.
In fact, the growing and persistent physical silver shortage promises to be with us for a long time. Look around at the financial world. Do you see anything better to hold than real silver? Can you imagine owners of real silver rushing to dump their metal at depressed prices. To do what with the proceeds? Rush to put them in a failing bank?
It pains me to see so much financial peril around. Regular readers know I prefer supply/demand considerations and analysis of market structure. I’ve always considered the flight to quality aspect of silver as a bonus. But I see signs of that flight to quality in the current physical shortage. I don’t think that is going away any time soon. How many reasons does one need to load the boat with silver?
SILVER AND THE DOOM
OF THE DOLLAR
About 75 years ago the government gained a monopoly on our money. That meant you had government (an incompetent organization) inflating money and credit for political purposes and social engineering. Since that time the dollar has lost 95% of its value.
The current financial debacle stems from a combination of loose money, subsidized mortgages for the underclass and the utter failure of sleepy government regulators. Mix in a combination of arrogant pride and avarice from main street mortgage brokers to Wall Street investment bankers. There’s no citizen that can’t become greedy when the central bank is throwing wads of money around.
We have unsound money in America. That’s the root of our problems and we will careen from one crisis to another until the ultimate hyperinflationary collapse ends our sorry experiment with government monetary management.
The current rush into gold and silver gives us a glimpse into the future when the paper dollar expires. It probably makes sense to get 10% of your net worth into silver now strictly for hedging purposes.
That says nothing about the splendid case for the fundamentals of silver made by Ted Butler. It’s one thing to offset inflation, it’s another thing to profit mightily as Mr. Butler predicts.

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

"It is the eternal struggle between these two principles - right and wrong - throughout the world. They are the two principles that have stood face to face from the beginning of time; and will ever continue to struggle. The one is the common right of humanity, and the other the divine right of kings." -Abraham Lincoln

I Guess We Can't Afford It

Here’s a question Congress is incapable of asking: Can we afford it? For an answer, we check in on the Treasury site again to assess the nation’s credit limit:
The Federal debt has risen $502 billion since the end of the ’08 fiscal year, Sept. 30.
Funny story. We put out a press release for the film pointing out that the debt was rising this fast and cited the Treasury’s own chart. We were immediately attacked as alarmist. The numbers -- and our credibility -- were called into question.
The weight of denial out there in media-land is, well, very heavy.

Barrie Obama: Windbag Extraordinaire

Obama Is a Socialist

You Can't Be Half-Socialist

By Michael Reagan

October 30, 2008
The other day I went to a Hollywood luncheon crammed with producers, directors, writers and other film industry notables.
One of them, Larry Gelbart of "MASH" fame, spoke telling the group that since capitalism has failed, why don't we try socialism?
Try socialism? Take a sip of it and see how it tastes? It doesn't work that way.
There's an old saying that you can't be half-socialist any more than you can be half-pregnant; get knocked up with a socialist fetus and you'll have to deliver a full-born Marxist. There's nothing in between. Try it, you'll like it, and if you don't, as the lads in the Gestapo used to tell people, they had ways to make them like it.
Larry Gelbart gorged himself at the capitalist table and came away with untold millions, now safely banked, and continues to collect even more millions from never-ending reruns of the "MASH" sitcom. Having made his bundle from our capitalist free-enterprise system, he seems to be telling us now that the rest of us should get in the socialist bread-line and eat crumbs while he feasts on caviar.
One of the realities of this age is that the great mass of the American people haven't traveled abroad to see how the rest of the world lives, a lot of it under dreary socialist regimes with stalled economies and no real chance for advancement for the ordinary citizen.
Moreover, our shoddy educational curriculum that has left most younger Americans so deficient in the study of history that vast numbers of them think George Washington was a Civil War general, or a lumberman who chopped down cherry trees. They have no real understanding of the economic system that allowed us to become the wealthiest and most powerful nation since the Roman Empire ruled most of the known world 2000 years ago.
Given that mournful reality, the moment the economic Rolls Royce engine that drove this nation to the top of the hill stalls, instead of installing new spark plugs to get it going again they go looking for an alternative mode of transportation.
In the present case, Obama and the Democrats are directing them to Larry Gelbart's used-economic system lot where he shows them a jalopy with a fancy paint job on the outside and a one-cylinder motor inside that goes chug-chug.
Listening to the advice of a man who made his name and his money on a show about America's military at war -- yet told the same audience that our armed forces are nothing but "mercenaries" -- doesn't seem the smartest thing to do.
We are now a few days away from an election in which one of the presidential candidates is trying to sell that jalopy on Larry Gelbart's lot and convince us that it is really a luxury limo that will get hundreds of miles to the gallon and carry us off to the promised land, where the rich will be impoverished and the middle class enriched and everybody will be deliriously happy.

Call Barack Obama's program socialism, however and he'll swear on a stack of Qurans it isn't. He calls it change. He says it's fairness, not Marxism.
Oh?
How does he explain the proven fact that he has been wallowing in a sty surrounded by fervent socialists and sharing in their swill for most of his life?
According to Fox's Bill Sammon, his Messiahship recalled that when he attended Occidental College in Los Angeles: "To avoid being mistaken for a sellout, I chose my friends carefully," he wrote in "Dreams From My Father," his memoir. "The more politically active black students. The foreign students. The Chicanos. The Marxist professors and structural feminists."
And that was his milieu for all his years in Chicago.
To anyone familiar with socialism, Obama's programs fit comfortably within the pages of Karl Marx's playbook, the root of which is the redistribution of the wealth, the key to the entire Obamian vault. What's mine is yours, and he's the middle man.
It's socialism lite and it can only evolve into socialism heavy. Remember, you can't be half-socialist, and Barack Obama knows it.

Barney Frank.....This Is For You

Barrie's Tax Cuts Getting Foggy

Obama's tax-cut threshold shrinking?

Confusion abounds as voters hear $250,000, $200,000, now $150,000
Posted: October 28, 20082:42 pm Eastern
By Drew Zahn
WorldNetDaily
A new video advertisement released by the Obama campaign says the candidate's promised tax cuts are for citizens making less than $200,000 a year, not the widely reported figure of $250,000.
Adding to the confusion, Obama's running mate, Joe Biden, said in an interview yesterday the cuts are for even fewer people, limited to incomes of $150,000 or less.
Depending on the source of information, just who will have their taxes raised and who will have them cut under Obama's plan varies.
The campaign's homepage, for example, accessed today, reads, "Obama said he wanted to give a tax break to all families making under $250,000 per year, which he said was 95 percent of American workers."
Yet in the "Defining Moment" ad released on YouTube last week and viewable below, Obama says the tax cut "for 95 percent of working Americans" is only for those who make less than $200,000 per year.
According to the 2006 IRS statistics published by the National Taxpayers Union, "95 percent of working Americans" only includes those making less than $153,542 per year.
And now, Fox News reports Biden told a Scranton, Pa., TV station yesterday that Obama's tax break "should go to middle class people – people making under $150,000 a year."
At a rally in Pennsylvania, CBS News reports, McCain took the opportunity to blast Obama as a candidate with more and more taxes on his mind.
"Sen. Obama has made a lot of promises," McCain said. "First he said people making less than $250,000 would benefit from his plan, then this weekend he announced in an ad that if you're a family making less than $200,000 you'll benefit – but yesterday, right here in Pennsylvania, Sen. Biden said tax relief should only go to 'middle class people – people making under $150,000 a year.' You getting an idea of what's on their mind?"
(Story continues below)
"I'll launch a rescue plan for the middle class that begins with a tax cut for 95 percent of working Americans," Obama says in the "Defining Moment" advertisement. "If you have a job, pay taxes and make less than $200,000 a year, you'll get a tax cut."
The full "Defining Moment" advertisement can be seen below:
The disparity in the numbers has Republican campaigners riled.
The Obama campaign media site, The Record, quotes Tucker Bounds, spokesman for McCain-Palin saying, "By adjusting his tax increases to include anyone making more than $200,000, Barack Obama has reversed himself and issued a shifty new call for at least 1 million more hardworking Americans to be added to his plans for higher taxes."
The Record immediately rebutted Bounds, insisting Obama's plan has always included a tax hike on Americans making more than $250,000, but the tax cut is only for those making less than $200,000.
The site then quotes Obama at the Oct. 7 presidential debate: "If you make less than a quarter of a million dollars a year, you will not see a single dime of your taxes go up. If you make $200,000 a year or less, your taxes will go down."
Biden's comments yesterday, however, have heated up criticism again.
"You getting an idea of what's on their mind, huh? A little sneak peak," McCain said, according to Fox News. "It's interesting how their definition of rich has a way of creeping down. At this rate, it won't be long before Senator Obama is right back to his vote that Americans making just $42,000 a year should get a tax increase."
Obama campaign spokesman Tommy Vietor did not directly address Biden's comments, but he released a statement about McCain's criticism.
"The McCain campaign's attacks are getting more desperate by the hour," Vietor said. "Obama and Biden have always said, under their plan no family making less than $250,000 will see their taxes increase one cent. And if your family makes less than $200,000 – as 95 percent of workers and their families do – you'll get a tax cut."

Our Economic Credibility Is Gone

Credit-Default Swaps on US Treasuries Have Risen Nearly 40 Percent Since Bailout Law Signed; Now About the Same as on Mexican and Thai Government Debt
Thursday, Oct 30, 2008
Bloomberg writes the following bombshell:
“Credit-default swaps on [U.S.] Treasuries have risen nearly 40 percent since TARP was signed into law Oct. 3, and are now about the same as Mexican and Thai government debt before the credit markets began to seize up in June 2007.”
The article also states:
“Trading of credit-default swaps on government debt has increased since countries from the U.S. to Germany began pumping cash into their banks to prevent more failures, said Puneet Sharma, head of investment-grade credit strategy at Barclays Capital in London. The expenditures mean the ‘probability of downgrade has increased,” he said.
Investors are buying protection on countries to speculate on a deterioration of their credit quality and ratings as governments take on risky assets, even if they don’t think there is a chance of default.”

What do “probability of a downgrade” and “deterioration of … credit quality and ratings” mean?Well, credit rating agencies, such as Standard & Poor’s and Moody’s, assign credit ratings to countries, as well as companies.
(Article continues below)

A September 18 article in Bloomberg raised the possibility of a credit downgrade for the U.S.:
America’s credit “profile is now weaker because contingent risks have become actual risks to the U.S. government,” said John Chambers, managing director of sovereign ratings at Standard & Poor’s in New York.
In fact, Standard & Poor’s raised a possible downgrade of U.S. credit back in April. An article in Marketwatch explained:
The performance of government-sponsored enterprises like Fannie Mae could have a direct impact on the national economy and more importantly, the credit standing of the U.S., Standard & Poor’s said Monday.
Fannie and Freddie, which enjoy implicit government guarantees, could cause the U.S. to lose its sterling triple-A rating if the government were forced to come to their rescue, the ratings agency said in a report.
“Even though…credit damage from GSEs is unlikely, the greater risk to the U.S. lies with them than with broker-dealers,” S&P noted.
The demise of Bear Stearns Cos. - and the Federal Reserve’s extraordinary efforts to alleviate strains at broker dealers - has captured the attention of market participants who feared that the financial system would seize up last month.
S&P, however, noted that while this credit crunch has caused financial markets to swoon, it hasn’t threatened the standing of the nation’s credit quality upon which U.S. Treasurys and the debt priced off this government debt depend.
But should a protracted recession cause Fannie and Freddie to buckle, S&P said, the U.S. rating would be in danger.
Of course, Fannie and Freddie did buckle and - in many ways - the health of the U.S. economy is much worse than it was in April, and the U.S. is spending literally trillions of dollars it doesn’t have on corporate bailouts.
A 2005 article in Lew Rockwell called “Should the US Government’s Sovereign Credit Rating be Downgraded to Junk?” provides some details of how credit rating agencies assign credit ratings to countries:
When examined objectively, one could make the case that Uncle Sam’s sovereign credit rating should be downgraded – perhaps even to “junk.” So where are the credit rating agencies? Are they going to miss this one just like Enron?
***
Both Moody’s Investors and Standard and Poor’s have granted the U.S. the highest sovereign credit rating possible (Aaa and AAA respectively). Most other countries are less fortunate and have lower credit ratings – which can affect such a country’s interest rates and access to the credit markets. The lower the credit rating, it is believed, the higher the chances are for a country to default on its sovereign debt obligations. Be aware S&P downgraded Japan’s sovereign credit rating to AA– on April 15, 2002 . . .
The article then analyzes the U.S. economy using 8 traditional credit-rating factors, and concludes that the U.S. has performed abyssmally in all 8:
Having gone through all eight variables, it should be obvious that both Moody’s and Standard & Poor’s have grossly overrated America’s sovereign debt – it doesn’t merit the top grade of AAA. In variables such as default history, inflation, external balance, external debt, and economic development, the U.S. should rate significantly lower than does Japan – and should rate worse in many variables as compared to a developing country such as Botswana.
So why hasn’t America’s credit rating been downgraded?
Well, a report by Moody’s in September states:
“In superficially similar circumstances, the ratings of Japan and some Scandinavian countries were downgraded in the 1990s.
***
For reasons that take their roots into the large size and wealth of the economy and, ultimately, the US military power, the US government faces very little liquidity risk — its debt remains a safe heaven. There is a large market for even a significant increase in debt issuance.”
So Japan and Scandinavia have wimpy militaries, so they got downgraded. But the U.S. has lots of bombs, so we don’t?
In any event, as a quote from the Marketwatch article cited above hints, foreign governments themselves will likely demand a higher interest rate when loaning money to the U.S. because of its precarious situation:
“The federal government assumes that it can borrow whatever it wants from foreign lenders at low interest rates for as long as it wants,” said David Walker, former comptroller of the U.S. Government Accountability Office who’s now head of the Peter G. Peterson Foundation in New York. “That’s an imprudent assumption.”
Indeed, the International Monetary Fund - which oversees third-world economies - is so concerned about the solvency of the U.S. economy that it is conducting a complete audit of the whole US financial system. The results of that audit might be more honest than credit ratings by American companies, and may result in a reduced opinion of America’s creditworthiness.
One way or the other, America’s credit rating will be downgraded, which will only add to America’s financial problems.

Can Fed Rates Go Below 0%?

Fed Signals Door `Open’ for Cutting Rates to Lowest on Record
Thursday, Oct 30, 2008
Federal Reserve Chairman Ben S. Bernanke signaled he’s ready to cut interest rates to the lowest level on record should the central bank’s actions fail to stem the deepening economic slump.
Policy makers said yesterday that “downside risks to growth remain” even after their half-point reduction in the main rate to 1 percent. The Fed dropped a reference in its statement to threats from inflation, projecting “levels consistent with price stability” in coming quarters.
“The door is wide open for further rate cuts or anything else that might help the economy,” said Allen Sinai, chief economist at Decision Economics in New York. “The implication is that we’ll see another half-point cut in December, if the prospects for the economy remain poor.”
Bernanke is drawing on an academic career studying the failed efforts to prevent the Great Depression, and yesterday’s shift indicates he’s prepared to revisit his 2003 commitment as a governor to lower rates to zero percent if necessary. Should lending fail to revive by December, the central bank will probably cut by another half point, said former Fed Governor Lyle Gramley.


“There is no doubt that the principal risk today is a downside risk” to growth, said Gramley, who is now a Washington-based senior economic adviser for Stanford Group Co., a wealth-management firm. “Inflation has been taken off the table.”
Global Impact
Reflecting a crisis that has reverberated throughout the global economy, the Fed’s Open Market Committee yesterday said that international rate cuts should contribute by loosening credit markets. The FOMC also said slowing economies abroad will threaten the record boom in American exports, which have kept the U.S. from a deeper slump.
“Both of these references show the global nature of the current situation and the global coordinated response, which is the mindset best suited for today’s crisis and the crises of tomorrow,” Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. LLC in New York, wrote in a note.

Dreams Are Dashed

The Smashing of Dreams Is Not Over
Gary North

Wednesday, Oct 29, 2008
Day by day, the dreams of hundreds of millions of people around the world are being smashed. It is a terrible thing to see from the sidelines. It is far worse to be a participant.
The dreams of easy retirement are disappearing. So are the dreams of automatic wealth. Americans, more than any other people, bought into the dream of automatic wealth. “Just buy a larger home with 5% down and wait. You will get rich.” The dream of leveraged money trapped homeowners. It also trapped hedge fund investors.
This dream has yet to play itself out in a wave of bankruptcies. It will. Hedge funds, leveraged 30 to 1, have few reserves apart from stocks in their portfolios. When the stock market falls, they receive margin calls. They must sell more stocks. This depresses the stock market, which triggers more margin calls.
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Getting rich looked easy when stocks were rising. Going bankrupt looks easy now. Leverage is a two-way street.
The sellers of dreams are still in business. “Buy stocks and hold.” “Don’t sell in a panic.” “This market will rebound.” “The decline in the American stock market since March 2000 is a aberration.” “We’re bullish on America.” “The government’s bailouts will work.” “The market is approaching a bottom.”
Those who were seduced by the dream want to believe these reassurances. There is a market for these reassurances. But, week by week, the audience is shrinking. So is their capital.
Recovery is a dream based on fiat money. Prices will go back up, say the cheerleaders. Yes, they will. When the Federal Reserve System pumps in new money at over 300% per annum, which it did from late August to late October (adjusted monetary base), eventually prices will rise. But few people will be made richer.
Here is the three-step religion of recovery: monetary inflation, increased Federal spending, and regulation. Congress promises to implement this program until the dream revives. Congress promises monetary inflation without price inflation, Federal spending without the crowding out of capital to fund business, and regulation without bureaucracy.
This program will not work. It cannot work. We need the opposite program: monetary stability, Federal surpluses, and reduced bureaucracy. We will not get this program . . . ever.
The dream was always naïve. The Reagan revolution was based on monetary inflation after the weekend of August 13, 1982, when the FED’s tight-money policy, which began in the fall of 1979 under Carter, was self-consciously reversed in the wake of the Mexican bank crisis. The Reagan revolution was also based on massive Federal deficits, beginning in 1983. While bureaucracy’s grasping hand did decline under Reagan, as evidenced by the reduction of pages in the “Federal Register” from 60,000 a year to under 40,000 a year in his first term, it started back up in his second term. It has continued to rise to its present 70,000 a year.
The dream of easy wealth through easy money and debt has accelerated in every American generation since the end of World War II. We have now come to a new phase. Money will be far easier as the Federal Reserve inflates, but profits through debt will become more elusive.
Meanwhile, those few Americans who have pension funds dream of the return of the boom of 1982 to 2000.
THE STOCK MARKET
Last Friday, the Dow Jones Industrial Average fell over 300 points. This was considered a good day. It had been down over 600 points in the first hour.
Yesterday, it fell 200 points. That was considered a not- too-bad day. How it got there was typical these days: wildly. It opened down 200, rose through mid-day by over 200, and fell in the last hour to where it had been that morning.
Volatility is constant. The experts do not know whether this market is ready to soar or not.
My guess: it’s not.
Alan Abelson, who has been writing a wry weekly column for Barron’s for over 30 years, cited the work of John Harris. Harris says that in the years since 1928, whenever a Presidential election is accompanied by a bear stock market, the market continued down to year’s end after the election in four out of four cases: 1932, 1948, 1952, and 2000. The average loss on the S&P 500 was 5.9%, but on average the low was 10%.
Past is not necessarily prologue, but it surely is attention-catching.
EXHAUSTION
The experts say that the traditional sign of a bear market climax is a panic sell-off of shares. This is called exhaustion. Exhaustion can produce a bottom. It also creates a sucker’s rally.
In October 2002 the S&P 500 bottomed at 777. That was one of the strangest oddities in stock market history. On Friday the 13th, August 1982, the Dow bottomed at 777.
The S&P 500 arrived at 777 in a most intriguing way. It closed below 800 in mid-2002. Then it soared back to about 950. Then it fell back to 777. Then it soared again to about 950. Then it fell back below 800. Only in the first quarter of 2003 did it begin its long trek back up. It peaked in late October 2007. Then the rout began.
The bulls are waiting for the final sell-off. They tell people to stay in this market, yet they also predict a final sell-off.
It seems to me that it is better to sell your shares – all of them – and short the market. This way, you profit from the final sell-off. But the analysts never mention this strategy, let alone recommend it.
Despite the fact that exhaustion has not happened, the analysts also assure us that the stock market is still fundamentally sound – Herbert Hoover’s famous phrase from 1930 to 1932. There is bad economic news on all fronts, but somehow the stock market is sound. Yet the economy is in recession – something the analysts have denied until recent weeks. The stock market’s bottom is supposed to send a message: the economy is going to recover in six months. Or nine months. Yet the experts are now talking about a recession that lasts longer than the traditional 11 months. Then why should the stock market be close to the bottom?
“IS IT CRASH YET?”
The economy is slowly sagging. This has not been like a fall off a cliff. It has been more like a stroll down a hill. The overleveraged behemoths of finance have taken huge hits, as have the taxpayers, but the economy is not showing signs of anything remotely catastrophic.
There seems to be a disconnect between the stock markets of the world and the world economy. The Hang Seng index of Hong Kong is down by two-thirds over the last year. Yet the Chinese economy, while slowing, still seems to be growing above 7%. These are government-supplied figures. We should not take them too seriously. But the trend is still positive.
Are the Asian stock markets not forecasting really bad news to come in 2009? This is what bullish analysts ought to argue. We are told that the Hang Seng index is selling off because profit projections had been wildly optimistic a year ago. Maybe so, but the question remains: Why?
The answer is the Austrian theory of the trade cycle. The economic boom is created by rising monetary inflation. The bust occurs when the rate of monetary expansion slows. The Chinese central bank is slowing the rate of monetary inflation. It had pumped in money (M1) at a rate of close to 20% per annum for several years. Year to year in September, M1 rose at less than 10%.
In June of 2007, I predicted what I thought was going to happen in China.
The bubble in China resembles the bubble 1995–2000 NASDAQ in the United States. The Chinese stock market is trading at a price/earnings ratio above 50. Some stocks are trading at 80. In a speech on June 12, Alan Greenspan commented, “Some of these price-earnings ratios are discounting Nirvana.” But let us not forget that the NASDAQ reached a p/e ratio of more than 200 in December, 1999.
In late January, I wrote this:
At some point, China’s central bank will be successful in slowing price inflation. The economic boom requires ever-larger percentage increases of the money supply. By merely following the policies of the previous year, the central bank will produce a recession. If the central bank is serious about slowing inflation through interest rate increases, it will see its goal achieved. Price inflation will in fact slow. The cause of the slowdown will be a recession in China.
What could trigger this? A recession in the United States could. Falling demand for the goods produced by China’s export sector will produce bankruptcies in China. They will order no more goods and services. These effects will ripple through the Chinese economy. In the absence of the recessionary efforts of central bank policy, these ripples could be contained by growth in the other sectors. But a reduction of Chinese economic growth is already in the pipeline. The central bank’s policy of letting interest rates rise is sufficient to create a domestic recession.
China is now where I thought it would be. China is cutting jobs in the export sector. The government is intervening to save jobs – the standard approach of governments all over the world.
In short, the recession is spreading fast. The crash in Asian stock markets is not a random event.
We have not had a crash in American stocks comparable to the fall in Asian stocks, but the trend is relentless. The stock market does not reverse for long. Optimism is fading. But it still remains. The average pension fund investor has not called the fund to tell it to stop buying stocks. He does not have to tell the fund to sell – just stop buying.
Because companies match investments in 401(k) programs, investors stay in. They are told endlessly that American stocks will return to their tradition of producing 7% per annum returns, despite the fact that the Dow is down sharply from its peak in 2000 of 11,700, even without the 22% loss to price inflation. The bulk of retirement investors still believe the mantra, despite the evidence.
The falling economy will push down profits. This will push down the denominator of the price/earnings ratio. Prices will fall.
The stock market has obviously reversed its momentum. It heads lower, week by week. The public cannot seem to come to grips with what I have been predicting ever since last November: the end of the boom in stocks and the coming of a long recession.
CONCLUSION
I think the market will get exhaustion. There will be a sharp move downward. But I also expect to see a repeat of 2002 and 2003: spiked upward moves followed by spikes downward.
When will this happen? I don’t know. The market is grinding away investors’ optimism. This psychology has not yet moved to real pessimism – when investors abandon the constant slogan, “Don’t sell in a panic.”
They should have sold calmly a year ago.

