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I was thinking Hoover...
come on dick the problem isn't spending and socialism...the problem is that we haven't done enough of it!!!????!!!!
And to be clear:
http://investorshub.advfn.com/boards/read_msg.aspx?message_id=58517223
stills stands ladies...
Looks like you folks just ran out of other people's money...
We never really left- did we.
Trillions in spending for 0.4% growth...
I would not necessary disagree that taxes need to go up on top income earners. In fact, it is inevitable that taxes are going to go up. The problem is that the way the US government currently operates the spending will go up even more so raising income taxes, even to 90%+ would not solve the debt problem.
However, I still maintain that having 50% of the population paying no income taxes is destructive to society.
Everyone should pay some amount of income tax on every dollar earned.
But keep changing the subject. Like class warfare is not the oldest tiredest argument of all..
Some facts (in case you care)
Percentiles Ranked by AGI
AGI Threshold on Percentiles
Percentage of Federal Personal Income Tax Paid
Top 1%
$380,354
38.02
Top 5%
$159,619
58.72
Top 10%
$113,799
69.94
Top 25%
$67,280
86.34
Top 50%
$33,048
97.30
Bottom 50%
<$33,048
2.7
http://ntu.org/tax-basics/who-pays-income-taxes.html
Everyone should who earns any income should pay income tax.
If you disagree with that you are a socialist and should move to Europe.
The US will not become Europe- no matter how hard you try.
You just proved yourself to be what Bill Whittle is called in this link.
It is a fact that if every dime made as income by the "rich" was taken at gun point by the government we would still have a deficit.
Our current problem is over spending. On all fronts- from entitlements to defense to all areas or government.
Also, the revenue issues are more evident on the lower 50% who pay nothing. The devils greatest trick was convincing the world he did not exist. The greatest trick of socialism is convincing people that they can have something for nothing. When I started my first job in 1985 as a co-op in 1985 on an annualized basis (becuase I worked less than 6 months/ year) I made less than minimum wage. But (and it is a big old butt even by MO standards) I still paid some income taxes. Today way too many people pay no income taxes. No justification for that...except in the minds of lying unproductive a'holes...
With all due respect what part of the current clusterfuck has been measured, temporary or well directed?
otc,
come on!!
isn't spending and borrowing the way to get out of debt?
- fuge
good synopsis...eom
A Positive Approach to a US Government Default
By Bill Bonner
07/19/11 Paris, France – Who can honestly say that he is not enjoying the show?
Clowns to the left of us, jokers to the right…it's fun, isn't it?
Yesterday, the Dow fell and gold rose above $1,600 to a new record high. The euro fell, but against the dollar it is still more than 50% higher than it was when it was introduced 10 years ago.
In Europe, the world's leading bankers and financial policymakers try to figure out how to avoid doing what comes naturally – going broke.
And in America, politicians scramble to raise the debt ceiling level before it is too late.
The big question is: who will default first? The Europeans? Or the Americans?
Larry Summers, former US Treasury Secretary, warned on TV that failing to raise the debt limit would be worse than after the Lehman bankruptcy in 2008. Ben Bernanke told Congress the same thing.
In Europe, the IMF and the rest of the financial elite have the same message. Don't let Greece default, or there is a serious risk of "contagion," and financial catastrophe. Larry Summers even crossed the ocean to give bad advice to the Europeans:
"No big financial institution in any country [should] be allowed to fail."
On both sides of the Atlantic, the situation is about the same. The geniuses and scam-artists who run the big banks want to keep the honey pots open as long as possible. But there are pressures – mostly from the middle classes, who feel they have been ripped off – to put on the lid.
In Europe, the Germans resist giving more money to the spendthrift Greeks and Portuguese. In America, Tea Party activists want to bring an end to Big Government by cutting off its source of funds. They want to hold the line on the debt limit. Many would be happy to see the nation default.
And here at The Daily Reckoning, we stand with the Tea Party and the Germans. We'd like to see the US government default. Why?
• Because the feds have already done enough damage with their borrowing; it's time they lived within their means…
• Because we already have enough zombies, supported by borrowed funds…
• Because it will be less painful to stop the debt build up now than later…
• And because we just want to see what happens when the zombies run out of fresh meat.
Finally, at least some people in Congress are getting serious about cutting spending.
WASHINGTON (AP) – One of the Senate's staunchest budget-cutters unveiled Monday a massive plan to cut the nation's deficit by $9 trillion over the coming decade, including $1 trillion in tax increases opposed by most of his fellow Republicans.
The plan by Sen. Tom Coburn, R-Okla., is laced with politically perilous proposals like raising to 70 the age at which people can claim their full Social Security benefits. It would cut farm subsidies, Medicare, student aid, housing subsidies for the poor, and funding for community development grants. Coburn even takes on the powerful veterans' lobby by proposing that some veterans pay more for medical care and prescription drugs.
Coburn would also eliminate $1 trillion in tax breaks over the coming decade, earning him an immediate rebuke from Americans for Tax Reform, an anti-tax organization with which Coburn has had a running feud. He would block taxpayers from claiming the mortgage interest deduction on second homes and limit it to homes worth $500,000. He would also ease taxpayers into higher tax brackets more quickly by using a smaller measure of inflation to adjust the brackets.
Coburn would cut $1 trillion from the Pentagon budget over a decade. He would block military retirees from the Tricare Prime health care plan, the option with the lowest out-of-pocket cost, saving $115 billion, and he would raise the prescription drug co-payment under the program, as well as require higher out-of-pocket fees. He also would reduce the fleet of aircraft carriers from 11 to 10 and Navy air wings from 10 to nine.
