The Dow fell 140 points. This was baaaad…because it shows that the stock market does not really buy Bernanke’s storyline.

You’ll recall that when we left off last week, Ben Bernanke assured the world that while the recovery was not exactly what he had hoped for, he nevertheless had the situation in hand. He said he had the tools necessary to fix the problem and would do whatever was required.

The initial reaction was positive. The Dow rose more than 160 points on Friday. Some analysts thought the market’s downward trend had been broken. But it needed follow-through on Monday. Instead, the market fell.

The fact is, there is no recovery…and no recovery is possible…and investors are beginning to realize it.

Then what is going on? A “Great Recession,” say some analysts. A “depression,” say others.

There is a good article in The Financial Times that helps understand what is really going on. It’s by Ken Rogoff and Carmen Reinhart; you’ve heard of them before, dear reader. They are the ones who researched dozens of episodes of financial crisis and sovereign default throughout history.

Today, they write in the FT about what happens after a financial crisis. Well, what do you think? Do you think you get a “recovery”? Do things go back to normal? Is the recession over quickly and painlessly?

Not at all. Instead, there is rarely anything you would recognize as a “recovery.” Things do not go back to normal because they weren’t normal before the crisis. Crises are caused by abnormal conditions — usually too much credit, too much debt, too much spending and too much speculating. Then, when the bubble blows up, it typically takes a long time for the economy to get back on its feet.

Over the following ten years, unemployment usually stays higher than it was before the crisis.

Growth rates are usually lower.

And ten years after a blow-up in real estate house prices are still usually BELOW where they were when the crisis hit.

But what if the feds really get on the ball and try to turn things around? Then, watch out!

We read an article on dying yesterday. Here’s a question for you, dear reader. Would you rather live in a recessionary economy or die in a booming one? We’ll take the recession. Probably most people would. Heck, make it a depression.

There are a lot of illnesses for which there are no cures. Still, people will spend a fortune…and endure unspeakable treatments…in the hopes that they will be the one in a thousand who survives.

So too are people ready to believe that Dr. Bernanke can cure what ails the US economy. We don’t think so. Because we don’t think the economy is “sick.” We think it is healthy…and finally correcting the mistakes of the Bubble Epoque.

Leading economists and the feds have believed, for example, that there was some problem of “liquidity” that was temporarily blocking the flow of cash and credit. They believed the problem could be solved by making more money available. That was why the Fed bought an extra $1.4 trillion of the banking sector’s suspicious “assets.” They wanted to make sure the banks had money to lend.

Well, now the banks have plenty of cash. Businesses too have record holdings of cash. Even households are rebuilding their cash accounts.

But who’s borrowing? Who’s spending? Who’s buying new houses, for example? (New house sales are currently taking place at the slowest rate ever measured.)

CNN: “Credit if finally available, but no one wants it.”

Why don’t people borrow?

Because it’s not a liquidity problem. It’s a debt problem. A solvency problem. And it won’t go away by making more cash and credit available. Instead, all those bad decisions, bad loans, and bad investments have to be cleaned up. And that takes time. And while the economy is de-leveraging, people are becoming more cautious…more risk-averse…more modest in their expectations.

What do Rogoff and Reinhart say about governments’ efforts to fix these problems? What does history show?

They say the feds often make the situation worse.

Not only do governments typically pour bad money after good, they also disrupt the process of correction. Insolvent banks are kept alive. Big businesses that ought to go broke and be sold off are instead propped up…the lights are kept on by government subsidies, preventing new competitors from occupying the space. Consumers and investors keep waiting for the promised “recovery”…for the cure…for the fix. Instead of quickly adjusting to the new circumstances, they delay…they hesitate…they postpone unpleasant changes.

They might quickly sell a house at a loss, for example. They could then go on with their lives. But when they hear the feds tell them they have a new program in the works…or a new stimulus bill in Congress…or new action by the Fed…what are they supposed to think?

“Maybe I should wait and see if this new effort does the trick…” they say to themselves. “I’ll feel like a real fool if I sell now and then the feds get a new bull market going.” “Maybe I should wait before accepting a job at a lower salary; it says in the paper that the economy should recover by summer…”

The economic setbacks of the 19th century were sharp, but fairly short, affairs. The contribution of modern economics has been to stretch them out and make them worse.

Regards,
Bill Bonner
Whiskey & Gunpowder

September 1, 2010

What’s Bad for Bernanke Is Worse for You was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Reports are that economic “growth” slowed from 3.5% to 1.9%. Just off hand can any of you think of anything that is growing other than the deficit, regulations, politicians salaries, and voter outrage? If we take those numbers as representative of the full faith and credit of the United States you may choose to view that as a modest 1.6% decrease which shouldn’t bother anyone. Not so for those of us who turn numbers into percentages automatically. That is a drop of over 40%! (40% would be 1.4, 50% is 1.75%, and anyone who really cares can work out what to do with the remaining .2, which is 1/7th of 40%…Contrition; not everyone shares a passion for arithmetic, which is a pity because that subject is a great deal simpler than Boolean Algebra and far more useful.) That certainly sounds like an additional painful pothole in “just another bump in the road.”

Now to the report which should cause rejoicing in the streets for those not part of management of big corporations, Bankstas, and government. As a prank perhaps we should send Turbo Timmy and Helicopter Ben recipes from Gilroy, California, the Garlic Capitol of the world, because the vampires of stimulus, taxation, and “quantitative easing” are surely recoiling in horror over learning that 12% of manufacturers/corporations/retailers are raising prices, encouraging the Inflation Monster. Far, far worse from their viewpoint, however, twice as many, 24%, are lowering prices. “Why?” should be obvious to anyone other than a Keynesian: because their goods are competing for ever-scarcer dollars (Timmy’s fine product being locked away in banks and what I can only describe as money-laundering schemes, and the terrified populace is loathe to part with their greenbacks), and if businesses want to sell much they have to slash prices. I keep reminding everyone to peruse the classifieds to see what luxury goods are real bargains and what sectors are down (in the last two years, bass boats, farm machinery, vehicles, cattle, horses, trailers, motor homes, hay, and building materials, among others. Today Charles picked up a hundred sheets of brand new plywood at two-thirds retail, no sales tax!)