Naomi Wolf gives WeAreChangeLA a message for 9/11 truth

SOC saw Wolf speak at the Ron Paul Revolution March in Washington DC last August. She's a liberal, but a smart one who sees the erosion of our liberties. Not all liberals are bad, and she's got her heart in the right place. Plus, she's really easy on the eyes too....

Socialism As A Choice

Socialist or National Socialist? Take Your Pick
Wednesday, Oct 29, 2008
Americans will decide next week whether the next president will be a socialist or a national socialist. Lest you think I exaggerate, consider McCain’ campaign theme of “country first” before everything else – your private life, your job, your children, your education, your marriage, everything. Ask yourself how this differs from the philosophy of German fascism, which preached “the common good comes before the private good” (see Paul Lensch, Three Years of World Revolution).
Or consider the fact that McCain supported the Wall Street Plutocrat Bailout Bill. A defining characteristic of fascism was that all profits were private, but losses were socialized. And oh yes, military imperialism (a.k.a., “national greatness conservatism”) and a dictatorial executive were also key features of European fascism. Recall that McCain promised that if elected (paraphrasing), “I will order the Secretary of the Treasury to by up all of the foreclosed mortgages.” Is that really a part of the delegated powers in Article I, Section 8 of the U.S. Constitution?
Then there is Comrade Obama, who has announced that he wants to “change the world” by “spreading the wealth.” Didn’t Marx and Engels say the same thing in 1848? As is well known, Obama has long had a close association with ACORN, the far-left political organization that employed him as its legal counsel in Chicago. It is ACORN-style “community organizing” that Obama claims is his political forte and qualification for running for president. He boasts of having worked with ACORN to register tens of thousands of new voters and has defended the organization against all critics. It is safe to assume that there must be a congruence of interests between Obama and ACORN.
So the question becomes, what does ACORN (and by implication, Obama) stand for politically and philosophically? It so happens that I researched and wrote about ACORN over twenty years ago when I co-authored a book and numerous articles on the subject of “tax-funded politics,” i.e., the (illegal) granting of tax dollars to “nonprofit” organizations to fund political activities. ACORN was receiving single grants from the federal government in the half million dollar range as far back as the 1970s.
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And what was ACORN doing with your hard-earned tax dollars? According to the 1983 ACORN Members Handbook, “We will continue our fight until the American way is just one way, until we have shared the wealth . . . our freedom shall be based on the equality of the many . . .” Socialism, in other words.
The Handbook published a very communistic-sounding “Peoples’ Platform.” With regard to the energy industry, nationalization was recommended in order to “put people before profits,” one of the oldest of Marxist slogans. The Marxists never understood that in the free market the only way a business could earn profits was to serve its customers.
All of the public utilities should also be nationalized according to ACORN, so that the prices of electricity, natural gas, etc. could be determined politically according to “social considerations.” Nor would there be any discontinuation of service for nonpayment, said the ACORN Handbook, which begs the question, “why would anyone pay their bills under such a standard?”
Price controls would be the order of the day for industries that were not nationalized, and the “health care plank” of the “People’s Platform” called for socialized health care. All hospitals would be managed by “democratically elected community-based committees.” “Throw doctors and hospital administrators off the boards of directors, and replace them with a low and moderate income majority,” demands the People’s Platform. Can you think of a better way to totally destroy health care in America?
The housing industry would also be subjected to the ruinous policies of price controls and prohibitions of evictions of tenants who failed to pay their rent. Welfare indexed for inflation would be part of “the rights of workers” when out of work, as would a “guaranteed minimum family income.” Corporations would be required to have low-income rabble on their boards of directors to give “the people” a “voice.”
In short, ACORN has always advocated nothing short of the destruction of American capitalism and its replacement by the dumbest and most destructive forms of socialism. For years, it made millions for itself by “challenging” bank mergers and branch expansions, as allowed for by the 1977 Community Reinvestment Act. In return for millions in donations and promises to make millions more in sub-prime loans to unqualified borrowers (i.e., “the people” referred to in “The Peoples’ Platform”), ACORN would withdraw its protests (usually administered by the Fed) and the banks would be permitted by the Fed to carry out their plans. ACORN worked diligently for three decades to force mortgage lenders, though this policy of legalized extortion, to make bad loans to unqualified borrowers. And their defenders, like Obama, claim that the Community Reinvestment Act and all of the “community organizations” that it empowered had nothing to do with the sub-prime crisis. It was all caused by “greed,” they tell us. Have we really become a nation of morons?
So here’s your choice on election day: McMussolini (as Ilana Mercer calls him) or ObaMarx. Take your pick. Or do the patriotic thing and stay home. Don’t vote. It only gives them a reason to claim that “the people have spoken” and that they have a “mandate” to ruin our country.

Sound Of cannons Has Predicted China Will Conquer Taiwan;Good To See Others Picking It Up

China Continues Anti Taiwan Military Buildup
The Chinese armed forces have long operated on the assumption that the resolution of the Taiwan issue will involve military conflict and that intervention by U.S. and Japanese forces is inevitable.by Andrei ChangHong Kong (UPI) Oct 29, 2008 Mainland Chinese officials regard the more moderate position adopted by Taiwan's new president, Ma Ying-jeou, with some skepticism.
Ma, leader of Taiwan's Kuomintang Party, holds the position that Taiwan -- which calls itself the Republic of China -- is an independent country. To some mainland scholars that formulation is not much different from former Taiwanese President Chen Shui-bian's more outspoken and confrontational "Taiwan independence" position.
Given the unstable nature of the political relationship, the Chinese armed forces are not willing to risk a relaxation of their preparations for military conflict with Taiwan.
There are also other factors that would make it difficult for the People's Liberation Army of the People's Republic of China to stand down in the Taiwan Strait, even if it did trust the Taiwanese regime on the island.
Since 1994, when cross-strait relations began to deteriorate, China has concentrated its military focus on coping with a contingency on the southeast coast.
As a result, priority attention has been given to developing the People's Liberation Army's navy, air force, second artillery force, army special operations troops and airborne corps. For 15 years core military equipment procurement, as well as research and development of the PLA in mainland China, have been geared toward a military conflict with Taiwan.
This military expansion of mainland China has developed its own momentum. A substantial number of weapon systems developed during this period of time are now entering the stage of batch production.
China has established an immense military industrial complex over the past 15 years, accompanied by the emergence of complicated business interest groups. The "Taiwan threat" has provided a pretext for expanding the resources of the defense industry. In recent years arms deals with Russia -- China's mainstay supplier -- have not proceeded smoothly. But China has been developing its own weapon systems, and its own military industrial complex carries much more weight, prestige and power.
Finally, from China's perspective, international relations have become more unpredictable in the past two decades or so. At the same time, China is determined to become a major power in the world.
A number of its military equipment development programs are intended to turn China into a global military power. These include work on developing an aircraft carrier as well as SSBN and SSN submarines. China is expected to speed up the pace of development of these programs in the next four years.
The Chinese armed forces have long operated on the assumption that the resolution of the Taiwan issue will involve military conflict and that intervention by U.S. and Japanese forces is inevitable.
Therefore, the People's Liberation Army of mainland China continues to develop and deploy sophisticated weapons systems -- most recently deploying its next-generation DF-21C medium-range ballistic missiles, for example. The purpose is none other than to deal with U.S. and Japanese forces in the event of a conflict over Taiwan, a fight that China could never imagine losing.

Attention: Credit Card Companies Have Realized That You Are Broke

The New York Times has an article detailing what promises to be the next fun financial crisis — credit card debt! Apparently, credit card companies have only just now realized that you people are broke! Whoops.
Last time this happened, during the dotcom bust, the companies just raised fees to compensate for all the defaults. The trouble is, they're probably not going to be able to get away with it again.
In previous downturns, banks could make up the missing profits by raising fees. This time, there may be less room to maneuver.
“The last time credit costs spiked, the late fees were much lower, so card issuers could turn to that and reprice more nimbly,” a Morgan Stanley analyst, Betsy Graseck, said. “There is just more scrutiny now, and coming after the subprime mortgage crisis, the world is more sensitive to the way lenders behave.”
There is an upside to all of this, of course, the number of pieces of junk mail the average American receives has fallen dramatically.

FedEx CEO Says Most People Lazy Wealth Stealers

Though they may lavish Wall Street Journal reporters with leaks and other scoops, American corporate executives tend to keep their names out of the newspaper's editorial pages. Overt support for the opinion section's relentlessly right-wing politics carries too much risk of customer blowback. But FedEx founder and CEO Fred Smith will tolerate no such sissiness. A former George W. Bush fraternity brother, Smith was named as a possible Bush defense secretary and has become involved with John McCain's presidential run. Fair enough. But Smith has to figure many customers might take it personally when tells the Journal opinion section "a majority of the population" is unproductive and greedy:
He sees a big problem in that so few Americans now pay any income tax. "We're now at a point where a very large part of the population pays no federal income tax at all. When you have a majority of the population that realizes that you can transfer money from the productive to themselves, that's one of the great questions for the future of civilization, as far as I'm concerned."

Obama's Cabinet

Redistribute, Just Like Karl Said.................

What Gold Bugs Shouldn't Do

“I believe the gold juniors offer the best value for your paper dollar going forward,” says Ed Bugos of the violently beaten-down junior mining sector. The Canadian Venture Index, the bellwether of juniors, is down a nauseating 70% from its 2007 high.

This time what gold bugs should NOT do:

~Don't be overly short the stock market at this stage of the collapse.
~Don’t slow down your gold buying just because the market is down. Buy a lot of gold -- coins and bars. Buy as much as you can before it breaks through $1,000. Then hide it.
~Don't buy the GLD streetTRACKS, unless you're just trading.
~Don't buy gold from your bank.
~Don’t put all your eggs in one basket. Diversify your wealth between tangible assets, like gold, silver and platinum, or even real estate, and continue selectively accumulating bargains in the equity sphere. Diversify geographically.
~Don’t invest more than 20% of your wealth in junior miners. It is not a safe-haven panacea. The rewards are potentially high, but the risks are, too.
~Don't keep all your wealth in gold, because the government will one day probably come for it.

NWO Is Coming

New World Order Could be the Swan Song of Your Offshore Freedoms
One man's alarmism is another man's realism. And what I am about to relate here may move you to take action concerning offshore financial matters rather quickly – because time and your liberties may be running out. You really do need to think hard about what you should do now.President Bush will host a "summit meeting" on the global financial crisis on Nov. 15th in Washington, D.C. bringing together "world leaders" for the first in a series of conferences aimed at "reforming" the international financial system.The summit – to be held 11 days after the U.S. presidential election – will include leaders, finance ministers and central bank governors of the Group of 20, a forum established in 1999 to promote dialogue among industrialized and developing countries on economic issues.The G-20 includes Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom and the United States. The European Union is represented by the rotating presidency of its council, (in this case the hyper French president Nicolas Sarkosy), and the European Central Bank.While this and subsequent meetings are being billed as sessions for "reform" and possible cures of the economic ills now besetting the world, you can bet that the high-tax welfare states attending will drag out all their old socialistic nostrums that the Bush administration – however wrongheaded in so many ways – has been able to defeat or postpone for the last eight years.High among their goals is the abolition of tax havens worldwide, an end to all financial privacy, automatic exchange of tax information among all national tax collectors, nullification of bank secrecy laws, and public records of all hitherto private beneficial ownership of trusts, foundations and corporations.Just as the 9-11, 2001 terrorist attacks were used to justify rushing through the unconstitutional PATRIOT Act, watch what happens at this summit.

By Default, Gold Will Soon Be Higher

Along with China and Taiwan, Russian Prime Minister Vladimir Putin (in a story in themoscowtimes.com) warned against buying US dollars on Wednesday as the ruble fell to its lowest level in two years against the currency. "It's a dubious business. It's not clear what will happen to the dollar," Putin said. He, and his Chinese peers, are absolutely correct. That's why you should be buying all the physical gold and silver you can get your hands on. This gift from JPMorgan and HSBC isn't going to last much longer.

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

Shallow men believe in luck. Strong men believe in cause and effect. - Ralph Waldo Emerson

Obama: Stuffed Shirt

What Do They Know Already?

Police Prepare For Possible Election Night Riots

Will election night bring civil unrest? Police departments countrywide think it's a possibility, and they're preparing for riots or other violent reactions to a McCain or Obama victory, The Hill reports. There is particular concern that a loss by Obama, who has built a big lead in the polls, could prompt significant problems. "Some worry that if Barack Obama loses and there is suspicion of foul play in the election, violence could ensue in cities with large black populations," The Hill writes. Detroit, Chicago, Oakland and Philadelphia are among the cities that plan to have extra police deployed. “Are we anticipating it will be a riot situation? No. But will we be prepared if it goes awry? Yes,” Oakland Police Department spokesman Jeff Thomason said. Oakland will have extra units trained to deal with riots deployed and SWAT teams on standby when the results come in. Many police departments are preparing as they might for the possibility of a championship win or loss by a local sports team. Some believe riots could come no matter who wins. “If [Obama] is elected, like with sports championships, people may go out and riot,” Bob Parks, an online columnist and black Republican candidate for state representative in Massachusetts, told The Hill. “If Barack Obama loses there will be another large group of people who will assume the election was stolen from him….. This will be an opportunity for people who want to commit mischief.”

Scary Halloween Picture!

Interesting Article On Energy

New Energy Economy Emerging in the United States
Lester R. Brown
As fossil fuel prices rise, as oil insecurity deepens, and as concerns about climate change cast a shadow over the future of coal, a new energy economy is emerging in the United States. The old energy economy, fueled by oil, coal, and natural gas, is being replaced by one powered by wind, solar, and geothermal energy. The transition is moving at a pace and on a scale that we could not have imagined even a year ago. Consider Texas. Long the leading oil-producing state, it is now also the leading generator of electricity from wind, having overtaken California two years ago. Texas now has nearly 6,000 megawatts of wind-generating capacity online and a staggering 39,000 megawatts in the construction and planning stages. When all this is completed, Texas will have 45,000 megawatts of wind-generating capacity (think 45 coal-fired power plants). This will more than satisfy the residential needs of the state’s 24 million people, enabling Texas to feed electricity to nearby states such as Louisiana and Mississippi. After Texas and California, the other leaders among the 30 states with commercial-scale wind farms are Iowa, Minnesota, Washington, and Colorado. And other states are emerging as wind superpowers. Clipper Windpower and BP are teaming up to build the 5,050-megawatt Titan wind farm, the world’s largest, in eastern South Dakota. Already under development, Titan will generate five times as much electricity as the state’s 780,000 residents currently use. This project includes building a transmission line along an abandoned rail line across Iowa, feeding electricity into Illinois and the country’s industrial heartland.Colorado billionaire Philip Anschutz is developing a 2,000-megawatt wind farm in south central Wyoming. He already has secured the rights to build a 900-mile high-voltage transmission line to California. With this investment, the door will be opened to developing scores of huge wind farms in Wyoming, a wind-rich state with few people. Another transmission line under development will run north-south, linking eastern Wyoming’s wind resources with the fast-growing Colorado cities of Fort Collins, Denver, and Colorado Springs. Wind-rich Kansas and Oklahoma are looking to build a transmission line to the U.S. Southeast to export their wealth of cheap wind energy. California is developing a 4,500-megawatt wind farm complex in the Tehachapi Mountains northwest of Los Angeles. In the east, Maine—a wind energy newcomer—is planning to develop 3,000 megawatts of wind-generating capacity, far more than the state’s 1.3 million residents need. Further south, Delaware is planning an offshore wind farm of up to 600 megawatts, which could satisfy half of the state’s residential electricity needs. New York State, which has 700 megawatts of wind-generating capacity, plans to add another 8,000 megawatts, with most of the power being generated by winds coming off Lake Erie and Lake Ontario. And soon Oregon will nearly double its wind generating capacity with a 900-megawatt wind farm in the wind-rich Columbia River Gorge. Wind appears destined to become the centerpiece of the new U.S. energy economy, eventually supplying several hundred thousand megawatts of electricity.Solar power is also expanding at a breakneck pace. The nation’s wealth of solar energy is being harnessed by using both photovoltaic cells and solar thermal power plants to convert sunlight into electricity. For solar cell installations, California, with its Million Solar Roofs plan, is far and away the leader. New Jersey is also moving fast, followed by Nevada.The largest U.S. solar cell installation today is a 14-megawatt array at Nellis Air Force Base in Nevada, but photovoltaic electricity at the commercial level is about to go big time. PG&E has entered into two solar cell power contracts with a combined capacity of 800 megawatts. Together, these plants will cover 12 square miles of desert with solar cells and will have a peak output comparable to that of a large coal-fired power plant. Solar power plants are appealing in hot climates because their highest output coincides with the peak demand for air conditioning.Solar thermal plants that use mirrors to concentrate sunlight on a vessel containing a fluid—heating it to 750 degrees Fahrenheit to generate steam and produce power—have suddenly become an enormously attractive technology. The United States has the world’s only large solar thermal complex, a 350-megawatt project completed in 1991. But as of September 2008 there are 10 large solar thermal power plants under construction or in development in the United States, ranging in size from 180 megawatts to 550 megawatts. Eight of the plants will be built in California, one in Arizona, and one in Florida. Within the next three years, the United States will likely go from 420 megawatts of solar thermal generating capacity to close to 3,500 megawatts—an eightfold jump. Along with wind and solar, geothermal energy is also developing at an explosive rate. As of 2008 the United States has nearly 3,000 megawatts of geothermal generating capacity, 2,500 of which are in California. Suddenly this too is changing. Some 96 geothermal power plants now under development in twelve western states are expected to double U.S. geothermal generating capacity. With California, Nevada, Oregon, Idaho, and Utah leading the way, the stage is set for the massive future development of geothermal energy. (See data). The new energy economy will be powered largely by electricity from renewable sources. Electricity will light, heat, and cool buildings. As we shift to plug-in hybrid cars, light rail transit systems in cities, and high-speed electric intercity rail systems like those in Japan and Europe, our transport system will also be powered largely by electricity.It is historically rare for so many interests to converge at one time and in one place as those now supporting the development of renewable energy resources in the United States. To begin with, shifting to renewables increases energy security simply because no one can cut off the supply of wind, solar, or geothermal energy. It also avoids the price volatility that has plagued oil and natural gas in recent decades. Once a wind farm or a solar thermal power plant is built, the price is stable since there is no fuel cost. Turning to renewables will also dramatically cut carbon emissions, moving us toward climate stability and thus avoiding the most dangerous effects of climate change. The shift also will staunch the outflow of dollars for oil, keeping that capital at home to invest in the new energy economy, developing national renewable energy resources and creating jobs here. At a time of economic turmoil and rising joblessness, these new industries can generate thousands of new jobs each week. Not only are the wind, solar, and geothermal industries hiring new workers, they are also generating jobs in construction and in basic supply industries such as steel, aluminum, and silicon manufacturing. To build and operate the new energy economy will require huge numbers of electricians, plumbers, and roofers. It will also employ countless numbers of high-tech professionals such as wind meteorologists, geothermal geologists, and solar engineers. To ensure that this shift to renewables continues at a rapid rate, national leadership is needed in one key area—building a strong national grid. Although private investors are investing in long-distance high-voltage transmission lines, these need to be incorporated into a carefully planned national grid, the electrical equivalent of President Eisenhower’s interstate highway system, in order to unleash the full potential of renewable energy wealth.And, finally, this energy transition is being driven by an intense excitement from the realization that people are now tapping energy sources that can last as long as the earth itself. Oil wells go dry and coal seams run out, but for the first time since the industrial revolution we are investing in energy sources that can last forever. This new energy economy can be our legacy to the next generation.

