Elmer Sutton’s eyebrows shot up when he saw the ad proclaiming gold stocks might make you wealthy.

It sounded like the perfect solution for his stock portfolio, loaded with investments going nowhere. He vaguely recalled hearing a little about gold, but if what the ad said was true, he thought he could make a killing.

So he called the broker and made an appointment for the next day. The broker seemed very knowledgeable and took the time to explain why he felt gold stocks were one of the best investments right now. He said this was not a get-rich-quick scheme, but that if you stuck with it, you could see potentially enormous profits. It sounded good. Elmer wrote a check for $2,500, and the broker bought three gold stocks for him.

The very next day, gold took a big drop and his spankin’ new gold stocks sold off hard. Not only that, there were riots in South Africa, where one of the companies was located. Elmer was instantly disgusted. He was losing money yet again. This time, however, he’d play it smart and get out before he lost it all – something his wife made sure he understood – so he hastily called the broker and told him he wanted his money back.

“Elmer, you can’t do that,” the broker told him. “This isn’t Woolworth’s.”

“I’m not buying them!” he yelled to the broker and slammed the phone down. Elmer wanted out, and that was that. He wasn’t about to lose any more money in the stock market.

Three years later, long after he’d forgotten about that broker, newspaper headlines were screaming about gold. Everyone at the party Elmer attended the night before was talking about how well their gold stocks were doing. His co-workers bragged about the good deals they were getting buying gold and silver coins. Everyone was talking about precious metals.

Elmer panicked; he didn’t want to be left behind. He scrounged around the house until he found the original confirmations of the trade he’d broken with “that broker”: 1,500 shares of Grootvlei at 35¢, 500 Anglo American at $2.50, and 1,000 Leslie at 50¢. He grabbed his newspaper and saw that Anglo was up 500% since then, and the others were paying dividends – this year alone – totaling more than he would have paid for his shares in 1976.

As the newspaper went limp in his hands, he had a vague recollection of the broker he met with and quickly tracked down the phone number. “I want to buy some gold stocks,” he breathlessly panted to the secretary answering the phone. She said the broker wasn’t in, and that while they would be happy to buy a stock for him, they were actually recommending investors sell their gold stocks.

Elmer couldn’t believe it. How ludicrous! Everyone he knew was buying, and he was personally acquainted with many people who were getting rich. He pushed on. “Look, everyone’s into gold right now. It’s on the front page of the paper, for crying out loud. So I want to buy some gold stocks right away.”

“That’s fine, sir, but I think you should talk to the broker first,” the secretary replied. “We really don’t recommend you do that.”

“I don’t care!” Elmer screamed, which he didn’t mean to do, but panic was setting in. “What’s this clown’s name anyway?”

“Doug Casey,” she replied.

Please Don’t Crowd the Emergency Exit

This true story explains how Doug Casey bought gold stocks at the very bottom of the market, as he took on those abandoned shares from Elmer. But today’s lesson underscores what Doug Casey saw back in the late 1970s: there’s certain to be a rush into gold and silver, and buying before Main Street catches gold fever is the only way to play this trend.

Because when Midas fever hits, prices will explode to the upside, for both the metals and the stocks. How do we know that?

First, let’s look at gold. If we added up all the gold ever mined on the planet, its total value would equal no more than $5 trillion at today’s prices. Yet, look at how this compares to the debt and bailouts and other monetary mischief of current governments…

Let’s make this chart very clear. Of the $5 trillion in gold ever mined…

• The U.S. government has thrown over twice as much at the economy in the past 12 months.

• The U.S. debt is more than double this amount so far this year.

• Total global government bailouts are almost four times larger (and this is a conservative figure; one estimate puts it at $24 trillion).

I intended to include annual gold production as one of the comparisons, but the chart isn’t big enough and neither is your monitor: 2008’s global gold production equaled about $73 billion, and to make that figure discernable on the chart would require the Global Bailouts bar to hit the ceiling above your head. That’s how small the gold market is.

The implications are undeniable: when the greater public rushes into gold – whether in response to inflation, dollar woes, war, whatever – the price will be forced up by an order of magnitude.

A Picture Is Worth a Thousand Dollars

While physical gold will protect our wealth, it’s the gold stocks that can potentially make us wealthy.

Once again, to get a sense of the Lilliputian size of the gold industry, I compared it to several other leading industries and stocks.

The value, as measured by market capitalization, of all gold producers around the world is less than Walmart’s. Every gold stock would need to nearly double just for the industry to match ExxonMobil. The oil and gas industry is about 12 times bigger.

When your neighbors and relatives and co-workers and friends all start clamoring to buy gold stocks, the pressure on prices will be enormous, rocketing our positions upwards.

Meanwhile – and admitting we’re first and foremost gold bugs – the picture for silver is even more dramatic. The potential for silver stocks is jaw-dropping.

If the gold industry is tiny, then silver’s $9 billion market cap makes it a nano industry. The entire silver industry is over 21 times smaller than gold’s! If gold explodes, silver will go supernova.

Consider these macro-facts about a micro-market and what they reveal about silver’s enormous potential:

• There are over 200 companies in the S&P 500 with a market cap larger than the entire market of silver producers

• There are five times more gold stocks than silver.

• Total silver production in 2008 was valued around $10.3 billion (at today’s prices). That represents just 1.5% of the $700 billion bailout last year, and 0.006% of the current U.S. monetary base.

• Of the 20 largest silver producers, only five actually call themselves a “silver” company, due to the fact that about 73% of all silver mined is a byproduct of other metals mining.

Any flood into the silver market would overwhelm it. In other words, the rise will be stunning. While it’s not going to happen tomorrow, I strongly suggest you get on board before that rocket ship takes off.

Just putting these charts together stirred my feelings of restlessness, making me anxious for the mania in precious metals to arrive. But the timing is not up to us. Be patient, because if you’re invested in gold and silver and the respective, high-quality stocks, you’re on the right side of this trend.

Regards,
Jeff Clark
Senior Editor, Casey’s Gold & Resource Report

November 20, 2009

Gold Mania Means a Niagra Falls of Dollars Through a Precious Metals Market Garden Hose was originally featured on Whiskey and Gunpowder

Where is the real bubble? Is it a bubble in commodities? Or a bubble in the people who buy them?

By the charts ye shall know them — bubbles, that is. The lines roll along nicely, calmly, along the bottom of the page, then all of a sudden, the line shoots up. When you see a chart like that, whether it is the price of tulip bulbs or shares in the South Sea Company, you know what will happen next. The line will go down!

What goes up must come down. A bubble is an extraordinary thing. And all extraordinary things tend to become less extraordinary over time. “Regression to the mean,” is what statisticians call it. The “mean” marks the territory that is normal. Whenever anything ventures into abnormal territory, chances are very high that it will soon come back on familiar ground.

Take an extraordinary person, for example. More than likely, his children and grandchildren will be more like everyone else than like him. It must be a terrible burden to be the son of an extraordinary man; people look at you like you were a dot-com stock in ‘99 — they expect something exceptional. Almost inevitably, they are disappointed.

Or take a Great Empire. What is an empire but an extraordinarily successful state? It stands out in history because it has managed to lord over its neighbors. Yet, what empire lasts? None…all regress to become commoners…ordinary nations.

Or take the weather. A rainy spell may last for a long time. But the more days it rains, the more dry days will be needed to bring the rainfall down to “normal” levels.

Regression to the mean is one of the surest bets an investor can make. Let prices go to extraordinary levels and he’s almost guaranteed that they will come back to normal. In markets, the regression to the mean principle is even more certain than it is in nature. Because extraordinary prices set in motion a series of actions and reactions that almost always bring them back in line. Highflying oil prices, for example, touched off a series of derriere-kicking trends and events.

On the supply side, the industry is spending 4 times as much on exploration and development than it did when the century began. The price of drilling equipment rentals has more than tripled. And now, believe it or not, a young man graduating from an Ivy-league college with a degree in petroleum engineering earns more money than a man who goes to Wall Street.