"I have no doubt that both parties will criticize portions of this plan, and I welcome that debate," Coburn told reporters. "But it's not a legitimate criticism until you have a plan of your own."
This fellow, Coburn, has the right idea. Throw away the scalpel. Get a chain saw. He'd raise the Medicare eligibility age to 69…and cut $1 trillion out of the Pentagon budget. He needs a much bigger chainsaw…but at least he's on the job.
Regards,
Bill Bonner
The Daily Reckoning
Read more: A Positive Approach to a US Government Default http://dailyreckoning.com/a-positive-approach-to-a-us-government-default/#ixzz1ShkMaYbx
Here's some job opportunities?
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WANTED: U.S. workers for crippled Japan nuke plant
Content By: The Coming Depression Editorial Staff
-----------------------------------------------------------------
Copyright: include link to this article on top of reproduction if you use it.
A U.S. recruiter is hiring nuclear power workers in the United States to help Japan gain control of the stricken Fukushima Daiichi plant, which has been spewing radiation. "About two weeks ago we told our managers to put together a wish list of anyone interested in going to Japan," said Joe Melanson, a recruiter at specialist nuclear industry staffing firm Bartlett Nuclear in Plymouth, Massachusetts, on Thursday.
The qualifications: Skills gained in the nuclear industry, a passport, a family willing to let you go, willingness to work in a radioactive zone.
The rewards: Higher than normal pay and the challenge of solving a major crisis.
"About two weeks ago we told our managers to put together a wish list of anyone interested in going to Japan," said Joe Melanson, a recruiter at specialist nuclear industry staffing firm Bartlett Nuclear in Plymouth, Massachusetts, on Thursday.
So far, the firm has already signed up some workers who will be flying to Japan on Sunday.
Melanson said there will be less than 10 workers in the initial group. Others are expected to follow later, he added.
Plant owner Tokyo Electric Power Co (TEPCO) has appealed to the nuclear industry outside of Japan for assistance as the crisis has spiraled beyond their control.
So just what type of person would go into a damaged nuclear plant that is throwing out dangerous levels of radiation?
NOT ROUGHNECKS
Melanson said these are not roughnecks prepared to risk their health for a quick paycheck but senior technicians and engineers who have come up through the ranks.
Some have families. "Anytime we have international business, it's up to the workers to square it with their wives."
Japan has put in an exclusion zone of 20 kilometers around the plant. Several experts have recommended that zone should be expanded.
Melanson could not say for certain where the workers would stay but said initially they would be based in Tokyo and drive the 480 kilometer (300 miles) roundtrip to the Daiichi plant. Translators will be provided so they don't have to speak Japanese.
"The pay will definitely be better than the average pay (for a nuclear technician) over here," Melanson said, but declined to specify exactly what the average salary would be. It is not clear how long they will be working in Japan, but Melanson estimated it would be at least a month. Source: Yahoo News (1)
The problem as I see it is that the Government has let the civilian company TEPCO stay in charge of the nuclear reactor sites when they should have put the military in charge right from the beginning.
Have you noticed the lack of a military presence at the nuclear site? The site should be crawling with robots and vehicles. Yet after a week there are only 50 TEPCO guys crammed into a control room with no one outside monitoring the actual buildings. Pumps have run out of fuel and left for hours, buildings have caught fire and only noticed by someone going outside for supplies. The cooling pool ran dry since no one was looking at it. They may be heroes for working there but the company itself has placed commercial interests over the interests of the country.
What they need is a military Nuclear response company and an the engineer brigade, that is actually located nearby, with armored NBC recce vehicles to monitor the plant and help fight the disaster like at Chernobyl. The military train for nuclear war so they have the equipment and trained personnel to work outside at the site. It has been almost a week since this started and you would think they would be better organized by now. Scary.
http://www.thecomingdepression.net/countries/eurasia/wanted-u-s-workers-for-crippled-japan-nuke-plant/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+Thecomingdepressiondotnet+%28TheComingDepression.net%29&utm_content=Yahoo%21+Mail
July 8 2011: Get ready for the North American gas shock
Detroit Publishing Co. Squeaky Wheel 1904. "Michigan Central Railroad engineer oiling up before the start." 8x10 inch dry plate glass negative,
Ilargi: A gigantic miss in the BLS June jobs report. Way below expectations at 18,000 new jobs. Unemployment rises to 9.2%. In Italy, everything rumbles. Trading of major bank Unicredit was halted.
So what do we do? We look at North America's coming soon to a theater near you gas crisis. Here's Stoneleigh back from a long trip:
--------------------------------------------------------------------------------
Stoneleigh: In this era of global bubble-blowing we have seen speculative fever flourish in relation to many different asset classes. At the peak of a bubble the euphoria can be palpable, and the perception that 'it's different this time' confers a sense of invulnerability that justifies throwing caution to the wind.
Speculators cease to worry about how much they pay for an asset, since they think someone else will always pay more later. Unfortunately for those caught up in powerful swings of herding behaviour, it's never different this time. Boom inevitably turns into bust, because the supply of Greater Fools is not infinite after all.
Speculative financial flows seeking 'alpha' can overwhelm important sectors of the real economy. Price, driven by perception rather than by reality, significantly over-reaches the fundamentals. Demand is artificially brought forward. That apparent demand drives considerable mal-investment and a pathological level of risk-taking. When the bubble reaches its maximum extent and implodes, speculation moves into reverse and the sector is dumped.
The artificial demand stimulation disappears, leaving a demand vacuum. The scale of the mal-investment becomes obvious, and prices head for a significant undershoot of the fundamentals. A bubble that created virtual wealth temporarily, leaves very real economic wreckage in its wake. When a critical economic sector is affected, the fallout can be very painful.