This is marvelous for the rest of us — at least those who have some cash set aside for buying opportunities, upgrades, and replacements. There is no reason to suppose other than very poor results from “Back to School” sales, Hallowe’en, and Christmas. “Tax Free!” weekends never do more than shift timing on purchases. Those, combined with possible higher-than-usual end of the year selling for tax reasons* should cause a giant “Ka-WHUMPF” of collapse in January, just in time for the reality of “Health Insurance Policies are Taxable as Income and Your Taxes Got Raised, Too” to deliver a giant dose of reality to Main Street and the ‘burbs.

It gets difficult to keep up with all the dangers in this video arcade; have you thought about the coming crash in the commercial real estate market and the fate of the bond market, recently, to say nothing of increasing hostility from China? There are a lot of loaded freight trains headed into the yard at full speed and Timmy and Benny are pulling all the wrong switches. If you have been following the advice dispensed for some years from the Agora crew, if only the freebies from The Daily Reckoning, Gary North, Whiskey & Gunpowder, and Taipan Daily, you should be in good shape to take advantage of many of the disasters headed our way.

“Mrs. Traynham! You ought to be ashamed of yourself for rejoicing over coming catastrophe!”

Really? Do you think so? I didn’t cause any of it and my reasoning is conservative and flawless. Until Mr. Market gets his several cwt. of flesh he isn’t going to calm down; until taxes are lowered and regulations scaled back we aren’t going to see job creation or start-up operations; leaner corporations are learning happily exactly how dispensible a lot of former employees were and eyeing others thoughtfully in terms of pink slips; until the “off budget” “entitlement” programs are scaled back vigorously there is no way out of the dilemna; and until all of these things happen at once, the USA will continue to skid down the economic slope increasingly faster. Some of us have been insisting that mixed inflationary and deflationary results are inevitable all of this century, and Howard Ruff and others began several decades ago.

Far worse times for all save the “elite,” are inevitable, so take advantage of the process where you can.

Again, begin preparing now by reducing expenses to compensate for known increases which will reduce discretionary income severely in 2011, including withholding on the value of your employer-provided health insurance plans, higher income taxes, and capital gains taxes increasing over 50%. Replace or repair household items that will hurt far more a year from now. My dishwasher died at this opportune time; how old is your hot water heater? Your water softener system? Given our demographics at W&G a fair number of you are homeowners, and a reasonable surmise is that most of you aren’t stuck in upside down mortgages. Putting money into a house you will lose would be most unwise, but if you’re perhaps ten or twelve years from paying off a mortgage at rates that aren’t too painful the rest of this year will be an excellent time to take care of any deferred maintenance and make modest upgrades.

My reasoning is that you’re likely to be in that house for a long time since the market is bad and going to worsen and demands that at least energy “efficiency” be brought up to code before you can sell or even rent are going to catch most people unawares and dead in the water. Replacing windows and adding more insulation, alone, is a very pricey project…and what if the Inspector demands a new roof and appliances to say nothing of rewiring a house? Codes change all the time, and so do requirements. If you have to tear anything apart for any reason, use that opportunity to put it back together right. The same holds true for car repairs; ask your mechanic what else could be replaced economically while he has your car in a bunch of pieces.

Odd how events favor those who think long term and expect the worst…when several tons of tree fell across the ranch house last year in a five-minute storm it would have been so easy to call the roofers and have the damaged rafter repaired and new shingles put on in return for the entire settlement check minus the deductible, but nothing out of pocket. Problem is, that gets a ten or twelve year roof, and next time a tree fall might not fall on it fortuitously at just the right time to balance age and insurance checks. The same funds covered materials for a fifty-year roof that meets the new standards for sale or rent that hadn’t even been mentioned at the time, if we provided the labor. True, “We have the technology” as dear Charles loves to quip, but more to the point we have enough deferred maintenance around Mildew Manor from the fifteen years Mother was a widow without making any short-sighted decisions ourselves.

One of the most dangerous trends in the last two or three decades is how few households attempt to fix anything, even granting that increasing regulations make simple tasks all but impossible in many cases. Still, most plumbing problems can at least be diagnosed and a large number can be corrected without “professionals” and permits, for just one example. The really big problem is that something like 86% of you live in the cities now, under Big Brother’s watchful and greedy eye.

I won’t say that any idiot can nail shingles on a roof because I have never tried. I will attest that a couple of even mildly competent and muscular men can 1) screw down 1″ thick OSR; 2) nail on 1″ thick styrofoam “Thinsulite” the same dimensions using special nails with little rubber gaskets to stabilize long enough to; 3) cover the result with sheets of Galvalume and screw them in place with ludicrously expensive screws; and 4) trim the edges neatly to conform to the previous roof and install flashing. This is roughly as difficult as making a peanut butter sandwich, although more time-consuming and expensive. Charles instructed and supervised, Asia and Clay did the work, our electricity bill has seen a pleasant drop, and the new roof is 100% waterproof and should require no maintenance before 2060, if then. “Bad” deflation is when your assets are worth less; “good” deflation is getting all of the materials at deep discounts.

The time is coming fast, dear readers, when if you can’t make repairs and solve problems yourselves you may well have to live with maintenance problems. I will leave you with some wise words from one of my favorite Editors, Taipan Daily’s Justice Little:

“In another theme that has long run through these pages, your humble editor’s solution is to focus on the small things, the personal things… to opt out of the system in as many ways as possible.

“For yours truly that means no mortgage debt, no credit card debt and no auto loan debt. It means no financial accounts at major banking institutions, instead using independent brokerage houses, smaller local banks, and megabank alternatives like EverBank. It means a readiness to profit from systemic breakdown, via the shorting of exposed financial players and/or the purchase of silver and gold. And, in general, a habit of minimizing accidental patronage of the system to as great a degree as possible.”

Splendidly put, Justice.

