Tuesday, June 30, 2009

Monday, June 15, 2009

The Common Good According To Citi


June 15, 2009 11:55AM
Citigroup and the World Bank Illuminati are stealing our money

Citigroup has taken in tens of billions of dollars in direct welfare infusions from TARP in order to make payroll and keep the lights turned on. Vikram Pandit, the CEO who’s also the guy who started a hedge fund using money fronted from giant investment banks like Citigroup and sold the start up hedge fund to Citigroup so that it could risk and lose its depositors money in the stock market, had to come back and beg for more just-for-Citi money from taxpayer largesse since Citigroup did indeed risk and lose every cent their depositors, lenders and shareholders had given them.
And now Citigroup wants to take the money they’ve begged to have confiscated from the private market and funnel it to the most IMF-politically-connected people who “run” companies in developing nations around the world. We don’t have enough welfare money in this country to feed hungry kids in the projects a few blocks away from Citigroup’s headquarters…but apparently, we have enough welfare money in this country for corrupt bureaucracies and politicians in other countries to plunder as they pretend that redistributed money is “Intended to stimulate the growth of trade in the emerging markets over a three-year timeframe, this funding is expected to support estimated trade flows of up to $7.5 billion (through the origination of $1.25 billion six times over during the three-year period)”
The money at Citigroup is supposed to be depositors’ savings lent out to companies and individuals whom Citigroup thinks will pay them back. The government’s supposed to make sure everybody involved in that doesn’t lie, cheat or steal. That’s how money flows where it’s most needed and markets are created and prosperity built.
Instead, the US government has confiscated taxpayer money and given it to fraudulent management at Citigroup and Citigroup’s now taking that confiscated taxpayer money and telling us that it will only lend that money out to those can properly work the World Bank system.
Virtuous cycles create growth and prosperity and can only be created, by definition, on virtuous terms and with profit to fuel them. There’s nothing virtuous about Citigroup’s newfound politically-motivated and politically-CONTROLLED policies and actions.
And the billions of people in the emerging countries who aren’t politically-connected enough to get their hands on all that confiscated money coming into their countries won’t benefit from the endlessly vicious cycle of politically-driven markets either.
Even if these policies at Citigroup were to generate earnings for the company, the company has NO RIGHT to the profiteering they are doing with all this taxpayer largesse they have begged for.
Don’t we want Citigroup to deal with its insolvency and sold off in pieces to private co’s asap once and for all?
And what’s good for Citigroup is NO LONGER what’s good for the United States “public good” and we have to change that.

Our Government Motors


Here at Sound Of Cannons, we've been running the numbers on the General Motors bailout. How likely is it the Treasury will earn back its “investment”?
GM has received $50.7 billion in taxpayer money. When Government Motors comes out of bankruptcy, Uncle Sam will own 60% of it.”
At its all-time high, GM’s market cap was $56 billion, which slid down to ~$7.3 billion prior to Chapter 11.
For the taxpayer to just break even on their investment , the New GM would have to have to reach a market capitalization of $84 billion – almost 150% of its all-time peak. That will be tough, even with the new GM’s better capital structure, employee contracts and much less debt . . .

Mogambo rants, You Listen


Chinese Laughter the Sound of US Stupidity

by The Mogambo Guru


Tampa Bay, Florida

The winner of the Mogambo Award For Most Imbecilic Statement Of The Month (MAFMISOTM) comes from a Financial Times article where we read that Tim Geithner, whom I ungraciously call (with a sneer and a voice dripping with a tone of Pure Mogambo Contempt (PMC)), the "rat-like Treasury Secretary of the United States," tried to convince China that "the US would do what was necessary to bring its budget under control." Hahahaha!Now, there are many ways to define "do what is necessary," and after the fiasco of the United States now being known as a country that tortures people, the sky's the limit on that, I guess, and as it turns out, I was right! Listen to this: Geithner, the rat-like Treasury Secretary of the United States, told the Chinese that after a long period of grotesque, Banana- Republic style fiscal excesses for the next decade or so, we would "do what is necessary" to somehow, some day, at some time in the unforeseeable future, nobody knows how, or when, the government of the USA will bring down "the fiscal deficit to about 3 per cent of gross domestic product"! Hahahahahaha!
"We’re going to bring the fiscal deficit down to the point where (hahahaha!) history says that we have to do something to reduce the fiscal deficit? Hahahahaha!"The long string of the repetitious use of the word "ha" is my clever way of communicating in prose the sheer degree of disrespectful laughter that this ludicrous crap deserves! Hahahahaha!The reason for my scornful laughter is mostly because I have already been drinking heavily to toast my success in getting through another day without screaming my guts out that we are all doomed from the effects of this monetary and fiscal insanity and how much I hate everybody connected with it, and so it somehow strikes me as funny that this federal spending deficit of 3% of GDP is the point where it starts getting bad! Hahaha! And this (hahahaha!) is the goal? Hahaha! We're going to bring the fiscal deficit down to the point where (hahahaha!) history says that we have to do something to reduce the fiscal deficit? Hahahahaha!By this time I am laughing so hard that I am sorry that I ate all that pizza for lunch, and with gasping, rasping breath I am coughing up bits of lung tissue, along with pieces of sausage with tomato sauce, while trying to say, "Stop! Stop! Hahahaha! My stomach is hurting from all this laughter! Hahaha!" Oddly, enough, this is NOT the place in the speech where the Chinese students laughed in the face of the rat-like Treasury Secretary of the United States, although I am sure that there was a of tittering and indecipherable muttering that sounded like "Ho how chang won hong chow?" which is difficult to translate literally, but means, "What in the hell is wrong with this idiot? Did he really say that the long-term goal of these American lowlifes is to bring their fiscal deficit to 'about 3 percent of gross domestic product,' when the goal is actually to have a balanced budget, no debt, and with the government tax rake- off being as small as possible?"I can see where they would not laugh at such insufferable stupidity, considering the consequences. Instead, they laughed, according to Financial Times, when he said that "Chinese assets are very safe," which actually may have been a joke on the infamously corrupt Chinese government, which routinely takes property from citizens, actually killing millions of them in the recent Cultural Revolution, and continues its thieving ways even now by also creating lots of money and credit so that it is constantly stealing the buying power of the money that people hold! Hahaha! On the other hand, maybe they laughed because Chinese students know that with a fiat currency like the dollar and a spendthrift, redistributionist, commie-think Leftist government like the American Congress causing the over-creation of more money and credit, the dollar is doomed, and so the idea of dollar-denominated assets as being safe is totally ridiculous.The Financial Times came to another conclusion, and said that while the comment of the rat-like Treasury Secretary of the United States "drew loud laugher from his student audience," it was "a reflection of skepticism among many Chinese about the wisdom of building up large foreign reserves." Hahaha!Now I am laughing too, especially since this puts them miles ahead of us Americans, who think nothing of putting all our money, and all our retirement hopes and dreams, into dollar-denominated assets! Hahaha!The Chinese have expressed their skepticism by starting to accumulate some gold and commodities. We should do the same.And while we are at it, accumulate some silver and oil, too, an investing decision made so easy by the astounding fiscal and monetary stupidities of government that it makes you giggle with glee, "Whee! This investing stuff is easy!"