We have been witnessing just such a dynamic playing out in the North American natural gas market in recent years, with a particular focus on the shale gas that is touted as being the key to energy independence. The hype over a supposed 100 year supply of cheap, clean energy has been pervasive. Vast sums of money have been committed as a result, despite very little critical evaluation of the real world prospects, at least in the public domain.
Thankfully there have been a few sober voices in the wilderness who were prepared to challenge the received wisdom, most notably Arthur Berman (whose superb work can be found at The Oil Drum) and Canadian gas expert David Hughes.
Conventional supplies of natural gas peaked 10 years ago, and concern over supply began a few years later. Considering that natural gas provides some 20% of electricity and 60% of home heating (more in the north east), it is not surprising that apparently imminent supply problems would have been a cause for concern. A particularly good review of the situation at the time can be found in Julian Darley's 2004 book High Noon for Natural Gas.
Unconventional gas sources (shale gas, coal bed methane and tight formation gas) have since appeared to be game-changers, and game-changers can restore complacency remarkably quickly. But, appearances can be deceiving, and complacency is dangerous.
Energy independence is the Holy Grail of what passes for energy policy in the US. The last 8 presidents have all stressed its importance, but none has been able to do anything about a growing dependence on energy imports, many from unstable parts of the world, or from energy exporters with increasing domestic demand who are well along the depletion curve themselves. There have been speeches on the value of ethanol and other biofuels, along with incentives for their production, but a conviction that energy independence might actually be achievable only really seemed to emerge with in recent years in relation to shale gas.
Apart from the policy windfall, an apparent gas bonanza offered the potential for lucrative financial returns (especially on land speculation), and it allowed environmental organizations to support gas as a transitional fuel on the path to a renewable energy future. Across the board support for shale gas was virtually guaranteed. However, strong consensus is always a red flag, as we have discussed many times here at The Automatic Earth. The stronger the consensus, the more it pays to question what so many uncritically hold to be true. It is clearly time to take a more in-depth look at the real prospects for natural gas in North America.
Geologist Arthur Berman has been the most prominent public critic of shale gas. His major points of contention lie in the companies 'manufacturing model', their extrapolation of gas reserves, the implication of rapid decline rates, and the destruction of shareholder value as the numbers simply do not add up. The 'manufacturing model' utilized by the gas companies asserts that all parts of a gas play are equal, so that one may drill anywhere with comparable success. Extrapolating from the few most successful wells yields reserve estimates that Mr Berman feels are hugely inflated. He demonstrates that all shale gas plays contract to a core area, typically representing no more than 10-20% of the original area.
In addition to there being relatively few 'sweet spots' in shale plays, Mr Berman also points out that shale gas wells show much more rapid depletion rates than conventional natural gas wells (65-85% in the first year, as compared to 25-40%), and that this has an inevitable impact on extrapolations of recoverable gas supplies.
In his view, the shale gas resource is vastly less than the estimates that have entered the public consciousness:
I recently grouped all the Barnett wells by their year of first production. Then I asked, of all the wells that were drilled in each one of those years, how many of them are already at or below their economic limit? It was a stunning exercise because what it showed is that 25-35% of wells drilled during 2004-2006 - wells drilled during the early rush and that are on average 5 years old-are already sub-commercial. So if you take the position that we’re going to get all these great reserves because these wells are going to last 40-plus years, then you need to explain why one-third of wells drilled 4 and 5 and 6 years ago are already dead [..]
If you investigate the origin of this supposed 100-year supply of natural gas…where does this come from? If you go back to the Potential Gas Committee’s [PGC] report, which is where I believe it comes from, and if you look at the magnitude of the technically recoverable resource they describe and you divide it by annual US consumption, you come up with 90 years, not 100. Some would say that’s splitting hairs, yet 10% is 10%. But if you go on and you actually read the report, they say that the probable number-I think they call it the P-2 number-is closer to 450 Tcf as opposed to roughly 1800 Tcf.
What they’re saying is that if you pin this thing down where there have actually been some wells drilled that have actually produced some gas, the technically recoverable resource is closer to 450. And if you divide that by three, which is the component that is shale gas, you get about 150 Tcf and that’s about 7 year’s worth of US supply from shale. I happen to think that that’s a pretty darn realistic estimate. And remember that that’s a resource number, not a reserve number; it has nothing to do with commercial extractability. So the gross resource from shale is probably about 7 years worth of supply.
Stoneleigh: Consistently disappointing results have not so far burst the shale gas bubble, as people seem all too willing to believe the hype without question. This lack of critical thinking is characteristic of bubble psychology. Bubbles are formed as an interaction between predators and willing victims blinded by greed. It's important to remember that it's never 'different this time'.
http://theautomaticearth.blogspot.com/2011/07/july-8-2011-get-ready-for-north.html
Ratings Agencies Circling the U.S.
by: Douglas Borthwick June 10, 2011
On Friday, the Dagong Global Credit Rating Co Ltd in China reported that "In our opinion, the United States has already been defaulting." The statement was made by Guan Jianzhong, the firm's president. Dagong is the only Chinese agency that offers sovereign ratings. (read here)
Also on Friday, the German Ratings Agency Feri downgraded the U.S. to AA from AAA, due to "high public debt, inadequate fiscal measures, and weaker growth prospects." (read here)
Fitch, Standard and Poor's and Moody's have all warned that the U.S. could be downgraded if it does not raise the debt ceiling. Incredible that only through borrowing more will the U.S. not be downgraded by the three U.S. ratings agencies.
We have been stating for some time that Peripheral European news will be less important as problem countries are bailed out. We have been waiting for U.S. fiscal problems to come to the fore. We believe that we are at the beginning of global awareness of the U.S. fiscal position, and U.S. problems will weigh on the U.S. dollar going forward.