Regards,
Linda Brady Traynham
Whiskey & Gunpowder

August 17, 2010

* Being a cynic of the first order, it is my opinion that the stock market “rally” of ’10 is almost entirely an entirely artificial one caused by using Timmy’s fine product to purchase stocks, and I had to stop and work out if it made sense for the government to sell stocks to pay itself Capital Gains taxes, thus proving I can be magnificently dim-witted when I put my mind to it. Of course it does! That completes washing suspect funds all snowy clean. The Feds put up the money to buy the stocks, then sell them to…themselves? The Fed? Agreeable banks/mutual funds?…paying blameless-appearing taxes to themselves, and “justifying” higher bonuses. Yuss…expect higher than usual “tax” sell-off this December. LBT

It’s Delightful, It’s Delirious, It’s Deflation was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I’m just a simple arithmetician but I understand the sort of figures we’re talking here and it is no use for the government to tell me there is no inflation — it has been at least 3% by the most stringent definition for the last three years — and that national unemployment averages 9.7% if we just don’t count everyone without a job. Laughter…my husband was a genuine mathematical genius who had a passion for statistics and understood numbers the way I understand words. I would love to hear John’s answer on what the unemployment rate is.

One reason we’re doing better in Texas is in the diversification of interests and in the tightly closed systems in our many small towns. Those are not totally immune, and in Hamilton the little, more expensive grocery store “down town” (that being the four blocks which surround the Courthouse square) has gone out of business. David’s, a small local chain, no doubt smiled, and stopped running so many loss leaders. What else? When it is twenty-five to forty miles to the next grocery store of any sort, pretty much you have a captaive audience. I imagine the newest restaurant in town will go under, but pretty much nothing much will change. It can be frustrating that kids who aren’t going to inherit a family business have to go elsewhere to find jobs in “normal” times, but it is quite comforting to know not many jobs will be shed in your town because there weren’t any superfluous jobs in the first place. Each business has a place in the local economy that isn’t going to go away, from the two drug store (neither chain) to Ace is the Place, to the feed stores. In the cities and industrial parks many areas are humming along nicely turning out machinery, computers, chemicals, and electronic devices. No, we’re not just about beef and oil. We’re making things they want in BRIC. The first quarter — first two months, actually — exports rose 24.3% over 2009, close to thirty billion dollars’ worth. Patrick Jankowski, Vice President of research for the Greater Houston Partnership, commented that there are over 700,000 jobs in Texas geared to manufacturing goods for export, probably not counting mounted steer horns and armadillo ashtrays. We account for about ten per cent. of the entire export output of the USA, a scary thought, in some ways. Bell Helicopter is gearing up for a big, new project in Amarillo, hiring now, starting at over twenty dollars an hour to assemble widgety things.

Sure unemployment is high in the barrio. When isn’t it? Teens in general are having a harder time finding summer jobs because there are those with more work experience and better motivation willing to take what they can find. Life is tough in some sectors of the oil business, thanks to the power of the Greenies and Mr. Obama outlawing the most promising drilling areas under the guise of expanding exploration. One of the articles I read posited that Texas began adding jobs again last fall, “thanks mostly to its great position in the largely recesion-proof energy industry.” Well…sort of. Maybe. Out in Odessa and Midland things are stalled because there is no way to get that sweet, light Texas crude over to the refineries, and for sure it’s too far to build a pipeline. Mr. Obama has decreed that no new refineries may be built (just which section of the Constitution would that be?) and if you can’t refine oil and can’t move it, once your storage facilities are full the best you can do is hope for a better future. One landman I know has cut her price from $450 to $200 a day because there isn’t a whole lot of leasing going on. Last November Texas crude production was down to 1.08 million barrels per day, on the order of half the amount pumped in the Reagan years. Natural gas is doing well — up about a third between 2004 and 2008 — which is cheering both because I expect the coal industry to be destroyed by fake science and a great deal of money put into that campaign by the LNG folks who stand to take over coal-fired plants. Seems to me, as a long-time Texan that we’ve got a bunch of capped wells that were shut down over the years because they produced “too much” gas and not enough oil to suit demands of the time.

We Texans are proud of having our own electric grid — bearing in mind that a hamlet about thirty miles from me went without power for over three weeks after Ike. Their juice came from a different plant in Houston. I’m not a big fan of wind power, myself, between the cost of the enormous three-bladed devices (about a quarter of a million dollars, which doesn’t include shipping and handling and perhaps not even installation) and the difficulty of “storing” electricity; it is commonplace to see a lot of those pricy units turned off when there is ample wind to spin them merrily. There are those who hope to begin exporting electricity to the rest of the US, such as Paul Sadler of Wind Coalition. That might be fine for wind power operators, but it would almost certainly raise prices locally, judging from what happened a decade or so ago when Washington started selling power to Oregon and California, which was in a bind because of foolhardy insistance in flushing away water needed for irrigation and hydroelectric facilities in the name of dear little fishies. There isn’t a person reading this who can’t come up immediately with “Same amount of product sought by more people equals higher prices.” I don’t think anyone has come up with “Keep Texas for Texans,” but it sounds reasonable to me. It may be too late since we have already gotten the attention of Denmark, Spain, and Queen Beatrix. Fortunately, one reason we could construct our grid fairly easily is that we weren’t tied down with federal regulations or coordinating with other states. With luck, trying to connect to Boston, Kansas City, and San Diego (just for examples) would turn out to be as frustrating and time-consuming as attempting to build a nuclear plant. I noted that Texas can now put out 10,000 megawatts which was stated as being sufficient for three million homes, and I thought, immediately not “NIMBY” but “KIIMBY” for Keep It In My Back Yard. Sure, I can handle Vestas and Iberdrola coming over to play, but retaining control of our power strikes me as “prepping” on a national level. T-Bone Pickens considered putting what even he thought was a bundle into wind power and decided there were faster, better ways to make a good ROI.