Reuters Already consigning Conservatives To The Historic Trash heap ~ Next To The Whig Party

This anti-conservative political cartoon is proof positive that Conservatives can laugh at themselves; unlike Liberals who love the smell of their own bodily functions. Ed.~SOC

If McCain loses, what next for conservatives?
Sun Oct 26, 2008 10:27am EDT
By Ed Stoddard
DALLAS (Reuters) - If Republican John McCain loses the November 4 election as most polls predict, his party may be in for a rough period of soul searching.
Analysts and some party activists say losing the White House will highlight the pitfalls of relying too heavily on a narrow foundation of conservative Christians whose support has nonetheless become crucial to Republican electoral success.
But some social conservatives say a victory for Democrat Barack Obama, whom they regard as an "ultra-liberal," will energize them for the 2010 congressional "mid-term" races and the 2012 White House battle.
The election is still over a week away and a lot can happen between now and then. McCain has staged huge comebacks before.
But almost every major poll has Obama with a commanding national lead as his campaign benefits from an unfolding financial crisis that has shaken America and knocked conservative red-meat issues like abortion and gay marriage off the political stage.
"An Obama victory will galvanize social conservatives for 2010 and 2012 and they will look for a standard bearer they can rally around," said Richard Land, president of the Southern Baptist Convention's Ethics & Religious Liberty Commission, the public policy arm of America's largest evangelical group.
Land told Reuters the candidate most likely to "rally the troops" under an Obama administration looked to be McCain's running mate Sarah Palin.
The Alaska governor has excited the evangelical base but her strident opposition to abortion rights and other hard-core
conservative positions have alienated more moderate voters.
William Donohue, president of the conservative Catholic League which opposes abortion rights, said religious conservatives were bracing for a new phase in the "culture wars."
"I've been on the phone the last couple of days with some of my friends ... and we're getting ready for the biggest culture war battles ever," Donohue said.
"There is nobody in the history of the United States who has run for president who is a more enthusiastic supporter of abortion rights than Obama," he said.
President George W. Bush took almost 80 percent of the white evangelical vote and was the favorite of many socially conservative Catholics during the 2004 election.
In fact religious conservatives have played a key role in every Republican victory since Ronald Reagan's in 1980, which some analysts say shows the party cannot win without them.
Evangelicals account for one in four U.S. adults according to some estimates, giving them serious clout in a country where faith and politics often mix.
PITFALLS OF "PALIN STRATEGY"
But Bush's 2004 win was narrow, won in part on the use of issues like gay marriage to get the faith vote to the polls.
Moderate Republicans say a McCain loss will show the limits of that strategy and demonstrate that the party may not be able to win if it just focuses on pleasing the base without reaching for the center.
"Focusing on social conservatism alienates moderate and mainstream voters and will consign us to 160 House seats in the South and the mid-west," said Patrick Sammon, president of the Log Cabin Republicans, a group of gay Republicans which stresses social tolerance and fiscal conservatism.
"We need members from across the political spectrum running as Republicans. (We) need to build a party based on the future, not the past," he said.
That can be a delicate balancing act.
"Republicans must have the support of evangelicals but they can't pursue them in too crass a way because when they do they alienate moderates," said David Domke, a professor of communication at the University of Washington in Seattle who specializes in the "faith factor" in U.S. politics.
Some analysts also note that the evangelical movement itself is hardly monolithic as it broadens its agenda to include the fight against climate change and loses its harder edges on some social issues.
Polls show abortion and gay rights issues further down the list of evangelical priorities though substantial numbers still care deeply about these issues.
"Their tone will modulate - it will be essential for Republican victory in the years ahead," said Michael Lindsay, a political sociologist at Rice University in Houston and an expert on evangelicals and politics.

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

"It is always possible to bind together a considerable number of people in love, so long as there are other people left over to receive the manifestations of their aggression." -Sigmund Freud

Bill Bonners Latest On The Crisis

TWENTY-FIVE STANDARD DEVIATIONS IN A BLUE MOON

by Bill Bonner
What's going wrong in the financial sector is not so unusual after all.
One of the funniest moments in the great credit crunch of 2007 came in the summer.
"We are seeing things that were 25-standard deviation events, several days in a row," said David Viniar, CFO of the smartest financial firm in the world, Goldman Sachs.
That Viniar. What a comic.
According to Goldman's mathematical models…August, Year of Our Lord 2007, was a very special month. Things were happening then that were only supposed to happen about once in every 100,000 years.
Either that…or Goldman's models were wrong.
We recall looking out our window. Outside, we saw a summer day much like any other. And inside, what we saw in the news was also rather typical - a credit crunch. No, credit crunches don't come along every day…but nor do 100,000 years separate one from another. In the United States, recently, we have had the crash of the dotcoms, the crash of Long Term Capital in '98 and the crash of '87; outside of the United States, there have been a number of credit crunches, in Japan, Russia, Mexico and various Asian countries.
When you make loans to people who can't pay the money back, trouble is only a couple standard deviations away. So far, during the first eight months of 2007, some 1.7 million houses have been caught up in foreclosure proceedings in the United States. That is just the beginning. According to Congressional estimates, up to 2 million families are expected to lose their homes over the next two years.
The individual amounts of money weren't very large, not by Wall Street standards. But when the money didn't show up, it had an alarming effect. Last week's press brought estimates of total losses of over $13 billion at Citi. Morgan Stanley is said to be facing $8 billion in losses. Merrill Lynch set records with estimated losses of $18 billion. The cat still has Goldman Sachs' tongue. But when the losses are toted up, they will probably be spectacular. Altogether, there is more than $1 trillion in subprime debt outstanding; much of it will go bad.
Already heads have begun to roll. First, Warren Spector of Bear Stearns got axed. Then, it was Peter Wuffli at UBS. He was followed by Stan O'Neal of Merrill Lynch. O'Neal made the headlines when he was pushed out of the corporate jet with a 'golden parachute' valued at $160 million. After O'Neal hit the ground, along came Chuck Prince of Citigroup - America's largest bank. The firm is expected to write down $5 billion this quarter alone. Chuck was chucked out.
What went wrong? The business model seemed so pure and simple. You simply bought up subprime loans from the knaves who made them…then, you cut them up, slicing and dicing them into a kind of mortgage spam. You got the rating agencies to bless them…and then you sold them off to naïve investors. The idea was to earn huge fees upfront…while laying the risk onto the fools who bought the stuff.
When the going was good, it looked as though no business could be better. You were providing a valuable public service, helping people buy houses by redistributing the risk from the people who incurred it to people who had no idea it was there. And in the process, you earned such large fees you would get your picture in the paper, build a huge mansion in Greenwich and acquire some abominable paintings to put on the walls.
But wrong it did go. The Financial Times provides more detail on what happened at Citigroup:
"The bank reported that, at the end of September, it had around $2.7bn of unsold collateralised debt obligations - pools of debt securities that are repackaged and distributed to other investors.
"But it also had $4.2bn of subprime loans it had bought in the past six months, and about $4.8bn of loans to customers which were secured by subprime collateral. In addition, the bank had $43bn of exposure to the most highly rated tranches of CDOs based on subprime mortgage assets."
It turns out Citi was fool and knave at the same time. It sold dubious subprime debt to its customers. But it bought it too…and took it as collateral.
Gary Crittenden, Citi's chief financial officer, claimed Monday that the firm was simply a victim of unforeseen events. The losses were, "driven by some events that have happened during the month of October," he said, referring to downgrades by rating agencies. No mention was made of the previous five years, when Citi was busily consolidating mortgage debt from people who weren't going to repay…pronouncing it 'investment grade'…mongering it to its clients…and stuffing it into its own portfolio…while paying itself billions in fees and bonuses. No, according to the masters of the universe, downgrades by Moody's and Fitch's were completely unexpected…like the eruption of Vesuvius; even the gods were caught off guard. Apparently, as of September 30th, Citigroup's subprime portfolio was worth every penny of the $55 billion Citi's models said it was worth. Then, whoa, in came one of those 25-sigma events. Citi was whacked by a once-in-a-blue moon fat tail.
Who could have seen that coming?

Why Not Socialism? Here's Why!

Why Not Socialism?

Tibor R. Machan

It is no scare tactic to raise the specter of a socialist America these days. First, it was Senator Hillary Rodham Clinton whose candidacy promised to take socialism front and center as America’s official ideology. Clinton’s book, It Takes A Village (Simon & Schuster, 1996), unabashedly affirms the socialist ideal, arguing that individualism must be rejected in favor of collectivism, wherein all of us are part of one social whole, exactly as Karl Marx had argued in several of his works. (See, most accessibly, Marx’s posthumously published Grundrisse for a very clear example.)Senator Barack Obama, too, clearly shows a preference for the socialist system, as in his exchange with Joe the Plumber where he made it crystal clear that he wants to spread the wealth no matter whose wealth it is (certainly not his own) and in his life long association with socialist groups and projects.Senator Joe Biden, too, has his socialist credentials. During the hearings of the Senate Judiciary Committee concerning the nomination to the U. S. Supreme Court of Clarence Thomas, Senator Biden openly ridiculed the ideas of those who champion the right to private property. He held up Professor Richard Epstein’s book, Takings: Private Property and the Power of Eminent Domain (Harvard University Press, 1985), which affirms that principle, in order to openly reject its ideas. (It was Marx and Engels, in their Communist Manifesto, who made it abundantly clear that to advance toward socialism and, in time, communism, the principle of the right to private property must be abolished!)Variations of socialism have, of course, managed to get established in different societies without any violent revolution--just consider how National Socialism triumphed in Germany’s Weimar Republic, ushering in Hitler’s regime, and how Hugo Chavez got elected in Venezuela and promptly installed his version of fascistic socialism. Marx himself pointed this out in a speech he gave in Holland in 1983, arguing that in more or less democratic countries the revolution can be achieved via the ballot box.The notion that it cannot happen here is completely silly. Yes, America has a pretty good constitution and its Bill of Rights would seem to be a good defense against establishing a socialist or fascist regime. In fact, however, no written constitution alone can fend off such a development, not without the beliefs of the bulk of the citizenry backing up the ideas and ideals of that anti-socialist constitution. Given how powerful the temptation is to seek the help of an all powerful government to promote one’s economic agenda of taking from Peter to provide for Paul--the central element of Senator Clinton’s and now Obama’s health care proposal and, of course, of the idea of "spreading the wealth" and given how weak is the conviction in America of the basic principles of the Declaration of Independence--all that stuff about everyone having unalienable rights to one’s life, liberty, and pursuit of happiness--the prospect of real socialism in the U. S. A. is no longer a version of McCarthyism.Of course many Americans would be shocked to learn that they are being complicit in ushering in socialism in their country. They only want moderate wealth redistribution--they want to spread the wealth but within limits; they want their children to be socialized, along lines spelled out in Senator Clinton’s book, but only to a point. In short, most Americans believe in what political theorists now call market socialism--a kind of impossible combination of socialism and the free market. They want a robust welfare state.Trouble is there is no coherent idea of market socialism or even the welfare state that provides solid limits to the power of government and secures an individual's rights to life and liberty, let alone property. The pursuit of the public interest, the common good, the welfare of society as a whole, necessarily amounts to pursuing the good of just some members of society as understood by a few of those members. The only valid public interest is what the American Founders identified, namely, securing everyone’s basic, individual rights to their lives, liberty and pursuit of happiness. Every other idea of the welfare of society or the public or some such notion amounts to handing power to some few members who will then wield it without a clue as to what else to aim for but their own agenda. There is, in other words, no valid socialist idea, no valid welfare of the state, nada! It all comes down to the dictatorship of a few, just as it did in Soviet Russia and Nazi Germany, Cuba, North Korea, China, and now Venezuela. The rest is all some feeble attempt to square the circle.