Butler On Silver



A PRESIDENTIAL BOMBSHELL
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.)
I’ve just learned something about silver that I was vaguely familiar with. It had a big impact on me. When I shared it with my mentor, Izzy Friedman, the person who first got me interested in silver, he called it a bombshell. I was vaguely familiar with the subject because it dates back 44 years, to 1965. I was 18 years old and had just graduated from high school. I was thinking about college, the Vietnam War, cars and girls, though not necessarily in that order. I was definitely not thinking about silver. Izzy hadn’t even come to America yet. Even if you are 80 years old, you were only 36 in 1965.
Thanks to a post on the Internet, I had the opportunity to read the speech that President Lyndon Johnson made on July 23, 1965, in which he announced the US Government’s plan to remove silver from the coinage. I had not read the speech before. The President said this was the first change in our nation’s coinage in 173 years, since the very first Coinage Act of 1792. Here are the pertinent sections.
"Now, all of you know these changes are necessary for a very simple reason--silver is a scarce material. Our uses of silver are growing as our population and our economy grows. The hard fact is that silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins.
If we had not done so, we would have risked chronic coin shortages in the very near future.
Some have asked whether our silver coins will disappear. The answer is very definitely-no.
Our present silver coins won't disappear and they won't even become rarities. We estimate that there are now 12 billion--I repeat, more than 12 billion silver dimes and quarters and half dollars that are now outstanding. We will make another billion before we halt production. And they will be used side-by-side with our new coins.
Since the life of a silver coin is about 25 years, we expect our traditional silver coins to be with us in large numbers for a long, long time.
If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content."
President Johnson and his economic team at the Treasury Department were eventually proven remarkably correct but also incorrect. They were correct that the demand for silver would soon deplete US inventories. They were dead wrong in their expectation that the US Government could hold down silver prices and prevent investors from making a profit. In just a few years, most silver coins were removed from circulation. In less than 15 years, the price of silver rose from $1.29 (at the time of the President’s speech) to more than $50 in early-1980.
In 1959, six years prior to the speech, the US Treasury Department held approximately 2.1 billion ounces in silver bullion inventories plus 1.3 billion ounces in circulating coinage, for a total of 3.4 billion ounces. By 1971, through a combination of bullion sales and new coinage, the Treasury held only 170 million ounces of silver bullion. Most silver coins were removed by investors from circulation, and eventually melted into bullion. Over this 12-year period, more than 3.2 billion ounces of silver were transferred from the US Government to the private sector. Around 94% of what the government controlled was gone.
1959 would also be the last year that the US Government was a buyer of silver, until 2001, when it began buying silver for its coin programs. In 1959, when the US Government held 3.4 billion ounces of silver, the US population was approximately 180 million. That means the Government held almost 19 ounces of silver, for every man, woman and child in the nation. Today it holds none. This also means that the US Government can never be a physical silver seller again unless it buys silver first.
Here’s a statistic that is stunning and troublesome at the same time. In 1959, there were about 5 billion ounces of silver physically held on US soil. This includes the 3.4 billion of government holdings plus privately held silver. That includes hundreds of millions of ounces of silver objects that would be melted in the early 1980’s. Today there are no more than 300 million ounces held on US soil, including all the 118 million ounces in COMEX-approved warehouses. The 400 million ounces in ETFs are held outside the US. If my numbers are accurate (as I believe them to be), the amount of physical silver held on US soil is down 94% in 50 years.
In 1959, there were about 9 billion ounces of silver bullion-equivalent in the world (half of that in the US. With a world population of 3 billion, there was a per-capita amount of 3 ounces for each of the world’s citizens. Today, 50 years later, there is a per capita amount of silver of 0.15 of an ounce remaining (1 billion ounces divided by 6.8 billion population). That is not a misprint. The per-capita amount of silver bullion in the world has declined by 95% over the past 50 years.
By way of comparison, the per-capita amount of gold bullion equivalent in the world has remained remarkably stable at around three-quarters of an ounce per person, for more than 100 years. In 1900, there were around 1 billion ounces of gold versus a world population of 1.5 billion. In 1959, there were about 2.3 billion ounces of gold against a world population of 3 billion. Today there are roughly 5 billion gold ounces and 6.8 billion people.
I make these comparisons with gold to provide a legitimate perspective. Gold and silver are the perfect items to compare. I make the comparison to show how undervalued silver is, not that gold is overvalued. In spite of evidence of manipulation, gold has done what it has been expected to do - it has kept pace with inflation, money and population growth. That’s proven by its price increase over the past 50 years. Since 1959, gold has increased in price more than 25-fold ($35 to $900). It’s a much different story in silver. Yes, silver has increased in price by more than 15-fold in 50 years ($.90 to $14), but that’s only half the story. The other half is that 90% of the silver in the world has been vaporized over that time or put into forms that may not be recoverable, no matter what the price. Nevertheless, the price of gold rose from 30 times the price of silver to 60 times today. Only two reasons can account for this - a manipulation in silver and a global unawareness of these facts. I guarantee you that both reasons will be terminated in time.
GOING, GOING, GONE
The US Government and other nations around the world removed silver from coinage because there wasn’t enough silver available. President Johnson’s words are crystal clear. They knew they couldn’t keep issuing coins pegged at an artificially low price (1.29). They were correct. But what no one knew 50 years ago was that even if the world stopped using silver as money, we would still run out of silver because of industrial demand. Even the investors in the 1960’s who took down a portion of the US Government 3 billion + ounces didn’t buy silver with an eye towards the day when silver inventories would be depleted by industrial consumption.
The investors in the 1960’s who bought the silver from the government did so because it was a no-lose proposition. Those who removed silver coins from circulation knew that the face value of the coins provided a floor, making silver coins a no-risk proposition. Intuitively, investors also knew that silver prices were artificially depressed by government sales. They also knew this silver dumping had to end at some point. When it did, prices rose and those early investors did what made sense: they took profits and sold. The silver that was taken out of circulation from the US Government was in turn taken away from early investors. Whereas many billions of ounces of silver existed in the world 50 years ago, maybe 10% remains today.
No longer can the US Government (or any other) dump massive amounts of silver on the market. Let’s face it - back then, the US Government was openly manipulating and controlling the price of silver, by selling at fixed prices. When they ran out of silver to sell, the manipulation and control ended in a flash and prices exploded. Today the manipulation is different. A government-protected entity, most likely JPMorgan, sells paper silver contracts at artificially depressed prices. I contend that this abhorrent paper manipulation will vanish in a flash at some point, just like as the governments’ physical manipulation ended 50 years ago. Only this time the impact on the market and the rewards to investors will be greater because there is so little silver remaining.
Back then, the US Government was the world’s largest silver seller. Today, the Government is a large buyer, perhaps the largest in the world, through the American Eagle and Commemorative silver programs. This year, the US Mint is on pace to produce and sell over 30 million ounces of Silver Eagles and other silver coins. Because the Government holds no silver and must buy on the open market, this makes the Mint a very large consumer. Incredibly, just this buying by the Mint alone uses up 80% of what the US produces in a year, as the world’s eighth largest silver producing country.
It’s not just that the world no longer has billions of silver ounces, or that the world economy and population demand more silver than ever before. It’s not just the fact that most of the new technologies require silver’s unique qualities. It’s not just that the paper manipulation on the COMEX is becoming more apparent and less feared. There is something else that runs through my head when I contemplate President Johnson’s words and look at what took place over the past half-century.
The 1960’s were a simpler time. Communication and knowledge didn’t travel then, as it does now. It won’t take long for the world to focus on the silver story, once prices begin to reflect its true value. Fifty years ago, we had a small fraction of the investment money in existence today. We didn’t have the concentrated pools of investment money looking for a home (hedge funds and sovereign wealth funds). We didn’t have the surge of stimulative money being created as we do today. It’s likely we will have a great price explosion as these facts become known. Remember, it’s not about the facts turning in silver’s favor. That already exists. It’s about enough investors becoming educated to the facts. Then today’s fabulous buying point will be gone forever.
HYPERINFLATION AND DEPRESSION
By James Cook
Years ago I had a partner. He went to bed one night and never woke up. At age 48 his heart stopped. Bernie and I had started Investment Rarities in 1973. In 1975 we split up, but stayed friends. Bernie was a first class economic thinker. I remember he would often say, "Jimmy, someday bread will be a dollar a loaf." I would giggle at such an outlandish claim. More seriously, he would intone a forecast for the future of the country. "Jimmy, we’re going to hit the gutter."
I have often wrestled with that thought, hoping that it wouldn’t be so. Now I wake in the night and see it clearly. We are going to hit the gutter. The nation is nearly ruined, well on it’s way to bankruptcy and there is no possibility of changing directions. We are going to go broke. Make that a guiding thought for your future. It you suspect your country is going bankrupt, you can at least play some defense. Let me say it again; this nation, the greatest country in the world, the United States of America, is going to go broke. It’s not treason, it’s not heresy, it’s not malevolence or wishful thinking. It’s a sad but inevitable conclusion predicated on the sorry economic events of our time.
Last week the newspaper chronicled further erosion in the financial condition of Social Security and Medicare. Expenditures for the latter are running wild. Free health care is a financial back-breaker. The numbers only worsen, they never improve. Virtually all subsidies, entitlements and social programs are running away. There’s no way to stop these soaring costs, short of national bankruptcy. If a politician had the guts to curb or abolish a single program he’d be lynched. Rather, our current leaders want more entitlements and fatter budgets for existing social programs. Throw in wars and stimulus and you have an unmanageable deficit that must be covered by currency debasement.
Last week I got a check from the government for $250. This handout went to millions of people of retirement age. It basically adds to the government deficit. No country has ever done anything like this before, and there’s much more free money to come. This is the economic school of hocus-pocus and legerdemain. Make up a bunch of checks, send them out and borrow the money to cover them, or just print it up. When your government has to create billions for economic stimulus or to cover out of control spending on open-ended military and social programs you eventually ruin the integrity of your currency.
The dollar is the world’s reserve currency. It gives us special privileges. It’s value has held up no matter how much of it we printed and exchanged for foreign goods. That’s going to change. As we inflate the world with dollars, they are going to lose popularity. There’s too many of them. Eventually, the dollar’s reserve status will end. When it does, we’ll be unable sell our bonds to foreigners to finance the government’s debt and all the dollars out there in in the world will come back to us, either sold off or exchanged. As the dollar sinks, inflation will roar. In a flash hyperinflation will set in and the dollar will be doomed. It could happen now, or it could happen after the next credit-induced boom and bust. Inevitably it will happen. Remember this, no country has ever been privileged to have a paper reserve currency. Reserves were always gold and silver. We’ve abused this privilege. So much of our paper exists outside the U.S., it adds to the certainty of runaway inflation when the dollars reserve status ends and dollar holders dump. As its role as the world’s reserve currency once helped the dollar, so it will reinforce the doom of the dollar.
First comes runaway inflation, then inevitably a depression. There is no defense against depression when your currency fails. A worthless dollar can no longer be used to bail out failing banks and bankrupt businesses. There’s no stimulus left. The government is out of bullets, the treasury broke, and the Federal Reserve impotent. All the economic sins of the past come home to roost. For awhile, it will be far worse than the dirty thirties. In effect we will have hit the gutter. But, life goes on. What happens next is the subject of a book I’m planning to write. Watch a couple of horror films so you can handle it.