Our belief that the U.S. federal reserve has no options left but to weaken the U.S. dollar in order to grow exports was echoed on Friday by Greg Ip, in his article "Read this speech, then sell the dollar." (read here)
We listened to both Bernanke's speech and Dudley's. Bernanke's was interesting more in what he did not answer. He was asked about the affect of reserves diversification on the USD and he ignored the question. We have argued successfully for the past 12 months that reserves diversification is the primary reason for USD weakness. What else explains the global head-scratching on the higher EUR/USD in spite of "peripheral" weakness.
We believe any USD strength should be sold into. The weaker USD is not a passing phase, but rather a longer-term phenomenon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
http://seekingalpha.com/article/274402-ratings-agencies-circling-the-u-s?source=email_macro_view
The total media blackout in the US is beyond belief.
Anyone want to debate if they are bought, paid for and completely owned/ controlled by the same thugs who run the government?
wow that's a big deal in Japan...eom.
In The World After Abundance
By John Michael Greer
03 June, 2011
The Archdruid Report
Over the past month or so the essays on this blog have veered away from the details of appropriate tech into a discussion of some of the reasons why this kind of tech is, in fact, appropriate as a response to the predicament of industrial society. That was a necessary diversion, since a great many of the narratives that cluster around that crisis just now tend to evade the necessity of change on the level of individual lifestyles. The roots of that evasion had to be explored in order to show that change on that level is exactly what can’t be avoided by any serious response to the crisis of our time.
Still, if it’s going to do any good, that awareness has to be paired with something more than a vague sense that action is necessary. Talk, as Zen masters are fond of saying, does not boil the rice; in the rather more formal language of the traditions of Western esotericism where I received a good deal of my training, the planes of being are discrete and not continuous, which means in practice that even the clearest sense of how we collectively backed ourselves into the present mess isn’t going to bring in food from the garden, keep warmth from leaking out of the house on a cold winter night, or provide a modest amount of electricity for those bits of modern or not-quite-modern technology that will still make sense, and still yield benefits, in the world after abundance.
That last phrase is the crucial one. In the future ahead of us, the extravagant habits of the recent past and the present will no longer be an option. Those habits include most of what people in the industrial world nowadays like to consider the basic amenities of a normal lifestyle, or even the necessities of life. An unwillingness to take a hard look at the assumptions underlying our current notion of what a normal lifestyle comprises has driven a certain amount of wishful thinking, and roughly the same amount of unnecessary dread, among those who have begun to grapple with the challenges ahead of us.
One of the best examples I can think of is provided by the ubiquitous wall sockets that, in nearly every home in the industrial world, provide as much electric current on demand as the residents want and can pay for. In most circles these days, when conversations turn to the prospects of energy for the future, the belief that the only possible way to use electricity is to keep uninterrupted power flowing to those sockets is very nearly as sacrosanct as the belief that the only possible way to handle transportation is to find some way to keep hundreds of millions of private cars fueled with as much ethanol, or biodiesel, or electricity, or what have you, as their drivers can afford. Both these beliefs take the temporary habits of an age of excess and treat them as necessities, and both of them box our collective imagination into a futile quest to sustain the unsustainable instead of looking at other options that are well within reach even this late in the game.
The sheer inefficiency of today’s habits of electrical generation, distribution, and use is rarely recognized. Behind those wall sockets lies what is very probably the world’s largest single system of infrastructure, an immense network linking huge power plants and end users via a crazy spiderweb of transmission lines covering whole continents. To keep electricity in those lines, vast amounts of fuel are burnt every day to generate heat, which produces steam, which drives turbines, which turn generators, which put voltage onto the lines; at each of these transformations of energy from one form to another, the laws of thermodynamics take their toll, and as a result only about a third of the potential energy in the fuel finds its way to the wall socket. Losses to entropy of the same order of magnitude also take place when electricity is generated by other means – hydroelectricity, wind power or what have you – because of parallel limits hardwired into the laws of physics.
When the resulting current comes out of the wall sockets, in turn, equivalent losses take place on the other end. Most electricity in today’s industrial societies gets turned into light, heat, or mechanical motion at its end use, and each of these transformations involves unavoidable inefficiencies. Furthermore, a very large fraction of today’s end uses of electricity are things that could be done just as well without it, with the application of a little ordinary muscle power or some other readily available energy source. That’s not even counting the gigawatts that go into lighting, cooling and heating unoccupied rooms, keeping electronic devices on unnecessary standby, drowning out the stars with light pollution, and, well, let’s not even start talking about Wii.
Having an energy system geared to so grandiose a level of excess seemed to make sense in the days when fossil fuels were cheap and abundant. Quite a few absurd things seemed to make sense in those days, and even when they no longer make any sense at all, the habits of that brief interval continue to dominate contemporary thought to an embarrassing degree. Notice how our economic system, as well as nearly all economists, still act as though replacing human labor with fossil fuel-derived energy is always a good idea, even at a time when unemployment is pandemic and the cost of energy is a rising burden on economies around the world.
The same fixation on maintaining the extravagant habits of the recent past still holds most discussions of energy hostage. Every source of electrical power these days is measured against the yardstick of whether it could provide enough cheap, abundant, reliable, continuous power to keep our existing electrical grids running. Proponents of each of the various contenders trot out an assortment of canned studies insisting that their preferred energy technology can do just that, while challenging competing systems with equally canned studies that insist that no other option will work.