Free Market Economics Aren't At Fault

The Myth that Laissez Faire Is Responsible for Our Financial Crisis
The news media are in the process of creating a great new historical myth. This is the myth that our present financial crisis is the result of economic freedom and laissez-faire capitalism.The attempt to place the blame on laissez faire is readily confirmed by a Google search under the terms “crisis + laissez faire.” On the first page of the results that come up, or in the web entries to which those results refer, statements of the following kind appear:“The mortgage crisis is laissez-faire gone wrong.”“Sarkozy [Nicolas Sarkozy, the President of France] said `laissez-faire’ economics, `self-regulation’ and the view that `the all-powerful market’ always knows best are finished.”“`America’s laissez-faire ideology, as practiced during the subprime crisis, was as simplistic as it was dangerous,’ chipped in Peer Steinbrück, the German finance minister.”“Paulson brings laissez-faire approach on financial crisis….”“It’s au revoir to the days of laissez faire.”[1]Recent articles in The New York Times provide further confirmation. Thus one article declares, “The United States has a culture that celebrates laissez-faire capitalism as the economic ideal….”[2] Another article tells us, “For 30 years, the nation’s political system has been tilted in favor of business deregulation and against new rules.”[3] In a third article, a pair of reporters assert, “Since 1997, Mr. Brown [the British Prime Minister] has been a powerful voice behind the Labor Party’s embrace of an American-style economic philosophy that was light on regulation. The laissez-faire approach encouraged the country’s banks to expand internationally and chase returns in areas far afield of their core mission of attracting deposits.”[4] Thus even Great Britain is described as having a “laissez-faire approach.”The mentality displayed in these statements is so completely and utterly at odds with the actual meaning of laissez faire that it would be capable of describing the economic policy of the old Soviet Union as one of laissez faire in its last decades. By its logic, that is how it would have to describe the policy of Brezhnev and his successors of allowing workers on collective farms to cultivate plots of land of up to one acre in size on their own account and sell the produce in farmers’ markets in Soviet cities. According to the logic of the media, that too would be “laissez faire”—at least compared to the time of Stalin.Laissez-faire capitalism has a definite meaning, which is totally ignored, contradicted, and downright defiled by such statements as those quoted above. Laissez-faire capitalism is a politico-economic system based on private ownership of the means of production and in which the powers of the state are limited to the protection of the individual’s rights against the initiation of physical force. This protection applies to the initiation of physical force by other private individuals, by foreign governments, and, most importantly, by the individual’s own government. This last is accomplished by such means as a written constitution, a system of division of powers and checks and balances, an explicit bill of rights, and eternal vigilance on the part of a citizenry with the right to keep and bear arms. Under laissez-faire capitalism, the state consists essentially just of a police force, law courts, and a national defense establishment, which deter and combat those who initiate the use of physical force. And nothing more.The utter absurdity of statements claiming that the present political-economic environment of the United States in some sense represents laissez-faire capitalism becomes as glaringly obvious as anything can be when one keeps in mind the extremely limited role of government under laissez-faire and then considers the following facts about the present-day United States.1) Government spending in the United States currently equals more than forty percent of national income, i.e., the sum of all wages and salaries and profits and interest earned in the country. This is without counting any of the massive off-budget spending such as that on account of the government enterprises Fannie Mae and Freddie Mac. Nor does it count any of the recent spending on assorted “bailouts.” What this means is that substantially more than forty dollars of every one hundred dollars of output are appropriated by the government against the will of the individual citizens who produce that output. The money and the goods involved are turned over to the government only because the individual citizens wish to stay out of jail. Their freedom to dispose of their own incomes and output is thus violated on a colossal scale. In contrast, under laissez-faire capitalism, government spending would be on such a modest scale that a mere revenue tariff might be sufficient to support it. The corporate and individual income taxes, inheritance and capital gains taxes, and social security and Medicare taxes would not exist.2) There are presently fifteen federal cabinet departments, nine of which exist for the very purpose of respectively interfering with housing, transportation, healthcare, education, energy, mining, agriculture, labor, and commerce, and virtually all of which nowadays routinely ride roughshod over one or more important aspects of the economic freedom of the individual. Under laissez faire capitalism, eleven of the fifteen cabinet departments would cease to exist and only the departments of justice, defense, state, and treasury would remain. Within those departments, moreover, further reductions would be made, such as the abolition of the IRS in the Treasury Department and the Antitrust Division in the Department of Justice.3) The economic interference of today’s cabinet departments is reinforced and amplified by more than one hundred federal agencies and commissions, the most well-known of which include, besides the IRS, the FRB and FDIC, the FBI and CIA, the EPA, FDA, SEC, CFTC, NLRB, FTC, FCC, FERC, FEMA, FAA, CAA, INS, OHSA, CPSC, NHTSA, EEOC, BATF, DEA, NIH, and NASA. Under laissez-faire capitalism, all such agencies and commissions would be done away with, with the exception of the FBI, which would be reduced to the legitimate functions of counterespionage and combating crimes against person or property that take place across state lines.4) To complete this catalog of government interference and its trampling of any vestige of laissez faire, as of the end of 2007, the last full year for which data are available, the Federal Register contained fully seventy-three thousand pages of detailed government regulations. This is an increase of more than ten thousand pages since 1978, the very years during which our system, according to one of The New York Times articles quoted above, has been “tilted in favor of business deregulation and against new rules.” Under laissez-faire capitalism, there would be no Federal Register. The activities of the remaining government departments and their subdivisions would be controlled exclusively by duly enacted legislation, not the rule-making of unelected government officials.5) And, of course, to all of this must be added the further massive apparatus of laws, departments, agencies, and regulations at the state and local level. Under laissez-faire capitalism, these too for the most part would be completely abolished and what remained would reflect the same kind of radical reductions in the size and scope of government activity as those carried out on the federal level.What this brief account has shown is that the politico-economic system of the United States today is so far removed from laissez-faire capitalism that it is closer to the system of a police state than to laissez-faire capitalism. The ability of the media to ignore all of the massive government interference that exists today and to characterize our present economic system as one of laissez-faire and economic freedom marks it as, if not profoundly dishonest, then as nothing less than delusional.Government Intervention Actually Responsible for the CrisisBeyond all this is the further fact that the actual responsibility for our financial crisis lies precisely with massive government intervention, above all the intervention of the Federal Reserve System in attempting to create capital out of thin air, in the belief that the mere creation of money and its being made available in the loan market is a substitute for capital created by producing and saving. This is a policy it has pursued since its founding, but with exceptional vigor since 2001, in its efforts to overcome the collapse of the stock market bubble whose creation it had previously inspired.The Federal Reserve and other portions of the government pursue the policy of money and credit creation in everything they do that encourages and protects private banks in the attempt to cheat reality by making it appear that one can keep one’s money and lend it out too, both at the same time. This duplicity occurs when individuals or business firms deposit cash in banks, which they can continue to use to make purchases and pay bills by means of writing checks rather than using currency. To the extent that the banks are then enabled and encouraged to lend out the funds that have been deposited in this way (usually by the creation of new and additional checking deposits rather than the lending of currency), they are engaged in the creation of new and additional money. The depositors continue to have their money and borrowers now have the bulk of the funds deposited. In recent years, the Federal Reserve has so encouraged this process, that checking deposits have been created equal to fifty times the actual cash reserves of the banks, a situation more than ripe for implosion.All of this new and additional money entering the loan market is fundamentally fictitious capital, in that it does not represent new and additional capital goods in the economic system, but rather a mere transfer of parts of the existing supply of capital goods into different hands, for use in different, less efficient and often flagrantly wasteful ways. The present housing crisis is perhaps the most glaring example of this in all of history.Perhaps as much as a trillion and a half dollars or more of new and additional checkbook-money capital was channeled into the housing market as the result of the artificially low interest rates caused by the presence of an even larger overall amount of new and additional money in the loan market. Because of the long-term nature of its financing, housing is especially susceptible to the effect of lower interest rates, which can serve sharply to reduce monthly mortgage payments and in this way correspondingly increase the demand for housing and for the mortgage loans needed to finance it.Over a period of years, the result was a huge increase in the production and purchase of new homes, rapidly rising home prices, and a further spiraling increase in the production and purchase of new homes in the expectation of a continuing rise in their prices.To gauge the scale of its responsibility, in the period of time just since 2001, the Federal Reserve caused an increase in the supply of checkbook-money capital of more than 70 percent of the cumulative total amount it had created in the whole of the previous 88 years of its existence—that is, almost 2 trillion dollars.[5] This was the increase in the amount by which the checking deposits of the banks exceeded the banks’ reserves of actual money, that is, the money they have available to pay depositors who want cash. The Federal Reserve caused this increase in illusory capital by means of creating whatever new and additional bank reserves as were necessary to achieve a Federal Funds interest rate—that is, the rate of interest paid by banks on the lending and borrowing of reserves—that was far below the rate of interest dictated by the market. For the three years 2001-2004, the Federal Reserve drove the Federal Funds Rate below 2 percent and from July of 2003 to June of 2004, drove it even further down, to approximately 1 percent.The Federal Reserve also made it possible for banks to operate with a far lower percentage of reserves than ever before. Whereas in a free market, banks would hold gold reserves equal to their checking deposits, or at the very least to a substantial proportion of their checking deposits,[6] the Federal Reserve in recent years contrived to make it possible for them to operate with irredeemable fiat money reserves of less than 2 percent.The Federal Reserve drove down the Federal Funds Rate and brought about the vast increase in the supply of illusory capital for the purpose of driving down all market interest rates. The additional illusory capital could find borrowers only at lower interest rates. The Federal Reserve’s goal was to bring about interest rates so low that they could not compensate even for the rise in prices. It deliberately sought to achieve a negative real rate of interest on capital, that is, a rate below the rate at which prices rise. This means that a lender, after receiving the interest due him for a year, has less purchasing power than he had the year before, when he had only his principal.In doing this, the Federal Reserve’s ultimate purpose was to stimulate both investment and consumer spending. It wanted the cost of obtaining capital to be minimal so that it would be invested on the greatest possible scale and for people to regard the holding of money as a losing proposition, which would stimulate them to spend it faster. More spending, ever more spending was its concern, in the belief that that is what is required to avoid large-scale unemployment.As matters have turned out, the Federal Reserve got its wish for a negative real rate of interest, but to an extent far beyond what it wished. It wished for a negative real rate of return of perhaps 1 to 2 percent. What it achieved in the housing market was a negative real rate of return measured by the loss of a major portion of the capital invested. In the words of The New York Times, “In the year since the crisis began, the world’s financial institutions have written down around $500 billion worth of mortgage-backed securities. Unless something is done to stem the rapid decline of housing values, these institutions are likely to write down an additional $1 trillion to $1.5 trillion.”[7]This vast loss of capital in the housing debacle is what is responsible for the inability of banks to make loans to many businesses to which they normally could and would lend. The reason they cannot now do so is that the funds and the real wealth that have been lost no longer exist and thus cannot be lent to anyone. The Federal Reserve’s policy of credit expansion based on the creation of new and additional checkbook money has thus served to give capital to unworthy borrowers who never should have had it in the first place and to deprive other, far more credit worthy borrowers of the capital they need to stay in businesses. Its policy has been one of redistribution and destruction.The capital it has caused to be malinvested and lost in housing is capital that is now unavailable for such firms as Wickes Furniture, Linens ‘N Things, Levitz Furniture, Mervyns, and innumerable others, who have had to go bankrupt because they could not obtain the loans they needed to stay in business. And, of course, among the foremost victims have been major banks themselves. The losses they have suffered have wiped out their capital and put them out of business. And the list of casualties will certainly grow.Any discussion of the housing debacle would be incomplete if it did not include mention of the systematic consumption of home equity encouraged for several years by the media and an ignorant economics profession. Consistent with the teachings of Keynesianism that consumer spending is the foundation of prosperity, they regarded the rise in home prices as a powerful means for stimulating such spending. In increasing homeowners’ equity, they held, it enabled homeowners to borrow money to finance additional consumption and thus keep the economy operating at a high level. As matters have turned out, such consumption has served to saddle many homeowners with mortgages that are now greater than the value of their homes, which would not have been the case had those mortgages not been enlarged to finance additional consumption. This consumption is the cause of a further loss of capital over and above the capital lost in malinvestment.A discussion of the housing debacle would also not be complete if it did not mention the role of government guarantees of many mortgage loans. If the government guarantees the principal and interest on a loan, there is no reason why a lender should care about the qualifications of a borrower. He will not lose by making the loan, however bad it may turn out to be.A substantial number of mortgage loans carried such guarantees. For example, a New York Times article describes the Department of Housing and Urban Development as “an agency that greased the mortgage wheel for first-time buyers by insuring billions of dollars in loans.” The article describes how HUD progressively reduced its lending standards: “families no longer had to prove they had five years of stable income; three years sufficed...lenders were allowed to hire their own appraisers rather than rely on a government-selected panel...lenders no longer had to interview most government-insured borrowers face to face or maintain physical branch offices,” because the government’s approval for granting mortgage insurance had become automatic.The Times’ article goes on to describe how “Lenders,” such as Countrywide Financial, which was among the largest and most prominent, “sprang up to serve those whose poor credit history made them ineligible for lower-interest `prime’ loans.” It notes the fact that “Countrywide signed a government pledge to use `proactive creative efforts’ to extend homeownership to minorities and low-income Americans.”[8] “Proactive creative efforts” is a good description of what lenders did in offering such bizarre types of mortgages as those requiring the payment of “interest only,” and then allowing the avoidance even of the payment of interest by adding it to the amount of outstanding principal. (Such mortgages suited the needs of homebuyers whose reason for buying was to be able to sell as soon as home prices rose sufficiently further.)Just as vast numbers of houses were purchased based on an unfounded belief in an endless rise in their prices, so too vast numbers of complex financial derivatives were sold based on an unfounded belief that the Federal Reserve System actually had the power it claimed to have of making depressions impossible, a power which the media and most of the economics profession repeatedly affirmed.Derivatives have received such a bad press that it is necessary to point out that the insurance policy on a home is a derivative. And many of the derivatives that were sold and which are now creating problems of insolvency and bankruptcy, namely, “credit default swaps (CDSs),” were insurance policies in one form or another. Their flaw was that unlike ordinary homeowners’ insurance, they did not have a sufficient list of exclusions.Homeowners’ policies make exclusions for such things as damage caused by war and, in many cases, depending on the special risks of the local area, earthquakes and hurricanes. In the same way, the more complex derivatives should have made an exclusion for losses resulting from financial collapse brought on by Federal-Reserve-sponsored massive credit expansion. (If it is impossible actually to write such an exclusion, because many of the losses may occur before the nature of the cause becomes evident, then such derivatives should not be written and the market will no longer write them because of the unacceptable risks they entail.) But decades of brainwashing by the government, the media, and the educational system had convinced almost everyone that such collapse was no longer possible.Belief in the impossibility of depressions played the same role in the creation and sale of “collateralized debt obligations (CDOs).” Here disparate home mortgages were bundled together and securities were issued against them. In many cases, large buyers bundled together collections of such securities and issued further securities against those securities. As more and more homeowners have defaulted on their loans, the result has been that no one is able directly to judge the value of these securities. To do so, it will be necessary to disentangle them down to the level of the underlying individual mortgages. Such tangles of securities could never have been sold in a market not overwhelmed by the propaganda that depressions are impossible under the government’s management of the financial system.Finally, a discussion of the housing debacle would not be complete if it did not include mention of forms of virtual extortion that served to encourage loans to unworthy borrowers. Thus, the online encyclopedia Wikipedia writes:
The Community Reinvestment Act [CRA]...is a United States federal law designed to encourage commercial banks and savings associations to meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods... CRA regulations give community groups the right to comment or protest about banks'on-compliance with CRA. Such comments could help or hinder banks' planned expansions.The meaning of these words is that the Community Reinvestment Act gives the power to “community groups,” to determine in an important respect the financial success or failure of a bank. Only if they are satisfied that the bank is making sufficient loans to borrowers to whom it would otherwise choose not to lend, will it be permitted to succeed. The most prominent such community group is ACORN.Part and parcel of the environment that has made an act such as the CRA possible, is threats of slander against banks for being “racist” if they choose not to make loans to people who are poor credit risks and also happen to belong to this or that minority group. The threats of slander go hand in glove with intimidation from various government agencies that exercise discretionary power over the banks and are in a position to harm them if they do not comply with the agencies’ wishes. The same points apply to mortgage lenders other than banks.What this extensive analysis of the actual causes of our financial crisis has shown is that it is government intervention, not a free market or laissez-faire capitalism, that is responsible in every essential respect.The Laissez-Faire Myth and the Marxism of the MediaThe myth that laissez faire exists in the present-day United States and is responsible for our current economic crisis is promulgated by people who know practically nothing whatever of sound, rational economic theory or the actual nature of laissez-faire capitalism. They espouse it despite, or rather because of, their education at the leading colleges and universities of the country, When it comes to matters of economics, their education has steeped them entirely in the thoroughly wrong and pernicious doctrines of Marx and Keynes. In claiming to see the existence of laissez faire in the midst of such massive government interference as to constitute the very opposite of laissez faire, they are attempting to rewrite reality in order to make it conform with their Marxist preconceptions and view of the world.They absorb the doctrines of Marx more in history, philosophy, sociology, and literature classes than in economics classes. The economics classes, while usually not Marxist themselves, offer only highly insufficient rebuttal of the Marxist doctrines and devote almost all of their time to espousing Keynesianism and other, less well-known anti-capitalistic doctrines, such as the doctrine of pure and perfect competition.Very few of the professors and their students have read so much as a single page of the writings of Ludwig von Mises, who is the preeminent theorist of capitalism and knowledge of whose writings is essential to its understanding. Almost all of them are thus essentially ignorant of sound economics.When I refer to the educational system and the media as Marxist, I do not intend to imply that its members favor any kind of forcible overthrow of the United States government or are necessarily even advocates of socialism. What I mean is that they are Marxists insofar as they accept Marx’s views concerning the nature and operation of laissez-faire capitalism.They accept the Marxian doctrine that in the absence of government intervention, the self-interest, the profit motive—the “unbridled greed”—of businessmen and capitalists would serve to drive wage rates to minimum subsistence while it extended the hours of work to the maximum humanly endurable, imposed horrifying working conditions, and drove small children to work in factories and mines. They point to the miserably low standard of living and terrible conditions of wage earners in the early years of capitalism, especially in Great Britain, and believe that that proves their case. They go on to argue that only government intervention in the form of pro-union and minimum-wage legislation, maximum-hours laws, the legal prohibition of child labor, and government mandates concerning working conditions, served to improve the wage earner’s lot. They believe that repeal of this legislation would bring about a return to the miserable economic conditions of the early nineteenth century.They view the profits and interest of businessmen and capitalists as unearned, undeserved gains, wrung from wage earners—the alleged true producers—by the equivalent of physical force, and hence regard the wage earners as being in the position of virtual slaves (“wage slaves”) and the capitalist “exploiters” as being in the position of virtual slave owners. Closely connected with this, they regard taxing the businessmen and capitalists and using the proceeds for the benefit of wage earners, in such forms as social security, socialized medicine, public education, and public housing, as a policy that serves merely to return to the wage earners some portion of the loot allegedly stolen from them in the process of “exploitation.”In full agreement with Marx and his doctrine that under laissez-faire capitalism the capitalists expropriate all of the wage earner’s production above what is necessary for minimum subsistence, they assume that the government’s intervention harms no one but the immoral businessmen and capitalists, never the wage earners. Thus not only the taxes to pay for social programs but also the higher wages imposed by pro-union and minimum-wage legislation are assumed simply to come out of profits, with no negative effect whatever on wage earners, such as unemployment. Likewise for the effect of government-imposed shorter hours, improved working conditions, and the abolition of child labor: the resulting higher costs are assumed simply to come out of the capitalists’ “surplus value,” never out of the standard of living of wage earners themselves.This is the mindset of the whole of the left and in particular of the members of the educational system and media. It is a view of the profit motive and the pursuit of material self-interest as inherently lethal if not forcibly countered and rigidly controlled by government intervention. As stated, it is a view that sees the role of businessmen and capitalists as comparable to that of slave owners, despite the fact that businessmen and capitalists do not and cannot employ guns, whips, or chains to find and keep their workers but only the offer of better wages and conditions than those workers can find elsewhere.Not surprisingly, the educational system and media share the view of Marx that laissez-faire capitalism is an “anarchy of production,” in which the businessmen and capitalists run about like chickens without heads. In their view, rationality, order, and planning emanate from the government, not from the participants in the market.As I say, this, and more like it, is the intellectual framework of the great majority of today’s professors and of several generations of their predecessors. It is equally the intellectual framework of their students, who have dutifully absorbed their misguided teachings and some of whom have gone on to become the reporters and editors of such publications as The New York Times, The Washington Post, Newsweek, Time, and the overwhelming majority of all other newspapers and news magazines. It is the intellectual framework of their students who are now the commentators and editors of practically all of the major television networks, such as CBS, NBC, ABC, and CNN.[9] And it is this intellectual framework within which the media now attempts to understand and report on our financial crisis.In their view, laissez-faire capitalism and economic freedom are a formula for injustice and chaos, while government is the voice and agent of justice and rationality in economic affairs. So firmly do they hold this belief, that when they see what they think is evidence of large-scale injustice and chaos in the economic system, such as has existed in the present financial crisis, they automatically presume that it is the result of the pursuit of self-interest and the economic freedom that makes that pursuit possible. Given this fundamental attitude, the principle that guides contemporary journalists so-called is that their job is to find the businessmen and capitalists who are responsible for the evil and the government officials who set them free to commit it, and, finally, to identify and support the policies of government intervention and control that will allegedly eliminate the evil and prevent its recurrence in the future.Their fear and hatred of economic freedom and laissez-faire capitalism, and their need to be able to denounce it as the cause of all economic evil, is so great that they pretend to themselves and to their audiences that it exists in today’s world, in which it clearly does not exist even remotely. By making the claim that laissez faire exists and is what is responsible for the problem, they are able to turn the full force of their hatred for actual economic freedom and laissez-faire capitalism against each and every sliver of economic freedom that somehow manages to exist and which they decide to target. That sliver, they project, is part and parcel of the starvation of the workers in the inhuman exploitation of labor that, in their ignorance, they take for granted is imposed by capitalists under laissez faire. Their brainwashed audience, as much the product of the contemporary educational system as they themselves, then quickly follows suit and obliges their efforts to arouse hatred.The result is summed up in words such as these, which appeared in one of the same New York Times articles I quoted earlier: “`We now have a collective anger, disgust, over our whole financial system and it’s obvious we’re going to get a regulatory backlash…’” [with] “a spillover effect to other industries because voters have the perception that ‘big companies are animals and they need to be put in their cages.’”[10]In this way the enemies of capitalism and economic freedom are able to proceed in their campaign of economic destruction and devastation. They use the accusation of “laissez faire” as a kind of ratchet for increasing the government’s power. For example, in the early 1930s they accused President Hoover of following a policy of laissez faire, even as he intervened in the economic system to prevent the fall in wage rates that was essential to stop a reduced demand for labor from resulting in mass unemployment. On the basis of the mass unemployment that then resulted from Hoover’s intervention, which they succeeded in portraying as “laissez faire,” they deceived the country into supporting the further massive interventions of the New Deal.Today, they continue to play the same game. Always it is laissez faire that they denounce, and whose alleged failures they claim need to be overcome with yet more government regulations and controls. Today, the massive interventions not only of the New Deal, but also of the Fair Deal, the New Frontier, the Great Society, and of all the administrations since, have been added to the very major interventions that existed even in the 1920s and to which Hoover very substantially added. And yet we still allegedly have laissez faire. It seems that so long as anyone manages to move or even breathe without being under the control of the government, laissez faire allegedly continues to exist, which serves to make necessary yet still more government controls.The logical stopping point of this process is that one day everyone will end up being shackled to a wall, or at the very least being compelled to do something comparable to living in a zip code that matches his social security number. Then the government will know who everyone is, where he is, and that he can do nothing whatever without its approval and permission. And then the world will be safe from anyone attempting to do anything that benefits him and thereby allegedly harms others. At that point, the world will enjoy all the prosperity that comes from total paralysis.

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

"Do not bite at the bait of pleasure, till you know there is no hook beneath it." -Thomas Jefferson

Obama's Socialism

Socialism and the Rich

Tibor R. Machan

There has been some silly outrage on the part of his supporters at the claim that Senator Barack Obama may be a socialist. The idea arose after in his exchange with "Joe the Plumber"--and I haven't investigated whether Joe is a plumber--the Democratic presidential hopeful remarked that he supports "spreading the wealth." Socialism is committed, in part, to the idea that all wealth apart from some purely personal stuff (like one's toothbrush) is in fact collective, public property. In the Communist Manifesto Marx and Engels wrote that the first order of business for socialists is the abolition of private property. This notion, by the way, stems from something more basic. That's that there are no human individuals, only social wholes or bodies of which those we take to be individual human beings are, in fact, mere cells. And then, of course, there is no room for private property either, nor to any right to it. Which is why the wealth needs to be spread. It belongs to us all. (Only this poses the problem of which individuals will decide what use will be made of this wealth!) A colleague of mine disputed the view that Senator Obama is advocating socialist measures by observing that Warren Buffet is one of his economic ad visors. This objection assumes that the rich are enemies of socialism, which, of course, is flatly wrong. But it does again reflect a Marxist idea, namely, that of economic determinism: because the rich are surrounded by wealth, they will hold views that are favorable to wealth creation. Only this is flatly contradicted by the plain historical fact that socialism has been supported by many wealthy people. A most notable example is Armand Hammer, an American industrialist who was an avid fan of the Soviet Socialist Republic during Lenin's reign and even Stalin's, if I recall right. And Buffet himself is a great fan of wealth redistribution, which is one reason he supports the death tax that deprives the relatives of wealthy people from making use of this wealth once the original owners dies. (This would make continuing a productive enterprise impossible since the government would take possession of the wealth required for that) Quite a few people who are personally savvy when it comes to running, let alone building, a vast business enterprise haven't much of a clue about what are the soundest principles of political economy. We may say they are micro economically but not macro economically prudent. They are often sentimentalists, apart from running their own firms, and give their wealth to various utopian communities an projects. Sometimes they feel guilty for having wealth in the first place, given how bad the reputation of riches has been from time immemorial. Both in secular philosophers, such as Aristotle's, and a many theological systems, the idea of profit has been denounced as evil, even while poverty is decried as well. One thing though is clear--just because someone is wealthy, it doesn't follow that one will support the system of economic and political principles that most effectively promote wealth creation. Nor is it the case that someone who promotes socialist notions, like Senator Obama is, must do so in every instance, consistently. One can be predominantly socialist but not go all the way, like a Hugo Chavez who will try to silence all of his opponents. Nonetheless, the socialist elements of such a person's outlook can undermine such goals as creating wealth in a society, lifting a poor from their poverty in something close to an ongoing, continuous fashion. When someone sees that Senator Obama has very strong socialist tendencies it doesn't even mean that his opponent, Senator McCain is necessarily a better candidate for president. After all, the continuation of the costly war in the Middle East could just as easily damage the American economy as the adoption of various socialist public policies can. Most people haven't a fully worked out, consistent system of political economic ideas, even when they aspire to be president of the United States of America. It is important, however, for American citizens to learn whether some of their more basic beliefs are likely to lead the country in the direction of a whole impractical and, ultimately, misanthropic political economic era.