Our housing market remains far more stable for several reasons. Turnover has always been slow in rural areas, and we had a hefty influx of dazzled Californians early in the century. They may have been buying while the bubble was bursting, but compared to prices in the Golden State our housing was considered ludicrously under-priced. Dallas has been especially fortunate over the years, and prices there are only 7% off the 2007 highs, Case-Shiller indicates. That’s okay, there’s no point in coming to Texas if you’re going to live in Houston, Austin, San Antonio, D/FW, or El Paso. You seen one big city, you seen ‘em all. Sure, the River Walk is pretty (if you like tourist attractions), but other than that SAT is five million people, two freeway rings, and traffic that would scare anyone other than a Los Angeles cab driver. We’re doing better in terms of lower delinquency rates on mortgages. In particular, those three or more months behind average 5.78% here and 8.78% nationwide. (Do you suppose someone makes these figures up? With 99 other choices, yet the terminal two digits are the same?) It should also be noted that Texas law limited taking out secondary loans that amounted to more then eighty per cent. of the value of the property. People were protected somewhat from their own greed and the myth that “Real estate will always increase in value!”

I bridled somewhat when I read, ‘Once a separate nation, Texas has recently been behaving more like an independent economic republic than a regular state. While it hasn’t been immune to the problems plaguing the nation, the Texas housing market, employment rate, and overall economic growth are relatively strong. Chalk some of this up to accidents of geology and geography. But Texan prosperity also reflects the conscious efforts of a once-parochial place to embrace globalization.” and “Texas today is more suburban engineer than urban cowboy, more Michael Dell than J.R. Ewing. Austin, home to the University of Texas, the state government, and Dell Computer, has a 7 percent unemployment rate…ExxonMobil is based in Irving. But the state’s energy complex is increasingly focused more on services and technology than on intuition and wildcatting. And it is selling those services into the global oil patch. Russian, Persian Gulf, and African oil developers now come to Houston for equipment, engineering, and software. While its political leaders may occasionally flirt with secession, Texas thrives on connection… “

I couldn’t help feeling that this was a little condescending and I was reminded of an ancient expression, “Poor boy, he must be tetched in th’ head.” We may enjoy wheelin’ and dealin’ but at heart we’re still Texans, with our own unique culture that we’ve done a lot better hanging on to than the USA has of agreeing on how to define an American. Businesses come and businesses go, like a li’l ol’ company that had a base here on my stomping grounds long ago, name of Texas Instruments, but cattle and corn fields are forever. We aren’t going to get over feeling that an Aggie ring (signifying graduation from Texas A&M, not 20 minutes from me) is worth two degrees from Harvard and Yale any day. Besides, Dell’s in Roundrock. Laughing at myself. This is like only Aggies being allowed to tell Aggie jokes (non-Aggies can tell ‘em if they make the dunce a Polack, a perfectly respectable term ’round here.)

The important part isn’t what I interpreted as a slur on my own, my native land, but that we’re doing some things right here the rest of the country isn’t.

Regards,
Linda Brady Traynham
Whiskey & Gunpowder

April 28, 2010

P.S.: The new figures on inflation are out, and I relish telling you about them soon. NO inflation? Ho, ho, ho!

Recession, Texas Style was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

It’s true that there are some signs of “stabilization.” The unemployment rate is not getting badder as fast as it was a few months ago. And house prices seem to have stopped falling – for the moment.

It’s also true that the economy managed to register positive ‘growth’ in the last quarter… mostly thanks to government spending and inventory restocking.

The trouble is, all of these things are consistent with a depression — especially a depression that the feds are fighting every inch of the way. In the 1930s, there were several years of growth… and there were great years for the stock market too. Then, things fell apart again. The nation ended the ‘30s not one penny richer than it had been when it began them.

And Japan has seen some good years and some bad years, too, since its depression began in 1990. Oddly, Japan’s population is falling… so in per capita terms, Japan’s downturn hasn’t really been so bad. Per person, the Japanese got richer over the last 10 years.

It’s also true that we use the term ‘depression’ a bit differently than most economists. Most economists believe GDP growth represents increasing prosperity. They think a depression is merely a recession, with negative GDP growth, that lasts longer and goes more deeply than normal.

Our definitions are better:

A recession is a pause during a period of growth. A depression marks the end of the period of growth… giving the economy a chance to make adjustments so that a new period of growth may begin.

GDP growth alone is a fraud. The gross number just doesn’t tell you anything worth knowing. It doesn’t really matter how fast an economy is growing. What counts is how fast it is growing per person… and whether that ‘growth’ is real or phony.

Growth is not the same as prosperity…

Someday, we promise you, modern economists will be ranked below doctors who bled their patients to death and jungle tribes who threw maidens into volcanoes. They are quacks.

These imposter economists think they can fix a recession and prevent a depression. When the private sector stops spending they urge the public sector to step in and replace the missing private spending. That, in a nutshell, is Keynes’ theory.

A nutshell is the appropriate container. Because there’s a world of difference between private spending and government spending. Private spending is voluntary; people choose to spend their money on things they really want. When the government spends, on the other hand, it is merely squandering stolen property. It may look like private spending. But it’s not at all the same thing. You can hand out checks to people; it’s not the same as when people earn money. You can build bridges and airports too… but they are only valuable to the extent that they are used efficiently. And you can hire all the government employees you want; they don’t necessarily add to the sum of human happiness or wealth (most likely they subtract from it!).

Just look at societies that put everyone to work. There was no unemployment in Cambodia under the Khmer Rouge! Or in the Soviet Union. North Korea is another good example today. They all show that putting people to work for the government doesn’t make them rich… it makes them poor.

Yet, these modern economists — Martin Wolf at The Financial Times, Paul Krugman at The New York Times, Bernanke, Summers and Geithner in Washington — believe that they can control and cure a depression. All they have to do is to keep the GDP expanding… and keep unemployment from rising. How? Just spend money!

The GDP calculators can’t tell a phony expense from a real one. Whether the government spends money to do something that is not worth doing… or hire someone who is not worth hiring… or just gives away money to someone who is not worth giving money to… the GDP quants don’t know the difference. They think one dollar spent is as good as any other…

… Even if it is a dollar that didn’t exist! (Don’t get us started on that one… )

And who knows if a job is worth doing? Only the person who pays for it. That’s the trouble with government employment; the people who pay the bills don’t make the hiring decisions.

Modern economists don’t even bother to think about it. All they care about is the unemployment rate… not about whether the job is actually useful or efficient. Want to boost the job rate? Easy. Just hire people. Does this make people better off? Of course not.

The Financial Times had a full page in its Wednesday edition devoted to China’s empty towns. Bloomberg has been on the story too.