On the demand side too, changes are underway that cut the amount of oil used. The cure for high prices is high prices. Bubbles are self-correcting. The higher prices cause people to look for alternatives — or simply not use so much. US imports of oil went down over the last 12 years. And, for the first time ever, Americans were driving fewer miles.

Another track of the feedback loop is the economy itself. High oil prices work like higher interest rates or higher taxes — removing money from domestic commerce. The effect is to “cool” the economy…chilling demand for energy.

Elsewhere, substitutes for oil are being developed at breakneck speed — including wind, solar, and bio-fuels.

Regression to the mean works. Markets work. Lower energy prices seem a cinch.

But now we introduce an annoying fillip. While the bubble in oil prices was expanding…another, much bigger bubble was shaping up — and hardly anyone noticed.

Where? Just look in the mirror. At our own species. In the many, many thousands of years of our prehistory, we were hardly worth counting. There were tribes of us all over the globe…but they were small…barely holding their own against other species in the competition for food and resources. It took until about 1800 to get the population up to one billion. Worldwide. Then, man was a big winner. Numero Uno of creation. By 1930 another billion had been added. And another billion was added in the next 40 years. That brings us to about 1970, when the earth hosted about 3 billion two-legged yahoos. Since then, the population has more than doubled. The line shot up, in other words.

But we are a proud and egotistical race. As our numbers rise, we think the road will rise to meet us. What a shock it would be to find that the whole species was mean-reverting, just like everything else! What a surprise to find no road at all — that we are running off the edge of a cliff, like lemmings. More below…

Being in the right place at the right time is far more important than brains. Luck provides better investment returns than talent. Too bad. Because our luck seems to be running out.

George Soros has said the great credit expansion that was born with the baby boomers… and has lasted as long as we have… is now over. Not long after came word that the “end of abundance” is here too. That’s what it said on page 9 of the Financial Times. And then, Bo Diddley died. All the palmy trends of the boomer generation seem to be coming to an end.

Naturally, the world’s leaders were worried. They gathered in Rome that same week for the customary monkeyshines. Even Robert Mugabe — who is banned from traveling in Europe — put on a false mustache so he could dine out on the Via Veneto, leaving his lieutenants in Harare to beat and starve Zimbabwean voters. Poor Mugabe. Goebbels would have gotten a warmer reception at a meeting of Jewish orphans.

At 84, Mr. Mugabe is almost living proof of Haeckel’s biogenetic law. It maintains that the history of the individual rehearses the history of the species. In Mugabe’s long life, from prison cell to presidential palace, he is the history of revolution… a Kerensky and a Stalin… the liberation struggle’s saint and its monster, too… all in one. To black Africans he is a big disappointment. To whites he is proof that Ian Smith was right all along. When Ian Smith left the top man role in Rhodesia, the country was the ‘bread basket of Africa’ with a currency as strong as the pound. Now it is a basket case whose peoples’ bones stick out and whose dollars are already as worthless as a campaign promise.

But everything follows the same laws — from embryo to corpse… from boom to bust… from seed to fruit to rot… nothing escapes, neither an individual, an empire, a species, nor a market.

This is not the first time in our lifetimes that the world has seen this kind of show. In the ‘70s, Paul Ehrlich, like Malthus before him, foresaw a crowded, hungry world. In his popular book, “The Population Bomb,” he said hundreds of millions of people would starve to death. This was a world in which England couldn’t even exist; he said it would disappear by the year 2000. He was wrong about that. He was wrong about a lot of things. Julian Simon challenged him, arguing that a free economy always reduces real prices. On September 29th, 1980, the two made a famous bet — on whether the prices for 5 basic metals — chromium, copper, nickel, tin and tungsten — would actually go down, inflation adjusted, in the following ten years — despite population growth. What happened? Simon won. On the 29th of September, 1990, the prices of all 5 were lower. Ehrlich settled up with a check for $576.07.

In theory, Simon will always win a bet like that; competition and technology always force prices down. But Ehrlich wasn’t wrong about everything. And Simon wasn’t right about everything. While one believed the weight of numbers would send the world to Hell… the other had a god-like faith that the market would always save it, guided by an invisible hand to progress and prosperity. But while Simon is right in theory, the invisible hand is not always the gentle paw that he imagines; it does not necessarily call out for more booze just because the crowd gets thirsty. In fact, sometimes it vanishes altogether, allowing a Mugabe to ruin a country… instead of permitting the free market to build it up.

Simon had the good luck to make his bet at the beginning of a major decline in commodity prices. Oil, for example, hit an all-time high over $100 a barrel, in current dollars, in December 1979. Ten years later, it was trading near $30. And by 1998, the price had fallen to $10. Had he made his bet ten years earlier or ten years later, he probably would have lost.

Back to the raw facts facing the Roman holidaymakers: Over their plates of crespelle all fiorentina, delegates will learn that high food prices are putting millions of people on the verge of starvation. Then, as they wash down their peposo with a tide of Barolo or Chianti Classico, they will reflect on how this came to be. The “green revolution,” someone will mention, seems to have run its course. (Out of politeness or imbecility, no one will mention the Fed’s easy money policies.) Ehrlich’s population bomb never exploded, they might come to believe, because irrigation, selective breeding, and the use of petroleum-based products greatly improved farm productivity.

But now, the green revolution has turned brown. It is as mature as the credit cycle… or Robert Mugabe himself. The water is running out. Opposition to bio-engineering is growing. And petro-chemical inputs are both less effective and much more expensive than they used to be. Result? In 1961, crop yields grew by 10% per year. Lately, they’ve increased less than 1% per year.

Meanwhile, in 1970, there was about 1 acre of arable land on the surface of the planet for every pair of feet. But the feet have multiplied — just like Erhlich said they would — from a bit over 3 billion people to more than 6 billion; and now the species is expanding like sub-prime debt. Just look at a chart. Human population looks just like the Nasdaq in ‘99 or oil in ‘08. This bubble-like population explosion, along with urbanization, highways, pollution, desertification and so forth, has cut the amount of farmland per person in half. Meanwhile, the number of people bellying up to the bar continues to grow by 11% per year — more than 10 times faster than crop yields.

Everyone wants a drink; but there’s only so much beer on tap. Who knows? This may be a good time to short the whole damned race.

Regards,
Bill Bonner

November 19, 2009

Editor’s Note: This article originally appeared in The Daily Reckoning as “Boomer Trends Coming to an End.” To view the original article, please click here.

Human Population Bubble and Regression to the Mean was originally featured on Whiskey and Gunpowder

And counter to our prediction of an imminent, counter-trend U.S. dollar rally, the dollar is most definitely not surging. Take a look at the chart below. We’ve been writing about the decline of the dollar for nigh on ten years. So we looked at a ten-year chart to tally up the damage. It is considerable.

Dollar Index Threatens New Lows

What’s at stake with the interpretation of this chart? If the dollar rallies on short covering from the dollar carry trade (a BIG if), then other “risk” assets like gold, stocks, and emerging markets would probably sell off.

The chart shows that the index’s 50-week moving average is set to cross below its 200-week moving average. That is mixed news. The first time it happened on this chart was back in early 2003. That was the early days of a long decline in the index. The second time, though the move failed to confirm the “flight to safety” rally of 2008 had staying power in 2009.

Once the fear that gripped markets in 2008 went away, the investment world sold the dollar and started borrowing en masse to buy other, higher-yielding currencies and assets (like the Aussie dollar and resource stocks). That’s where we are now.

But based on the chart, is the next move down in the dollar index a new low, which the crossing of the long-term MA by the short-term MA would suggest? Or is it a false move? Will the dollar quickly and violently rally for some reason (geopolitical perhaps) that currently remains unknown to the human beings of this world?

“It’s an interesting chart,” said our technical analyst Murray Dawes. “But it is not useful for timing your moves out of or into trades related to the dollar’s movement.”

