Fiat Here, Fiat There

Money Metal Explosion?

Monday, July 30, 2007 - FreeMarketNews.com
Jordan Roy-Bryne writing in financialsense.com's Financial Sense University:"For the first time in world history, every country is operating with a fiat currency. This is incredibly dangerous as there is little protection against the ravaging of savings and earnings by governments and central banks. Fundamentally, the various currencies are all the same. The Dollar, Yen, Euro, and Yuan are all pieces of paper that derive their value from public acceptance and government enforcement. Governments and central banks are playing a tricky game, a confidence game with the public. More dangerous, is that they are tempting the time-tested laws of economics. The price of gold, silver and all commodities will explode in all currencies if and when the market decides there is too much money in the global financial system."Joe Nicholson demonstrates in a post on financialsense.com that:"In the Q&A portion of his presentation Bernanke was explicitly asked about the relationship between money supply and inflation, and his answer was incomplete, if not outright evasive. What he concealed behind the smokescreen of academic terms was that the lag time between a massive injection of new money and a rise in prices throughout the economy can be extended and perpetuated, and more clandestine inflation perpetrated, if people believe hard enough that inflation pressures in food and energy are temporary and insignificant. "Couched in an appeal for better information in how to steer public consciousness towards that end, the speech was another shameless attempt to understate inflation. But this always means two things: one, there is and always will be inflation, and two, it should just be ignored by the public. The bottom line is that Bernanke's speech was exactly the sort of rhetoric you'd expect from a man prepared to undertake a massive devaluation to try and stave off a credit crisis." Staff Reports - Free-Market News Network

On The Edge

"US on Its Last Lifeline"?

Monday, July 30, 2007 - FreeMarketNews.com
Jordan Roy-Bryne writing in financialsense.com’s Financial Sense University states:"Quite simply, there is not much more room for the Fed to postpone recession without pushing this country into an unavoidable hyperinflation. On the other hand, if the Fed were to contract the supply of money and credit like they did in 1929, it would bring about the worst deflation in modern economic history. Total credit market debt as a percentage of GDP now exceeds that of 1929. In 1929, this country was self sufficient in energy, manufacturing and capital.Today we import most of our energy, inflation has destroyed the manufacturing sector and finally, we are history’s greatest debtor. "Unfortunately, the majority of the American populace is not aware of the situation. This is because since the Great Depression, Keynesian economics has completely dominated the American educational system. Most citizens, politicians and Wall Street professionals would tell you and believe that we have a free market economy. They have been educated to believe that government involvement and central bank involvement is part of a free market economy. In the same vein, Americans who adhere to the free market Austrian economic principles that the founding fathers espoused, admit they didn't learn these laissez-faire principles in school. At this juncture, our monetary policy and entire monetary system is on its last lifeline..."How much longer can the fiction be maintained so as to keep the public in denial?Jim Willie writes about the ever-spreading rings of risk from the sub prime mortgage fallout, in his Hat Trick Letter:"The systemic risk is slowly being recognized. Denials are increasing at a great pace, regarding 'contagion' and 'containment' and 'spillover' and 'recession' and more. Historically, such denials are a surefire indication of their realistic threats and current felt risks, sure to occur." Staff Reports - Free-Market News Network