Look In The Mirror Fellow Americans


The Enemy Is Us
By Bob Bauman
The late cartoonist Walt Kelley created Pogo, a sensible, sensitive possum who was the leading character of his long running (1948-75) daily comic strip bearing the same name. Syndicated in hundreds of U.S. newspapers, the strip was set in the Georgia part of the Okefenokee Swamp, and it often engaged in social and political satire through the adventures of its animal characters.
Indeed, Pogo gained such a cult following that in 1956, a boomlet developed when the possum mused about whether to run for president. (I still have my "I Go Pogo" button that bears his furry likeness).
Perhaps the most quoted line ever to originate in a comic strip came from Pogo when the disgusted possum surveyed an environmental mess made in his absence by his fellow swamp denizens. He intoned: "We have met the enemy and he is us."
Blame Yourselves
That pithy saying gained such currency in so many situations that Kelley was asked to explain what he meant in greater detail. He said he had tried "to explain each individual is wholly involved in the democratic process, work at it or no. The results of the process fall on the head of the public and he who is recalcitrant or procrastinates in raising his voice can blame no one but himself."
Kelley was correct. Even if we don't participate in voting, we get the government the majority of those who care enough to register and vote impose on all of us. Will Rogers put it another way: "We're lucky we don't get all the government we do pay for".
In 2004, 60.6% of those eligible voted in the presidential election, casting 122.3 million votes. Despite widespread predictions of a record turnout in the 2008 presidential election, about the same portion of eligible voters cast ballots as in 2004.
But how many American even care enough to register and vote?
In 2008 the eligible voting age population was 212,720,027. But there were just 131,256,905 valid ballots counted, so only 61.7% of eligible voters did vote. That means that 81.4 million Americans who could have voted, either didn't register or if they did, didn't cast their ballot.
The popular vote was split 69,498,215 for Obama (52.9%) to 59,948,240 for McCain (45.7%). Those statistics tell us that Obama was put into office by a minority of eligible voters – but we’ll all suffer the consequences.
It brings to mind a line from a song entitled "The Bum Won" from the Broadway musical "Fiorello" -- "People can do what they wanna, but I got a feeling it ain't democratic."
"Why all these numbers?" you ask.
Because, as often happens, I was inspired by the Cato Institute, after reading an article by Gene Healy, a Cato vice president. The intriguing title: "Voters Are the Cause of America's Fiscal Mess".
Healy writes: "There's plenty of blame to go around for the fiscal mess we're in. By ramming through a prescription drug benefit to Medicare, President George W. Bush launched the biggest expansion of entitlements in four decades. President Obama has added insult to injury by pushing through a $789 billion 'stimulus' package...with a budget that envisions a public sector more like France's or Sweden's. The result is that...we're facing a 2009 deficit of nearly $1.8 trillion -- larger than the entire federal budget in 2000."
If you can believe polls, based on data showing positions embraced by American voters, Healy says "...we're getting the government we deserve."
Sixty percent of Americans say the federal government has too much power and takes too much money, according to a May 2009 Rasmussen poll. OK, but what are Americans willing to do about it?
In 2007, the Harris Poll found the answer to that question was "not much." Very few are willing to support the spending cuts necessary to get our fiscal house in order. Harris reported that "hardly anyone would cut Medicaid (4%)... Social Security (2%) or Medicare (1%)" -- among the biggest chunks of the federal budget.
Cut His…Not Mine
As did California voters recently, the overwhelming majority of respondents to the Harris poll rejected higher taxes to handle the deficit; the only increases they'd support are in "sin" taxes on alcohol and tobacco.
Add up defense, health care, and Social Security, and the public has declared more than two-thirds of the federal budget off limits. Non-defense discretionary spending -- the portion on which most budget fights take place -- now is only a measly 17%. Economist Bruce Bartlett reports that "federal taxes would have to rise by roughly 81% to pay all the benefits promised by these programs under current law.”
Look In The Mirror
But there is one flicker of what may be seen as rudimentary mass logic. The Pew survey reports that "the public is increasingly suspicious of itself," with fewer Americans than ever expressing confidence in "the wisdom of the American people when it comes to making political decisions."
My fellow Marylander, H.L. Mencken, (right) once described democracy as "the theory that the common people know what they want and deserve to get it good and hard." As Healy says, we're going to get it "good and hard" and it won't be pleasant.
Look in the mirror. Pogo was right. We have met the enemy -- and he is us.

Friday, June 12, 2009

Thursday, June 11, 2009

Oil Climbing Again...........SOC Has Been All Over This Story Over The Years


Oil price leaps to year's high
Predictions of $250 a barrel on fears for oil reserves, hopes of economic recovery and hedging against weak dollar


Oil will last for decades, according to BP, but advocates of 'peak oil' believe reserves are dwindling. Photograph: David McNew/Getty Images
The price of oil burst through the $71 a barrel mark today amid revelations that proven reserves had fallen for the first time in 10 years and predictions that the price could eventually hit $250.
The latest high – from lows of $30 only four months ago – came on the New York Mercantile Exchange, where the cost of July deliveries rose by $1.35 to $71.36.
This comes on top of a $2 rise the day before as investors rushed into the market on the back of lower stockpile figures, higher demand estimates and speculation against further falls in the dollar.
"I wouldn't be surprised if we're testing $80 in a week or two," said one analyst, while BP's chief executive, Tony Hayward, questioned whether $90 could be the "right" value.
Kuwait's oil minister, Sheikh Ahmad al-Abdullah al-Sabah, put some of the rise down to signs of recovery in Asia but warned that overall demand was still weaker than last year. Opec would not raise supply at current oil prices but did not rule it out "if it reached $100", he said.
Alexei Miller, chairman of the Russian energy group Gazprom, raised the stakes further when he reiterated last year's estimates of $250 a barrel. "This forecast has not become reality yet, given that the [credit] crisis gained momentum and exerted a powerful impact on the global energy market. But does this mean that our forecast was unrealistic? Not at all."
The latest surge has also raised fears that higher energy costs could snuff out the nascent economic recovery. Shares on Wall Street's Nasdaq index fell 1%.
The febrile atmosphere in oil markets was fed by the publication of BP's Statistical Review of World Energy, which showed that the world's proven crude reserves had fallen by 3bn barrels to 1.258tn by 2008 from a revised 1.261tn in 2007.
Declines in important producers such as Russia and Norway offset rises in new areas such as Vietnam, India and Egypt. The figures did not include Canada's tar sands, which are put at 150bn barrels.
The drop is partly attributed to a drop in exploration drilling due to the precipitous fall in oil prices last year but also to the end of "easy" oil. Conflict this week in the Amazon and speculation about Arctic drilling underlined how oil companies are pushing into environmentally sensitive places to find new reserves.
Tony Hayward, BP's chief executive, insisted there was enough crude to last 42 years at current consumption levels, roughly the same as last year. Adherents of "peak oil" – the theory that the maximum rate of oil production has been reached – believe supplies will run out much sooner because of growing demand.
The BP boss said: "Our data confirms that the world has enough proved reserves of oil, natural gas and coal to meet the world's energy needs for decades to come." Higher prices allowed companies to invest in finding further reserves while not choking off demand, he said.
"There is a rational argument to say that somewhere between $60 to $90 a barrel is the right sort of level," he said.
Global oil consumption fell 0.6% to 81.8m barrels a day in 2008, the first decline since 1993 and the largest drop for 27 years. North Sea output dropped 6.3% to its lowest level for three decades.
By contrast, gas use rose by 2.5% globally and 16% in China. The use of coal, the heaviest emitter of climate-changing carbon, rose 3.1%, with Chinese demand up 6.8%, leaving it with a market share of 43% despite more high-profile announcements about its commitment to renewables.
BP says it is difficult to compare "primary" carbon fuels with renewable sources of electricity. BP notes that globally solar capacity rose nearly 70% and wind by 30% year on year but says renewables only generated 1.5% of global electricity and therefore began at a low base.But it notes these sources are playing an increasingly important role in some countries with wind power providing 20% of total electricity generation in Denmark, 11% in Spain and 7% in Germany.
Despite the 2008 rise in coal consumption, the BP data showed growth in the use of the fuel continued to decline compared with 2007 when it rose 5% and five years ago when it went up by 8%.
But the coal figures will alarm environmentalists and increase the calls for companies and governments to speed up trials on "clean coal" technology and the use of carbon capture and storage.
China has promised to increase its use of renewables: Zhang Xiaoqiang, vice-chairman of the China's national development and reform commission, says the country may produce as much as 20% of its energy from wind and solar by 2020.