“So you’re saying our chart doesn’t have any useful information from a trader’s perspective?”

“Not really.”

The one piece of important information communicated by our chart is that the dollar’s trend is down. But there IS a catch.

The catch is that when this many people are this uniformly bearish, everyone is probably wrong. Consider this a warning then, that a dollar rally is just the sort of thing that will lead to a correction in the gold price and the stock market. We won’t speculate on the sort of things that could lead to a dollar rally. But surely they’re out there and sooner or later they’ll come.

The other possibility is that the dollar is in its death throes and that this is the big one, in currency terms. That is such a momentous and disastrous event that people consider it both kooky and unlikely, not to mention undesirable to a predictable and comfortable world. But it IS possible.

And do you get the feeling that this kind of manic melt up rally is the sort of irrational frenzy that comes just before everything goes haywire? Haywire is not a precise financial term. So what do we mean?

We meant that the world enjoyed a 20-year economic relationship based on a fundamentally unbalanced global economy. Manufacturing capacity migrated to Asia where wages were lower. For awhile, this was mostly good news in Western countries. Goods got cheaper but jobs didn’t vanish.

Now the situation is not so pleasant. The world is awash in manufacturing over-capacity, especially in China. Wage deflation (in the Western world) looks like a long-term trend, leading to a lower standard of living. This wage deflation is occurring at exactly the same time that Western governments are encountering demographic crises of ageing populations.

We all knew the ageing of the Boomers would put pressure on public finances right around now. But no one reckoned on a global financial crisis further saddling the public balance sheet with debt. And no one reckoned that Western wages and incomes would be falling at just the time people needed them most. And no one reckoned that savers would lose the most from low interest rates on fixed income — even though those low rates are keeping the American housing sector on life support.

It’s a bit of global impasse. America’s needed structural adjustment has come. Households and businesses are reducing debt, trying to live within their means. But the net adjustment to the American balance sheet is not happening because public sector debt is growing so fast.

Meanwhile, the other obvious adjustment is that the Chinese currency ought to be allowed to strengthen. For political and social reasons though, China will not allow this. It means China is actually adding to its industrial over capacity. It is conjuring up the world’s largest ever bubble in fixed asset investment, including commercial real estate.

It is easy to see why China is reluctant to allow a stronger Yuan. Exports account for 39% of Chinese GDP. The Chinese economy, and probably the Communist Party itself, cannot survive on unleashed Chinese domestic demand. They need American markets. But American consumers — in addition to reducing debt — are now realising that the focus on finance over manufacturing from American policy makers has worked out for Washington and Wall Street, but not terribly well for the average American worker.

Where do we go from here? How about the blame game. U.S. Treasury Secretary Tim Geithner once blamed the Chinese for being currency manipulators. He back-tracked later. And yesterday, Liu Mingkang, the chairman of the China Banking Regulatory Commission, had a go at America.

“The continuous depreciation in the dollar, and the US government’s indication that, in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation.” He is blaming the U.S. for fuelling a destabilising global bubble.

Of course that bubble is felt most acutely because China pegs its currency to the dollar. China is right to blame the U.S. for manipulating its currency to try and improve its competitive position. And China is right to worry about the value of its dollar-denominated assets in a world of exploding U.S. debt supply.

But China has put itself in this position. And here we are at the end of 2009 with a world still fundamentally un-adjusted to a new, workable currency arrangement. The world remains burdened by trillions in assets purchased with debt. Those assets linger on bank balance sheets, on government life support but fundamentally lifeless at fictitious book value prices.

And meanwhile, the China-US currency arrangement has fuelled a global bubble. The question is how it will end. In the U.S., the housing market looms as the Achilles heel of the economy. It could strike households, banks, and the government again in the next 12 months are more mortgages reset at higher rates (with lower home values).

If the event that pops this bubble comes from America, look for the supply of credit to the emerging world to dry up again. If the bubble pricking comes from China, what then? Well, China does everything big. So a Chinese bust would be world-class.

Regards,
Dan Denning

November 18, 2009

Editor’s Note: This article originally appeared in the Daily Reckoning Australia as “Dollar Rally the Sort of Thing that Will Lead to Correction in Gold Price.” To view the original article, please click here.

Will a Dollar Rally Lead to a Gold Correction? was originally featured on Whiskey and Gunpowder

Right. I usually don’t bother. Their complaint, of course, implies that we would do something about overpopulation if only we would recognize it. Which is absurd. What might we do about overpopulation here in the USA? Legislate a one-child policy? Set up an onerous set of bureaucratic protocols forcing citizens to apply for permission to reproduce? Direct the police to shoot all female babies? Use stimulus money to build crematoria outside of Nashville?

It’s certainly true that the planet is suffering from human population overshoot. We’re way beyond “carrying capacity.” Only the remaining supplies of fossil fuels allow us to continue this process, and not for long, anyway. In the meantime, human reproduction rates are also greatly increasing the supply of idiots relative to resources, and that is especially problematic in the USA, where idiots rule the culture and polity.

The cocoon of normality prevents us from appreciating how peculiar and special recent times have been in this country. We suppose, tautologically, that because things have always seemed the way they are, that they always have been the way they seem. The collective human imagination is a treacherous place.

I’m fascinated by the dominion of moron culture in the USA, in everything from the way we inhabit the landscape — the fiasco of suburbia — to the way we feed ourselves — an endless megatonnage of microwaved Velveeta and corn byproducts — along with the popular entertainment offerings of Reality TV, the Nascar ovals, and the gigantic evangelical church shows beloved in the Heartland. To evangelize a bit myself, if such a concept as “an offense in the sight of God” has any meaning, then the way we conduct ourselves in this land is surely the epitome of it — though this is hardly an advertisement for competing religions, who are well-supplied with morons, too.

Moron culture in the USA really got full traction after the Second World War. Our victory over the other industrial powers in that struggle was so total and stupendous that the laboring orders here were raised up to economic levels unknown by any peasantry in human history. People who had been virtual serfs trailing cotton sacks in the sunstroke belt a generation back were suddenly living better than Renaissance dukes, laved in air-conditioning, banqueting on “TV dinners,” motoring on a whim to places that would have taken a three-day mule trek in their granddaddy’s day. Soon, they were buying Buick dealerships and fried chicken franchises and opening banks and building leisure kingdoms of thrill rides and football. It’s hard to overstate the fantastic wealth that a not-very-bright cohort of human beings was able to accumulate in post-war America.

And they were able to express themselves — as the great chronicler of these things, Tom Wolfe, has described so often and well — in exuberant “taste cultures” of material life, of which Las Vegas is probably the final summing-up, and every highway strip, of twenty-thousand strips from Maine to Oregon, is the democratic example. These days, I travel the road up the west shore of Lake George, in Warren County, New York, and see the sad, decomposing relics of that culture and that time in all the “playful” motels and leisure-time attractions, with their cracked plastic signs advertising the very things that they exterminated in the quest for adequate parking — the woodand vistas, the paddling Mohicans, the wolf, the moose, the catamount — and I take a certain serene comfort in the knowledge that it is all over now for this stuff and the class of morons that produced it.

A very close friend of mine calls them “the yeast people.” They were the democratic masses who thrived in the great fermentation vat of the post World War Two economy. They are now meeting the fate that any yeast population faces when the fermentation process is complete. For the moment, they are only ceasing to thrive. They are suffering and worrying horribly from the threat that there might be no further fermentation. The brewers running the vat try to assure them that there’s more sugar left in the mix, and more beer can be made from it, and more yeasts can be brought into this world to enjoy the life of the sweet, moist mash. In fact, one of the brewers did happen to dump about a trillion-and-a-half teaspoons of sugar into the vat during 2009, and that has produced an illusion of further fermentation. But we know all too well that this artificial stimulus has limits.