This Isn't Good.............At All

The Quiet Militarization of America
The name of the so-called "U.S. Department of Homeland Security" has always disturbed and rankled me.
Created in the frenzied political aftermath of the 9/11 terrorist attacks, it sounds like something Hitler's propaganda minister Josef Goebbels would have dreamed up to impress the gullible masses. Indeed, the attitude too often displayed at airports by overpaid DHS minions is akin to that of storm troopers.
Two years ago, I and others called attention to a dangerous provision slipped into an omnibus appropriation bill. The provision gave the President of the United States the unprecedented power to deploy the U.S. military for domestic duty within the United States as he sees fit.
President Bush (or someone who had his ear) came up with the disturbing idea that the U.S. military should be put in charge of domestic police matters when a "major catastrophe" occurs within America.
The operative factor here depends squarely on how one defines "major catastrophe." It's an elastic phrase that could be expanded at the stroke of a presidential pen. (Read some of the Presidential Emergency Declarations currently in effect and you may have trouble sleeping.)
Nevertheless, this extraordinary power was written into law. Now, for the first time, an active U.S. Army Infantry Brigade has been assigned "to provide command and control for federal homeland defense efforts and coordinate defense support of civil authorities."
Reportedly, these active duty troops will "learn new skills, use some of the ones they acquired in the war zone and more than likely will not be shot at while doing any of it. They may be called upon to help with civil unrest and crowd control."
What possible rationale could there be for permanently deploying the U.S. Army inside the United States? One has to assume they would be used for such things as "crowd control," other traditional law enforcement functions, and a seemingly unlimited array of other uses at the President's sole discretion. What good could this serve the American people?
Perhaps they will be deployed to assure that the pending elections (or any Florida recounts) will be orderly. Or maybe they will be sent to Capitol Hill to convince a congressional majority that Wall Street deserves a US$700 billion bailout.
Recalling the unconstitutional excesses under the misnamed PATRIOT Act, are we now to believe a military trained to kill the enemy is going to play the role of Officer Clancy on the local beat?

Estate Taxes..........Yeah, They Suck

New Estate Tax Changes Target Three Million Millionaires

Once upon a time, if you had a net worth over US$1 million, you gained entrance into a very exclusive club.
It's not so exclusive today: According to the World Wealth Report 2008, at the end of 2007 there were about three million millionaires in the United States, or approximately 2% of the adult population. That really shouldn't come as a surprise, especially if you live in a state like California, where even a modest home can have a value approaching US$1 million.
Even if inflation has made entering the Millionaire's Club less selective than it once was, qualifying might make you eligible for something considerably less desirable - the U.S. estate tax.
Absent congressional action, on Jan. 1, 2011, the U.S. estate tax exclusion reverts to its 2002 level - US$1 million. If you're a U.S. citizen or permanent resident, the balance of your estate will be subject to estate tax at a maximum rate of 55%. Everything you own is included, anywhere in the world, valued at its "highest and best use." Your heirs may also have to pay estate tax in the state where you lived.
Dying in 2010...for Tax Purposes
But between now and 2011, courtesy of Congress, the estate tax pulls a disappearing act - but only for one year.
For 2008, you have an estate tax exclusion of US$2 million and a top rate of 45%. In 2009, the exemption increases to US$3.5 million. And then in 2010, it disappears completely.
But alas, only for one year. Unless Congress takes remedial action, the estate tax resurfaces in 2011 with US$1 million exclusion and a top rate of 55%. While it would be wonderful if Congress eliminates the uncertainty surrounding estate tax after 2011, I wouldn't count on them doing so. The easiest course of action for Congress would be to do nothing.
And that may be exactly what Congress will do, especially given the prospect of a US$700 billion Wall Street bailout and annual budget deficits approaching US$1 trillion per year. Not to mention that the current budget projections assume that the estate tax will return to 2002 levels in 2011.
Three Winning Strategies for Offshore Estate Planning
Fortunately, many tools are available to reduce estate tax.
Indeed, if you make advance preparations, estate tax is truly a voluntary tax. Moreover, if you're seeking enhanced protection for your wealth against legal predators, or simply want to take advantage of international investment opportunities, you can construct your estate plan offshore.
Several offshore estate-planning techniques exist that you and your professional advisors may wish to consider. Three of the best strategies include:
Offshore limited liability companies. One of the most popular estate planning techniques involves partnerships: e.g., limited partnerships (LPs) and limited liability companies (LLCs).
Let's say you form an LLC in Nevis (one of the most popular offshore jurisdictions for this purpose) and contribute the bulk of your estate to it; say, US$3 million. You then begin making periodic gifts of "membership interest" in the LLC to your children.
At your death, your interest in the LLC is only worth US$2 million. Your heirs file an estate tax return that shows a membership interest in an LLC worth US$2 million. However - with proper planning - they can claim a "valuation discount" on this interest for estate tax purposes. Generally, a 25% valuation discount is considered very conservative.
That means this simple structure could reduce the size of your taxable estate by at least US$500,000, resulting in a whopping US$225,000 savings in estate tax! And, thanks to the stringent asset protection provisions of Nevis law, the funds within the LLC will be protected from lawsuits.
Offshore trusts incorporating a "marital bypass" provision. If you're married, a simple trust called a marital bypass trust (sometimes referred to as an "A-B trust") can double your estate tax exemption.
While this kind of trust often stands alone, you can also incorporate it into an offshore trust formed in any suitable offshore jurisdiction (Nevis and the Cook Islands are two of the most popular choices). That way, you'll obtain state-of-the-art asset protection for your wealth, and also double your estate tax threshold.
Offshore variable universal life insurance. Life insurance enjoys uniquely preferential tax treatment under U.S. law. With proper structuring, the proceeds can flow to beneficiaries free of both estate and generation-skipping taxes. Essentially, you avoid tax on portfolio income and transactions in exchange for the cost of insurance.
If you're a member of the "Millionaire's Club" - or may become one in the future - you need to consider estate tax in your wealth preservation plan. And while a strictly domestic estate plan may suit your needs, if you're looking for enhanced asset protection and greater investment choice, numerous offshore estate-planning options are available.
One final note: Proper structuring of your estate plan requires substantial legal expertise. There are many potential pitfalls. Be certain to retain a qualified attorney before you put any of these strategies into place.

As We Approach Elections:

1. As we approach elections everything possible is being done to keep equities from total implosion.
2. As we approach elections everything possible is being done to keep the hollow US dollar firm
3. As we approach elections everything possible is being done to keep gold under control to assist in keeping the dollar firm.
4. Gold is NOT a commodity. It is a currency.
5. There is an appearance of involuntary liquidation in gold as hedge and gold funds are pressed by redemptions and needs for capital to pay off investors.
6. Gold never changes. Things change in price comparison to gold, so therefore you can jump up and down on the barometer but that will not change the circumstances it is reading.
7. The means of keeping all things in check is to demoralize those whose positions oppose the goal while showing some sunshine to those who wish to keep their positions.
8. Nobody on earth can prevent the CONSEQUENCES of Chairman Bernanke and Secretary of the Treasury Paulson's attempt to offset the unavoidable CONSEQUENCES of the same actions taken by the central bank and treasury of the 1930s.
9. The different monetary action now in the degree applied will have their own and different CONSEQUENCES in the degree of economic impact.
10. The dichotomy between the bullion supply/demand picture and the easy to manipulate paper gold market continues. Pedro says: "A "friend" of mine was in Zurich yesterday. Aside from the fact that there were no gold coins available in one of the major centers of the world gold trade, it was also noted that there are no longer any large safe deposit boxes available at Credit Suisse Banhofstrasse."
11. Here is where we are headed to some degree, regardless of the manipulation of markets to paint charts at an unprecedented level.

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

"The spirit of truth and the spirit of freedom - they are the pillars of society."-Henrik Ibsen

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

"In any compromise between food and poison, it is only death that can win. In any compromise between good and evil, it is only evil that can profit. In that transfusion of blood which drains the good to feed the evil, the compromiser is the transmitting rubber tube." -Ayn Rand

At SOC, We LOVE Peter Schiff

Just stop paying your mortgage
By Peter Schiff October 10, 2008
If you are a mortgage holder who is either struggling with crushing payments, bitter for having overpaid for your home during the bubble, or who has extravagantly refinanced when prices were rising, the government's landmark $700 billion bailout package has an important message for you: stop making your mortgage payments . . . immediately. Furthermore, if you believe that with some planning and sacrifice you may be able to meet your mortgage obligations, the government's message is clear: relax, don't bother.
While angry voters have labeled the package as a bailout for Wall Street, it is more akin to a “Get out of Jail Free” card for anyone who acted irresponsibly during the boom. Here's why.
Nobody likes foreclosure, least of all politicians. The new law clearly indicates that the government will make major efforts to reduce foreclosures through “term extensions, rate reductions and principal write-downs” of the troubled mortgages that it buys from the private sector. In other words, your new landlord will bend over backward to keep you in your home. The legislation telegraphs this by including a provision that extends until 2013 the exclusion of loan reductions from taxable income.
When a financial institution holds a mortgage, homeowners must live with the fear of foreclosure. Private institutions only have obligations to shareholders. In the case of a defaulting borrower, they will look to recover as much of their principal as possible. If foreclosure is their best option, they will take it in a heartbeat.
The government has no such obligations. Its only goal is to keep voters happy. After supposedly bailing out the fat cats on Wall Street, no politician wants to be accused of evicting struggling families. Once you understand this, all of your anxiety should melt away. Why pay your mortgage if foreclosure is off the table, and if you know that lower payments, and possibly a reduced loan amount, would result? A tarnished a credit rating is a small price to pay for such a benefit.
Unfortunately, this boon will not extend to those foolish individuals who either made large down payments or resisted the temptation of cashing out equity. The large amount of home equity built up by these suckers, I mean homeowners, means that in the case of default foreclosure remains a financially attractive option. As a result, these loans will be much less likely to be turned over to the government.
If your mortgage does become the property of Uncle Sam, the growingly popular impulse to “just walk away” should be replaced by “just stay and stop paying.” No one will throw you out. After a few months, or years, of living payment free, you will get a call from a motivated government agent eager to adjust your loan into something affordable.
To bolster your bargaining position it will help to be able to claim poverty. As a result, if you have any savings, spend it soon, before they call. Buy a bigger TV, a new wardrobe, or better yet, take a vacation. After the hardship of spending all of your refi cash, you probably deserve it. If you have any guilt just remember, Washington argues that consumer spending is the best way to stimulate the economy. Living beyond your means is a patriotic duty.
If you do get the opportunity to live for a while with no mortgage payment, don't make the tragic mistake of using your extra cash to pay down your credit cards. As the growing level of credit card defaults will soon push credit card companies into bankruptcy, we can expect a similar bailout plan for American Express and Discover Financial. When that happens, expect massive balance reductions for Americans who can demonstrate the inability to pay. The bigger your balance, the greater the benefit.
Taxpayers, however, will not be so lucky. The savvy investment strategists who see the government turning a tidy profit on its mortgage purchases have not factored in the incentives that will discourage nonpayment. The only way the government will be able to profit would be to buy the mortgages at deep discounts to actual loan values. However, if the purchase prices are too low, the plan will bankrupt the institutions it is trying to bail out. On the other hand, if it substantially overpays, which seems far more likely, it will bankrupt the nation.
In any event, as more and more borrowers succumb to the allure and safety of nonpayment, look for the number of troubled assets to swell. This will ensure that the $700 billion merely represents the first installment in what will be a multitrillion-dollar plan. Just as government policies provided the primary impetus in blowing up the housing bubble earlier in the decade, its latest attempt at market manipulation will only result in making a terrible problem far worse.

Oh, It'll Be Way Worse Than The 1970's

Recession Worse Than 70's?
Thu Oct 16, 2008 3:03pm EDT
By Emily Kaiser - Analysis
WASHINGTON (Reuters) - The U.S. economy is showing disturbing similarities to patterns seen in the painful recessions of the mid-1970s and early 1980s and it may be a year or more before it resumes anything near normal growth.
Factories are filling fewer orders, companies are cutting jobs and consumers are tightening budgets so dramatically that economists now think the economy will shrink for three straight quarters -- something that has not happened in 33 years.
"We now have a consistent series of reports telling us that the deteriorating job market, falling incomes, collapsing stock market, plummeting home values, and the credit crises have forced Americans to shut down spending," said Bernard Baumohl, chief economist with the Economic Outlook Group in Princeton, New Jersey.
"Everyone, it appears, is now hunkering down in preparation of a painful recession."
A Reuters survey of economists found most think the economy contracted in the recently ended third quarter and that growth will not resume until the second half of 2009. Even then, the recovery is likely to be subdued at best.
The poll, released on Thursday, was taken after governments across the Group of Seven rich nations nationalized swathes of the banking sector and after the world's major central banks slashed interest rates in unison in an unprecedented move.
Gary Stern, president of the Federal Reserve Bank of Minneapolis, said the current episode may be worse than the 1990-91 recession, when the economy contracted for two consecutive quarters and growth was tepid for about two years.
"In view of the scope and severity of the recent financial shock, the restraint on economic activity stemming from credit market headwinds could exceed the experience of the 1990s," he said on Thursday.
LONG AND SHALLOW?
At the worst of that recession 18 years ago, gross domestic product, the broadest measure of economic activity, dropped by 3 percent in the fourth quarter of 1990 and remained subpar until the first quarter of 1992.
Economists polled by Reuters think the current downturn probably won't be as deep, bottoming at a minus 1.3 percent in the current fourth quarter, but it will probably be 2010 before growth gets back to normal trends.
While the median forecast calls for three consecutive quarters of contraction, the most pessimistic views show the possibility of no growth for 18 months, something that has never happened in U.S. economic data going back to 1947.
The job market gives an even gloomier signal. The current unemployment rate of 6.1 percent is higher than in July 1990, when that recession began. Economists think the jobless rate is heading to 8 percent or perhaps higher next year. That would be the worst since 1983, when the economy was recovering from the second of back-to-back recessions.
Data on Thursday showed that the manufacturing sector in the Mid-Atlantic region crashed to an 18-year low in October, and new orders were the weakest since 1980. U.S. industrial production posted the biggest monthly decline in 34 years last month.
RECESSION? DEPRESSION?
It is easy to construct a scenario where the current trough gets much worse. Households have virtually no cushion to sustain spending should unemployment spike. Consumer spending accounts for about two-thirds of economic activity, so the longer that stays soft, the longer the economy languishes.
U.S. consumers saved just 2.7 cents out of every dollar earned in the second quarter of 2008, and even that paltry rate was inflated by government stimulus checks that have long since been used. In the previous quarter, the saving rate was just 0.2 percent -- a fraction of a cent. During the recessions of the mid-1970s and early 1980s, consumers were putting away closer to 10 cents out of every dollar.
As the credit crisis eats away at consumers' two biggest sources of investment -- housing and the stock market -- the risk is that more people will miss payments on mortgages, credit cards and car loans, and bank losses will balloon.
It is that sort of vicious cycle that has led some economists to talk about the possibility of a depression. There is no hard and fast definition of what separates a recession from a depression, but the most widely cited rule of thumb is a 10 percent decline in GDP.
The good news is, not even the most pessimistic analysts are forecasting that -- yet.

Copper Always Has Been Key

Copper offers peek into the world's economic future
By Myra P. Saefong, MarketWatch
Last update: 7:31 a.m. EDT Oct. 17, 2008
SAN FRANCISCO (MarketWatch) -- In all of gold's fancy footwork, copper's been much ignored, but the metal may offer a hint that there's hope for the global economy yet.
Copper futures reached a record intraday level of $4.27 on May 5 on the Comex division of the New York Mercantile Exchange. Then, as the financial crisis deepened and concerns over the global economy worsened, copper prices lost half their value.
Of the base metals, "copper is the interesting one -- it stayed high longer than the other base metals, but seems to have cracked now," said Brent Cook, independent exploration analyst. "Copper has lost its PhD and is now running with the frat boys."
Still, the metal might be a handy tool for forecasters trying to pry open their latest economic predictions.
'Copper has lost its PhD and is now running with the frat boys.'
— Brent Cook, independent exploration analyst
"Copper is usually a good gauge of economic health because it is broadly used, but more specifically because it is important to construction and equipment manufacturing that tend to precede other areas of economic activity, and that makes copper a leading indicator," said David Coffin, co-editor of HardRockAnalyst.com.
He believes that copper prices are "testing bottoms." Copper futures prices fell as low as $2.06 on Thursday.
Even if copper prices have reached a bottom, that "does not mean a quick recovery to that mystical $4 level right away," said Coffin.
"The red metal took a steep dive after having held up fairly well due to the thin margin in its supply system," he said. "It had been one of the few metals to hold well above its cost of production through most of this debt drama aided, we think, by its relatively limited Chinese output where local and world prices for some other metals have diverged sharply this century."
And "it is still the metal to watch for trend as the world finds out whether it is indeed time to replenish China's stockpiles," Coffin said.
Emerging support
Indeed, there was a time not long ago when metals demand from China took over the headlines. Actually, that factor still holds true and will likely be copper's support as volatile trading in the commodities sector continues, analysts said.
"The present copper price factors in a severe downturn worldwide, stemming from a slowdown in the U.S.," said Lawrence Roulston, editor of Resource Opportunities. "In reality, other parts of the world are still growing strongly and will continue to grow in spite of a slowdown in the U.S. economy."
He points out that emerging economies, as a whole, are seeing growth, and "have a greater intensity of use of metals than the mature economies."
China, the world's most populous nation, is the world largest consumer of metals, and is expected to continue to grow at more than 10%, Roulston said. At the same time, growth there is driven largely by infrastructure development.
Look at it this way: the copper market has seen slowing import demand from China and translating that as a fall in demand, said Martin Hayes, an analyst at BaseMetals.com. But that has been more likely due to "destocking ahead of the summer and because of the Olympic-induced industrial slowdown," he said.
"As such, we feel this may have left the physical market in China short, and may lead to a pickup in imports that might support prices for a while during [the fourth quarter of 2008]," he said.
China could build up strategic reserves of copper, said William Adams, an analyst at BaseMetals.com. "They have massive foreign reserves, they may well want to diversify some of their dollar reserves and they are resource hungry," he said. "They may well decide to buy copper now that it has fallen so much."
Balancing act
Right now, the copper market is "in supply-demand balance, more or less," said Coffin.
Looking ahead, however, some analysts expect to see continued weakness in demand and a surplus in copper supplies along with continued disruptions to mining -- and no one can tell which will be worse off.
"The base metals saw bubble demand that we knew would evaporate as the 'boom' faltered," said Ed Bugos, editor of Gold & Options Trader, published by Agora Financial. "The demand was real enough, but it was fueled by money growth, which was not sustainable, but which fueled expectations that ultimately led to a worldwide overestimating of demand -- not just for copper, but oil ... etc."
"It was irrational exuberance," he said. "Now you're seeing the results."
The slackening of western demand may help ease the strain caused by the mining service sector's inability to "keep up with new demands on it -- and that goes from assay labs and drilling contractors for exploration projects to tires for production companies," said Coffin.
Sean Brodrick, a natural-resources analyst at MoneyandMarkets.com, said the market could even end up with a small copper surplus in the next year and that could weigh on prices in 2009.
Analysts at Natixis Commodities Markets expect to see a market surplus of 100,000 tonnes in 2008 and 200,000 tonnes in 2009, according to a research note released this week.
But "getting the service side of mining up to the new peak demand for it is still years away," said Coffin.
Labor strikes and other supply disruptions have helped copper production fall significantly short of projections for each of the past several years, said Roulston. "The financial crisis has further deferred some expansion and mine development projects, and that will exacerbate the tight supply situation going into the medium and longer terms."
Coffin said "mining had been in a long-term bear market until earlier in this decade," and few people were willing to get the training to do the specialized work of the sector. That, combined with the long time frames needed to bring new deposits into production, is "why we continue to view the mining sector as still being in a long-term bull market," he said.
Investment alternative
So an alternative to trading the metal, especially in the face of near-term volatility, is "to look at the copper companies, both producers and developers," said Roulston.
"The share prices across the board have been beaten down to levels that don't come close to recognizing the cash flow from production and the long-term value of the metal deposits held by those companies," he said.
As for stocks with "pop up" potential, Coffin singled out First Quantum Minerals (CA:FM: news, chart, profile) (UK:FQM: news, chart, profile) , which has mining operations in Africa, and Canada-based Sherwood Copper (CA:SWC: news, chart, profile) .
Both companies have been producing the red metal for less than $1 per pound and both have had some relief from declines in the oil price and in the currencies -- the Canadian dollar and the Mexican peso, he said.
He also said that mining company Teck Cominco (CA:TCKB: news, chart, profile) has been "pushed well below its real earnings potential and rounds out the larger players we deal with." Coffin owns shares in Sherwood and Teck and said he may buy back some shares of First Quantum.
"These are fundamentally sound companies that will recover along with the perceptions about the markets for their products, since they were simply oversold during a panic," he said.