Ted's Latest Silver Analysis



Ted Butler Commentary June 9, 2009


Bad News, Good News
(This essay was written by silver analyst Theodore Butler, an independent consultant. Sound Of cannons LLC does not necessarily endorse these views, which may or may not prove to be correct.)
The most recent Commitment of Traders Report (COT) was almost a replay of the prior week’s report. Very little net new speculative buying/dealer selling in silver, massive net speculative buying/dealer selling in gold. As of the close of business June 2, both COMEX gold and silver futures are at the largest total commercial net short position levels since last summer. While the silver concentrated short position is still at world record levels, the concentrated gold short position is more than notable.
According to the COT and the Bank Participation Report issued Friday, the level of concentration on the short side of gold increased dramatically. In fact, the Bank Participation Report indicated that three or fewer US banks held the largest concentrated net short position in COMEX gold futures on record, at over 123,000 contracts (12.3 million oz). Let me repeat that, three or fewer US banks held the largest short position in history. Let me tell you why that’s bad news.
For the umpteenth time, concentration and manipulation go hand in hand. You can’t have manipulation without a concentration. Period. Concentration is also dangerous to everyone; the markets, the regulators, innocent participants, even to the US banks so heavily short. That was the problem with AIG in the credit default swap debacle that almost sunk the financial system. They had too big of a concentrated position. This COMEX gold and silver short position is not on the same scale as AIG’s CDS position, but it is way too big and concentrated. It shouldn’t be allowed, especially by US banks, considering what havoc they have already wrought.
To those who insist that all this concentrated shorting by a very small number of US banks is just some type of aggregation of accounts doing legitimately hedging, let me explain why that is nonsense. The gold concentrated short position increased to a record level in just one month. At the exact same time, the published gold miner hedge position is at its lowest level in a decade. You can’t have a record large concentrated short position being a legitimate hedge when the hedge position is at a record low.
Let’s be honest. This record short position by two or three US banks was put on as an offset to speculative buying by technical hedge funds on the COMEX. It was no hedge, just a plain vanilla speculative short by the 2 or 3 US banks. They sold short because they were convinced they could eventually get the tech fund longs to liquidate at lower price levels and make a profit in the end. Normally, that might not be a problem, just some big speculative bets being made by big money institutions. But these aren’t normal times or normal conditions. The short selling by 2 or 3 big US banks has become so concentrated that it has crossed the manipulation line by a wide margin. Who died and left them the kings of price control?
Transparency is one thing, honesty is something else entirely. It’s laudable that the CFTC is so transparent in publishing the data that I reference. But what good is publishing the data if they are not going to be honest about what the data signifies? It is time for the CFTC to speak out on this issue. They have been investigating this issue of concentration for more than ten months now, their third silver investigation in five years. If they find nothing wrong in silver this time, unfortunately as the odds favor, there will be no additional silver investigations - until the silver market blows up. Then there will be a final silver investigation, trying to uncover why they didn’t see it coming.
That’s why it’s important to bring your concerns to the new chairman of the CFTC, Gary Gensler. Please give him the benefit of any doubt you might have about him fixing this problem. I have studied his public testimony and his background. He looks like the real deal - smart and aware of the important issues, like manipulation and speculative position limits. I just hope he can see that speculative position limits must apply to the big banks as well when they are, in fact, speculating. He is not responsible for the current manipulation in silver and gold and must be given a reasonable amount of time to resolve it. I’m sure he knows, better than anyone, that his time to resolve the problem is not unlimited. At some point fairly soon, if he doesn’t address this issue, it will become his problem.
There was some other interesting data in the recently released CFTC reports over the past three weeks. I was struck by the disparity between the increase in both the total net commercial short position and the concentrated short position of the largest traders in gold, and the lack of increase in both categories in silver. I get the feeling the big boys (JPMorgan) are very reluctant to expand their short position in silver, but have no such qualms in gold. At least, that’s what the data suggest to me. What does this mean?
Again speculating, my sense is that this is no accident. It has become increasingly obvious that the large concentrated short position in silver is manipulative and must be addressed. I can’t know if this has been initiated by JPMorgan or the CFTC or the exchange, but that’s not the important issue. Regardless of who or what may be prompting a move away from more concentrated short selling in silver, the results could be profound. If true, it would signify no less than the end of the manipulation itself.
That’s not to suggest that the big manipulative shorts are about to roll over and play dead. They are still powerful and dangerous and their short positions are large.. If the script plays out as usual, they will try to rig a sell-off and get the tech funds to puke up their long positions. Only this time, the big shorts seem to be relying more on gold price pressure to drag silver lower, rather than to load up on silver short positions to the extent they have in the past. I still don’t know if they will succeed or something may come along and blow up in their faces, but I’m pretty sure what they want to do.
It will be bad news, in one sense, if the big shorts succeed in manipulating gold and silver prices lower, forcing leveraged longs from the market. It’s like bullies in a school yard getting away with beating up the little kids. But it will also be good news if they clean out the tech funds, as it will present us with a low risk entry point, maybe the last one for a while.

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

Trying to get government to be as efficient as business, is as hopeless as trying to teach cats to bark and dogs to meow. - Walter Williams

PPT AT IT AGAIN.............


Plunge Protection Team: The "Invisible Hand"
Thursday, June 11th, 2009
To the millions of tourists who have driven down San Francisco's Lombard Street, it is easily the "crookedest street in the world."
Steep and full of sharp turns, it's an oddity as recognizable as the city's Golden Gate Bridge.
But as familiar as that street is to everyone who has driven it or seen it in a movie, Lombard Street has nothing on the winding road that has been built between Washington and Wall Street.
Bailouts and back-room deals— it's as crooked as it gets.
And in a financial crisis that is by all accounts the worst of our generation, the deep connection between the two has become even more tightly twisted.
It's pretty obvious that the survival of one depends wholly on the survival of the other.
And while I've never been a big fan of conspiracy theories, this twisted alliance of power and greed has made me reconsider at least one... It's called the Plunge Protection Team.
The Plunge Protection Team Is No Myth
And according to the lore, it has been propping up the markets for the last 20 years.
And the truth is, if it didn't already exist, the current crisis is big enough to give birth to it, in my opinion.
But before I go any further, let me get something straight. . .
The Plunge Protection Team (PPT) is not some urban myth or Oliver Stone-style conspiracy theory.
The truth is it's hidden in plain sight, even though the U.S. Government prefers to be tight lipped about it.
Born out of the 1987 crash, the team is formally known as the Working Group on Financial Markets. It was created by Executive Order 12631, signed on March 18, 1988 by President Reagan.
And under Sec. 2 of the order, its "Purposes and Functions" were stated as follows:
(2) Recognizing the goals of enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation's financial markets and maintaining investor confidence, the Working Group shall identify and consider:
the major issues raised by the numerous studies on the events (pertaining to the) October 19, 1987 (market crash and consider) recommendations that have the potential to achieve the goals noted above; and
. . . governmental (and other) actions under existing laws and regulations. . . that are appropriate to carry out these recommendations.
Working in secret, the group consists of
the President
the Treasury Secretary as chairman;
the Fed chairman;
the SEC chairman;
and the Commodity Futures Trading Commission chairman.
The seeds of the Plunge Protection Team were first planted by Robert Heller, a former Fed governor. Heller was a first-hand witness to the '87 crash, later writing:
Everybody's attention was tightly focused on containing the damage and preventing a spread of the financial disruptions throughout the financial system. Do not forget that at that time we were also dealing with a severe S&L crisis and almost 200 bank failures per year. Without swift supportive action on behalf of the Fed, the stock market crash could well have been the straw that broke the back of an already weak camel.
Now, if that doesn't sound a wee bit familiar, then you just haven't been paying attention.