What will happen to the yeast people of the USA? You can be sure that the outcome will not yield to “policies” and “protocols.” The economy that produced all that amazing wealth is contracting, and pretty rapidly, too, and the numbers among the yeast will naturally follow the downward arc of the story. Entropy is a harsh mistress. In the immediate offing: a contest for the table scraps of the 20th century. We’ve barely seen the beginning of this, just a little peevishness embodied by yeast shaman figures. As hardships mount and hardened emotions rise, we’ll see “the usual suspects” come into play: starvation, disease, violence. We may still be driving around in Ford F-150s, but the Pale Rider is just over the horizon beating a path to our parking-lot-of-the-soul.

It’s a sad and tragic process and, all lame metaphors aside, there are real human feelings at stake in our prospects for loss of every kind, but especially in the fate of people we love. The human race has known catastrophe before and come through it. There’s some credible opinion that “this time it’s different” but who really knows? We have our 2012 apocalypse movies. The people of the 14th century, savaged by the Black Death, had their woodcuts of dancing skeletons. Feudalism was wiped out in that earlier calamity but, whaddaya know, less than a century after that the Renaissance emerged in a wholly new culture of cities. Maybe we will emerge from our culture of free parking to a new society of living, by necessity, much more lightly on the planet and for a long time, perhaps long enough to allow the terrain to recover from all the free parking.

Regards,
James Howard Kunstler

November 17, 2009

Overpopulation in the USA and the Fate of the Yeast People was originally featured on Whiskey and Gunpowder

Woohoo…some of us have been talking about it since 1840.

I haven’t read the piece yet, not wanting to be influenced by another writer before I see what I have to say. Signature chuckle…well, how do I know what that is? I haven’t written it, yet.

That only sounds like an odd thing to say; it isn’t. That is how our minds work, you know: we dump information in the hopper, our brains process the data, and then we have to get the results out either through writing or speaking. “Thinking” is the act of imposing order on facts, of deducing connections, of correlating interlocking facets, of discerning order and patterns. Thinking is similar to using a washing machine: first you put in water, detergent, and dirty clothes. Close the lid and turn the machine on. Go away for a while. Sure enough, in general when you return the device has cleaned your clothing, but it isn’t anywhere near ready to wear. You have to get it out of the cavity and process items further by drying and then folding and putting away. Only then do you have fresh, clean jeans to wear.

What I think about secession basically is that it is a consummation devoutly to be wished, but a dangerous pursuit to advocate publicly. Janet Napolitano and the alphabet soup guys do not take kindly to the notion of freedom in any way, and for the precise reason that Abraham Lincoln did not. When asked why he didn’t just let the South go, Lincoln exploded in a rage, “Let the South go? LET THE SOUTH GO? How, then, should I fill my coffers?”

Documented historical fact. Look it up for yourselves. Winners write history and the North/Leftists have had nearly 160 years to spin their propaganda, but the fact is that the South was the wealthy portion of the country back then. Cotton was, indeed, king, the Feds had gotten themselves into monetary trouble, and bankruptcy was imminent! The back room Congressional brawls were over whether to declare the USA closed at the Mississippi and raise taxes, or to hit tariffs even harder to benefit their factories and shipping businesses, improving their bottom lines and increasing tax revenues. Greed and tariffs won. Hit the South for the enrichment of the North. Hit those who produced cane, corn, and cotton for the benefit of those who consumed and controlled shipping and rail transport and to increase federal control.

We are still disagreeing over the same issues, although the team names have changed. The War for Southern Independence (aka “The War of Northern Aggression” on our side and “The War of the Rebellion” on the other) was about financial matters and the proper role of government. The Southern states had been sold a bill of goods that they were going to get something similar to the original Articles of Confederation before the Constitution and still expected that. Th’ Yankees, for simple terminology, have mocked “States’ Rights” deliberately and consistently as a giant joke since who flung th’ chunk, but it isn’t and they know it quite well. It is a grave issue of utmost importance to those of us who wish to be responsible for our own behavior and neither beholden to any government anywhere nor raped for the benefit of those who outvote us.

The war was and is about freedom and money, what else? Slavery was a distraction, an attempt to pretty up the naked aggression of the North, long after the war was started by firing on Ft. Sumter, and Lincoln never freed a single slave. His famous proclamation applied only to slaves in territory he did not control; it certainly did not free slaves in the North. Yes, the Northerners had slaves, too, and Yankee ship captains were the ones who plied the slave trade. Not one Southern ship was ever a blackbirder.

Lincoln was looking for spin and a highly-emotional issue to cloak his behavior. He was a despicable man, the original Illinois super politician.

The South was in a manpower bind, with every free man already working, and was phasing out slavery as rapidly as possible, should this issue still disturb you. Slave labor is the most expensive, least effective solution to a problem, but until machinery was invented to pick cotton and process cane, the South had no other choice save not remaining in business.  Slaves have to be fed, housed, clothed, purchased, and provided with medical care, and then someone has to stand around constantly to get any sort of work at all out of them. Slavery is wildly uneconomical, and sharecropping isn’t much better in terms of Return On Investment. Southerners came from different portions of the British Empire; the North was settled by small shopkeepers and religious zealots, while the richer land and more hospitable climate of the South drew those who live on and in harmony with the land, particularly those from Scotland, Ireland, and Wales.

If you’re still dubious, here are some facts: 70% of all Southerners never owned a single slave. Slaves were very expensive; a prime field hand cost $2,000, making him at least a Maseratti. A trained ladies’ maid or butler was even more. Sure, you could abuse a slave because you owned him, but how many people would? Do you key your car and take a baseball bat to the windshield just because you can (so long as you do not file an insurance claim?) Normal people don’t. Free blacks who owned slaves were more likely to do so, historically. Yankee overseers weren’t always nice, either, abusing the workers occasionally in an attempt to exceed production quotos.  Even so, Uncle Tom’s Cabin was sheer, sentimental, sensationalist hogwash.

27% of those in the South never owned more than two slaves. Slaves were a luxury in a land where it was all but impossible to hire a maid or a farm hand.

Only 3% ever owned three or more slaves, and no, neither Gone with the Wind nor Mandingo were at all true to life. Yes, there were a very few stereotypical antebellum mansions, just as there are a very few of those who own ski lodges in Vail and summer places on Martha’s Vineyard, and buy ambassadorships and $540 Lanvin tennis shoes.

The BIG question is…why did the Southerners resist so fiercely? Would you go fight and die for Nancy Pelosi’s power when there is nothing in it for you? Would you fight to maintain Al Gore’s lifestyle? Would you go into battle to ensure that Michelle Obama can have ten thousand dollar purses? What stupid questions. Of course not.

The South fought for what it believed, which was that we were free and independent states entitled, in writing, to withdraw from the “union” whenever we wished, and to govern ourselves as we see fit. That we saw no reason to be impoverished for the benefit of shipbuilders, bankers, and politicians. That all we wanted was to be left in peace instead of being robbed and attacked. That Yankees are crazy and our totally different lifestyle is vastly superior…and we haven’t changed our minds.

Once again, the issue was and is redistribution of wealth and unbridled governmental control. I wrote recently about the enormous tariff Obama slapped on tire imports. 5,000 tire workers lost their jobs when several manufacturers of low-end tires could not compete with China, which holds about 15% of the market. Well, Statists can’t have that! 5,000 voters and union favor are clearly more important than affordable tires for most of us. The tariff was raised from 4.7% to nearly 40%, and the cheapest tire (not counting one of those ridiculous donuts) in WalMart went immediately from $49 to $125. Did this reopen the tire plants or create 5,000 jobs to replace those that could not compete in a faintly free market? No, of course not. It did not, and will not, create a single job. It did become another enormous tax on the American driving public. “Oddly” enough, only enormous tires for 18-wheelers are exempt, leading one to suppose that Jimmy Hoffa, Jr., still has a bit of influence.