Given the billions of dollars that have already been paid out to the winners in these competitions, and the trillions more that will likely follow, this sort of propaganda dolled up in scientific drag will most likely continue to be standard practice until the money and other resources for grandiose projects simply aren’t there any more. Meanwhile, there’s really no way to be sure in advance that any of the options can keep the grids running, and if there is, the chance that the one that ends up clawing its way to the top of the heap in the political free-for-all now under way will just happen to be one that will do the trick is not exactly something on which I’d choose to bet.
The difficulty here is that most current conversations about the future of energy are trying to figure out an answer without first making sure that what’s being asked is the right question. “How can we keep an electrical grid designed around the unquestioned availability of cheap abundant energy?” is the obvious question, and it’s also the wrong one. The right question – the question that we should be asking – is something more like “How much electricity can we count on having in a future after fossil fuels, and what are the best ways to produce, distribute, and use it?” That question has hardly been asked at all. It’s high time to remedy that omission.
There are many reasons for thinking, in fact, that trying to maintain an electrical grid on a regional or national scale in a future of scarce energy is a fool’s game. To run a large-scale grid of the sort currently in use, you need to be able to produce huge amounts of power every second of every day. It’s very difficult to get that much power that reliably by any means other than burning a lot of fossil fuels, either directly – say, in a coal- or gas-fired power plant – or indirectly. Tot up the total energy content of the fossil fuels needed to mine and refine uranium and urn it into fuel rods, to build, maintain, and decommission a nuclear reactor, to deal with the short-term and long-term waste, and to account for a share of the energy cost of the inevitable accidents, for example, and you’ll have a sense of the scale of the energy subsidies from fossil fuels that prop up nuclear power; do the same math for today’s giant wind turbines, and a similar realization is in store. Lacking these subsidies, it’s probably a safe bet that nuclear reactors and giant wind turbines can’t be built or maintained at all.
Still, an important point is generally missed here. Gigawatts of power are necessary for an electrical power grid. They aren’t necessary for any one of the homes and small businesses that make up the great numerical majority of end users. Get rid of the pointless excess that dominates our current approach to energy, and limit your use of electricity to the things it actually does better than other readily available energy sources, and a 12 volt circuit at very modest wattage is very often all you need. Powering a 12 volt circuit at modest wattage is child’s play, and can be done by any of a baker’s dozen or so of readily accessible technologies that can be built, maintained, and used by any moderately skilled handyperson.
Equally, having all that power on call every second of every day is necessary for an electrical grid of the modern kind. It’s not actually necessary for homes and small businesses. Again, get rid of social habits that amount to wasting energy for the sake of wasting energy, and it’s not that hard to live with an intermittent electrical supply, either by using electricity whenever it happens to be available and not otherwise, or by using batteries to store up current for a short time until you need it.
Seventy and eighty years ago, this latter was standard practice in a great many American homes. One of my vintage radio textbooks, A. and M. Marcus’ excellent Elements of Radio, dates from those days. At that time radio was the hot new technology, and even out in farm country, where rural electrification took its sweet time to arrive, most families who could scrape together the cash had a radio in the parlor, linking them to news, music, and other cultural resources from hundreds of miles away. Where did they get the power? Batteries, two of them per radio: an A battery to power the filaments on the vacuum tubes and a B battery to provide the working current. The A battery needed frequent recharging, and wind power was among the options for that; the iconic and ubiquitous windmills of rural America three quarters of a century ago had plenty of uses, and as often as not, that was one of them.
Long before electrical grids extended out of America’s urban cores, in fact, it was fairly common for households elsewhere in the country to have a modest amount of electricity to hand. There are a few things electricity does more efficently than any other form of energy – radio, broadcast or two-way; other electronic devices such as the phonograph; safe, smokeless lighting for the parlor and the kitchen for a few hours after sunset – and those were what people at that time did with electricity. (Nowadays a well-insulated refrigerator and the pump for a closed-loop active solar water heater might be worth adding to the same list.) Those things that electricity only does inefficiently and other energy sources do well – for example, providing diffuse heat or high-torque mechanical energy – people did by other means. Fairly often, those other means required a certain amount of muscle power, but that’s an inevitable reality of life in a world after abundance.
The distinction between those things electricity does efficiently, and those things that it doesn’t, is as important to keep in mind as it’s commonly neglected. Kris de Decker, in a recent and useful article on pedal powered technologies in Low-tech Magazine, has done a good job of mapping out the issues involved. He points out that most pedal power devices currently on the market use the back wheel of a bicycle to run a generator, and then use the electricity produced by the generator to do something. For most uses, this is hopelessly inefficient, since every transformation of energy from one form to another involves losses to entropy which can be saved by leaving the energy in its original form. How serious are the losses? Enough that you’ll be pedaling two to three times as long to do the same task with electricity as you would if the bicycle’s mechanical power did it directly.
If you want to power a blender to make yourself margaritas on hot summer days, for example, it’s a substantial waste of energy – your energy, expressed in sweat and tired muscles – to hook your bicycle to a generator and wire up the generator to the motor that drives the blender. The more efficient option is to use the mechanical motion of the bicycle wheel to spin the blender blades directly; there are still losses to entropy, of course, but they’re a small fraction of what they would be if you stick a generator and motor in the middle where they’re not needed.
The same principle applies to a great many other things that are currently done by means of electricity. Regular readers of this blog will readily be able to think of another example, since I’ve discussed more than once the misunderstandings that bedevil solar energy. They come from the same set of blinders as the notion that pedal power ought to be used to generate electricity, rather than being used to drive the mechanical motion a great deal of today’s electricity is used to drive. Sunlight can be turned into electricity on a small scale in several different ways; none of them are very efficient, and they’re all intermitted and difficult to scale up, but several are quite good enough to drive the sort of small-scale 12 volt system discussed here if you’ve got a good southern exposure. What sunlight does with great efficiency, on the other hand, is convert itself to diffuse heat – the sort of heat that will warm a room, heat a bath, or bake a loaf of bread in a solar oven. When planning for solar energy, in other words, it’s best to do as much as possible with the diffuse heat sunlight provides so readily, and convert sunlight to electricity only for the handful of uses where electricity is the only thing, or the best thing, for the job.