Twenty-two years later, it's like a bad rerun— only this time, it's much worse.
Heller later left what some believe to be the calling card of the Plunge Protection Team, writing in the Wall Street Journal:
Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thereby stabilizing the market as a whole.
Heller's plan, in short, was really quite simple— the government could bid up the futures until the market plunge reversed.
Since then, the PPT has been the number-one suspect in generating one "stick save" after another, especially at moments when all seemed lost.
Keep in mind, this type of manipulation is entirely possible if the bid beneath these futures is strong enough. Moreover, just imagine the type of reversal Goldman Sachs and JP Morgan could generate with a concerted effort to buy S&P 500 index futures late in the day.
Needless to say, it would be more than enough to turn the markets from red to green in the blink of an eye— which is an outcome that would undoubtedly work for both parties if it headed off a total collapse.
And if it buries a few shorts along the way, so be it.
The (In)Visible Hand
Given the dramatic bounce off of the March lows, the latest crisis has only raised more suspicions.
In fact, as recently as April, a number of observers noticed some unusual patterns in the "program trading" on the New York Stock Exchange, suggesting someone may indeed be working to "prop up" the market with large amounts of buying.
Even more suspicious was the fact that the largest trader — with a volume 5X higher than anyone else — was none other than Goldman Sachs. . . a firm that shares an extremely cozy relationship with the boys in D.C.
Never mind that unemployment is headed higher, foreclosures are still skyrocketing, and housing is nowhere near the bottom. That would only put a damper on things.
Instead, the markets have been sent higher on very light volume. Any trader will tell you that makes them even more susceptible to manipulation.
All of which bring us back to the Bernanke Fed and the current crisis. All along the way, the Fed has promised to "employ all available tools to promote economic recovery and to preserve price stability."
Is it really that hard to believe they would stick their hands into equities, after attempting to jawbone everything in their path in an effort to "fix" the crisis? I don't think it is— even though no one has proven it.
After all, desperate times call for desperate measures. And for these folks, the end justifies the means.
So, whether you believe in the Plunge Protection Team or not, at least recognize that markets are a lot less free than you imagine. At times, power and greed do work to goose the outcome, and this is likely one of those times.
Unfortunately, for us and for them, this is not exactly a sustainable condition— no matter how crooked the road may get.
Eventually, the markets will straighten it all out. And when they do, certain sectors are going to take an absolute drubbing.

Richard maybury - The Best Financial Mind You'll never See On TV


Richard Maybury explains mal-investment, crooked regulations and the true cost of economic fairy tales