A tariff IS a tax, a way of transferring wealth.  It targets the many for the wealth of a few. It is monopolistic in nature. By hobbling Chinese imports, American manufacturers are not obliged to practice competitive business policies. Their market is protected at the expense of the customer. Mind, I haven’t really any problem with monopolies, which are self-correcting in a free market. Goodyear (or whoever) couldn’t compete at the low end, and China snagged 15% of the market. If US manufacturers want the low-end market back, they need to produce better tires at the same prices or cheaper similar tires than China can.

My preliminary thoughts on secession, then, are that we should understand what we want and how we can get it. Do many really care whether or not Hawaii, for example, becomes a free nation again? Sure, some few Romantics do, but for all practical purposes Hawaii has belonged to Japanese Democrats most of my life. The Hawaiians of the blood royal have a very good point: the US wrested the throne from Queen Liliuokalani. Beats me why they want it back, but it sounds fair to me.

What we had better care about is whether or not the massive Federal government continues to grow unchecked and ever more rapacious and dictatorial. It makes me very nervous when new laws make it impossible for us to leave the country without proper documentation! Shades of the Berlin Wall. Canada and Mexico make no such demands; Washington D.C. does. Do you deal well with something called a “trusted traveler” document? I don’t. How about “no fly” lists that forbid you to get on an aircraft going anyplace? Not healthy, people. Not all Gulags are in northern Russia. A gulag is a state of mind and overwhelming force, not a matter of location.

RFID-chipping animals, machinery, clothing, and humans is to increase government surveillance, identification, and control. One problem in Iraq and Afghanistan, as it was in Viet Nam, is that the “insurgents” blend into the rest of the population. Be very wary of the national “driver’s license” which functions as an identifying document and must be carried on your person. Eye askance the “traffic cameras” which are springing up, for they are meant to track vehicles, read those drivers’ licenses, and allow your every move to be monitored.

Big Brother watches us more every day, controls more of our lives, and is backing us into corners where we can neither flee nor supply our own needs through our own efforts. The Food “Safety” Bill will make it illegal to use any save genetically-modified seeds from Monsanto (dangerous and do not propagate from what you grow), allow the government to know where every head of cattle and chicken is, and make it possible to locate every bite of food so that it can be confiscated at federal whim. It turns possessing raw milk out of your goat and the chicken you killed for dinner into crimes.

Taxing us at rates over fifty percent is unacceptable, but controlling the food supply is intolerable. Gun confiscation became far closer by a proposed “simple” tax of $50/year on each gun, something that need not even be voted on by Congress, since it is presented as “an IRS issue.” In order to take our guns, first they have to know where they are. As the founding father said, “Fear the government that fears your guns.”

Fear the government that has changed from the most basic of “thou shalt nots” to incessant meddling with every aspect of our lives, and holds that we are cows to be stripped for personal gain and to buy votes. King John is back on the throne, and in this version he does not have a brother named Richard, off fighting in the Holy Land. Robin Hood is a crony of the Sheriff of Nottingham. A successful secessionist movement that established a smaller truly independent nation with time to undo the harm of the past would be a start…but would Washington let the people go? I don’t think so.

Regards,
Linda Brady Traynham

November 17, 2009

What Can We Learn from 1860? was originally featured on Whiskey and Gunpowder

But we’re not…yet.

Classic economic theory says that money supply can be used to stimulate the economy and our central bankers seem to agree. That’s why they’ve pumped more than $1 trillion dollars into the economy, engineered countless bailout bonanzas for zombie institutions, put Detroit on life support, and delivered a bunch of financial Band-Aids to the trauma ward — all in a desperate bid to make Americans feel better about the global financial crisis.

To their way of thinking, the trillions of dollars have been a success. That’s why any meeting of the Group of Eight (G8) nations looks more like a mutual affection society with central bankers anxious to claim credit and backslap each other in congratulations for having avoided the “Great Depression II.”

But by taking the Federal balance sheet to more than $2 trillion from $928 billion 2008, they’ve created a situation that should have resulted in an epic inflationary spike to accompany the 137% increase in liabilities.

Yet that hasn’t quite happened.

Core inflation — which denotes consumer prices without food and energy costs — has actually decreased from 2.5% in 2008 to 1.5% presently. And that has many investors who have heard the siren call of the doom, gloom and boom crowd wondering if they’re worried about nothing.

So what gives?

Well, there are four reasons we haven’t yet seen hyperinflation:

Banks are hoarding cash. Despite having received trillions of dollars in taxpayer funded bailouts and lived through a litany of shotgun weddings designed to reinvigorate the shattered lending markets, most banks are actually hoarding cash. So instead of lending money to consumers and businesses like they’re supposed to, banks have used taxpayer dollars to boost their reserves by nearly 20-fold according to the Federal Reserve. The money the bailout was supposed to make available to the system is actually not passing “Go,” but rather getting stopped by the very institutions that are supposed to be lending it out. Three-year average annualized loan growth rates were 9.6% before the crisis; now they are shrinking by 1.8%, according to Money Magazine.

The United States exports inflation to China, which remains only too happy to continue to absorb it. What this means is that low priced products from China help keep prices down here. And this is critical to something that many in the “China-is-manipulating-their-currency” crowd fail to grasp. If China were to un-peg the yuan and let it rise by the 60% or more it’s supposedly undervalued by, we’d see jump in prices here in everything from jeans to tennis shoes, toys, medical equipment, medicines, and anything else we import in bulk from China. Chances are, the shift would not be dollar-for-dollar or even dollar-for-yuan, but there’s no doubt it would be significant. Many economists I’ve talked to privately think 25%-35% is probable. So the next time you hear a “Buy American” extremist, you might want to share this little inconvenient truth.

Consumers are still cutting back. Therefore, the spending that normally helps pull demand through the system is simply not there. I don’t how things are in your neighborhood, but where I live, people are still cutting back. Indeed, data from the U.S. Department of Commerce and the Federal Reserve Board shows that consumer spending growth averaged 1.4% a year prior to the crisis and is now shrinking at a rate of 0.7%. What this means is that people have figured out that it’s more important to save money than it is to spend it. And, given that consumer spending makes up 70% or more of the U.S. economy, this is a monumental change in behavior that all but banishes the last vestiges of the “greed is good” philosophy espoused by Michael Douglas as Wall Street pirate Gordon Gekko in 1987.

Businesses continue to cut back rather than hire new workers. Therefore, wages and wage inflation figures are lower than they would be if the economy was truly healthy and the stimulus was working. This is especially tough to stomach because it means people are still being marginalized, laid off and “part-timed” instead of being hired. And that means that most of the earnings growth we’ve seen this season has come from expense reductions rather than top line sales growth — and those are two very different things. But while this is tough, it’s also helped keep inflation lower than it would otherwise be. Prior to the financial meltdown, job growth averaged about 1% a year over the last three years whereas now it’s falling by 4.2%.

The upshot?

Any one of these factors could change at any time. And that means investors who are relying on the Fed’s version that everything is okay and that the government is managing inflation may be in for a rude awakening.

The only thing the Fed is doing is managing to manipulate is the data, and even then, not very well.

Regards,
Keith Fitz-Gerald

November 16, 2009

P.S.: For the last several years I’ve made my insights about the Asian markets and the true nature of the global capital markets available to investors via my daily columns in Money Morning and its monthly affiliate, The Money Map Report. Now I’m making those insights available through my new book, “Fiscal Hangover: How to Profit from the New Global Economy,” which can be purchased here.

Editor’s Note: This article originally appeared in Money Morning as “Four Reason Hyperinflation Hasn’t Hit the U.S. Economy Yet.” To view the original article, please click here.