It is the story of what actually happens when government meddles in an economy.

Last year, China ordered its banks to lend money to infrastructure programs in order to offset the worldwide financial meltdown. The banks responded, doubling their lending.

Observers in the West were stunned… and envious. If only we could ‘get things done’ like that, they lamented. If only our governments had more authority and control over the economy!

But let us go back a year and put ourselves in the shoes of the bankers. They must have had loan requests. Some of them they must have judged worthy of funding, others not. But how was it possible that the number of project deemed creditworthy doubled in the space of a few months?

Well, it didn’t happen. Instead, the Chinese government merely changed the rules of the game. The banks, under pressure to loan out money, reacted by lending it out… to marginal projects. Now, we’re beginning to read about them in the paper — mostly towns without any people. Just wait until China blows up. Then, we’ll read about banks without money. Stores without customers. And businesses without a prayer.

Regards,
Bill Bonner
The Daily Reckoning

February 24, 2010

Quack Economists and the Fraud of GDP was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Thus, when I saw the title of his most recent column, “Bankers Without a Clue,” I thought that this might be the day that I can read a Krugman column without cringing. Perhaps, I imagined, he might even use the “bankster” term that I have seen from so many libertarians and Austrian economists. Ah, hope!

Unfortunately, Krugman gave us his tired analysis, and in doing so, he also demonstrated that he was clueless himself about the stagflation of the 1970s. (After all, Krugman being a True Believing Keynesian believes that we should not have both inflation and rising unemployment, since he already has written elsewhere that almost any economic problem can be solved by…printing more money.)

He writes:

Consider what has happened so far: The U.S. economy is still grappling with the consequences of the worst financial crisis since the Great Depression; trillions of dollars of potential income have been lost; the lives of millions have been damaged, in some cases irreparably, by mass unemployment; millions more have seen their savings wiped out; hundreds of thousands, perhaps millions, will lose essential health care because of the combination of job losses and draconian cutbacks by cash-strapped state governments.

And this disaster was entirely self-inflicted. This isn’t like the stagflation of the 1970s, which had a lot to do with soaring oil prices, which were, in turn, the result of political instability in the Middle East. This time we’re in trouble entirely thanks to the dysfunctional nature of our own financial system. Everyone understands this – everyone, it seems, except the financiers themselves.

The first paragraph is correct, although that is because he is stating the obvious. The second paragraph, however, reveals his ignorance of economic history. However, given that Krugman is ignorant on, well, about everything dealing with a real economy, his “Jake Blues-style” series of excuses for missing his bride at the altar (“There was an earthquake, IT WASN’T MY FAULT!!”) seems about par for the guy.

For the record, the stagflation of the 1970s occurred because of a lot of reasons, none of them rising oil prices, which were largely a result of U.S. inflation that occurred after President Richard Nixon in 1971 ended all ties of the U.S. dollar to gold and gave us a pure fiat currency. (Keynesians want us to believe that rising oil prices caused inflation, when, in reality, the causality chain ran the other way.) Furthermore, he goes back to his tired and wrongheaded narrative about the U.S. financial system…

…there was nothing accidental about the crisis. From the late 1970s on, the American financial system, freed by deregulation and a political climate in which greed was presumed to be good, spun ever further out of control. There were ever-greater rewards – bonuses beyond the dreams of avarice – for bankers who could generate big short-term profits. And the way to raise those profits was to pile up ever more debt, both by pushing loans on the public and by taking on ever-higher leverage within the financial industry.

Yes, yes, it was all about the lack of regulation and the greed of those capitalists who were just following the Ideology of Free Markets. (I am sure that each of those bankers had copies of Atlas Shrugged in their back pockets.) Had the system been regulated by those Wise and Generous Regulators That Populated Washington after the New Deal, all of this could have been averted. What Krugman does not say, of course, is that we had both deregulation and the growth of moral hazard. (In fact, I never have seen Krugman refer to moral hazard, even though the perverse incentives that the various government backstops created made for a “heads I win, tails you lose” atmosphere in which the banks could fall into the “we’re too big to fail” nonsense.)

During the 1970s, Congress vastly expanded both the regulatory apparatus and government spending, and for the first half of the decade, the U.S. Armed Forces were bogged down in Vietnam. The top tax rate stood at 70 percent, the financial system was relatively small and highly-stratified and, as Michael Milken demonstrated, funding for the new high-technology initiatives that drove the economy through the 1980s and beyond came in large part from outside the regulated banking sector, something Krugman ignores (since it does not fit his own ideological narrative).

Furthermore, as the government taxed and regulated the economy into oblivion, thus destroying economic opportunities, it made up for the lack of economic growth (and the extra tax revenues growth would bring) by turning to the Federal Reserve System, which was all-too-happy to accommodate the growth of government by cranking up the printing presses.

Not surprisingly, the rate of inflation exploded during the 1970s and it was not, as previously noted, due to those greedy Arabs jacking up the price of oil on a whim. No, as the government expanded its jihad against private enterprise, the Fed responded by applying the “Krugman Solution” of printing more money in hopes that the activity generated by the new cash would cover the obvious economic bare spots.

As a result of this government “mismanagement” (to use a nice term), the economy experienced bouts of stagflation throughout the decade. Since Krugman cannot bring himself to believe that government taxation, regulation, and a rapidly-expanding fiat currency could have caused this debacle, it must have been OPEC and those greedy oil executives.

Likewise, he wants us to believe that American bankers in the last decade suddenly were seized by Ayn Rand Fever and decided to be greedy, ideology-directed financiers who recklessly leveraged their institutions and then hypocritically begged for money afterwards. Sorry, but these guys were on the dole all along, and given that Krugman never mentions moral hazard, one can see just how clueless (or maybe dishonest) the guy has been all along.

As I see it, the bankers are not clueless at all. They understand the game, they understand that the government is going to clean up the mess that they and their friends in Congress and the Bush and Obama administrations have created, and they understand that their antics are going to give them what they always have wanted: a nice, cozy, financial cartel which will provide sweet political contributions for the political classes, bonuses and high pay for themselves, and very little for everyone else.

And if Krugman cannot see it, then the guy truly is clueless. However, my take on the matter is much more cynical, and I don’t think I need to go any further on that subject.