The former Global Affairs editor of MONEYWORLD, Richard Maybury is one of the most respected business and economics analysts in America. His articles have appeared in major publications. Books include "Whatever Happened to Penny Candy?" "Whatever Happened to Justice?" and "Evaluating Books: What Would Thomas Jefferson Think of This?" His current interest is "The Coming Great War." His writings have been endorsed by top business leaders, and he is a consultant to investment firms in the U.S. and Europe. He is editor of the newsletter Richard Maybury's U.S. & World Early Warning Report.
Daily Bell: We understand that your speech at the Wealth Protection Conference in Phoenix, Arizona on May 2nd received a standing ovation. What did you say that was so impressive?
Richard Maybury: I truly don't know. I've been giving speeches about economics for almost four decades. Maybe it's a case of the million monkeys with typewriters. Given enough tries, they'll eventually produce something brilliant.
Daily Bell: Well, we'd like to judge for ourselves. Where can we find the speech?
Richard Maybury: Just go to our web site, http://www.richardmaybury.com/. The speech is titled "What Obama Does Not Know."
Daily Bell: In your speech, you say your work is based on Austrian economics, which is much different than the Keynesian model (pronounced canes-ee-an, named after economist John Maynard Keynes, 1883-1946) used by almost everyone else. Two questions: first, why is it called Austrian?
Richard Maybury: The founders, or leading lights, were from Austria.
Daily Bell: Second, what's different about the Austrian model?
Richard Maybury: The speech explains this. But very briefly, for one thing, the Austrian view is that the economy is not a machine, it's an ecology, made of biological organisms, meaning people. People have free wills, and they change their minds, all day every day. Trying to predict their behavior and steer it is like trying to herd cats.
Daily Bell: An interesting analogy.
Richard Maybury: Imagine putting fifty cats in your house and trying to herd them. What would your house look like afterwards.
Daily Bell: Like the economy does now?
Richard Maybury: Yes. Very astute of you to pick on that up so quickly. When a government tries to control the economy, it is trying to control people, and people are like cats. Each individual's brain is hard wired to do what the individual wants, not what the government wants.
Daily Bell: Except, we aren't talking about fifty cats, we're talking about the world economy, which means 6.8 billion humans.
Richard Maybury: Correct. And none of these humans want to be herded. At bottom, the Federal Reserve, the Treasury and nearly every other government agency in the US and abroad, exists for the purpose of steering people as if they were sheep. That's what government control means - controlling people.
Daily Bell: And Austrian economics says this controlling or steering won't work, it will only make things worse?
Richard Maybury: Again, my speech explains, but yes. Or, maybe it's more accurate to say Austrian economics asks this question: if it is possible for the benefits of government controls on the economy to exceed the costs, where is the evidence? Show us the evidence. Let's see the numbers.
Daily Bell: So, the Keynesian model assumes the government is trying to herd sheep, and the Austrian model says the government is trying to herd cats?
Richard Maybury: Well said, you are very good at this.
Daily Bell: Thank you.
Richard Maybury: And in every case I've heard of, in 2,500 years of economic history, trying to herd cats - or humans - has in the long run always led to chaos. Each human has his own plans for his life and very rarely are those individualized plans compatible with the government's.
Daily Bell: But don't some people want to be sheep? Aren't there those who believe they need a leader to tell them what to think and do, to take care of them, to keep them safe?
Richard Maybury: You are right, I stand corrected. Some probably do want to be sheep, and if so, they have every right to choose a leader and follow him or her. But the rest of us are cats...
Daily Bell: ... and trying to force us to follow the plans of some leader isn't likely to achieve anything except pandemonium.
Richard Maybury: Yes. Or at least, I think that's what 2,500 years of economic history shows. If the sheep and their shepherds would just leave the cats alone, things would probably work out okay. But herding cats? No, it will never work.
Daily Bell: And we are living through more of that history now - the shepherds and the sheep versus the cats.
Richard Maybury: That's how I see it. Human DNA is what it is, but for more than a century governments have been trying to make us all into docile, obedient, mindless herd animals that follow the politicians' plans. Now we are paying the penalty for that.
Daily Bell: Some say this economic catastrophe was caused by the free market. They say free markets are inherently unstable and corrupt, and government regulation is needed to keep us on the straight and narrow.
Richard Maybury: That's certainly the orthodox view these days. But to those who claim we have free markets, I say, show me. Free markets? Where? What are you smoking?
Daily Bell: Free markets don't exist?
Richard Maybury: During the past century, in the U.S. alone, the federal, state and local governments have enacted tens of thousands of regulations and taxes. That's a free market?
Daily Bell: Tens of thousands?
Richard Maybury: It's impossible to give an exact number, they are literally uncountable. But I can guarantee this. If I spent the rest of my life trying to read them - if I spent 40 hours per week at it - I would barely scratch the surface, because each year more regulations are enacted than any human could possibly read and understand. This is free markets? This is freedom?
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Daily Bell: You say regulations are difficult to understand.
Richard Maybury: Here is an example from a book called The Trenton Pickle Ordinance and other Bonehead Legislation, by Richard Hyman. A law in Texas says that when two trains meet at a railroad crossing, each shall come to a full stop, and neither shall proceed until the other has gone.
Daily Bell: That's extraordinary.
Richard Maybury: The Arkansas legislature enacted a law forbidding the Arkansas River to rise higher than the main street bridge in Little Rock. In Florida, it's illegal for a housewife to break more than three dishes per day. In Massachusetts, you are a criminal if you put tomatoes in clam chowder. Idaho law says you need a special permit to conduct a transaction in which you are buying chickens after dark.
Daily Bell: (Laughing) We don't know what to say.
Richard Maybury: Writing about "crazy rules, convoluted taxes and rampant lawyers," The Economist magazine reports that "senseless rules that benefit cartels are common. Oklahoma protects consumers from the perils of unlicensed interior decorators. Marylanders are barred from massaging animals without a vet's license. Wisconsin until recently banned the sale of excessively cheap gasoline." ("Surviving the Slump," The Economist, 30 May 09, special section pages 9 & 10.)
Daily Bell: Excessively cheap gasoline? You must be kidding.
Richard Maybury: Not at all. In school we were all taught that regulations are meant to protect us, but that is simply not so. Regulations are, for the most part, covert ways governments exercise power for the benefit of themselves and their friends. Regarding tax regulations, The Economist writes that "the system is repulsively complex. Federal, State and Local rules accumulate each year in a vast and impenetrable heap. No one understands it." About the legal system in general, The Economist says, "nearly every business grumbles about the system's unpredictability," and many people suffer "penalties that bear no relation to any harm suffered."
Daily Bell: So, do you think it is a fair statement to say free markets might be a goal of some people, but no one alive today has ever experienced one?
Richard Maybury: Yes, I would agree with that. What regulations in the financial sector do mainly is create a false sense of security among the victims of swindlers. People think they are being protected, but they aren't, at least not much. The big financial disaster is proof. Despite all the mountains of regulations, millions of trusting people lost sizable portions of their savings.
Daily Bell: But surely there must be some kind of control.
Richard Maybury: In genuine free markets, there is. Contracts, courts with informed juries, and the forces of competition. Instead, as things stand now, all brokers and other financial entities are under these massive regulatory umbrellas, no matter how incompetent or dishonest they are, so the investor cannot tell the difference between the good guys and the bad guys. All are certified by the government . Remove the umbrella, and very quickly the investors will begin paying attention to such things as court decisions and reputations, and the honest, competent firms will be able to distinguish themselves from the crooks.
Daily Bell: So you are saying, what regulations really amount to in the real world is camouflage for criminals.
Richard Maybury: Yes, well said. Regulations are mostly a service to crooks. They create a false sense of security. A lot of the individuals you know personally who have recently suffered huge losses in their investment portfolios are the living proof of it.
Daily Bell: What do you think is the biggest problem with this idea that governments should be shepherds caring for their sheep?
Richard Maybury: The biggest by far is, shepherds don't work for free, and what starts as the shepherd raising the sheep for their wool, usually ends with the shepherd raising them for their meat.
Daily Bell: How close do you think we are to that?
Richard Maybury: Look at the US economy. Millions now have lost their jobs, their homes and huge portions of their savings. At the same time, Washington is planning to use this mess as an excuse to raise taxes on the rich. This is not an economic misfortune, it's the shepherd beginning to go after the meat as well as the wool.
Daily Bell: A chilling thought. But many would ask, what's so bad about raising taxes on the rich?
Richard Maybury: I would say to them, show me just one case in 2,500 years of economic history in which raising taxes on the people who create the jobs has yielded more jobs. I'm sure you will find in every case that forcibly taking money from the job creators has made things worse.
Daily Bell: You've written often that political power corrupts the morals and the judgment.
Richard Maybury: Again, look at 2,500 years of economic history. Try to find a case where a government-managed economy didn't lead to the shepherd eating the sheep.
Daily Bell: We are obviously in a very unusual period in history now. What do you think is an aspect of this period that very few investors have recognized?
Richard Maybury: Suddenly, knowledge of economics has become critical for financial survival and success. If an investor does not understand how Keynesian economics skews the judgment of both the government and the people who give investment advice, then that investor is headed for a financial train wreck.
Daily Bell: Which is what has been happening?
Richard Maybury: Yes, and the wreck has only just begun for those who are on the Keynesian track. On the other hand, experience has convinced me that the Austrian model is much more effective at helping people earn money and keep it. If your model, or the model of your investment advisor, is Austrian, then odds are that the past two decades have been wonderful for you, and the next decade will be, too.
Daily Bell: That brings us to your own track record. In the May 2009 issue of your Early Warning Report newsletter, you wrote, "I'd put my track record up against that of any Keynesian, any day. This isn't to say I'm always right. It is to say, it would be difficult to foul up as often as they have."
Richard Maybury: Austrian economics is not infallible, nor is my application of it. But the Keynesian competition has fumbled so often that beside it, in my opinion, even a mediocre application of the Austrian model is dazzling.
Daily Bell: What is the most important indicator investors should be watching now?
Richard Maybury: Well, I wouldn't call it an indicator, since there are no reliable statistics on it. I'd call it a force, or a dynamic. It's velocity, meaning the speed at which money changes hands.
Daily Bell: And why is that important?
Richard Maybury: Money is like blood, it does little good unless it circulates. When people become fearful, they stop spending and investing, and they flee to whatever form of cash they consider trustworthy.
Daily Bell: So, when they are scared, demand for money goes up, and demand for goods, services and investments goes down.
Richard Maybury: Correct. And a decline in the speed at which the money changes hands has the same effect as a decline in the money supply.
Daily Bell: You're saying it's deflationary?
Richard Maybury: Yes. Even if the money supply has not declined. If the money isn't being used for purchases or investments, then it has been taken out of circulation, and this has the same effect as a deflation of the money supply. This is one of the things I explained in my May 2nd speech.
Daily Bell: And this is what has been happening?
Richard Maybury: I believe so. No one has ever found a good way to measure velocity, so I'm not certain about it, but the anecdotal evidence certainly is persuasive. We all know lots of people who have cut back their spending and/or investing, and are just keeping their money on hold, in short-term insured bank accounts or Treasury bills.
Daily Bell: And that's why interest rates are so low?
Richard Maybury: It's certainly one reason. The money just sits in the banks. The bankers are afraid to loan it out, and borrowers are afraid to borrow it - meaning go more deeply into debt - so the money just piles up and doesn't accomplish anything.
Daily Bell: Because of fear.
Richard Maybury: Yes. In my opinion, the velocity problem is the number one economic problem in the world today.
Daily Bell: Why do we hear so little about it?
Richard Maybury: As far as I know, my newsletter, Early Warning Report, is the only publication that says much about velocity, but I don't know why. Apparently, for most people velocity is a difficult concept, and the journalists in the mainstream press don't understand it well enough to be confident they are explaining it correctly. After all, most of them still do not realize that inflation isn't rising prices, it's a rising money supply that causes rising prices.
Daily Bell: Why do you suppose they don't get that?
Richard Maybury: I have a 1969 edition of Webster's Third New International Dictionary. The book reports the definition of inflation as, "an increase in the volume of money and credit relative to available goods resulting in a substantial and continuing rise in the general price level." That definition, which had been used for centuries, led to the question, who increased the volume of money and credit?
Daily Bell: And the government didn't want the question asked?
Richard Maybury: Right, because the culprit behind inflation is the government.