Four Reasons Hyperinflation Hasn’t Hit the U.S. Economy Yet was originally featured on Whiskey and Gunpowder

1. At the current rate of taxation, even if nothing deteriorates, how much money does your wife need to live on after you are gone? The classic rule is “80% of your highest income plus a paid for house.” Right. If you make $100,000/year, you need to accumulate through savings or insurance $1.6M in capital at 5% interest. Problems: inheritance taxes are due to cut back in, and Uncle definitely wants a chunk of $1.6. Worse, the interest will be taxed as income and she isn’t going to find 5% interest. Let us suppose that she has $1000/mo in Social Security—a little over the average, but you’ve got a good job. A loving government will take roughly 10% of that away from her immediately too pay for Medicare and has already announced a 20% increase in fees over the next three years…with no increase in COLA, or the “Cost Of Living Allowance.” According to the Feds there is no inflation, hence her costs will not rise. We would love to know where those who make such pronouncements buy groceries, gasoline, socks, and tires. Supposing naively that she pays no income tax, if she puts the $250,000 in insurance you may have arranged for her in a CD at 1.5%, at the end of the first year she will have $3,750 in interest plus the theoretical $11,100 in Social Insecurity, for a total income of $14,850. Social Security probably won’t cover the house note you almost certainly have, and houses aren’t selling well. Her alternatives are to find a job or live on what she has for three years and hope she can find husband. That is certainly neither a safe nor a dignified plan, although it may make more sense than buying lottery tickets. The worst part is, that’s the best I can foresee for her.

2. The Greater Depression arrives, as it almost certainly will. It doesn’t matter whether you’re married or single, how safe is your job? 26,000,000 of the things have disappeared already in this century, and unless you are among the 40% of the populace which works for some governmental entity or a CEO you night want to do a little worrying. Japan is on the twenthieth year of their last depression, with a brand new government devoted to the project of becoming an economic block with India, and a few sprats such as Hong Kong, Taiwan, hunks of Indonesia, and so forth. Yup, our little island nation friend is going to grow up, leave the nest, and devote itself to destroying the dollar. What they plan to do with the two trillion or so they hold I have no idea, but if they knock the dollar out as the reserve currency they have some notions. The ironic part is that those dollars have little value at present and are under pressure from all sides, from Bernanke and Geithner’s government-sanctioned counterfeiting and money-laundering (swooshing the new cash around through Treasuries and the market, for example), to cheerful plots in the Middle East and BRIC. It’s coming, get ready for it.

3. The stock market takes a 40% thud at the year’s end, the bond market crashes, the ARM supply has 80% set to re-arm, commercial real estate looks like a yeast vat it bubbles so freely, and a lot more banks are set to fail. Some may even be “set up” to fail. These government-made disasters are pretty much set in stone and will coincide with your other choices.

4. Government revenues are down 17%, the jobless rate is at 17% by rational accounting methods, and a great many states have balanced budget requirements. They will have only two recourses: raise taxes again, or cut jobs and “services.” ARE we having fun yet? 25% of those working are paying all of the income taxes and virtually all property taxes—and schools and bureaucracies demand more money every year. Protests against government spending and taxes are becoming more visible.

5. OPEC members have been running on the American Plan in large part, tossing around bread and services to keep their citizens from expressing noisy opinions of fleets of silver Mercedes Benze automobiles, some of them diamond studded. At one point in the last year it took Saudia Arabia, as I recall, $70/barrel just to cover the “social services” portion of their budget. Basically, every dime the Sauds get for a barrel these days is already committed to welfare, which means it is rather expensive to give away their declining oil supply. Throw the peak oil mess and the miraculous never-depleting “reserves” OPEC nations claim into this bucket. Meanwhile, back on the home front, the Greens are fully in control; drilling rights that had been negotiated were blocked recently, coal is threatened under cap and tax, don’t even mention nuclear power, and hydroelectric dams stand idle because the water has been flushed uselessly to help dear little fishies. Oh, and the crops failed in California when the water was diverted from irrigation.

6. The citizenry of these “united” states turns ugly for a variety of reasons, ranging from food or energy scarcity, taxation, the avalanche of new socialistic legislation, union members who have priced themselves out of jobs, racial or religious riots, and/or a hearty disinclination to put up with this any more. For an eyeful, ask Google how many states and a group of islands have strong secessionist movements. Funny Hawaii ne! Seems like they want Queen Liliuokalani’s throne back, and who can blame them? The real situation is that Hawaii has belonged to Japanese Democrats since I was graduated from the University of Hawaii, all those decades ago.

7. Some combination of the above appears, and the government proves that a government no longer strong enough to give the masses what they want is still strong enough to implement everything from the War Powers Act to the “PATRIOT” act, and turns completely totalitarian on us. Obama declares a national emergency, dismisses Congress (don’t come back boy and girl millionaires; your cushy jobs have been abolished), and pursuant to Executive Order 11921, armed, uniformed thugs show up on your doorstep and loot your house of all foodstuffs, alcohol, tobacco, firearms, valuables, and anything else any member of the team fancies. De facto gun registration is becoming de jure as it is being sneaked quietly through Congress disguised as “a simple IRS measure.” It requires a tax of $50 a year on every gun you own—or admit owning—your fingerprints, and submitting to government psychological examinations on demand, as well as other unsavory regulations. Penalties for being in possession of “untaxed” guns will be quite severe. This section has two possible outcomes: the rednecked, gun owning, Bible-thumping, smoking, drinking, butter-and-red-meat-eating, bluejean-wearing, Limbaugh-listening, homophobic, racist domestic terrorists (description courtesy of Janet Napolitano and assorted government agencies) are in open revolt, and either win, or they don’t. My money is on the armies in Kevlar and Corcorans armed with up-to-the-minute genuine assault weapons, riding around in AP carriers and tanks, including the all-volunteer forces, the 100,000 or so Blackwater has, assorted UN “peacekeeping” forces, and the Canadians who are pledged to come to the aid of the president if asked. Oh…I forgot the two battalions of the Praetorian Guard assigned to the president’s personal use, the secret service, the FBI, Homeland “security,” and the BATF.

8. The depression and embargos on oil are so devastating that not even the government can muster the money to pay armies, and we drift quietly into The Greater Depression, with perhaps forty or more percent unemployment, irregular power services, little to buy in the stores, devalued dollars, cessation of Social Security and then drastic cuts in welfare, food, water, and fuel shortages, and a seething populace.

9. At some point, cauldrons roil over, the always-happy-to-riot sectors of “society” prevalent at Watts, Katrina, and Ike, and ghettos jump in happily, and the food supply is exhausted in the cities after three days, maximum. Millions die from heat, cold, thirst, tainted water, rampant disease, and assorted natural and man-made disasters.

10. In the fullness of time something on the order of 40,000,000 are dead from the aforementioned conditions, having argued with violent, hairy strangers, or been shot for fleeing like locusts from Detroit, Los Angeles, New York City, and Houston (for starters) to spread out over the land attacking farm houses and taking over small towns. The farms will lose their future crops in most instances, and little towns will be barren of food, as well. When the population has been reduced sufficiently, the remainder will eke out an unpleasant existence grubbing in the soil attempting to learn to grow plants with not many seeds available, learning to raise animals and slaughter them (that being illegal by that time), discovering that medical care is almost nonexistent and is paid for in chickens and barter is the established method of commerce since the value of the dollar is on the order of that in Zimbabwe, and the LE (Law Enforcement) officials will likely not have enough manpower to say wearily more than “You shot it, you bury it.”

There y’are, the ten things which exercise my mind the most. You decide which one you’re going to worry about, and I’ll come back later and address the problems one by one. In the meantime, divest yourselves of dollars. Turn them into anything durable which you will need later.

Drearily yours,
Linda Brady Traynham

November 16, 2009

The Top Ten Things to Worry About Surviving in a Bad Economic Climate was originally featured on Whiskey and Gunpowder

A new BBC poll finds that only 11 percent of people questioned around the world – and 29,000 people were asked their opinions – think that free-market capitalism is a good thing. The rest believe in more government regulation. Only a small percentage of the world’s population believes that capitalism works well and that more regulation will reduce efficiency.

One-quarter of those asked said that capitalism is “fatally flawed.” In France, 43 percent believe this. In Mexico, it is 38 percent. A majority believes that government should rob the rich to give money to poor countries. In only one country, Turkey, did a majority say that less government is better.