Regards,

William Anderson

LewRockwell.com

February 5, 2010

Keynesian Krugman Without a Clue was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

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. Visit Laissez Faire Books for the best selection of libertarian book titles.

Busy airports may or may not be a sign of life in the larger economy.  Even unemployed people can buy a ticket and fly somewhere.  All you need is a credit card, if you can still get credit.  Meanwhile, airline profit margins are tight.  Fuel prices are creeping upwards.  The airlines are still nicking you for things like $15 baggage fees.  And as I flew over the heartland of the nation, I looked down and pondered our collective fate.

Federal Reserve:  “No Net New Jobs”

Recently, the Federal Reserve predicted that the U.S. unemployment rate would surpass 10% in the coming months.

That’s no big surprise.  The true U.S. unemployment rate is at least 15% already when you factor in the long-term unemployed who are not carried on the “official” books.

Then the Fed made a shocking prediction.  It forecasted that the U.S. economy would add NO NET NEW JOBS over the next five years!  Whoa!

No net new jobs?  That ought to scare you.  The Census Bureau predicts that the U.S population will grow over five years.  But the numbers of new jobs will remain static.  That is, for every job gain there will be a loss.

This job-stagnation is a recipe for all sorts of bad things at the local, state and national levels.  Government budgets won’t balance, so I guess we can plan on more “cost saving” measures such as releasing prisoners early and closing schools.  Yep, that’s how to build a great nation… More criminals and fewer well-educated citizens.

The Fed announcement is basically an admission of monetary and policy malpractice at the highest levels of the U.S. political class.  I witnessed it first-hand a couple weeks ago when I was in Washington, DC.  I met with some Congressional staffers who were just clueless.  But they sure were full of themselves.  They had all the answers, too.

The Good Old Days of the Great Depression

As my Delta flight flew over eastern Washington the other day, I looked down and saw a familiar sight.  It was a long, narrow body of water, with a stark, linear feature at the end of it.  It was Lake Roosevelt, impounded by the GRAND COULEE DAM, OF WHICH I WROTE LAST YEAR.

From 36,000 feet, Grand Coulee Dam sure looked small.  But it’s the largest manmade structure in North America.  It’s three times the height of Niagara Falls.  It’s larger than the Great Pyramid of Cheops, times a factor of three.  It has enough steel in it (9 million tons) to build about 225 World War II-era battleships, at 40,000 tons each.  Today it’s rated at about 6.8 gigawatts of electrical power, or the equivalent of about seven large nuclear power plants.

Grand Coulee was built in the 1930s as a government “stimulus” project.  This was back in the good old days when the government knew how to “do stimulus.”  Y’know, build big dams.  Kick-start the steel and cement industry.  Employ tens of thousands of skilled workers.  Do some heroic engineering and create an energy project that will benefit the nation for decades into the future.

No, Grand Coulee by itself didn’t solve the issues of the Great Depression.  But it sure did come in handy when it started spinning power in 1942, just as the U.S. entered into fighting World War II.  One lesson is that if you dream big dreams, you never know what will come out on the other side.

And today?  Congress’s idea of “stimulus” is to pass a $787 billion pork-bill.  But most of the money won’t get spent until 2010 and 2011.  Oh well, we’re going to have to borrow it all anyhow.

Yard Sale Nation – People Are Dropping

I drove across part of southeast Washington and northwest Oregon during my journey to Vancouver.  I haven’t been up in these parts in many years, so this was my chance.

As I motored around the two and three lane back roads, I sure saw a lot of stuff for sale.  It seemed that many households wanted to sell one item or another, often parked prominently along the highway.

I saw cars for sale – old, not-so-old, and nearly new.  There were vans, SUVs, trucks, campers and trailers.  There was farm and construction equipment.  There were boats and ATVs.  Then there were dozens of homes and lots with “for sale” signs.  Plus many yard sales, with all sorts of household, workplace and institutional goods waiting for buyers.

It was entirely clear that many people are trying to raise cash.  So everything’s for sale.

Remember that old expression, “Shop ‘Till You Drop?”  Well, people are dropping.  Where’s that Grand Coulee Dam project when you need it, right?

Following the Trail of Lewis and Clark

I drove along the Columbia River for quite a ways, following the trail of Lewis and Clark, from their expedition in 1805-1806.  Today the Columbia is a well-regulated, controlled body of water crossed with dams and dredged as necessary.  Large ocean-going ships float serenely in the water next to downtown Portland.

In their journals, Lewis and Clark described a wild Columbia River of raging rapids, filled with gigantic log snags.  Some of the logs floating down the Columbia of old were up to 7-feet in diameter and 200-feet long.  Big trees, huh?  It was a different world back then.

The Old Portland Customs House

Speaking of a different world, I was impressed by the old U.S. Customs House in Portland. Now THAT building also represents a different world, one where the federal government raised its revenues from duties and imposts.

In the olden days a ship captain would dock at Portland, or another locale on the Columbia.  Then he’d walk over to the U.S. Customs office to declare the cargo and pay the taxes due.  This was how the federal government funded its operations.  And when the funds were spent, the government had to observe its own fiscal limits.

In other words, the original U.S. government had to take an interest in growing and maintaining the economy.  Today, with the fiat dollar, the feds think that they can do anything.  Until, of course, the nation spends itself into national penury.

Until we meet again,
Byron King

July 29, 2009

The Good Old Days of Depression and Stimulus was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

While we think the odds are strongly stacked against it, particularly given the government’s furious pace of money printing, the prudent investor understands – and respects – the time-tested adage, “Nothing is guaranteed.” So while our chips sit squarely on the spot marked “inflation,” what will happen to gold stocks if we’re wrong?

The Great Depression Speaks

The most notable example of what happens to gold stocks in a prolonged deflationary environment is the Great Depression. However, the United States was on a gold standard at the time, so miners had a guaranteed selling price – which was a good thing for them, because their operating costs were plummeting. So the comparability isn’t perfect, but let’s see what we can learn.

When the stock market crashed in 1929, gold stocks were part of the general wreckage (sound familiar?). The market then rallied and recovered almost 50% of its losses by April 1930, with gold shares again tagging along. It’s what happened next that gives us our first clue about deflation’s effect.