Daily Bell: So what happened?
Richard Maybury: The political class went on a campaign to change the definition. By 1980, pretty much the whole population had adopted the new, simpler definition: rising prices. Like a flock of sheep, the mainstream press in those days went along, and today almost everyone in the US uses the word inflation to mean, rising prices, not a rising money supply. I'm sure very few of today's journalists realize that when they use the word inflation, they are being led down the garden path by the government's propaganda.
Daily Bell: Another subject you write about often, but we seldom see elsewhere, is malinvestment. Could you explain a bit about that?
Richard Maybury: When the government injects newly created money into the economy, the money does not descend on the country in a uniform blanket. Some people receive a lot, others less, and some, none at all. The destinations of the newly created money become hot spots, and businesses crowd into these hot spots to tap into the larger flows of money.
Daily Bell: Do businesses do this on purpose?
Richard Maybury: Generally not, because very few understand inflation. They just see the rising prices of, say, houses or restaurant meals or haircuts, and they move in to those areas to sell these things to the people who have the extra money.
Daily Bell: Some people would ask, is that bad? Where's the problem?
Richard Maybury: Money responds to the law of supply and demand just as everything else does. When the supply goes up, the value of each individual unit of money goes down, and prices rise to compensate for this decline. After prices have been rising for a while, the government becomes afraid of riots and other kinds of trouble, so they slow or stop their expansion of the money supply. The flow of money to the hot spots slows or stops, and...
Daily Bell: ... the businesses in those former hot spots go broke.
Richard Maybury: You've got it. The cooling of the hot spots means not only bankruptcies but rising unemployment.
Daily Bell: What about malinvestment?
Richard Maybury: The malinvestment is, or was, the businesses that were created in the hot spots. If the government had not been injecting money, those businesses would have been created elsewhere. But the distorted prices lured the managers into locating in the wrong places.
Daily Bell: So it's about geographic location?
Richard Maybury: Well, I'm just using geography as an example. There are lots of kinds of malinvestment. The thing they have in common is that the decision makers are misled by distorted pricing signals caused by the government's manipulation of the money supply.
Daily Bell: This ties into what you've been writing about the recession, correct?
Richard Maybury: Yes. Almost the whole world has been taught Keynesian economics, and Keynesian economics sees recessions and depressions as problems. When a recession or depression hits, virtually everyone demands that the government stop it as quickly as possible.
Daily Bell: By inflating the money supply.
Richard Maybury: Yes. They call this stimulus. What it means is, pumping new oceans of currency into the hot spots that have begun to cool.
Daily Bell: So stimulus means, re-inflating the hot spots.
Richard Maybury: Right.
Daily Bell: Which means stopping the shakeout of the malinvestment.
Richard Maybury: Right again. My key point is that a depression is the correction period following an inflation of the money supply, and when a government re-inflates, as all governments are doing today, it stops the correction.
Daily Bell: So the malinvestment is preserved, and as new money is injected into the economy, this creates more malinvestment, which is added on top of the malinvestment that's already there.
Richard Maybury: You have the picture.
Daily Bell: If a depression is the correction period following an inflation, what's a recession?
Richard Maybury: A recession is an incomplete depression. The government stimulates, which means it creates more money out of thin air, and this injection of new money stops the shakeout of the malinvestment.
Daily Bell: So, a recession is actually worse than a depression, because we go through a surge of bankruptcies and unemployment, but in the end it accomplishes nothing, because government officials re-inflate before the corrections can go to completion.
Richard Maybury: Excellent. That's a good insight. In the long run, a recession is a bigger disaster than a depression, because we go through the agony without accomplishing anything. In fact, the act of aborting the depression, which means injecting a lot of new money, creates more malinvestment. This then requires a more severe depression to correct it.
Daily Bell: This is awful. You are saying most of the world is blind to the concept of malinvestment.
Richard Maybury: Yes, and you can prove it yourself. Google the word investment, then Google the word malinvestment; compare the number of hits. Most of the world watches investment very closely, but very few pay attention to malinvestment. Keynesian economics does not address it.
Daily Bell: Who does pay attention to it?
Richard Maybury: The thousands of readers of my Early Warning Report are familiar with it, as are the readers of my little Uncle Eric books. Now, so are the readers of Daily Bell. I congratulate you on helping your readers become aware of a crucially important topic that, very likely, none of their friends have ever heard of.
Daily Bell: Sometimes ignorance isn't bliss. We wonder how many of their friends have gone broke from not knowing about malinvestment.
Richard Maybury: Millions, certainly. Almost everyone has been taught Keynesian economics, which does not contain an explanation for inflations, recessions, depressions or malinvestment.
Daily Bell: Why Keynesian?
Richard Maybury: Because most of the world's population is educated in government-controlled schools. And, during the Great Depression of the 1930s, Keynesian economics was adopted as official government policy in most countries, especially the U.S and Britain, which were the leaders of the world.
Daily Bell: Why was it adopted?
Richard Maybury: It teaches that the people need a shepherd. Government interference in the economy is a fine and necessary thing, says Keynesianism, so naturally, that's what a government-controlled school teaches. There are exceptions, of course - some teachers use, for instance, my little Uncle Eric books - but those teachers are few and far between. Most teachers are Keynesian, although they don't know it.
Daily Bell: And the government is, too?
Richard Maybury: Yes. There was a break under Reagan, but except for that, ever since Richard Nixon said, "We're all Keynesians now," the federal government's model has been Keynesian. After all, politicians and bureaucrats - and teachers - are raised in the same government-controlled schools as the rest of us.
Daily Bell: So the government does not understand recessions and depressions?
Richard Maybury: Correct. All my life, except under Reagan, who had some background in Austrian economics - a background he shared, incidentally, with Margaret Thatcher - it has been official government policy that the cause of recessions and depressions is unknown, so politicians and bureaucrats should be given unlimited powers to do whatever appears necessary to counter them.
Daily Bell: That's handy. The less the government knows, the more power it should have, so if it knows nothing at all, its power should be infinite. That's a statist's recipe for nirvana.
Richard Maybury: Good observation.
Daily Bell: What books would you recommend for someone who wants a background in Austrian economics?
Richard Maybury: After beginning with my Uncle Eric books, I suggest Planned Chaos by Ludwig von Mises, and Road to Serfdom by F.A Hayek. Then the reader could go on to Human Action, and Theory of Money and Credit by Mises, and Constitution of Liberty by Hayek. All these by Mises and Hayek were written before 1960, and their foresight and explanations of the chaos we are experiencing today are uncanny.
Daily Bell: What are the Uncle Eric books?
Richard Maybury: They are a set of 11 short books by my alter ego, Uncle Eric, who is an economist writing a series of letters to a 14-year old niece or nephew. The books explain all sorts of things that as students we were never taught because these things might be embarrassing to the government.
Daily Bell: Things like, inflation isn't rising prices, it's a rising money supply that causes rising prices.
Richard Maybury: Yes, exactly. Incidentally, Howard Ruff has a great way of explaining that concept. He says, inflation isn't rising prices, it's falling money. Uncle Eric uses that and similar comments from all sorts of sources - including Thomas Jefferson, James Madison, Patrick Henry and the other American founders - to revive the understanding that was once common among Americans, before they began attending these government-controlled schools.
Daily Bell: How long do these books take to read?
Richard Maybury: A person with normal reading skills will need only about 25 hours for all eleven books. Ever since the books were first published about 20 years ago, I have received stacks of letters from people thanking me and saying the 25 hours was the most eye-opening of their lives.
Daily Bell: Are there people who should not read them?
Richard Maybury: Yes, certainly. If you are a sheep who wants a shepherd - that is, if you believe a huge, powerful government that controls everything and everyone is a good idea - then these books will give you permanent insomnia.
Daily Bell: How do we get the Uncle Eric books?
Richard Maybury: You can go to our web site http://www.richardmaybury.com/ or phone 800-509-5400, or 602-252-4472, or fax 602-943-2363.
Daily Bell: Is that also where we would get your newsletter, Early Warning Report?
Richard Maybury: Yes.
Daily Bell: Is there a connection between the newsletter and the Uncle Eric books?
Richard Maybury: The concepts in the books, especially the Austrian economics, are the basis of the economic analysis and investment recommendations in the newsletter. Those concepts are why the newsletter's investment track record is so good. The books present a logically consistent framework of economics, law, geopolitics, history and other areas that are always used as the foundation for the investment suggestions.
Daily Bell: Yet the books are written so that any reasonably intelligent 14-year old can grasp them easily?
Richard Maybury: Yes. When we began the Uncle Eric project in the 1980s, we realized that people no longer had much free time to read. They needed a fast, interesting collection of summaries of what they missed in school and college.
Daily Bell: Fast? Let's put that to the test. You say you use pithy quotes to try to distill important concepts into small packages. Give us a quote that packs as much economics as possible into a single sentence.
Richard Maybury: That's easy. I often quote Ronald Reagan: "Government isn't the solution, it's the problem." Even the most rabid statists, including socialists, who feel government is the cure for every malady, see the truth in that comment. They won't admit it, of course, but I've watched their faces often enough to know the remark hits home.
Daily Bell: One more quote?
Richard Maybury: I've always liked the remark by John Quincy Adams: "All the perplexities, confusion and distress in America arise not from the defects in their constitution or confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation." Adams said that in 1829, which was almost a half-century after the runaway inflation and other economic chaos of the Revolution, so the economic lessons of the Revolution had apparently already been erased from the memories of the general public.
Daily Bell: Not many people today realize that in the American Revolution, the country went through a runaway inflation that totally destroyed the value of the dollar.
Richard Maybury: Correct. That also happened in the South during the Civil War, and partly so in the North.
Daily Bell: The US is in a war now. Do you think history is repeating?
Richard Maybury: No guarantees, but I think that's the way to bet. If you look at the money supply statistics on the St. Louis Federal Reserve web site, especially the monetary base, which is the raw material from which the money supply is constructed, you can see we are undoubtedly headed in that direction.
Daily Bell: What do governments think of your books and newsletter?
Richard Maybury: I've never heard anything directly from any of them, but I've been told often that Early Warning Report circulates under-the-table all over the Pentagon.
Daily Bell: The Pentagon?
Richard Maybury: Yes. And once when I was hired to give a hush-hush presentation to an exclusive group of large Canadian pension fund CEOs, I was told by the organizer that I was recommended to him by someone in Canadian intelligence. He said this person told him - and this is a direct quote - "Maybury will do a very good job but he will scare your audience."
Daily Bell: Did you?
Richard Maybury: When those people filed out of the room, they were the definition of the word somber.
Daily Bell: So you predicted what we are going through now?
Richard Maybury: Yes. On our web site you can find a detailed description of our track record. I often wonder how many of those CEOs went home and had the courage to face the facts and do something about them, and how many simply forced themselves to forget everything they heard.
Daily Bell: Any other fans of your work? Names we might recognize?
Richard Maybury: The books and newsletter have been recommended by Ron Paul and Harry Browne. Also, the late US Treasury secretary William Simon was a big fan of the Uncle Eric book Whatever Happened to Penny Candy? Simon had been on the inside of the Keynesian revolution, and saw what a mess the government was beginning to create. He said the little Penny Candy book was a must read. Karl Hess loved it, too; he called it a grand book, and said it could "replace a full shelf of weighty tomes."
Daily Bell: Before we finish, could you give us some investment tips based on Austrian economics?
Richard Maybury: In the Track Record section of our web site we've posted nine specific stocks recommended in the May 2009 Early Warning Report. That newsletter was mailed May 4th, so you can use, for instance, www.bigcharts.com to follow exactly what the nine are doing. Aside from those, I have recommended gold, silver and platinum unceasingly since before 9-11. In the June 2009 Early Warning Report, there is a lengthy explanation why I think gold will go to $3,000, silver to $50, and platinum to $3,000.
Daily Bell: You've also said oil will go to $300.
Richard Maybury: Yes, but bear in mind that I'm not necessarily saying gold, silver, platinum and oil will rise that much, I'm saying the dollar will fall that much. Prices will rise to compensate for the drop in the value of the greenback.
Daily Bell: Mr. Maybury, this has been a fascinating interview. We appreciate your taking the time. Thank you.
Richard Maybury: I enjoyed it, it was fun. It's not often that I get the chance to be interviewed by people who are as well equipped to understand what is happening as the Daily Bell is. You are performing an extremely valuable service for your readers and I congratulate you.