It gets even worse. While most Europeans and Americans think it was a good thing for the Soviet Union to disintegrate, people in India, Indonesia, Ukraine, Pakistan, Russia, and Egypt mostly think it was a bad thing. Yes, you read that right: millions freed from socialist slavery: bad thing.

That news must lift the heart of every would-be despot the world over. And it comes as something of a shock twenty years after the collapse of socialism in Russia and Eastern Europe revealed what this system had created: backward societies with citizens who lived short and miserable lives. Then there is the China case, a country rescued from bloody barbarism under communism and transformed into a modern and prosperous country by capitalism.

What can we learn? Far from not having learned anything, people have largely forgotten the experience and have developed a love for the ancient fairytale that all things can be fixed through collectivism and central planning.

As to those who would despair at this poll, consider that it might have been much worse were it not for the efforts of a relative handful of intellectuals who have fought against socialist theory for more than a century. It might have been 99% in support of socialist tyranny. So there is no sense in saying that these intellectual efforts are wasted.

Ideas also have a life of their own. They can lie in waiting for decades or centuries and then one day, the whole of history turns on a dime. Especially these days, no effort goes to waste. Publications and essays, or any form of education, is immortalized, ready for the taking by a desperate world.

As for the opinion poll, we have no idea just how intensely these views are held or even what they mean. What, for example, is capitalism? Do people even know? Michael Moore doesn’t know, else he wouldn’t be calling bailouts for elite, Fed-connected financial firms a form of capitalism. Many other people reduce the term capitalism to: “the system of economics in the U.S.” It is no more complicated than that. This is despite the reality that the U.S. has a comprehensive planning apparatus in place that is directly responsible for all our current economic troubles.

Now, let’s take this further. Among the people around the world who do not like the U.S. empire, many believe they don’t like capitalism either. If the U.S. economy drags the world down into recession, that is a prime example of capitalism’s failure. Even more preposterous, if you didn’t like George W. Bush, his ways and his cronies, and Obama is something of a relief, then you don’t like capitalism and you do like socialism.

Another point of view misunderstands the idea of capitalism itself. It is not about creating economic structures that benefit capital at the expense of labor or culture or religion. It is about a system that protects the rights of everyone and serves the common good. Capitalism is just the name that happened to be identified with this system. If you want to call freedom a banana, fine. What matters is not words but ideas.

I do know that none of these messed-up definitions of capitalism follow. You know this too. But for the world at large, serious ideological analytics are not the animating force of daily life. Many people attach themselves to vague slogans.

Further, as Rothbard has forcefully argued, free-market capitalism serves no more than a symbolic purpose for the Republican Party and for conservatives. Economic liberty is the utopia that they keep promising to bring us, pending the higher priority of blowing up foreign peoples, jailing political dissidents, crushing the left wing on campus, and routing the Democrats.

Once all of this is done, they say, then they will get to the instituting of a free-market economic system. Of course, that day never arrives, and it is not supposed to. Capitalism serves the Republicans the way Communism served Stalin: a symbolic distraction to keep you hoping, voting, and coughing up money.

All of which leaves true capitalism – a product of the voluntary society and the sum total of all the exchanges and cooperative acts of people all over the world – with few actual intellectual defenders. They are growing, but the educational work we need to do is daunting, and we are facing the most powerful forces in the world.

There is nothing new in this. In the history of the world, freedom is the exception, not the rule. It must be fought for anew in every generation. Its enemies are everywhere, but the leading enemy is ignorance. For this reason, the main weapon we have at our disposal is education.

Education includes explaining that socialism is an unworkable idea. There is nothing better than Ludwig von Mises’s 1922 book Socialism, a comprehensive presentation of the fallacy of the socialist idea. Another essential work is The Black Book of Communism. Here we have a wake-up call that shows that the dream of socialism is actually a bloody nightmare.

Then there is the issue of the positive case for capitalism. One can do no better than Mises’s own Human Action, which is not likely to ever be surpassed as a treatise on the free economy. True, it is not for everyone. And that’s fine. There are many primers out there too.

The fashion for socialism and the opposition to capitalism should alarm every lover of freedom the world over. We have our jobs cut out for us, but with numbers this bad, it is not difficult to make a difference. Every blow you can land for free markets helps protect freedom from its enemies.

Regards,
Llewellyn H. Rockwell, Jr.

November 13, 2009

Editor’s Note: This article orginally appeared as “The Triumph of Socialism” on LewRockwell.com. To view the original article, please click here.

The Triumph of Socialism, the Misunderstanding of Capitalism was originally featured on Whiskey and Gunpowder

But when the sun disappears and inky darkness fills the sky, Dubai’s cityscape lights up and takes on a magical quality.  Crowds fill its restaurants in the evening, the apple-scented smoke of the shisha in the air. “I love Dubai at night,” my host and friend — let us call him Andy — said as we sat out drinking and chatting on the balcony of his flat. “It’s like something out of Arabian nights.”

Andy is an example of what Addison Wiggin (my publisher and companion on this trip) and I have come to call a Penthouse gypsy. They go where they are treated best, wherever in the world that may be. They have money, own businesses and invest in real estate. They are smart and independent and value their privacy. And they aren’t living in the U.S. or the U.K or Europe.

Andy’s apartment sits on a man-made island in the middle of a man-made lake. It’s called The Old Town Island, even though it’s brand-new, because it looks like a part of old Arabia — or at least the old Arabia of Hollywood and Westerners’ dreams.

The Old Town Island stands in sharp contrast with the ultra-modernity of Dubai’s signature buildings, with their curves and sail shapes washed in multicolored lights. These structures give Dubai the air of an eccentric rich man’s playground. There is a casual indifference to costs. Only the rich could build such things in deserts.

For example, The Old Town Island sits next to the Burj Dubai, which is the world’s tallest building, at 2,684 feet. That’s nearly twice as tall as the Empire State Building. (The Middle East, by the way, held the record for tallest building for 3,900 years — thanks to the Great Pyramid of Giza — before the West took the crown.)

The Burj Dubai hotel will open soon. It is a symbol of Dubai, of its ambition and can-do spirit, its boldness and its wealth. By 2008, Dubai had as much property under development as Shanghai — even though the latter has a population six times as large. Everywhere in the world, there is a tug of war between utility and a desire to build pretty things. In Dubai, though, utility seems to lose. Instead, the goal is to make the largest, longest, tallest — you get the idea.

At the Burj, the smallest suite is 7,200 square feet. The electricity needs of this building in the desert are enough to power a small city. Think of just the power needed to pump water to its upper floors so you can flush a toilet. No wonder Dubai and the UAE (of which Dubai is a part) are starved for power.

No wonder, too, that the UAE has the largest carbon footprint per capita of any place on Earth. People here also use more water — 145 gallons per day — than any other people anywhere. Yet there is no river and hardly any water resources. The water resources Dubai enjoys comes from turning seawater to fresh water.

One question I kept asking myself on this trip was how sustainable all this is or could be. But that leads to some interesting and surprising answers about why Dubai exists at all.

Four Reasons Why Penthouse Gypsies Love Dubai

Don’t assume that Dubai is like Las Vegas, a sort of Arabian Disneyland in the middle of the desert. There was a reason why people settled here long ago — and why the Penthouse gypsies do so today.

The old Dubai actually had the best of the creeks of the southern Gulf. I visited the twisted old creek while in Dubai. Dhows still make their way across the Gulf to Iran, India and East Africa and back again, as they have for centuries. There isn’t a container in sight in this old port. The big commercial port in Dubai now is Jebel Ali — the world’s largest man-made port. But in this old port, goods are offloaded by hand, largely on the backs of Pakistani and Indian workers. The goods are stacked right offshore — sacks of pistachios, crates of cigarettes, boxes of toothpaste and other goods.