Apply the same logic across the board and you end up with the most probable energy system of a world after abundance: a patchwork of different energy sources and applications, right down to the level of the individual household or business. In the American households of three quarters of a century ago I mentioned earlier in this post, that was perfectly normal; the radio ran off the A and B batteries, the stove was powered by wood from the woodlot, two lamps in the parlor ran off batteries charged by the windmill while the rest burnt kerosene, the sewing machine ran off a foot-operated treadle, the water was pumped by the windmill and heated by the sun – yes, solar water heaters were hugely popular in the 1920s, especially but not only in the Sun Belt. One consequence of this crazy quilt of energy options is that if something disrupted access to any one source of energy, the rest of the household chugged on unaffected. Compare that to the electricity-dependent household of the present, where a blackout renders the whole household inoperable and quite possibly unlivable.
The crucial point to take away from all this, though, is that expectations formed by the extravagance of the recent past are not a useful guide to the best options available to us in the post-peak future. It’s a safe bet, of course, that plenty of resources will be thrown down a dizzying assortment of ratholes in the attempt to keep the infrastructure of the age of abundance up and running even as the abundance itself trickles away. Long after private cars have stopped making any kind of economic sense, for example, what’s left of the American economy will still be being jiggered and poked in an attempt to keep some mummified simulacrum of an auto industry propped up in its corner, and no doubt similar efforts will be made to support the big regional grids even when the impact of shutting them down would be less of an economic burden than the cost of keeping them going. That’s why it’s all the more crucial for individuals, families, and community groups to start shifting over to the habits of energy use that will make sense in the world after abundance, to work through the learning curve and develop the skills and technologies that will be there to pick up the pieces when the legacy technologies of our fading age of excess finally grind to a halt.
John Michael Greer is the author of more than twenty books on a wide range of subjects, including The Long Descent: A User's Guide to the End of the Industrial Age, The Ecotechnic Future: Exploring a Post-Peak World, and the forthcoming The Wealth of Nature: Economics As If Survival Mattered. He lives in Cumberland, MD, an old red brick mill town in the north central Appalachians, with his wife Sara
http://www.countercurrents.org/greer030611.htm
The Federal Reserve's elaborate financial charade on the American people – Big banks hold excess reserves that represent 10 percent of U.S. GDP. Federal Reserve has failed on largest goals for our economy.
The antics of our Federal Reserve rival those of the now disgraced IMF chief although they won't grab as many gossip headlines. The Federal Reserve has fashioned a system that has allowed economic bubbles to surface every very few years like high school reunions. Bubbles are not normal. These are financial disequilibrium events that occur simply because excess money is flowing through the system. The housing bubble was the perfect example of what happens when a central bank does not mind its own store. The Federal Reserve, our central bank and supposed expert on all things money, sought to protect the banking system at all costs during this recent crisis. It is amazing how the actions conducted by the Fed were never fully scrutinized in the media thoroughly even though this is where most of the money was funneled. It was simply assumed that the trillions of dollars in loans, purchases, and accounting chicanery that went to the largest banks was somehow the perfect way to avoid a crisis. Who really avoided the crisis here? The working and middle class is still disappearing. Yet the large Wall Street banks are back to their profitable ways since they figured out that the best thing for business is a crisis. These banks (just like the Fed) have little desire to help the American public even though they are only standing because of the power of the people.
Banks withhold lending to the public
Prior to October of 2008 the Fed did not pay interest on excess reserve balances or required reserves. That all changed with the Economic Stabilization Act of 2008:
The Fed started paying 0.25% interest on these funds and as the chart above shows, banks are happier to stuff this money away at 0.25% instead of lending it to the cash strapped American public. By definition this is money that can be lent out in terms of loans. Yet the American middle class is struggling to get by so banks with more stringent lending requirements are simply hoarding or investing bailout funds that were targeted for working and middle class Americans. It is no coincidence that during this time excess reserves went from $1 billion in 2008 to over $1.4 trillion where they stand today. Banks are holding the equivalent of 10 percent of U.S. GDP in excess reserves!
Contrary to what is being circulated in the typical press, the Federal Reserve is largely creating another bubble economy. The Fed balance sheet still stands at an all time record:
The charade is a simple one where banks pretend to help the economy while dumping toxic loans, risky paper, and other odd bets into the junk yard of the Fed. Why else would the Fed balance sheet be up to roughly $2.75 trillion? This is no tiny number. We never even hear this mentioned in the press. Don't you think this is important to know especially when the future economic implications are enormous? The Federal Reserve has a mission and that is to protect the big banking interests in the country. That is it. So it should be no surprise that all the bailouts have benefitted the big banking interests disproportionately while the public struggles to get by.
The underemployment rate in the country is still extremely high:
Over 19 percent of Americans are still underemployed. This is all happening while the economy is supposedly recovering. We are simply witnessing the ultimate bubble of the Federal Reserve and that is to steal from the taxpayer directly. Nothing can be easier than robbing the American taxpayer through a crushing realignment of the American middle class and blaming it on the global economy. That is, unless you are a large Wall Street bank connected to the Fed and then all you need to do is created some fancy alphabet labeled "program" and dump your toxic loans into it like loading paper into a shredder.