Tuesday, June 2, 2009

The Only Good News I've Seen This Week


Bungie Announces New Halo Game


Bungie today, as expected, announced a new Halo title: Halo Reach.
It's due for release in Fall 2010.

Double-Dippers.................Here We Come


Double-Dip Depression
Wednesday, May 27, 2009
As MarketWatch writes:
Consumers clearly believe the worst is behind this economy and the market, when it’s not clear at all to the experts that the U.S. can avoid another leg down — or worse — en route to a broad-based recovery.
Even the happy talk dispensers at CNBC admit, as the headline states: “US Economy at Risk for Double-Dip Recession”:
If this crisis has permanently altered consumer attitudes toward debt, it would put a considerable drag on growth because consumer spending accounts for more than two-thirds of U.S. economic activity.
The other anchor is interest rates. Christian Broda, an economist with Barclays Capital, said higher borrowing costs “are an inescapable feature of the post-recovery world” as public deficits and spending grow.
Already, huge government debt issuance is raising questions about long-term U.S. fiscal stability. Concerns grew last week that the country could be stripped of its top-tier AAA credit rating after Standard & Poor’s said it was considering downgrading Britain’s sovereign rating…
If the economy climbs out of one recession and into another, it wouldn’t be the first time. It happened most recently in the early 1980s, when the United States endured two recessions in less than three years.Regardless of what triggers a relapse, the Obama administration won’t stand idly by, Banc of America’s Rosenberg said.
Of course, given that the U.S. has actually been in a depression, we’re really talking about the possibility of a double-dip depression.
This is, of course, what happened during the Great Depression, and what followers of Elliot wave and other technical indicator systems have been predicting.

People Should pay More Attention To Dr. Faber


Marc Faber: “I Am 100% Sure that the U.S. Will Go Into Hyperinflation”
George Washington BlogWednesday, May 27, 2009
PhD economist Marc Faber says:
“I am 100% sure that the U.S. will go into hyperinflation.”
On the other hand, Boston Federal Reserve Bank President Eric Rosengren said last Thursday that the risk of deflation is currently more of a concern than inflation.
And Henry C K Liu, writing in the Asia Times, argues that inflation and deflation are really meaningless terms:
The conventional terms of inflation and deflation are no longer adequate for describing the overall monetary effect of excess liquidity recently released by the US Federal Reserve, the nation’s central bank, to deal with the year-long credit crunch.
This is because the approach adopted by the Treasury and the Fed to deal with a financial crisis of unsustainable debt created by excess liquidity is to inject more liquidity in the form of both new public debt and newly created money into the economy and to channel it to debt-laden institutions to reflate a burst debt-driven asset price bubble.
The Treasury does not have any power to create new money. It has to borrow from the credit market, thus shifting private debt into public debt. The Fed has the authority to create new money. Unfortunately, the Fed’s new money has not been going to consumers in the form of full employment with rising wages to restore fallen demand, but instead is going only to debt-infested distressed institutions to allow them to deleverage from toxic debt. Thus deflation in the equity market (falling share prices) has been cushioned by newly issued money, while aggregate wage income continues to fall to further reduce aggregate demand.
Falling demand deflates commodity prices, but not enough to restore demand because aggregate wages are falling faster. When financial institutions deleverage with free money from the central bank, the creditors receive the money while the Fed assumes the toxic liability by expanding its balance sheet. Deleverage reduces financial costs while increasing cash flow to allow zombie financial institutions to return to nominal profitability with unearned income and while laying off workers to cut operational cost. Thus we have financial profit inflation with price deflation in a shrinking economy.
(ARTICLE CONTINUES BELOW)

What we will have going forward is not Weimar Republic-type price hyperinflation, but a financial profit inflation in which zombie financial institutions turn nominally profitable in a collapsing economy. The danger is that this unearned nominal financial profit is mistaken as a sign of economic recovery, inducing the public to invest what remaining wealth they still hold, only to lose more of it at the next market meltdown, which will come when the profit bubble bursts.
Hyperinflation is fatal because hedging against it causes market failures to destroy wealth. Normally, when markets are functioning, unhedged inflation favors debtors by reducing the value of liabilities they owe to creditors. Instead of destroying wealth, unhedged inflation merely transfers wealth from creditors to debtors. But with government intervention

in the financial market, both debtors and creditors are the taxpayers. In such circumstances, even moderate inflation destroys wealth because there are no winning parties.
Debt denominated in fiat currency is borrowed wealth to be repaid later with wealth stored in money protected by monetary policy. Bank deleveraging with Fed new money cancels private debt at full face value with money that has not been earned by anyone, that is with no stored wealth. That kind of money is toxic in that the more valuable it is (with increased purchasing power to buy more as prices deflate), the more it degrades wealth because no wealth has been put into the money to be stored, thus negating the fundamental prerequisite of money as a storer of value.
This is not demand destruction because decline in demand is temporarily slowed by the new money. Rather, it is money destruction as a restorer of value while it produces a misleading and confusing effect on aggregate demand.
Thinking about the value of any real asset (gold, oil, and so forth) in money (dollar) terms is misleading. The correct way is to think about the value of the money (dollars) in asset (gold, oil) terms, because assets (gold, oil, and so on) are wealth. The Fed can create money, but it cannot create wealth.
Central bankers are savvy enough to know that while they can create money, they cannot create wealth. To bind money to wealth, central bankers must fight inflation as if it were a financial plague. But the first law of growth economics states that to create wealth through growth, some inflation needs to be tolerated.
The solution then is to make the working poor pay for the pain of inflation by giving the rich a bigger share of the monetized wealth created via inflation, so that the loss of purchasing power from inflation is mostly borne by the low-wage working poor and not by the owners of capital, the monetary value of which is protected from inflation through low wages. Thus the working poor loses in both boom times and bust times.
Inflation is deemed benign by monetarism as long as wages rise at a slower pace than asset prices. The monetarist iron law of wages worked in the industrial age, with the resultant excess capacity absorbed by conspicuous consumption of the moneyed class, although it eventually heralded in the age of revolutions. But the iron law of wages no longer works in the post-industrial age in which growth can only come from mass demand management because overcapacity has grown beyond the ability of conspicuous consumption of a few to absorb in an economic democracy.
That has been the basic problem of the global economy for the past three decades. Low wages even in boom times have landed the world in its current sorry state of overcapacity masked by unsustainable demand created by a debt bubble that finally imploded in July 2007. The whole world is now producing goods and services made by low-wage workers who cannot afford to buy what they make except by taking on debt on which they eventually will default because their low income cannot service it.
All the stimulus spending by all governments perpetuates this dysfunctionality. There will be no recovery from this dysfunctional financial system. Only reform toward full employment with rising wages will save this severely impaired economy.
How can that be done? Simple. Make the cost of wage increases deductible from corporate income tax and make the savings from layoffs taxable as corporate income.

Are We Socialists?


Sowell: Government’s Current Role in Business the ‘Route’ to Fascism
Posted By admin On May 29, 2009 @ 3:35 am In Money Watch 5 Comments
Jeff PoorBusiness & Media Institute [1]Friday, May 29, 2009
The media have lamented use of the word fascism when it has been used to describe moves by the Bush and Obama administrations and the private sector economy.

But when examined from a purely political and economic point-of-view, that is what’s going on now according to Thomas Sowell, Stanford University’s Hoover Institute Senior Fellow and author of “The Housing Boom and Bust.” [2] Sowell appeared on Glenn Beck’s May 27 program and Beck asked him if the United States was still a capitalist country.

“Oh, heavens, partially,” Sowell replied. “We’re not a socialist country, because the socialists believe in government ownership of the means of production. But, the fascists believe that the government should have private ownership and the politicians should tell people how to run the businesses. So that’s the route we seem to be going.”

A textbook definition explains [4] that fascism embodied corporatism, which is an economic structure controlled by the government [5]. Sowell said that’s exactly what is happening in some sectors of the U.S. economy:

Beck: So what route is that again?
Sowell: That the private people still own the businesses but the politicians tell them what to do.
Beck: Right, but isn’t that, I’m trying to remember, that’s uh…
Sowell: That’s fascism.
Beck: Yes, I was going to say, I knew it was a bad one. And I was going to say, I think that’s fascism. Yeah. OK. Well you’re a crazy lunatic. Why would you say we’re going down a fascist road? Um, go ahead.
Sowell: Only because we are.

Sowell argued it would take a “calamity” for people to realize that fascism is taking place – the issue being just how big it would be before the public could connect the dots.

“Well to do that, they would have to think,” Sowell explained. “And this whole personality cult has caught on in such a way that it is going to be a while before people start thinking. It is a question of how big of a calamity is it gonna take before they snap out of it.”

The Stanford University economist chastised President Barack Obama’s administration for leading the United States down this path economically and noted it would have an impact on the country’s foreign policy.

“Gosh, I hate to make predictions but I think the economy is, is gonna be permanently changed for the worse,” Sowell said. “I think our foreign policy is gonna lead to changes that will be definitely for the worse, particularly if we drift into a nuclear Iran, which I gather that’s what the administration is doing.”