Dubai, then, is a port city. Its main business is trade. The ruling sheiks opened up Dubai as a free port to the world — no taxes, no hassles. “Free trade was mother’s milk for Dubai,” writes Jim Krane, author of the excellent City of Gold: Dubai and the Dream of Capitalism. Trade is what made Dubai wealthy. Dubai has more in common with the Venice of the 12th century… or with Singapore or Hong Kong today.

As with all free ports, it has had a history of being a haven for smugglers. Early on, traders would smuggle gold through here on its way to India. Gold, guns, slaves, diamonds, drugs — all ran through Dubai.

Of those, gold is the key driver. Dubai is still called the City of Gold. There are gold souks all over. People here seem to love their gold. While I was there rumor spread that the GCC — along with China, France, Japan and Russia — were having secret meetings in which they were planning to stop pricing oil in U.S. dollars. (The GCC stands for Gulf Cooperation Council and is made up of the six Gulf states, including the UAE.) Instead, a basket of currencies would replace the dollar. This basket would include gold. True or not, it helped generate some buzz in the gold market, sending gold to a new all-time high.

Today’s real boom in Dubai depends on a few key factors, and it’s not all about oil money. After spending some time here, chatting with Penthouse gypsies like Andy, I would boil it down to four successful ingredients:

Low regulations, low tax. This has probably been a Dubai advantage for a hundred years, but people here told us repeatedly how easy it is to set up shop in Dubai and how your privacy is protected. There are also no income, property or corporate taxes. Zero. (The city funds itself with taxes on hotel occupancy, liquor sales and restaurant meals, as well as permits for roads and such. Part of the budget also comes from the Sheikh’s business interests — such as Emirates Airlines and the aluminum smelters.)

In 2002, Dubai allowed foreigners to own property in so-called “freeholds.” That was a big milestone that kicked off a wave of immigration. So now there are these freeholds where the Penthouse gypsies live in high style in very nice communities.

The backlash of Sept. 11. Before Sept. 11, Middle Eastern oil-exporting countries reinvested $25 billion a year in the U.S. After Sept. 11, that slowed to about $1.2 billion a year. Arabs no longer felt welcome in the U.S. and feared what might happen to their wealth. So guess where the money went?

Arab wealth started flowing back to the home countries. The economies of the eight states of the Gulf Coast grew 60% from 2001–08. “Cash poured into Dubai,” Krane writes. And Dubai’s growth rate topped China’s, averaging 13% per year.

Essentially, the repatriation of Arab wealth from the U.S. was a big driver and still continues to be today. As the Middle East region gets wealthier, a good chunk of that wealth will flow through Dubai.

Finally, the UAE fixes the value of its currency to the dollar — at least for now. What this means is that as the U.S. printed dollars, the inflationary effects were exported to Dubai. That put Dubai into trouble. Lots of speculative capital flowed into building islands in the shape of date palms or creating residential communities with robotic dinosaurs from Japan. Now Dubai is suffering through a massive real estate bust as a result (to the advantage of the Penthouse gypsy).

Still, Dubai’s important position in world trade is many layered, like a wedding cake. As Krane writes: “Dubai today is the Middle East’s capital of commerce, one of its biggest recipients of foreign direct investment, its top financial center, biggest port and airport and home of the largest number of foreign businesses.”

Quite a list, considering air conditioning arrived only in 1967. Today, Dubai is a key crossroads on the New Silk Road. It fills the gap between New York/London and Singapore/Hong Kong. And as long as Dubai is kind to money, the Penthouse gypsies will come.

For investors such as you and me, the Dubai story is part of the greater New Silk Road. Dubai’s and the New Silk Road’s booming populations need food, water and power. The increasingly larger cities need infrastructure. Its growing wealth needs a storehouse of value. On this latter front, the Penthouse gypsies we met all prefer gold and/or a mix of currencies, such as Norwegian kroner and Singapore dollars.

Regards,
Chris Mayer

November 12, 2009

Penthouse Gypsies Flock to Dubai was originally featured on Whiskey and Gunpowder

Huh.

Why? It’s because health officials in Howard County convinced the local government that teenagers are at too high a risk for melanoma and other types of skin cancer, and therefore shouldn’t expose themselves to indoor tanning. While one can argue that yes, tanning beds do increase the likelihood of getting cancer, banning our youngsters from going to tanning salons is not the right thing to do.

The ban, which takes effect today, means that teenagers who want to look like they went to Florida in the middle of January will have to either settle for pale skin this winter, or seek un-conventional methods of getting an artificial tan. All because it wouldn’t be nice to expose them to harmful rays. (Maybe Howard County would like to legislate which hours teenagers can be outside in summer, too.)

Now, this is exactly one more example of government intervention where it shouldn’t be intervening at all. The government — local, state and national — should promote healthy living and let us know what’s out there, in terms of maintaining a healthy lifestyle. But banning us from doing something like going to a tanning salon is nonsense. If 16-year-old Jane Q. Public wants to strap on her bikini and go to a tanning salon, that’s her business. (Heck, if 60-year-old Jane wants to do the same thing, that’s her business, too. Who am I to judge?) Aside from parents, who’s to say she has no right to do that?

I myself don’t frequent tanning salons, and thus have never been in a bed. (Whether by natural or artificial UV light, the results aren’t pretty.) But from what I understand from friends who do go to them, the salons give potential tanners a heads up that, yes, the lights are potentially harmful. And then it is up to the customers to decide whether or not they want to go forward and get a tan.

The bottom line is, people are smart enough to decide for themselves whether or not they want a tan. And they’re smart enough to do some research about salons, artificial tanning in general, the health risks, and decide if the pros outweigh the cons. Putting a ban on people under 18 from tanning won’t resolve anything. It’s just like underage smoking…teenagers who want to smoke are still going to get cigarettes. Most teens are taught — at an early age — the dangers of smoking and the consequences on the human body. But they choose to light up anyway.

Who’s to say that teenagers (and indeed, anyone really) wouldn’t go try and find some sort of underground method of getting their tan? They might know someone who knows someone who has a cheap, black-market kind of tanning bed, and get some artificial rays that way. Now, assuming this underground salon doesn’t know what they’re doing and has sub-standard beds, etc., isn’t that more dangerous for our kinds than for them to go to a “professional” salon?

Besides, in addition to all of these questions, I have yet another, this one directed at an institution we call government: Don’t you have more important things to worry about? Whether you’re in a local town, a state capital or Washington, methinks the answer to that question is “yes.” There are staggering debts everywhere, which we’re expecting our grandchildren’s grandchildren to pay off. There’s talk about nationalizing healthcare, which the House of Representatives gleefully voted “yes” to last weekend like the cat that just ate the canary. There are our brave men and women in uniform, fighting overseas for reasons we’re not really sure about, and some people are trying to figure whether or not we should bring them home.

These issues aren’t just for the seemingly far-off folks on Capitol Hill; they touch us closer to home also…including those in Howard County. I would guess these topics would carry more urgency than putting a simple ban on underage tanning.

If anything, the teenagers of Howard County, Maryland ought to use this issue as a civics lesson. It’s classic example of how government works…err, doesn’t work. And they ought to follow the example from their older fellow Americans across the country, who’ve hosted many a town hall debate about healthcare over the last few months. Why not host a town hall with their local officials and get this law overturned? This is America, the last time I checked. We CAN repeal laws…look at how we used the 21st Amendment to repeal the 18th.

Also, this should serve as a warning to those same teenagers that government likes to slowly slither its way into our private lives and try to control them, one little bit at a time. Next thing you know, it’ll write laws forbidding grocery stores to sell candy and other types of junk food. Or requiring people to only drive their cars are certain hours of the day. Need I go further with my examples?

It’s just a bad idea to ban those under 18 from using tanning beds…in Howard County or any other locale. It’s just another example of government extending itself, and it doesn’t promote personal responsibility on the part of the private citizen.

Sincerely,
Adam Hopkins

November 12, 2009

Tanning Ban Is More Than Skin Deep in Restricting Rights was originally featured on Whiskey and Gunpowder