StratFor Intelligence

The United States, Europe and Bretton Woods II
October 20, 2008


By George Friedman and Peter Zeihan
French President Nicolas Sarkozy and U.S. President George W. Bush met Oct. 18 to discuss the possibility of a global financial summit. The meeting ended with an American offer to host a global summit in December modeled on the 1944 Bretton Woods system that founded the modern economic system.
The Bretton Woods framework is one of the more misunderstood developments in human history. The conventional wisdom is that Bretton Woods crafted the modern international economic architecture, lashing the trading and currency systems to the gold standard to achieve global stability. To a certain degree, that is true. But the form that Bretton Woods took in the public mind is only a veneer. The real implications and meaning of Bretton Woods are a different story altogether.
Conventional Wisdom: The Depression and Bretton Woods
The origin of Bretton Woods lies in the Great Depression. As economic output dropped in the 1930s, governments worldwide adopted a swathe of protectionist, populist policies — import tariffs were particularly in vogue — that enervated international trade. In order to maintain employment, governments and firms alike encouraged ongoing production of goods even though mutual tariff walls prevented the sale of those goods abroad. As a result, prices for these goods dropped and deflation set in. Soon firms found that the prices they could reasonably charge for their goods had dropped below the costs of producing them.
The reduction in profitability led to layoffs, which reduced demand for products in general, further reducing prices. Firms went out of business en masse, workers in the millions lost their jobs, demand withered, and prices followed suit. An effort designed originally to protect jobs (the tariffs) resulted in a deep, self-reinforcing deflationary spiral, and the variety of measures adopted to combat it — the New Deal included — could not seem to right the system.
Economically, World War II was a godsend. The military effort generated demand for goods and labor. The goods part is pretty straightforward, but the labor issue is what really allowed the global economy to turn the corner. Obviously, the war effort required more workers to craft goods, whether bars of soap or aircraft carriers, but “workers” were also called upon to serve as soldiers. The war removed tens of millions of men from the labor force, shipping them off to — economically speaking — nonproductive endeavors. Sustained demand for goods combined with labor shortages raised prices, and as expectations for inflation rather than deflation set in, consumers became more willing to spend their money for fear it would be worth less in the future. The deflationary spiral was broken; supply and demand came back into balance.
Policymakers of the time realized that the prosecution of the war had suspended the depression, but few were confident that the war had actually ended the conditions that made the depression possible. So in July 1944, 730 representatives from 44 different countries converged on a small ski village in New Hampshire to cobble together a system that would prevent additional depressions and — were one to occur — come up with a means of ending it shy of depending upon a world war.
When all was said and done, the delegates agreed to a system of exchangeable currencies and broadly open rules of trade. The system would be based on the gold standard to prevent currency fluctuations, and a pair of institutions — what would become known as the International Monetary Fund (IMF) and the World Bank — would serve as guardians of the system’s financial and fiduciary particulars.
The conventional wisdom is that Bretton Woods worked for a time, but that since the entire system was linked to gold, the limited availability of gold put an upper limit on what the new system could handle. As postwar economic activity expanded — but the supply of gold did not — that problem became so mammoth that the United States abandoned the gold standard in 1971. Most point to that period as the end of the Bretton Woods system. In fact, we are still using Bretton Woods, and while nothing that has been discussed to this point is wrong exactly, it is only part of the story.
A Deeper Understanding: World War II and Bretton Woods
Think back to July 1944. The Normandy invasion was in its first month. The United Kingdom served as the staging ground, but with London exhausted, its military commitment to the operation was modest. While the tide of the war had clearly turned, there was much slogging ahead. It had become apparent that launching the invasion of Europe — much less sustaining it — was impossible without large-scale U.S. involvement. Similarly, the balance of forces on the Eastern Front radically favored the Soviets. While the particulars were, of course, open to debate, no one was so idealistic to think that after suffering at Nazi hands, the Soviets were simply going to withdraw from territory captured on their way to Berlin.
The shape of the Cold War was already beginning to unfold. Between the United States and the Soviet Union, the rest of the modern world — namely, Europe — was going to either experience Soviet occupation or become a U.S. protectorate.
At the core of that realization were twin challenges. For the Europeans, any hope they had of rebuilding was totally dependent upon U.S. willingness to remain engaged. Issues of Soviet attack aside, the war had decimated Europe, and the damage was only becoming worse with each inch of Nazi territory the Americans or Soviets conquered. The Continental states — and even the United Kingdom — were not simply economically spent and indebted but were, to be perfectly blunt, destitute. This was not World War I, where most of the fighting had occurred along a single series of trenches. This was blitzkrieg and saturation bombings, which left the Continent in ruins, and there was almost nothing left from which to rebuild. Simply avoiding mass starvation would be a challenge, and any rebuilding effort would be utterly dependent upon U.S. financing. The Europeans were willing to accept nearly whatever was on offer.
For the United States, the issue was one of seizing a historic opportunity. Historically, the United States thought of the United Kingdom and France — with their maritime traditions — as more of a threat to U.S. interests than the largely land-based Soviet Union and Germany. Even World War I did not fully dispel this concern. (Japan, for its part, was always viewed as a hostile power.) The United States entered World War II late and the war did not occur on U.S. soil. So — uniquely among all the world’s major powers of the day — U.S. infrastructure and industrial capacity would emerge from the war larger (far, far larger) than when it entered. With its traditional rivals either already greatly weakened or well on their way to being so, the United States had the opportunity to set itself up as the core of the new order.
In this, the United States faced the challenges of defending against the Soviet Union. The United States could not occupy Western Europe as it expected the Soviets to occupy Eastern Europe; it lacked the troops and was on the wrong side of the ocean. The United States had to have not just the participation of the Western Europeans in holding back the Soviet tide, it needed the Europeans to defer to American political and military demands — and to do so willingly. Considering the desperation and destitution of the Europeans, and the unprecedented and unparalleled U.S. economic strength, economic carrots were the obvious way to go.
Put another way, Bretton Woods was part of a broader American effort to extend the wartime alliance — sans the Soviets — beyond Germany’s surrender. After all wars, there is the hope that alliances that have defeated a common enemy will continue to function to administer and maintain the peace. This happened at the Congress of Vienna and Versailles as well. Bretton Woods was more than an attempt to shape the global economic system, it was an effort to grow a military alliance into a broader U.S.-led and -dominated bloc to counter the Soviets.
At Bretton Woods, the United States made itself the core of the new system, agreeing to become the trading partner of first and last resort. The United States would allow Europe near tariff-free access to its markets, and turn a blind eye to Europe’s own tariffs so long as they did not become too egregious — something that at least in part flew in the face of the Great Depression’s lessons. The sale of European goods in the United States would help Europe develop economically, and, in exchange, the United States would receive deference on political and military matters: NATO — the ultimate hedge against Soviet invasion — was born.
The “free world” alliance would not consist of a series of equal states. Instead, it would consist of the United States and everyone else. The “everyone else” included shattered European economies, their impoverished colonies, independent successor states and so on. The truth was that Bretton Woods was less a compact of equals than a framework for economic relations within an unequal alliance against the Soviet Union. The foundation of Bretton Woods was American economic power — and the American interest in strengthening the economies of the rest of the world to immunize them from communism and build the containment of the Soviet Union.
Almost immediately after the war, the United States began acting in ways that indicated that Bretton Woods was not — for itself at least — an economic program. When loans to fund Western Europe’s redevelopment failed to stimulate growth, those loans became grants, aka the Marshall Plan. Shortly thereafter, the United States — certainly to its economic loss — almost absentmindedly extended the benefits of Bretton Woods to any state involved on the American side of the Cold War, with Japan, South Korea and Taiwan signing up as its most enthusiastic participants.
And fast-forwarding to when the world went off of the gold standard and Bretton Woods supposedly died, gold was actually replaced by the U.S. dollar. Far from dying, the political/military understanding that underpinned Bretton Woods had only become more entrenched. Whereas before, the greatest limiter was on the availability of gold, now it became — and remains — the whim of the U.S. government’s monetary authorities.
Toward Bretton Woods II
For many of the states that will be attending what is already being dubbed Bretton Woods II, having this American centrality as such a key pillar of the system is the core of the problem.
The fundamental principle of Bretton Woods was national sovereignty within a framework of relationships, ultimately guaranteed not just by American political power but by American economic power. Bretton Woods was not so much a system as a reality. American economic power dwarfed the rest of the noncommunist world, and guaranteed the stability of the international financial system.
What the September financial crisis has shown is not that the basic financial system has changed, but what happens when the guarantor of the financial system itself undergoes a crisis. When the economic bubble in Japan — the world’s second-largest economy — burst in 1990-1991, it did not infect the rest of the world. Neither did the East Asian crisis in 1997, nor the ruble crisis of 1998. A crisis in France or the United Kingdom would similarly remain a local one. But a crisis in the U.S. economy becomes global. The fundamental reality of Bretton Woods remains unchanged: The U.S. economy remains the largest, and dysfunctions there affect the world. That is the reality of the international system, and that is ultimately what the French call for a new Bretton Woods is about.
There has been talk of a meeting at which the United States gives up its place as the world’s reserve currency and primacy of the economic system. That is not what this meeting will be about, and certainly not what the French are after. The use of the dollar as world reserve currency is not based on an aggrandizing fiat, but the reality that the dollar alone has a global presence and trust. The euro, after all, is only a decade old, and is not backed either by sovereign taxing powers or by a central bank with vast authority. The European Central Bank (ECB) certainly steadies the European financial system, but it is the sovereign countries that define economic policies. As we have seen in the recent crisis, the ECB actually lacks the authority to regulate Europe’s banks. Relying on a currency that is not in the hands of a sovereign taxing power, but dependent on the political will of (so far) 15 countries with very different interests, does not make for a reliable reserve currency.
The Europeans are not looking to challenge the reality of American power, they are looking to increase the degree to which the rest of the world can influence the dynamics of the American economy, with an eye toward limiting the ability of the Americans to accidentally destabilize the international financial system again. The French in particular look at the current crisis as the result of a failure in the U.S. regulatory system.
And the Europeans certainly have a point. If fault is to be pinned, it is on the United States for letting the problem grow and grow until it triggered a liquidity crisis. The Bretton Woods institutions — specifically the IMF, which is supposed to serve the role of financial lighthouse and crisis manager — proved irrelevant to the problems the world is currently passing through. Indeed, all multinational institutions failed or, more precisely, have little to do with the financial system that was operating in 2008. The 64-year-old Bretton Woods agreement simply didn’t have anything to do with the current reality.
Ultimately, the Europeans would like to see a shift in focus in the world of international economic interactions from strengthening the international trading system to controlling the international financial system. In practical terms, they want an oversight body that can guarantee that there won’t be a repeat of the current crisis. This would involve everything from regulations on accounting methods, to restrictions on what can and cannot be traded and by whom (offshore financial havens and hedge funds would definitely find their worlds circumscribed), to frameworks for global interventions. The net effect would be to create an international bureaucracy to oversee global financial markets.
Fundamentally, the Europeans are not simply hoping to modernize Bretton Woods, but instead to Europeanize the American financial markets. This is ultimately not a financial question, but a political one. The French are trying to flip Bretton Woods from a system where the United States is the buttress of the international system to a situation where the United States remains the buttress but is more constrained by the broader international system. The European view is that this will help everybody. The American position is not yet framed and won’t be until the new president is in office.
But it will be a very tough sell. For one, at its core the American problem is “simply” a liquidity freeze and one that is already thawing. Europe’s and East Asia’s recessions are bound to be deeper and longer lasting. So the United States is sure — no matter who takes over in January — to be less than keen about revamps of international processes in general. Far more important, any international system that oversees aspects of American finance would, by definition, not be under full American control, but under some sort of quasi-Brussels-like organization. And no American president is going to engage gleefully on that sort of topic.
Unless something else is on offer.
Bretton Woods was ultimately about the United States trading access to its economic might for political and military deference. The reality of American economic might remains. The question, then, is simple: What will the Europeans bring to the table with which to bargain?

Silver Boys At It Again

TED BUTLER COMMENTARY
October 20, 2008
The Silver Rush Is On
At the beginning of this year, I wrote an article predicting a coming investment boom in silver http://www.investmentrarities.com/01-22-08.html That investment boom has commenced and is intensifying. So strong is this silver investment boom, that it has even surprised me, although this was exactly my prediction. In the ten months since my article was written, more than 100 million ounces of silver were purchased by the world’s various publicly-owned silver investment vehicles, such as ETFs, closed-end funds and online depositories.
In addition, sales of newly-issued silver coins by the world’s public and private mints have exceeded 30 million ounces. These mints can’t keep up with investment demand, for the first time in history, resulting in unprecedented premiums and rationing. Throw in newly manufactured bars of all sizes, and some 150 million ounces of silver can easily be documented to have been bought by investors. Undocumented purchases would add tens of millions more ounces. Investment demand for silver this year is running at a full 25% of world mine production and over 20% of total production (including recycling). This is a remarkable historical turnabout. For decades, up until a few years ago, there was no net investment demand for silver. It was always reported that investors were dishoarding silver.
Silver mine production, both primary and on a by-product basis, is under stress due to low prices. Zinc mines, a big source of by-product silver, are closing daily, due to low zinc prices. Other base metal prices aren’t much better. In addition, silver scrap recycling is very price sensitive and low silver prices result in lower quantities of recycled silver. Who cares if silver industrial demand will be off temporarily, if production will also be off? I am convinced it will be investment demand that will drive prices (along with the coming user buying panic).
There is no clearer proof of the developing investment rush in silver than by comparing it to gold. Gold is viewed by the world as the king of the precious metals. Gold investment flows are the prime driver for its price. For every silver article written, there are a hundred gold articles written. For every silver investor, there are a hundred gold investors. Gold and gold investment are very big businesses. Silver is tiny in comparison.
In the current time of financial crisis, gold has experienced a surge in investment buying of all types. The amount of gold held in publicly-owned ETFs, closed-end funds and other deposit programs is at records. In addition, for the first time in memory, retail physical gold coins and bars are very hard to get and command premiums. This is unusual, and confirms strong investment demand for gold.
Yet, compared to silver, the surge in investment demand for gold seems tame. based upon the facts. The price of gold is currently more than 80 times the price of silver, one of the biggest differences in history. Secondly, since there is 4 to 5 times more gold in the world than silver (4 to 5 billion gold ounces vs. 1 billion silver ounces), that means that the total dollar value of all the gold in the world is worth 300 to 400 times more than all the silver in the world (80 times 4 or 5). The value of all the gold in the world is $4 trillion (4000 billion). The value of all the silver is $10 billion.
Give the fact that the dollar value of all the gold in the world is up to 400 times greater than the value of all the silver in the world, let me ask you a question. How much more investment money is flowing into gold, compared to silver? Your answer should be 80 times more, or 300 to 400 times more. That would be logical and intuitive. Yet, that answer would not even be close. Over the past ten months, the dollar value of documented investment flows into gold (all ETFs and public funds, plus new retail coin and bar demand) was $8.5 billion (10 million ounces x $850 average price). In silver, the equivalent dollar amount was $2.5 billion (150 million ounces x $16.5 average price). So, instead of gold investment flows being 80, or 300 or 400 times greater than investment flows into silver, they were less than 4 times greater. And on specific apples-to-apples comparisons, the match ups are even more dramatic. For example, in the issuance of Eagle bullion coins by the U.S. Mint, less than 2 times as much money went into gold Eagle coins as into silver Eagle coins.
This proves, beyond a doubt, that an unprecedented investment rush is underway in silver. The amount of investment money flowing into silver, compared to gold, is staggering. Let me make this clear - it’s not bearish for gold in any way. It’s just bullish beyond belief for silver.
A closer analysis is more shocking. That there is so much gold available for investment, compared to silver, makes the actual investment flows even more extreme. In gold, the 10 million ounces bought in documented new investment flows represents 0.2% of the total known inventory. In silver, the documented 150 million ounces bought in the first ten months of this year is equal to 15% of all the silver bullion equivalent thought to exist. Mathematically, the amount of silver bought should have impacted the silver price 75 times more dramatically than the amount bought in gold (15% divided by 0.2%). Instead, silver has noticeably underperformed gold.
Given the recent sharp price decline in silver and the strong dollar investment flows this year, those dollar flows will now buy a lot more metal. At $10 an ounce compared to the $16.50 an ounce average price this year, the $250 million monthly silver investment flow will buy 60% more metal.
All this should trouble you, as well as excite you to the investment implications for silver. The investment flows into silver are vastly greater than the investment flows into gold. There is much less silver in the world than gold. The premiums on comparable retail forms of silver are many times the premiums on comparable forms of gold. Yet, gold is promoted more and has a much higher investment awareness profile than silver. Such an incredible silver investment boom is occurring that statements claiming silver is only an industrial metal sound silly.
The only possible explanation for such a set of circumstance, i.e., record investment demand and plunging prices, is that the price of silver is being manipulated to the downside. Yet, in spite of (or because of) that manipulation, a small, but extremely determined number of investors is buying a disproportionate amount of silver. If so much silver can be bought by so few in such circumstances, what will happen when the masses awaken to the real facts in silver? The silver rush is on, buy while you can do so cheaply.



Be Optimistic, Buy Only Physical Silver
By
Israel Friedman (Sound Of Cannons respects the following opinion, but the Caveat Emptor aspect of buying physical silver is too much for us to bear. Silver mining stocks have been butchered and we're still hoping for an upswing if and when the commodity price gets moving)
(Israel Friedman is a friend and mentor to Theodore Butler. He has followed silver for many decades. He has written articles for us in the past. Investment Rarities does not necessarily endorse these views.)
When the retail prices of silver are so much higher than the prices traded on the COMEX, like now, this has to tell you something. I think that COMEX is a paper market controlled for the benefit of a few big players. People who want real silver are being hurt by a few.
In the past, it was my opinion that Silver Eagles would be the best investment. So far that has turned out to be correct because if you look today that what Eagles you can find in the market the premium is 70-80% higher than the COMEX price. This is the highest premium of any form of investment silver. This premium increase has helped investors in Silver Eagles avoid the full pain of the silver price decline.
I still favor Silver Eagles, for the reasons that I wrote about last year. http://www.investmentrarities.com/12-03-07.html I remember some disagreeing, saying the premiums were to high, when they were only 15% . What is amazing to me is that premiums have grown so high when still so few of the world’s investors know about silver and Silver Eagles, mostly in the U.S. and Europe. It is hard to imagine the price of silver and the premiums on Eagles when more become aware of the real silver story, especially in China and India. And I still expect the U.S. Mint to stop making them some day. Then the premiums will really go up. For now hardly any are available.
If you are a new investor and have more than $10,000 to invest in silver, the 1000 oz bars are the best for your money. The manipulation on the COMEX has created a bargain in 1000 oz bars. Besides, what makes it easier to buy 1000 oz bars, is more often every day, they are the only form of silver available.
When the total shortage comes, the biggest demand will be for Eagles and 1000 oz bars. Eagles will continue to have the biggest premium and after this will be a big demand for 1000 oz bars. These bars are what big investors and especially users will chase after. The key is for you to buy before that big rush comes. But it is important to make sure you hold 1000 oz, with serial numbers and weights of your bars. Don’t think that if you buy a COMEX futures contract that you will always be able to get physical silver delivery in the future. Big investors and industrial users can see there are too many contracts promising delivery compared to the amount of silver in the world. Be careful of guarantees to deliver silver. Who can guarantee to deliver what doesn’t exist? In these hard days, when you don’t know what the future will hold, it is a good thing when you have silver, which is the only metal in true short supply. Despite the prices I currently see on the COMEX, I am convinced more than ever that silver will be the best performer of all. What is happening today, as painful as it is, is a good thing for the long term investor. The extra world silver stocks are being bought up at distressed sale prices, and sooner or later the naked shorts on COMEX and those that sold certificates with no physical silver behind them, will be ruined.
While many people are coming to see that Mr. Butler’s claims of manipulation are true, one important group still has their heads stuck in the sand. The silver miners are helping the COMEX manipulators by meekly going along with the scam and selling real silver at whatever price the big shorts dictate. Because the price of silver is so far below the cost of production, shareholders of silver mining companies are being hurt very badly.
What can the silver miners do? They should refuse to sell their silver at such low, dumping prices. The cost of production for some miners is $16 an ounce. These miners should not sell below $20 an ounce. Let the silver users go to the COMEX and see how quickly the COMEX is cleaned out. If the miners have contractual agreements to sell silver, they should replace silver production they have to sell with contracts at the phony COMEX price.
Maybe there are miners who are so weak that they can’t hold back from selling silver at a big loss. These miners will go out of business if current low prices continue. But I say they can speak up to the regulators who are currently investigating a silver manipulation.
As a shareholder in Coeur d Alene Corp (CDE), I call on the CEO, Mr. Dennis Wheeler, to set an example for the other silver producers to stand up to those manipulating the price of silver. We should withhold selling the company’s silver production, for one quarter, or buy silver on the COMEX to replace production that must be sold. Let’s see how long the COMEX can sell silver at $10 an ounce.