When the bear market resumed in the summer of 1930, all securities sold off again – except gold stocks. Gold shares stayed basically flat until early 1931, when they boarded the elevator and headed for the penthouse.

Let’s look at how shares of Homestake Mining, the largest gold miner in the U.S. at the time, and Dome Mines, Canada’s senior producer, performed during the Great Depression.

And the chart doesn’t show that you could have bought both stocks at half their 1929 price five years earlier, which would have led to gains of around 1,000%. And get this: both companies paid healthy and rising dividends as the depression wore on; Homestake’s dividend went from $7 to $15 per share, and Dome’s from $1 to $1.80.

Yes, volatility was high in the gold stocks throughout the depression, with occasional wild price swings, but after the 1929 crash most of the volatility was to the upside.

The bottom line is that the two largest gold producers – during a time of soup lines and falling standards of living – handed investors five and six times their money in four years.

From Homestake’s chart, you get a clear picture of what the stock did compared to the market as a whole:

You’ll notice the large spike down in both Homestake and the Dow during the 1929 crash… but then look at Homestake’s recovery immediately afterward, returning close to its old high. This is eerily similar to our recent pattern: our stocks sold off violently last October but have since doubled or more from their bottoms.

You’ll then notice that Homestake took almost two years to exceed its old high, but once it broke out, it was off to the races. The stock doubled four times in five years during a seven-year run to its peak after the ’29 crash.

The conclusion? If history is any guide, gold stocks can hold their own against deflation. And they could profit tremendously if the demand for gold as a safe haven continues to grow.

Gold vs. Deflation

On April 5, 1933, President Roosevelt issued an executive order forcing delivery (confiscation) of gold owned by private citizens to the government in exchange for compensation at the fixed price of $20.67/oz. And less than nine months later, he raised the gold price to $35, effectively diluting the dollar in every wallet 41% overnight and swindling everyone who had turned in his gold.

We don’t know exactly what an untethered gold price would have done during the depression, but given its distinction in history as a store of value, it’s likely to retain its purchasing power in a deflationary setting regardless of its nominal price. In other words, while the price of gold might not rise, or could even fall, your best protection is still gold.

But with this said, the overriding concern is that in a fiat system, any deflation will be met with an inflationary overreaction (as we’re seeing). And the worse the deflation, the more extreme the overreaction will be.

It’s for this reason that the editors of BIG GOLD urge you to own physical gold, in your possession and under your control, given its reliability as a store of value in both inflationary and deflationary environments. If you have less than our recommended one-third of your investable assets in some form of gold, check around for places to buy gold coins and bars at good premiums.

The Silver Lining

For those with an inclination toward silver, our research points to clear signs that silver is increasingly being viewed as a store of value and not just as an industrial metal.

Here’s a comparison of silver’s performance vs. base metals over the past six months (10-1-08 through 3-31-09), which includes last fall’s meltdown:

If silver were viewed solely as an industrial metal, the price would be off sharply. This doesn’t mean we think silver or silver stocks can’t go temporarily lower from here, but rather that the demand for silver as a store of value metal will be growing.

Bottom line: Whether we’re served debilitating deflation or insidious inflation, holding gold (and silver), along with an appropriate allocation of precious metals stocks, offers us both a fort for protection and a canon for profit.

Buying physical gold and silver as safe-harbor assets is for many investors a no-brainer at this point. But only a few have heard of another prudent gold investment – one that has gone up more than 50% in 2008, at the exact same time when the overall stock market bombed. You don’t want to miss out on owning this “48 Karat Gold” stock… click here to learn more.

Regards,
Jeff Clark
Casey Research

June 4, 2009

Gold Stocks in a Depression was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

What’s going on now is nature’s way of telling you that America’s standard of living has to be reduced by something between 20 and 50 percent.  You can have it in the form of a compressive deflationary depression, including widespread bankruptcies… or you can have by way of inflation, in which money loses its value.  But there’s one basic qualification to this: the way down is not symmetrical with the way up.  That is, it’s really not just a matter of ratcheting down to a standard of living half of what it was, say, in 2006, because in the event all the various complex systems that support everyday life enter failure mode before our society re-sets at a theoretically lower level of equilibrium.

By this I mean our methods for getting food, for moving about the landscape, for deploying capital, for trading and manufacturing, for schooling, doctoring, and running public services all destabilize and, to some degree or other, fail to deliver their contribution to normal daily life.  Banking (capital deployment) is already mortally wounded.  It remains to be seen how this will affect the food supply half a year ahead in the harvest season.  Capital is as big an “input” for our method of farming as diesel fuel or fertilizers made from methane gas.  The failure of banking will combine with city and state insolvency to crush public transit, law enforcement, fire protection, and whatever flimsy local safety nets exist to keep the ultra-poor and helpless from die-off.  The lowering of living standards by 20 to 50 percent essentially eliminates all but the must critical commerce, meaning that most of the stores in the malls and strip malls lose their customers and shed employees, while the mall and strip mall owners lose their rents, and the bankers lose performing commercial real estate loans. As all this occurs, tax revenues go way down, schools can’t pay their employees or buy diesel fuel for their yellow bus fleets. More people lose the ability to carry health insurance.  Hospital emergency rooms are overwhelmed. Health care descends to Third World levels.  Meanwhile, pensions are destroyed, the elderly live on dog food and ketchup…

This is where we’re headed. It could easily be worse than the 1930s, when we still had plenty of family farms, plenty of oil, plenty of factories in good running order, and a highly regimented population of workers unaccustomed to luxury, leisure, and entitlement.  We’ve hardly begun to see the potential political repercussions of economic disorder now underway.  I think it will start to show in a big way not long after Memorial Day, when the current false euphoric Wall Street rally ends in yet another pool of tears, and the despair trickles downward. A crucial piece of the outcome depends on what happens over at Attorney General Eric Holder’s Justice Department – which lately seems to have seceded from the federal government.  A peeved public is going to start wondering why the bankers and insurers have not been called in by the criminal division to do a little ‘splainin’.  As the spring yields to summer, the Obama team’s current fix-it plans are also likely to have run out of credibility.  Mr. O better be prepared to get a new game.