Things Heat Up In Canada

Global Market Brief: Canada’s Arctic Potential
Following up on part of a major campaign promise, Canadian Prime Minister Stephen Harper on July 9 announced formal plans to construct up to eight Polar Class 5 Arctic Offshore Patrol Ships -- armed icebreakers -- and establish a deepwater port from which they will operate in the Far North. His speech was rife with words such as "sovereignty" and "national identity," and emphasized Canada's territorial claims in the Arctic. Not only are higher energy prices making more extreme forms of oil and natural gas extraction in the Arctic more attractive, but the receding summer ice pack also is opening up a world of possibilities -- literally.
Global warming has begun changing the geography of the Canadian North. And given Ottawa's current status in terms of the U.N. Convention on the Law of the Sea (UNCLOS) and the slew of Canadian islands extending far into the Arctic, there is little doubt that Canada will reap substantial benefits from the increasing accessibility of the North. Under UNCLOS, countries have full rights to the minerals within their exclusive economic zones of 200 nautical miles. Special considerations for long continental shelves can extend those rights even farther. In the Arctic, these shelves extend for hundreds of miles, which means that, with the exception of a small disputed area on the U.S. border, the vast bulk of the resources under the Arctic in the Western Hemisphere belong to Canada.
Energy
Long-disputed claims in the Arctic are beginning to take on new relevance. The dispute between Denmark and Canada over Hans Island -- a hunk of rocks smaller than New York's Central Park -- began to heat up (in a Canadian/Danish kind of way -- flags were planted and pastry imports were threatened) in 2004, and the U.S.-Canadian spat over a sliver of a wedge of floor in the Beaufort Sea has continued. Though the area of the latter is small by Alaskan standards, it could hold huge oil and natural gas deposits.
But the renewed interest in the Arctic runs deeper than revived territorial disputes. As the ice pack slowly recedes northward, more of Canada's North -- and beyond -- becomes accessible, altering how energy is not only developed, but also delivered to market.
The $7 billion, 750-mile-long Mackenzie Valley natural gas pipeline project, which would ship natural gas southward from the Far North, has already run into a four-year delay, and costs have more than doubled. But if the northern coasts of the Yukon and the Northwest Territories become accessible by water year-round for big liquefied natural gas ships, the pipeline (and its royalties to governments and First Nations) will become completely unnecessary.
Furthermore, as the ice pack continues to recede each year, it opens up more and more potential deposits to year-round offshore drilling without the need for massively costly hardened ice-proof rigs like those in the water off Sakhalin Island.
Given the resources already being exploited at the extreme edge of the ice pack -- the experience of Prudhoe Bay and the promise of Sakhalin -- one can only guess what might lie farther north. But rest assured, there are companies that will find out. And the stage will be set for even more hotly contested battles over the ownership of the North Pole itself.
Shipping
Oil and natural gas promise huge payoffs (and despite some current small-scale disputes and the potential for larger ones, Canada will no doubt see its share of the wealth), but a more significant shift is possible: a true opening of the fabled Northwest Passage that could greatly change the face of business. But resource rights along the seafloor and territorial waters on the surface of the sea are governed differently under UNCLOS -- though, in Canada's case, they will be equally contested. While Canada might push the argument that the potential shipping lane (should it open) is within its territorial waters (using the straight baseline method outlined in UNCLOS, which in this case gives the most favorable outcome for Canada), the United States and others will make strong cases that it is an international strait connecting the Pacific and Atlantic -- the trump card in the treaty that would qualify the strait as international waters.
Whatever the ultimate legal status of the Northwest Passage, Canada will have effective control either way. Even before Ottawa's eventual acquisition of as many as eight armed icebreakers -- which will be far and away the largest fleet of such ships in the world -- it will be Canadian icebreakers patrolling the waters of the North. And a more direct route over the North Pole will only open up if the ice of the Arctic Ocean gets close to melting completely.
This is all, of course, 20 years down the road. Today, there are only the first indications -- a receding ice pack, rising energy prices, and massive amounts of global maritime shipping. A small window each summer for crude carriers and container ships to make one headlong rush through the Arctic Ocean will hardly be worth the risk, much less worth altering the patterns of global shipping.
But if these trends continue unabated, exploration will certainly expand in the North. Spearheaded in all likelihood by energy interests, explorers will begin to chart and mark the most significant channels, expanding the navigability of the passage. If a reasonable assurance of safety can be made and shipping companies push hard enough, insurers could begin to take their bets. If those early bets pay off, the 21st century will experience one of those true rarities of history: a meaningful shift in global geography.
This will come at a cost -- any meaningful channel will mature amid treaties and compromises. Bad weather, poor visibility for much of the year, and ice flow will all inject a certain amount of risk into the equation. But the prospect of cutting as much as 5,000 miles from transoceanic crossings from Europe to the U.S. West Coast is compelling and would fundamentally shift the center of balance of global shipping. The result -- pulling massive amounts of shipping traffic from Panama (and, to a lesser extent, the Suez Canal) -- could free the maritime world from the minor tyranny of the beam and draft restrictions, respectively, of Panamax and Suezmax shipbuilding standards. (Of course, exploration could reveal a new maritime design constraint -- a Canadamax tyranny. If anything, higher standards are needed for shipping hulls that are more likely to encounter ice.)
All that can be certain for now is a wealth of possibility -- and that the Canadian Coast Guard might soon have something to guard.