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

All that is necessary for evil to triumph is that good men do nothing. - Edmund Burke

Oil Price Destructuring Isn't All Good

Falling Oil is a Geopolitical Time Bomb

by Justice Litle
I want to talk about a situation that feels like a ticking time bomb -- a time bomb that could go off sooner rather than later. It starts with this chart...
After climbing to nearly $150 a barrel earlier this year, the price of crude oil has fallen. A lot.
Crude’s big drop is good news for consumers, who won’t have to spend as much on gas and groceries. US prices at the pump recently fell ten cents to $2.92 a gallon, according to the AAA auto club. When the cost of fuel falls, the cost of transported goods falls too.
It’s also good news for the Federal Reserve. Thanks to falling oil prices -- and falling commodity prices in general -- the Fed doesn’t have to worry as much about inflation these days. They can flood the system with paper money to their heart’s content, knowing that the “early warning system” of rising commodity prices has been shut down. (At least for now.)
Big Trouble for the Petrocrats
In sharp contrast, falling oil is very bad news for men like Vladimir Putin and Hugo Chavez. You could even say it’s a flat-out disaster.
One or both of these men may have to take drastic measures in the only way they know how... and they may have to do it soon.
First a little explanation: As you likely know, these “petrocrats” were huge beneficiaries of the oil price run-up. Both had the good fortune of timing their political rise to a period of fast-rising oil wealth.
In Russia, Vladimir Putin amassed vast amounts of power, money and prestige as crude climbed to great heights. In Venezuela, Hugo Chavez used his gusher of funds to bribe the citizenry and spread influence throughout Latin America.
But that was then, and this is now. With the price of crude nearly cut in half from its 2008 highs, the roof is caving in on both men’s heads.
Evaporating Oligarchs
We’ll take a quick look at Russia first.
Though Putin has become extremely popular with average Russians, his real power base is concentrated with the oligarchs and the siloviki.
The oligarchs are Russia’s new class of billionaires -- men who amassed great power and wealth in the chaos and turmoil of Yeltsin’s Russia in the 1990s. The siloviki (a Russian term) are the kingmakers and the lever pullers... the men in the shadows who decide Russia’s fate.
The two groups are deeply intertwined. The oligarchs have the money... the siloviki have the power... and Putin holds court over both.
Now, as the price of crude declines, the oligarchs’ fortunes are falling apart. As the New York Times observes, “perhaps no community of the super affluent has fallen as hard, or as fast, as the brash Kremlin-connected insiders whose wealth was tied up in the overlapping bubbles of the Russian stock market, commodity prices and easy credit.”
The numbers are staggering. Bloomberg calculates that the top oligarchs -- the 25 richest Russians on the planet -- have lost a collective $230 billion over the course of the recent market decline. (This is partly due, too, to a Russian stock market crash. Russia’s benchmark stock index, the RTS index, is down more than 70%.)
Only 3 days remain to secure your best chance at 190 times your money!On October 24th, OPEC will begin holding the world’s crude supply hostage. And that gives you only 3 days to secure your best chance at 190 times your money on this petroleum play set to gain from the biggest “oil ransom” of all time. Learn how you could profit in this exclusive report.
Too Much Leverage, Comrade
To make matters worse, many of the oligarchs ran their affairs as if they were one-man investment banks. Huge quantities of leverage and debt were the norm. During boom times, it was no big deal for an oligarch to borrow many multiples of his net worth. The borrowed capital would then be put to work in even more speculative ventures. Now all that leverage is killing them.
This is a deadly serious problem for Vladimir Putin (a man reputedly worth tens of billions himself) because it leaves his power base badly fractured. If the oligarchs go down the drain, Putin could too.
Russia as a country is in a little better shape, thanks to a huge currency surplus war chest. Russia has upwards of $530 billion in reserves by some estimates. That’s rainy day money that can be spent as needed to keep the people calm and Moscow on its feet.
But none of that will matter to Putin if his hidden power network, a large part of which depends on the oligarchs, is destroyed. If something isn’t done to stop the bleeding, Vlad could wake up to anarchy in the Kremlin... or a new challenger risen up from the ranks... or even a dollop of Polonium 210 in his borscht.
Too Much Credit, Amigo
Hugo Chavez, Venezuela’s fiery leftist President, has arrived in a similar place by a different route.
Chavez didn’t make the mistake of leveraging up or staking his power on a group of rich insiders. Rather, he made the mistake of giving away his most precious resource for free... forgoing hundreds of billions in revenues in an aggressive effort to buy friends.
As it turns out, Venezuela only has one big customer who pays full price for oil: the United States. Most everyone else gets it at a huge discount.
In 2005, Chavez formed something known as the “Petrocaribe” club. He might as well have called it the “Chavez will bribe you to be his friend” club, for reasons you’ll soon see.
The 18 Latin American countries in the Friends of Chavez club -- er, excuse me, Petrocaribe club -- suck down roughly half the oil Venezuela produces. (That’s 1.2 million barrels out of 2.4 million barrels per day total... a 25% decline since Chavez rose to power.)
The upshot is that Venezuela, a country whose output should be rising but is instead declining, gives away half its oil for next to nothing. Chavez charges Petrocaribe members 30 percent of the market price up front, on 90-day terms, with the balance paid in installments spread out over 25 years.
Thirty percent down, 90 days same as cash and a 25-year repayment plan. What a deal!
If that deal sounds like a steal, that’s because it is. Chavez fancies himself a great liberator... the hope and salvation of Latin America... and he will grease the palm of anyone who agrees with him and stands against The Evil United States. (Never mind that The Evil United States is Venezuela’s only big customer paying cash on the barrelhead.)
Venezuela on the Precipice
Not only does Chavez give away half Venezuela’s oil to outsiders, he gives it away at home too. Thanks to mass subsidies, Venezuela has the cheapest gas prices in the world. You can fill up for your tank for twelve cents a gallon in Caracas... and that’s only the tip of the subsidy iceberg.
Not to put too fine a point on it, Chavez is a self-styled “revolutionary” with no concept of basic economics. He assumed the oil gusher would last forever, and spent money accordingly.
As if all the spending weren’t enough, Chavez has grossly neglected the maintenance and upkeep of PDVSA, the state-owned oil company. Rather than investing in technology and engineers, Chavez has ordered PDVSA to waste its time on hare-brained community schemes. He has installed political cronies in important positions, driven out key employees, and generally let the whole apparatus go to pot.
Now, like Putin, the falling price of crude is delivering the mother of all wake-up calls. Various sources estimate that if oil stays below $80 for long, Venezuela will have trouble paying its bills. Chavez is the type of guy who needs a frying pan to the face to see the error of his ways... and he is about to get it.
An Old Play From the Dictator’s Handbook
So what are Putin and Chavez going to do? Both men are in dire straits, and a ramp-up in oil production is not the answer.
Expanded oil output won’t help the oligarchs at this point. They need a higher price per barrel to shore up market values on their battered and bleeding holdings. And Chavez couldn’t expand production even if he wanted to. (Mazhar al-Sheridah, an oil expert with the University of Venezuela, says his country will need $32 billion and five years’ construction time to raise output.)
One option for both men is to lean hard on OPEC, and hope a round of deep cuts does the job of pushing oil higher. We’ll talk more about that in a minute. But there is another, older, more reliable play too... one that’s proven its effectiveness time and again in recent years.
Putin and Chavez can stir up turmoil on the cheap.
If there were such thing as a “dictator’s handbook” (or maybe a petrocrat’s handbook), you would find this play early on in the list of basic maneuvers. When things are going to hell at home, distract the populace (and the world) by starting a firestorm elsewhere.
It’s hard to solve a pressing problem with long-range tools like diplomacy and fiscal policy... but much easier to light a match and drop it in a drum of kerosene.
Return of the Fear Premium
For the past few years, crude oil traded with a hefty “fear premium” built in. The thought was that, with the supply and demand balance so tight, even the smallest conflict or disruption could have big ripple effects on the price and availability of oil.
Now that the markets are worried more about slowdown than runaway global growth, the fear premium in oil prices has gone away. If anything, it’s been replaced by a new deflationary mindset as “demand destruction” takes hold.
But “fear in the hearts of men” is back in the ascendant... in the hearts of Putin and Chavez anyway. As the walls crumble down around them, both could easily be on the verge of panic. Both know that oil prices must move higher if their regimes are to be saved from oblivion. And both are willing to do whatever it takes to save their own skins.
This is why falling oil is a geopolitical time bomb. Putin and Chavez could already be considered two of the most dangerous men on the planet. Now both men find themselves backed into a corner like wounded animals. And remember, the most dangerous animal of all is not the one hunting for its supper. It’s the one fighting for its life.
Whither OPEC?
We can’t know what’s taking place behind the scenes... what Putin and Chavez are saying to their closest advisers in their most urgent moments and so on. But we can know there’s a real powder keg brewing here. And OPEC is potentially a part of that mix too.
All I know is, if I were a ruthless petrocrat trying to save my regime from a downward spiral in crude oil prices, I would think big. I would try to set off the biggest, most explosive tinderbox possible, just to make sure my message gets through and the new “fear premium” takes full effect.
And if I could time that action with the actions of another powerful group, so much the better. That would just mean more bang for the geopolitical buck.
That’s where OPEC comes in...
In case you weren’t aware, OPEC is meeting later this week to discuss an emergency cutback in crude production. (Russia is not officially a part of OPEC, but Venezuela has long been a member.)
The market has been a tad jittery ahead of the OPEC meeting, but general expectations seem tame. Wall Street analysts are predicting a one million barrel per day production cut. There is also a general consensus that one million barrels won’t be enough to keep the price of oil from falling further.
Remember, too, that it isn’t just Russia and Venezuela who are hurting here. Many of the OPEC countries -- not least Iran -- have a lot riding on a high oil price. I suspect that OPEC will have to engage in a little “shock and awe” this week if they really want to get their message through. In 1973 they really took the gloves off, and we saw what happened the rest of that decade. Who’s to say they won’t do it again.
So there you have it. Mix geopolitical TNT with a paper currency fuse, and you’ve got a good chance of seeing energy prices spike higher before too long. Possibly much, much higher.

Full-Scale Crisis Meltdown Bloodbath Slaughter

U.S. IN CRISIS MODE - WHAT'S NEXT?

by Olivier Garret
In the last few weeks, it has become clear that the current financial meltdown is not our usual, run-of-the-mill crisis. It's supersized, inexorably linked to the rest of the world, ruled by chaos, and precariously perched atop a mountain of debt. "What makes this crisis different from some of the earlier ones," says IMF Historian James Boughton, "is that the interlinkages among financial institutions are much greater now than they used to be."
Daily efforts to "thaw credit markets," "provide liquidity," and "support financial stability" only add to the myriad market dislocations. And despite what we may hear from politicians and the news media, recovery is unlikely to be "just around the corner."
The party really is over. We are facing hard times, no matter what the government does. If it continues to prop up the sick markets, it will only delay and worsen the inevitable deep recession.
To survive the current financial crisis and the accompanying economic downturn, we must understand the big picture, and how it will be affected by the slew of "support" from the federal government.
Casey Research accurately predicted the specifics of the crisis in its International Speculator edition of March 2007:
For one thing, at the point that falling prices leave homeowners with mortgages exceeding the value of their homes, default rates will soar. This, in turn, will put lenders that hold large amounts of mortgage debt at risk, and possibly jeopardize the solvency of Fannie Mae and Freddie Mac, since they guarantee much of this debt. If these mortgage giants faced collapse - and they are already in well-documented trouble - a government bailout involving hundreds of billions of dollars would be a likely next step.
The impending calamity - mass housing foreclosures, failing banks, Fannie Mae and Freddie Mac in ashes, millions of personal bankruptcies - is so dire… most people can't even conceive of it. And indeed it may not hit us this year, or next, but the market always corrects itself, and this time will be no exception, sooner or later.
We have said before, and we repeat again: Rig for stormy weather.
Now the Casey Research team forecasts something outside the realm of any recent experience: the Greater Depression may be looming on the horizon.
Doug Casey coined the term "Greater Depression" in his best-selling book Crisis Investing, published in 1979. Today it resounds throughout the land; even CNN's Glenn Beck recently used it in an op-ed piece. And the signs are increasing that a depression may indeed be what we are moving towards.
On September 30, 2008 (end fiscal 2008), the Congressional Budget Office reported a record federal budget deficit for the year of $455 billion, up $293 billion (or 181%) from fiscal 2007.
And that does not yet include the Fed's bailout package for failing banks, Fannie Mae and Freddie Mac, and various other "economic stimuli." The chart below shows that the $700 billion agreed to by Congress may have been a very optimistic estimate.
On October 3, President Bush signed into law the Emergency Economic Stabilization Act of 2008. With this Act, Congress and the president have ensured a runaway government deficit next year…one sure to exceed $1 trillion. Along with total federal debt outstanding already around $10.3 trillion, unfunded liabilities of at least $50 trillion, and many new programs and tax rebates promised by both presidential candidates, this does not bode well for the global economic outlook.
As if that was not enough, during the past few weeks, the Fed increased the country's monetary base by as much as 20% to shore up the financial systems.
Federal budget deficits facilitate "loose" (expansionist) monetary policies, and these policies set in motion the business cycle. As the economy enters the cycle's "bust" phase, massive federal deficits have left the government with only one option - to try to inflate itself out of the current crisis, regardless of the impact on the value of the dollar.
A rapidly growing money supply at the same time the biggest credit bubble in 25 years bursts makes for a less than desirable scenario - one that could make the stagflation of the '70s look like a walk in the park. In March 1975, industrial production fell by nearly 13% while the yearly rate of CPI growth jumped to around 12%. It took another seven years and a second recession before the U.S. was able to break from the stagflation cycle.
What we are likely in for now is an unprecedented period of price inflation, economic depression, and high unemployment, i.e., not just stagflation but depflation (inflationary depression).
Depflation will affect the entire population, and its effects on people's personal finances will manifest in multiple ways.
~ Purchasing power declines as prices for consumer goods increase faster than wages.

~Taxes levied on businesses and individuals increase when nominal incomes rise.

~Late recipients of new money incur cost of additional hidden tax.

~ Cost of money (interest rates) increases, hurts investments in capital goods, stocks and bonds.

~Once expectation sets in, it becomes a self-feeding phenomenon, taking years and a severe recession to work itself out.
Just like a shot of adrenalin administered to a sick patient generates an apparent revival, only to have the patient collapse as soon as the injection wears off, the artificial monetary injections by the Fed will do the same. Paraphrasing former Fed chairman Paul Volcker, "Once you have a little [monetary] inflation, you need a little more". As with any medicine, its effects wear off and become less potent the more "injections" are received.
At this stage, your primary goal should be asset protection. Once that is in place, you will be in a better position to hunt for the opportunistic profits one can only find in times of crisis.

Mogambo On Absurdity

Theatre of the Fiscally Absurd
"Does Bernanke think that monetary inflation produces price inflation everywhere except here in the USA? Hahaha! I don't remember Mr. Friedman saying that!"
by The Mogambo Guru
I think it is true "Theatre of the Absurd" that Ben Bernanke, chairman of the Federal Reserve, paid direct homage to Milton Friedman and one of Milton Friedman's theories, namely that the Great Depression could have been avoided if the Fed had plowed enough money into the economy, by thanking Mr. Friedman, and admitting that the Federal Reserve had made a mistake in the '30s, and vowing that the Fed would never again make that mistake.
Well, now we have the results of that philosophy, as indicated by the essay "Monetary Stalinism in Washington" by Hossein Askari and Noureddine Krichene and posted at atimes.com. They write, "Monetary policy as practiced by the US Federal Reserve for the past decade is but a form of financial Stalinism, forcing ridiculously low or negative real interest rates, with catastrophic results that are now plaguing the world", such as "pushing housing, food, and energy prices to prohibitive levels, and triggering food and energy riots in vulnerable countries. It has undermined the dollar and made the US highly dependent on foreign financing."
They note that Friedman's theory, and the one that Ben Bernanke has sworn to cling to, is "that if the Fed had injected sufficient liquidity during 1929-1932, it would have prevented thousands banks failing and taking everything else down with them. Therefore, Bernanke is determined not to let that mistake happen again. Consequently, his response to the financial crisis has been a blind and aggressive monetary policy in [the] form of negative interest rates, massive liquidity injection, and massive bailouts, but that they won't make that mistake again."
As to the chances of that succeeding, they write, "It would appear that Bernanke has read a great deal about the Great Depression of 1929-1933 and perhaps very little, or nothing, about the German hyperinflation of 1920-1923", or even, in real time today, how about the horror of Zimbabwe! Hahaha!
Does Bernanke think that monetary inflation produces price inflation everywhere except here in the USA? Hahaha! I don't remember Mr. Friedman saying that!
The funny part is that Milton Friedman is also the guy who said that inflation is "always and everywhere a monetary phenomenon", meaning that higher prices follow an expansion in the money supply.
However, the careful observer will notice that Bernanke is not mentioning this inconvenient fact, since he is busily colluding with the Treasury Secretary and other central bankers around the world to generate horrific inflation through massive expansions of the money supply that will cause untold misery for billions of people so that they can, in some laughable comedy of low-IQ desperation, ameliorate their tragic incompetence and ludicrous economic theories.
The funny thing, say Askari and Krichene, is that with a fiat currency and the ability to create immense increases in the money supply, "The US economy in 2007 had no resemblance to either the institutional setting of the Great Depression or to the immense role and expansionary stance of fiscal policy. Namely, today, there are institutions that can prevent bank runs, such as the Federal Deposit Insurance Corporation, and the federal and state governments (both relatively far bigger than 1929) are running large deficits that should preclude a deep recession, especially if they adopt appropriate policies", which is to try and buy their way out by printing money and having the government buy everything in sight, which will fail, and will result in "high inflation and rising unemployment."
In short, "There is no basis for making sound financial or economic forecasts. No rational entrepreneur can undertake investment plans under such uncertainties. Foreign investors are scared of inflation and a depreciating dollar and are rushing to gold and safer currencies. It is at best a wait and see attitude."
I am perplexed that I don't see how foreign investors are "rushing to gold" while maintaining a "wait and see" attitude. But then, there are many, many things I don't understand, mostly about social graces or why children are so damned clingy, but the one thing I actually DO understand is that this economic bailout stupidity will end badly for everybody that does not have gold and silver, because if there were a way for a government to successfully and painlessly buy its way out of massive indebtedness, then some overly-indebted government before now would have thought of it, too, as they all did the exact same damned thing, and they were all ruined by it, although they tried everything.
Except the one thing that would have fixed everything; immediately adopting a gold-standard money, which is eternal, which is why people who own gold and silver will have a sort of financial immortality, too.
Unfortunately, some other things never change, either, in that government morons and greedy bankers are eternal, too! Hahaha! We're so freaking doomed!