Without a doubt these actions are creating shadow inflation but I don't need to tell you that. Just look at your grocery bill. Look at your kid's tuition statement. What about filling up at the gas tank? Need to see a doctor? Americans without an unlimited credit card are adjusting their behaviors:
"(WSJ) Americans living paycheck to paycheck are looking at the gas gauge before they run their errands, and that's hurting big retail chains such as Wal-Mart Stores Inc. and Lowe's Cos.
"Our customers are consolidating trips due to higher gas prices," said Wal-Mart U.S. head Bill Simon during the retailer's earnings conference call Tuesday. "One in five Wal-Mart moms list gasoline as a top expense behind housing and car payments."
As the cost of a good education becomes more inflated and paper mill schools crop up to scam the public, many people are ending up stuck in massive amounts of student debt. As you can see from the above story, families are consolidating shopping trips because of the price of gas. What is the big deal? Our nation as you know runs on consumption. The fact that people are shopping less signifies the reality that middle class families are being forced to cut back. This is the river that runs through our economy and without this our economy will sputter even further.
I was looking at some of the stated missions of the Federal Reserve and they have failed on so many fronts:
To strike a balance between private interests of banks and the centralized responsibility of government
To supervise and regulate banking institutions
To protect the credit rights of consumers
maximum employment
To strengthen U.S. standing in the world economy
To address the problem of banking panics
On all fronts they have failed. First, there is absolutely no balance since the big banks control the Fed and the big banks control government so virtually all their outcomes are met. Obviously they cannot regulate an industry that is run by an armada of cronies. Hence the enormous waste and speculative casino known as the housing bubble. They also talk about protecting credit rights of consumers. This is laughable and yes, another failure. Another stated goal is "maximum employment" which of course is another failure. The Fed has not strengthened the U.S. economy but has made the big banks more powerful. And finally the Fed's answer to banking panics is ripping off the taxpayer for giant bailouts.
The Fed is leading us down a very troubling road of economic serfdom for the working and middle class. Their stated objectives are laughable and clearly do not relate to what is going on in the economy. If you had a doctor that couldn't operate, didn't understand medications, and hurt multiple patients you would want his license to practice revoked immediately. How then can our central bank, an organization designed to keep the flow of capital moving for the benefit of society keep on operating when they have failed on every key mission goal? The Federal Reserve will keep on pretending that there is no $2.75 trillion in assets on their balance sheet and the media will keep on pretending that everything is okay.
http://www.mybudget360.com/federal-reserve-elaborate-financial-charade-on-the-american-people-excess-reserves-fed-banks/#more-3111
Hedge Farm! The Doomsday Food Price Scenario Turning Hedgies into Survivalists
By Foster Kamer
May 17, 2011 | 8:16 p.m
On the rare occasion that New Yorkers talk about farming, it's usually something along the lines of what sort of organic kale to plant in the vanity garden at the second house in the Adirondacks. But on a recent afternoon, The Observer had a conversation of a different sort about agricultural pursuits with a hedge fund manager he'd met at one of the many dark-paneled private clubs in midtown a few weeks prior. "A friend of mine is actually the largest owner of agricultural land in Uruguay," said the hedge fund manager. "He's a year older than I am. We're somewhere [around] the 15th-largest farmers in America right now."
"We," as in, his hedge fund.
It may seem a little odd that in 2011 anyone's thinking of putting money into assets that would have seemed attractive in 1911, but there's something in the air-namely, fear. The hedge fund manager and others like him envision a doomsday scenario catalyzed by a weak dollar, higher-than-you-think inflation and an uncertain political climate here and abroad.
The pattern began to emerge sometime in 2008. "The Hedge Fund Manager Who Bought a Farm," read the headline on one February 2008 Times of London piece detailing a British hedge fund manager's attempt to play off the rising prices of grains in order to usurp local farmland. A Financial Times piece two months later began: "Hedge funds and investment banks are swapping their Gucci for gumboots." It detailed BlackRock's then-relatively new $420 million Agriculture Fund, which had already swept up 2,800 acres of land.
[More from The Apocolype Issue: Hipster Prophet Preaches Rapture and The Great Adderall Shortage of 2011!]
Even Michael Burry, the now-defunct Scion Capital founder and star protagonist of Michael Lewis' The Big Short-who bet against the housing bubble in 2008 with credit default swaps to enormous profit-gave a rare interview on Bloomberg TV last year, explaining that he's thrown his hat into "productive agriculture land with water on site" as it's going to be "very valuable in the future." (Like most of those asked to comment for this story to The Observer, Burry declined to discuss his investments in farmland.)
Three years later, the purchase of farmland both in America and abroad by outside investors has increased-so much so that in February, Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, warned against the violent possibilities of a farmland bubble, telling the Senate Agriculture Committee that "distortions in financial markets" will catch the U.S. by surprise again. He would know, because he's seeing it in his backyard: Kansas and Nebraska reported farmland prices 20 percent above the previous year's levels and are on pace to double values in four years. A study commissioned by the Organization for Economic Cooperation and Development and released in January estimated the amount of private capital currently committed to farmland and agricultural infrastructure at $14 billion. It also estimated that future investments will "dwarf" what's currently being thrown into land, by two to three times. Further down, the study makes a conservative projection that the amount of capital potentially entering the sector over the next decade will fly past $150 billion.
When asked if this is an end of the world scenario, the hedge-fund manager replied, “It really is. I tell my fiancée this from time to time, and I’ve stopped telling her this, because it’s not the most pleasant thought.’
This is happening in part because investors see their play as a hedge against hyperinflation. While the rest of the world uses the current calculation of the Consumer Price Index as a proxy for the cost of goods, some farmland investors are using a different equation, one from 1980. These investors assert inflation should be calculated the way it was before the Boskin Commission's 1996 reworking of the CPI formula-in which case, it would be much, much higher.