Gold Still Down

Gold continued to sell off in lock step with the broader securities markets over the weekend. The move was puzzling to many attendees and speakers at our event last week in Vancouver.
“I don’t know a cheaper place to put your money right now,” Doug Casey commented. “I’m a very eclectic investor… I look all over the world, in every market, and I’ll buy anything if the price is right. Gold is the best bargain in the world right now.
“It’s not just going to go through the roof, it’s going to the moon. There’s going to be a gold buying panic in the next few years that will just knock your socks off. The bull market for gold has not really even gotten started yet.”

Arms Buildup In The Middle East

This morning, according to The Jerusalem Post, the Israeli government “is looking into reports that Russia plans to sell 250 advanced long-range Sukhoi-30 fighter jets to Iran in an unprecedented billion-dollar deal.
The Sukhoi-30 fighter… this one belongs to India
“In addition to the fighter jets,” the Post continues, “Tehran also plans to purchase a number of aerial fuel tankers that are compatible with the Sukhoi and capable of extending its range by thousands of kilometers. Defense officials said the Sukhoi sale would grant Iran long-range offensive capabilities.”
Russia also recently gave Iran some antiaircraft systems to protect Tehran's nuclear installations. At the time, the Russians said they reserve the right to sell Iran weapons, such as the anti-aircraft system, that are of a defensive nature.
Didn’t we report recently in The Sound Of Cannons that Chavez was helping the Iranians build a natural gas facility? Seems like Putin’s comment last month that we’re returning to the Cold War may not be too far off…
Our word of warning: Watch your wallet.

Maybe A New Indicator!

U.S. securities firms now employ a record number of full-time employees. Firms added 10,000 employees in June, bringing the grand total to at least 848,300 souls hitching their wagon to this bubble of bubbles.
The investment industry cut 100,000 employees in the three years following the dot.com bust. But between 2005-2007, they’ve all been hired back and then some. We expect the Street will be littered with far more bodies after the subprime bust -- and make the melodrama even more shrill than in 2001.

I Still Don't Understand Why We Aren't There Already

Building a Better Tomorrow

by Stephanie Grimmett Editor, Taipan
I'm reading all of the reports on Africa I can get my hands on because the continent may finally be awakening to its economic manifest destiny.
Last month, the World Economic Forum in Africa called for wealthy nations to look past the AIDS epidemic. According to leaders from Senegal and South Africa, all of the funding for AIDS prevention and treatment in the continent is great, but Africa is in need of more than just health programs.
Ignoring Bono’s constant pleas for help in the continent's fight against disease, Africa’s leaders said the best way to combat AIDS, malaria and tuberculosis is to build up its economy and give it the tools to fight those illnesses for itself. Africa wants money for infrastructure and education, first and foremost.
Locals, as opposed to the exploitive European companies that dominated the continent for more than a century, are beginning to take control of their native natural resources. And the effect of that control is rippling through the economy. Africa posted a 5.7% economic growth rate for 2006, and it’s heading for a more than 6% growth rate in 2007.
That's the highest rate in more than 30 years. And it's partly because of the continent's new relationship with America's favorite outsourcer: China.
China is establishing Africa as its own personal cache for natural resources. Chinese companies are investing heavily in the continent and getting their investment back in trade.
Late last year, China agreed to pour a total of $1.9 billion into contracts with African countries that will help build new roads and lay phone lines. Chinese President Hu Jintao promised to double his country’s aid to Africa in the next three years. And China is looking to collect oil and iron ore, among other resources, in return for its investment.
The West fueled China’s economic awakening. And now China is turning around and doing the same for Africa. After all, it’s only fair.