Treasury Blacks Out Key Parts of Private Bailout Contracts

Remember how Treasury Secretary Henry Paulson promised full transparency in spending the $700 billion bailout money? And remember how bailout opponents predicted that the failure to mandate such transparency would allow all sorts of Halliburton-style shenanigans? From the looks of the first private contracts issued by the Treasury Department, it looks like the bailout opponents were correct.
As flagged by BailoutSleuth.com, Paulson is blacking out the sections of government contracts that spell out how much private firms will be paid for their services in administering taxpayer money. Here's a page from the compensation part of a contract with Bank of New York, which has been hired to do some of the bookkeeping (because, of course, the Bush administration is happy to privatize that function):
And here's a page from the compensation part of a Treasury contract with law firm Simpson Thatcher Bartlett - a firm being hired to provide "legal advice" to the government:
Think these are doctored images? Check them out yourself on Treasury's website - the first contract is here (blacked out section on page 25 of the PDF) and the second contract is here (blacked out section on page 5 of the PDF).
So, just to review - within just a few weeks of the bailout passing, our government is blacking out the parts of public contracts that explain how much taxpayer cash private contractors are going to be paid. Perhaps this is what Paulson meant when he promised transparency - by posting these blacked out contracts on the Treasury website, the government is being transparent about exactly where it is being secretive. But I don't think that definition of transparency really flies, do you?
Of course, I wish I was surprised about this - but one of the major reasons I was opposed to this bailout from the beginning was because (as I and others repeatedly wrote) there is no real transparency at all. Now we know what "no transparency at all" really means.

Remember how Treasury Secretary Henry Paulson promised full transparency in spending the $700 billion bailout money? And remember how bailout opponents predicted that the failure to mandate such trans...
Remember how Treasury Secretary Henry Paulson promised full transparency in spending the $700 billion bailout money? And remember how bailout opponents predicted that the failure to mandate such trans...

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

"Would you be willing to give up your favorite federal programs if it meant you would never have to pay income tax again?" -Harry Browne

What Now? Silver? Gold? Stocks?

Should You Own Gold, Silver or Commodity Stocks?

Source: Seeking Alpha, Marc Courtenay 10/19/2008
...as always, gold gets dumped as the most liquid way to raise quick cash to cover losses elsewhere (or simply to hoard currency during a period that is, to say the least, volatile). Economists at research firm Action Economics report that some hedge funds have been forced to liquidate their positions for just that reason.

Bill Murphy, writing on LemetropoleCafe.com, offers his view of the situation right now: “Demand for physical gold is astonishing and yet the price goes nowhere. The dichotomy between the ‘real’ gold market and the Comex is widening. The US Government is petrified of gold rising to any degree because of its importance, in that a sharply rising price will shed light on ‘Dracula’ … or the hideous inflationary forces set in motion by Comrade Paulson’s bailout...JP Morgan said on Wednesday it is raising its price forecast for gold for 2008 and 2009 on expectations investors will buy into bullion as a haven from risk...The bank now sees gold prices at $904 an ounce in 2008, against a previous forecast of $884, and at $875 an ounce next year, up from $854 previously expectated...Frank McGhee, of Integrated Brokerage Services in Chicago notes that “you're seeing some buying coming back to gold on the wall of worry … The underlying problem in the credit markets is going to take a long time to work through.”McGhee added that it’s no simple matter, though. “It's going to be very volatile, very thin trading, very slippery. But if you look, gold is the strongest asset on the board,” he said...

God, When Will It End?

How Long Will the Bloodbath Continue?

Source: Adrian Day's Global Analyst 10/17/2008
Adrian Day’s reputation for discovering big winners adds credibility to the global investing pioneer’s insights, which he is sharing with The Gold Report via excerpts from recent articles in Adrian Day's Global Analyst. In this segment, he evaluates the current carnage, and discusses the demise of the dollar, prospects for the Euro and emerging economies’ currencies, and the potential for commodities to recover before other sectors do.

How Long Will the Bloodbath Continue?

We all are painfully away of the carnage in the markets in recent weeks and months. Very few markets or sectors, few funds or managers have escaped the carnage unscathed. Warren Buffett is down, even the bears are down. For the year to date, there is not a single major market anywhere that is not down at least 36%, while much of Europe and Asia is down over 50%. The Dow, at 36%, along with Switzerland, 37% and Japan, 40%, are the least bad markets this year.Likewise, all sectors are down, with natural resource indices, funds and big-cap stocks down 50-70%. It is truly carnage on a wide scale.These are extremely trying times for investors. The carnage in markets has been widespread, with few places to hide. We must recognize that we are not in a normal cyclical downturn, but rather a protracted de-leveraging process, and it will take time for the economy and markets to recover.

So how will the crisis, and the governments’ responses, affect markets?

Destruction of the Dollar UnderwayMost important of all, government policies in response to the crisis will destroy the purchasing power of the dollar, domestically and internationally, by dramatically increasingly availability of dollars.The process is well underway. Forget Paulson’s $700 billion cookie jar. Already this year, loans from the Federal Reserve have exploded. From well under $10 billion a month last year, Fed loans (mostly to banks) have been rising throughout this year, to over $100 billion a month for the last six months, and an astonishing $2.7 trillion last month alone. The seeds of inflation and the destruction of the dollar are already sown.And if only half of the spending plans of either presidential candidate are implemented, the government spending and the deficit will explode (further), aggravating the dollar’s erosion.The long-term reasons for the dollar’s decline are well known: the U.S. financial situation, high debt levels and low savings rates. But foreign central banks still hold about 70% of their non-domestic reserves in U.S. dollars. The level is so high partly because of lack of alternatives—who wants to hold the Euro as insurance?—and because of heretofore trust in the fundamental health of the U.S. economy.But global officials are realizing that such concentration is imprudent, all the more so given the overleveraged economy. A widely publicized article in the Chinese People’s Daily called for “a new financial and currency order that is no longer dependent on the United States and the dollar,”and said “the world urgently needs to create a diversified currency system.”With over $4 trillion in U.S. dollar paper held by the world’s central banks—at least half of it by those who are not necessarily friendly with the United States (China, OPEC and Russia)—a move to become “less dependent” on the dollar is not to be taken lightly.End of Empire In my view, we can draw lessons for the U.S. today from the position of Britain at the end of World War II. Britain had been the world’s dominant economic, political and military power, with the world’s reserve currency. But by 1946 it was militarily stretched beyond its capacity, and highly indebted. The U.S. took over the #1 spot and the dollar became the world’s reserve currency, with the pound falling from five-to-one in 1946 down to parity four decades later.The problem with being the world’s reserve currency is that more money is created than is necessary for the domestic economy’s needs. For decades, the U.S. has created far more dollars than it needs, but it didn’t matter so long as other countries were prepared to buy and hold those dollars. But those dollars still exist. As other countries lose confidence and diversify, those dollars eventually come back: too many dollars and too little demand equal a lower price.

Dollar Rally Ahead?

In the very immediate term, we may see a dollar rally, as investors liquidate assets and pull back home to restore balance sheets; in addition, some foreign investors go to a perceived safe haven in a time of crisis. We may even see a coordinated central bank move to support the greenback. The last thing global bankers need now is dollar rout. But it won’t last long; as one analyst put it, “these are the worst U.S. fundamentals I’ve ever seen for a dollar turn.”In the next leg down, the Euro won’t be a leader, as we’ve suggested before. Its economy is also sluggish, with interest rates set to come down, and with fundamental structural problems. Indeed, the Euro itself may not survive another decade. The leaders in the next stage are likely to be the Asian currencies, including the yen and renminbi, as well as those of other major emerging nations, and gold.Weakening Economies Are Not Positive for StocksAs the U.S. economy de-levers, it will be next to impossible to avoid a recession; consumer spending is falling amid rising unemployment. Europe too is slowing, with German GDP falling last quarter amid weak manufacturer numbers. Ironically, Japan is best positioned of the major industrial economies. Its economy is nowhere near as leveraged as others, with strong balance sheets in the corporate, financial and household sectors, and with considerably less exposure to U.S. “toxic assets.” With over half its exports going to vibrant economies in Asia, it may avoid a deep contraction.

Are Stocks Cheap?

There are those who suggest the U.S. stock market is at a bottom. Certainly, one needs to be careful dumping into a panic liquidation and some recovery would be expected. Similarly, we are beginning to find more and better buys. The S&P is now selling at an estimated forward price-to-earnings a little over 13, below average p/e levels.But the stock market is not yet fundamentally cheap. First, we have the question of how reliable those earnings estimates might be. Analysts are notoriously optimistic and have been continually revising estimates downwards. The consensus analyst estimate is for 34% growth in S&P earnings next year. We seriously doubt that. (The S&P is trading at 21 times trailing earnings.)But note also that even that low estimated p/e is still considerably above the typical historical bear market low (of 8 times). The same applies for book value and yield levels, barely at average levels even after these massive price declines, let alone bear market lows.

Where Are the Global Values?

Just as U.S. analysts have grossly mis-estimated earnings, so too have European analysts, who are calling for a minor rise in earnings for the balance of the year. But for next year, they are calling for a 12.6% increase in earnings, which is also unlikely to come about.Having said that, there are some very good values in both the U.S. and Europe, as well as elsewhere, companies trading for less than their intrinsic worth, with good managements and strong balance sheets. But in a market like this, in the near term at any rate, value is so much less important than sentiment and liquidity, and both of those are extremely negative, meaning markets—despite any rallies—will remain under pressure.The same applies to emerging economies, the largest of which have been responsible for much of the world’s recent economic growth. Their stocks represent better fundamental value in many cases. Yet given liquidity issues, we are not recommending buying yet.Commodities, Badly Hit, Have the Best ProspectsIn the last several weeks, prices of commodities have dropped, in many cases precipitously, amid concerns of a global recession cutting demand, capping a generally weak several months. The stocks have tumbled alongside, with major global mining stocks down 50-70% from their peaks, while most juniors are down even more. No doubt, we can expect demand to be less robust than prior. Yet most demand growth is coming, not from major industrial countries, but from the larger emerging countries. For most resources, what happens in China is more important than a decline in the U.S. economy.So we expect slower growth, but also expect demand for resources to continue to grow in the years ahead, even as supplies for many commodities are struggling to keep pace.Despite huge increases in exploration budgets as prices moved up, major companies are simply not making sufficient new discoveries to meet increased demand or even to offset existing production. This is true of a range of resources. The major integrated oil companies, for example, are replacing only 70% of their output; gold production is actually down over the past seven years; and so on.Commodity Super-Cycle Is Not OverSo we view this as a correction, albeit a particularly severe one, within a secular bull market. Secular markets in commodities tend to be long, partly because of the long lead times in supply response to higher demand and prices. This secular bull market is driven by the urbanization and industrialization of China in particular, and the growing middle classes from Asia to Brazil, which demand the products we take for granted. And that requires basic resources. That’s not changing.But secular bull markets have cyclical cycles within them. During the current slowdown, there is de-stocking of inventories and a slowdown in new projects. So when demand resumes growth, prices could recover quickly, as firms rush to build up stocks again. In China, it’s different: demand is already coming back as factories reopen following the shutdown ahead of the Olympics, but first they have to work through the inventories built up at that time.

Gold: The Ultimate Money

Gold is a unique case, because of monetary factors. Thus gold had a run in recent weeks as the crisis unfolded, jumping over 20% to over $900, even as other commodities slumped and the dollar recovered. This came amid a worldwide rush to buy physical metal in “unprecedented” amounts, driven unusually by the world’s very rich; imports into Abu Dhabi, a key Middle Eastern gold trading hub, have jumped 300% from last year.But there’s also stronger-than-usual demand from India, the world’s largest gold market, while retail investors in the U.S. and around the world have flocked to buy, leading to extreme shortages of coins and small bars.

With Demand So Strong, Why Isn’t the Gold Price Higher?

There is a dissonance between the physical market and paper market (COMEX and other futures and derivatives). The latter have pushed the price back on massive short positions (as well as, no doubt, some further forced liquidation by funds and others). Such contracts are settled in cash, not bullion, but any failure of some large contracts could expose the shortage in the physical market. Ongoing concerns about the global monetary system and about further collapses in erstwhile reputable firms will support gold buying.Why Have Not the Gold Stocks Kept Pace?There are long-term reasons the stocks have lagged: mining costs have increased as much as the gold price; political and environmental pressures have caused delays; and the gold ETFs have diverted some demand (though also created new demand). More recently, the most critical factor has been liquidity, both with senior and particularly the junior stocks.When hedge funds get margin calls or mutual funds redemptions, funds are forced to sell, and they dump large positions onto a market without enough buyers. One by one the stocks are taken out back and shot (though most not fatally). That causes panic and despair among ordinary investors, leading to more wholesale liquidations. It’s also clear that a tremendous overhanging is building up in many situations.The stocks, in our view, are inexpensive now. The seniors are trading at some of their lowest valuation levels in 20 years, and are cheap relative to gold. A gold/XAU ratio over 5 typically foretells a rally in both gold and the stocks. Today, it stands at a record high of 7.5 and well outside the normal range. As for the juniors, many are trading well below their net asset values, and several below cash. And in many cases, these are companies with low burn rates and multiple projects.

When Will the Gold Stocks Move?

So what will cause this to change? Right now, it’s important to emphasize that liquidity issues are more important than valuation in driving prices, pure and simple. Forced liquidations are driving prices down below any reasonable value. Certainly, gold at $950 on its way to $1,000 would help.More importantly, however, more acquisitions by senior companies of juniors or their projects will see interest back in the sector, as would another major discovery in a politically friendly jurisdiction, that is, without politicians trying to rewrite contracts or environmental groups blocking development leading to the long drawn-out battles that wear out investors. But first, there needs to be some semblance of stability returning to the credit and stock markets in general.Many Investors Ready to StrikeWhen this will happen is difficult to say. But we do know that several major savvy players with large amounts of cash are circling the wagons, believing the time to pounce, if not yet, may not be far off. So we hold the best exploration companies, those with strong balance sheets that ensure survival, and multiple projects to increase the odds of eventual success, and we continually look to upgrade overall portfolios.In sum, we see a protracted period of weakness in the U.S. and other major industrialized nations, caused by ongoing de-leveraging, while inflation, here and elsewhere, picks up. Most importantly, we expect a long decline in the value of the dollar. But growth in many countries, particularly the emerging countries in Asia, will continue, albeit at a slower pace. This means ongoing demand for basic resources.What’s Next?So, this is clearly a global crisis unlike typical cyclical recessions, and the fallout will be protracted. Though there will be rallies, often quite sharp, we should not expect sustained strength in stock markets for some time, though resources, and particularly gold, could regain strength soon.

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

We are apt to shut our eyes against a painful truth... For my part, I am willing to know the whole truth; to know the worst; and to provide for it. --Patrick Henry

Ron Paul Says It All..............

Capitalism Without Capital?
Ron PaulThursday, Oct 16, 2008
It has been long understood that our federal government is going deeper into debt, consistently raising the debt ceiling and demonstrating no fiscal restraint. In recent years, debt ceiling increases have been placed in “must pass” legislation as a means to guarantee that Republicans as well as Democrats would vote for them when Congress was under Republican control.
We also know our nation’s “negative savings rate” reflects the habits of private citizens, showing those habits to be not tremendously different than the habits of the public sector. Yet, the signs of decline are becoming ever more apparent. So apparent, in fact, that it seems unlikely that bailouts or other gimmicks will have even short-term success. More inflation, and creating moral hazard by bailing out egregious offenders, is a recipe for disaster. These activities can seem to provide some short-term relief, but it seems we are now at a significant crisis point, where monetary policy gimmicks don’t provide the band-aids they did in the past.
Not only is our nation on the verge of bankruptcy, but so are its people and private institutions. We are now repeatedly hearing about businesses “needing to access the credit market to make payroll.” This is an unmistakable sign of more dire consequences ahead for the economy. If businesses must borrow just to make payroll, this is evidence of a severe undercapitalization that cannot be sustained, even for the short run.
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Couple these facts with items such as the explosion of the “payday loan” industry and the unmasking of the false sense of economic well-being is nearly complete. These payday loan companies use preferred access to easy credit to inject cash into the hands of the working poor. They are nearly always set up in lower-income neighborhoods. These people, who are struggling to buy food and pay rent, get addicted to the credit drug. Their standard of living is only further depressed by the interest payments on these loans that make them profitable to their providers. Thus, the recipients are left even less capable of paying for items such as food and housing in the long run, without using this credit again and again.
These people are often the very ones being paid by businesses who “borrow to make payroll.” This is the dark underbelly of the fiat money, borrow-and-spend economy this nation has been building. As the government takes over more and more functions of the economy many see the rise of socialism as an antidote to this failure of “capitalism.” However, the fact remains that our economy has been increasingly running on debt, not capital. Capitalism does not exist without capital and debt is not, has never been and will never be a form of capital. Only now are we seeing the more dire implications of an economy without capital.

It Isn't Capitalism That's Wrong Here

Don’t Blame Capitalism
Peter Schiff

Thursday, Oct 16, 2008
Amid the chaos of recent days, as the federal government has taken gargantuan steps to stabilize the financial markets, realigning the U.S. economic system in the process, comes a nearly universal consensus: This crisis resulted from government reluctance to regulate the unbridled greed of Wall Street. Many economists and market participants who were formerly averse to government interference agree that a more robust regulatory framework must be constructed to cage the destructive forces of capitalism.
For the political left, which has long championed the need for such limits, this crisis is the opportunity of a lifetime.
Absent from such conclusions is the central role the government played in creating the crisis. Yes, many Wall Street leaders were irresponsible, and they should pay. But they were playing the distorted hand dealt them by government policies. Our leaders irrationally promoted home-buying, discouraged savings, and recklessly encouraged borrowing and lending, which together undermined our markets.
Just as prices in a free market are set by supply and demand, financial and real estate markets are governed by the opposing tension between greed and fear. Everyone wants to make money, but everyone is also afraid of losing what he has. Although few would ascribe their desire for prosperity to greed, it is simply a rose by another name. Greed is the elemental motivation for the economic risk-taking and hard work that are essential to a vibrant economy.

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But over the past generation, government has removed the necessary counterbalance of fear from the equation. Policies enacted by the Federal Reserve, the Federal Housing Administration, Fannie Mae and Freddie Mac (which were always government entities in disguise), and others created advantages for home-buying and selling and removed disincentives for lending and borrowing. The result was a credit and real estate bubble that could only grow — until it could grow no more.
Prominent among these wrongheaded advantages are the mortgage interest tax deduction and the exemption of real estate capital gains from taxable income. These policies create unnatural demand for home purchases and a (tax-free) incentive to speculate in real estate.
Similarly, the FHA, Fannie and Freddie were created to encourage lending by allowing primary lenders to turn their long-term risk over to the government. Absent this implicit guarantee, lenders would probably have been much more conservative in approving borrowers and setting interest terms, and in requiring documentation of incomes and higher down payments. Market forces would have kept out unqualified buyers and prevented home-price appreciation from exceeding the growth in household income.
Interest rates contributed the most to creating the housing boom. After the dot-com crash and the slowdown following the attacks of Sept. 11, 2001, the Federal Reserve took extraordinary steps to prevent a shallow recession from deepening. By slashing interest rates to 1 percent and holding them below the rate of inflation for years, the government discouraged savings and practically distributed free money.
Artificially low interest rates invigorated the market for adjustable-rate mortgages and gave birth to the teaser rate, which made overpriced homes appear affordable. Alan Greenspan himself actively encouraged home buyers to avail themselves of these seeming benefits. As monetary policy caused houses to become more expensive, it also temporarily provided buyers with the means to overpay. Cheap money gave rise to subprime mortgages and the resulting securitization wave that made these loans appear safe for investors.
And even today, as market forces deflate the credit bubble, the government is stepping in to re-inflate it. First came the Treasury’s $700 billion plan to purchase mortgage assets that no one in the private sector would buy. Now it has recapitalized banks to the tune of $250 billion, guaranteeing loans between banks and fully insuring non-interest-bearing accounts. Policymakers say that absent these steps, banks would not be able to extend loans. But given our already staggering debt burden, perhaps more loans are not the answer. That’s what the free market is telling us. But the government cannot abide solutions that ask for consumer sacrifice.
Real credit can be supplied only by savings, so artificial steps to stimulate lending will only produce inflation. By refusing to allow market forces to rein in excess spending, liquidate bad investments, replenish depleted savings, fund capital investment and help workers transition from the service sector to the manufacturing sector, government is resisting the cure while exacerbating the disease.