I spent the weekend at the yearly Aspen Institute Environmental Forum – a confab lately devoted about equally to the energy and climate fiascos.  It’s a peculiar exercise, since major sponsors include the oil and gas companies and the auto industry. The Saturday center-ring panel on peak oil, for instance, was shockingly weak, led by the flack from the Shell corporation, a charming lady, highly-skilled at blowing green smoke up the public’s ass. Even more shocking is the consensus among the presenters and attendees – including the hotshots of climate and energy science and the elder statespersons of environmentalism – that the energy problem merely amounts to finding other means for running all our cars.  The assumption that we must remain car-dependent remains absolutely entrenched among these people who ought to know better.  Of course, the words “public transit” were barely uttered.  It’s disappointing to find such idiocy among this particular elite.

But Sunday’s departure really plunged me into the epicenter of American idiocy – namely, the airline industry.  They’ve been running airplanes out of Pitkin County, Colorado for at least fifty years, but they seem to discover a’fresh every morning that strange winds blow through the valley.  After jerking around absolutely everybody in the terminal for a couple of hours with unexplained delays, the United Airlines ground crew announced that all flights for the day were cancelled, causing a rhino rush back out through the security checkpoints to re-booking counters.  I ended up on a bus for the Denver Airport – a five hour trip, including twenty-miles of parking-lot quality traffic along I-70 where the jackass Colorado DOT had closed down one eastbound lane, despite the fact that it was Sunday and there was no work going on there.

You’d also think that after all these years, the state of Colorado might have organized choo-choo train service from Denver into the ski valleys of the Rockies, given how important the ski industry is to the state’s economy – and how incredibly fragile the airline service is. But that would be too sensible for a nation determined to become the Bulgaria of the western hemisphere.  So, instead, they get up every single morning in Aspen and try to figure out whether commercial aviation works out there, and half the time it doesn’t.  Anyway, the Aspen Institute was very generous in organizing the bus trek out of there, and putting up us travelers stranded overnight in airport hotels.  Mine was some rummy operation called the Staybridge Inn where the vaunted in-room wireless didn’t work in my room, so I write to you in a dreary little chamber off the lobby where children are screaming from their overdoses of fry-max and melted cheese in the only dining venue (Ruby Tuesdays) along this massively over-scaled boulevard of chain motels.  I can easily see the whole miserable strip becoming a ruin inside of five years as the airline industry dies. Final note: the hotel elevator proudly declares itself to be the German-made product of the ThyssenKrupps corporation.  America’s so lame, it can’t even make its own elevators anymore.

(I apologize for a somewhat sloppy blog this week.  My tendencies to insomnia are aggravated by high altitude and I am cross-eyed with sleeplessness…)

Regards,
James Howard Kunstler

March 31, 2009

Reduced Standards of Living was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

I just want to sing my little song,” plot my stock charts, love my great sailor, play in my greenhouses, buy gold no matter what the economy is doing, and be the happiest sweet little old lady in the whole USA.

Unfortunately, (1) in order to stay as wealthy as I want to be (a leisurely, joyous life seeking knowledge is true wealth, not the Sultan of Bahrain’s vault) by reading runes, I have to live in a free country with a free market that is able to function without hindrance from the government, a reasonable desire Mr. Obama is frustrating, and (2) Executive Order 10-998, dating back to JFK, concerns all of us.

The exact language is of EO 10-998, which allows federal control of “all food resources” is:

“‘Food resources’ means all commodities and products, simple, mixed or compound, or complements to such commodities or products, that are capable of being eaten or drunk, by either human beings or animals’ (sic) irrespective of other uses to which such commodities or products may be put, at all stages of processing from the raw commodity to the products thereof in vendible form for human or animal consumption. For the purposes of this order the term ‘food resources’ shall also include all starches, sugars, vegetable and animal fats and oils, cotton, tobacco, wool, mohair, hemp, flax fiber, and naval stores, but shall not include any such material after it loses its identity as an agricultural commodity or agricultural product.” (Naval stores traditionally include lumber, timber, tar, turpentine, paint, and rope.  In modern naval provisions that could cover almost anything.)

10-998 authorizes the confiscation of everything edible and much that is not, including our stores of flour and un-ground wheat, the beef in your freezer and that I have on the hoof…what is in your pantry and your garden…my chickens and Mr. Sanderson’s, and perhaps our little dogs to feed visiting Chinese.  That EO lays claim to a friend’s vast wheat and corn harvests, cattle feed, and your small daughter’s night-night snack.  Alcohol is a form of grain, so you can’t even count on having a little tot of whiskey if locusts in full battle gear clean you out.

In a world of rising demand and costs Liberals are doing everything possible to lower food production.  Very severe restrictions on small farms are popping up; 100 pages strangling small milk producers is in the Texas legislature and a similar measure is going before Congress.  It will be practically impossible for anyone without megabucks to stay in business, because without a Grade A Diary license the proposed regulations expressly forbid even giving milk away, as well as transporting it privately, on pain of fines and even jail time!  Milk:  the new contraband.

Farmers’ markets are under attack, and if they deny us those there are no markets left.  Small farms cannot begin to meet the needs of large grocery stores, certainly not year around.

Produce can only be labeled “home grown,” not “organic,” a term that has been redefined from what most of us think it means to restrictions that only agribusiness can meet.  Add that to the whack the big boys are getting from losing subsidies they have long regarded as “income,” and a flier in commodities could be a pretty good bet for those who can’t stand being out of the market, and emulating the Mormons in accumulating a year’s supply of food seems like an excellent idea.  If you can hide it.

We have to survive in the world that is and the one we can forecast, and then we can concentrate again on excelling at picking stocks and buy and sell points.  Survival first is why we keep talking about a very deep depression and “peak food.”

It wouldn’t matter how much your portfolio were worth if the grocer’s shelves were bare and armed men had taken your last cans of asparagus and foie gras.  Maybe the colonists didn’t know when they were well off; troops quartered in my house would have a vested interest in preserving the larder.

Sincerely,
Linda Brady Traynham

March 20, 2009

Executive Order 10-988 was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.