"The CPI supposedly today is something like 1.5 percent," says the hedge fund manager. "We think the actual rate of inflation is something closer to 6 or 7 percent on an annual basis. It's also not about what it's been over the last 10 years; it's about what it's going to be over the next 10 years."
So the logic is that not only is the dollar worth far less than we think it is, but everything is more expensive and will only move further in that direction. Especially food, the value of which may have risen due to population increases, especially in places like China, where a consumer-happy middle class has finally started to emerge.
The rising cost of food can be seen even in New York's yuppiest enclaves, where prices are high to begin with. Bloomberg food critic Ryan Sutton has been running a blog called The Price Hike wherein he measures the shifting costs of food at the plate in Manhattan restaurants. Mario Batali's Del Posto is charging 21 percent more per meal since October. Gordon Ramsay at The London? Sixty-nine percent more since last month. Michelin favorite Bouley? Forty percent. The Breslin, at the Ace Hotel? Thirty-three percent. And so on.
But farmland isn't an option for most investors. Farming is still mostly made up of family-run businesses, in the U.S., at least. Much of the farmland being purchased in America is purchased at estate sales. Pure-play farming isn't a readily available product.
You can invest in John Deere for equipment; you can invest in Monsanto for seeds and agricultural tech. You can even invest in Kraft, which puts the plants on the supermarket shelf. But for now, it's difficult to invest in a one-stop-shop farm. Additionally, there isn't much arable land out there, it's not increasing, and the quality of the land varies from parcel to parcel. And to make money off a farmland investment, you can't just sit on it. You have to know what to do with it. "If you farm it like we do, you can generate a yield," says the hedge fund manager. "We think the farmland will be worth 5 to 10 percent more every year, and on top of that, you get the commodities yield." In other words, hedge funds are growing, picking and selling corn.
Asked if the American public would eventually see a chance to invest in Old McHedgeFund's farm one day, the manager replied in the affirmative: "Yes. Without a doubt." He estimated it would be only a few years before this happened. Just two weeks ago, Bloomberg Businessweek reported that El Tejar SA, the world's largest grain producer, is planning on selling $300 million of bonds this year before a planned IPO. The plans for the IPO will be fast-tracked pending the sale of the bonds. If farming IPOs begin to emerge en masse, then farming-already often a dicey proposition simply on the basis of its being difficult to do correctly, the volatility of the weather and the possibility of entire crops going bad-may be vulnerable to a bubble.
There is, of course, a slightly more sinister reason to develop a sudden interest in agriculture. Last year, Marc Faber recommended to anyone: "Stock up on a farm in northern Norway and learn to drive a tractor." He sees a "dirty war" on the horizon, playing on fears of a biological attack poisoning food supplies. Those sort of fears drive capital into everything from gold (recently at an all-time high and a long-time safe haven for investors with currency concerns) to survivalist accoutrements. In this particular case, one might buy the farm in order to avoid buying the farm.
That may seem extreme, but even the lesser scenarios are frightening to some. When asked if this is an end-of-the-world situation, the hedge fund manager replied: "It really is. I tell my fiancée this from time to time, and I've stopped telling her this, because it's not the most pleasant thought." He pauses for a moment. "We just can't keep living the way we're living. It'll end within our lifetime. We're just going to run out of certain things. We'll just have to learn how to adjust."
fkamer@observer.com | On Twitter
http://www.observer.com/hedge-funds-running-farms-05172011
April Vehicle Assembly Rate Collapses, May Industrial Production Estimates To Be Cut
Submitted by Tyler Durden on 05/17/2011 13:50 -0400
As if today's disappointing announcement of slowing Industrial Production was not enough for all those still hoping for a hockeystick to the economy, we now get an update from Stone McCarthy which looks at the latest Wards Automotive data and sees what apparently nobody has factored into their models yet. In a nutshell, the annualized April motor vehicle assembly plunged at a 12% rate from 8.923 million in March to just 7.847, the lowest reading in all of 2011. From SMRA: "In the past, such a sizable drop in the assembly rate has usually translated into a sharp decline in motor vehicle output. We project motor vehicle output to decline by 9% in April, which would be entirely consistent with the drop-off in the assembly rate." The immediate impact: the drop in the industrial production already seen, but the bulk of it due to delayed aftereffects will likely impact the May number, as the follow through from the Japanese supply chain halt starts ringing a loud alarm bell across Wall Street. Of course, this is another thing that all those calling for a 4% H2 GDP could have absolutely not foreseen (and in fact it was originally supposed to be positive for the economy, eh Deutsche Bank?). Expect to see drastic downward cuts to May Industrial Production and next, to Q2 GDP.
And for those curious, here is Goldman's inability to spin today's Industrial Production in a favorable way.
Industrial production flat in April (mom) vs. GS +0.5%, median forecast +0.4%.
MAIN POINTS:
1. US industrial production stalled in April, due to a sharp decline motor vehicles and parts production (down 8.9%). This decline appears to be the effect of supply-chain disruptions resulting from the natural disasters in Japan. Overall manufacturing output declined by 0.4%, while output of manufactured products excluding motor vehicles and parts rose by 0.2% Together with downward revisions to previous months, these figures imply that the annualized three-month growth rate of manufacturing output excluding vehicles slowed from 8.4% in January to just 1.8% in April.
2. Mining and utilities output both increased (by 1.7% and 0.8%, respectively). The capacity utilization rate fell to 76.9% in April from 77.4% in March.
http://www.zerohedge.com/article/april-vehicle-assembly-rate-collapses-may-industrial-production-estimates-be-cut
FACTBOX-Oil refineries near swollen Mississippi River
10 May 2011 21:55
Source: reuters // Reuters
(Updates with tanker turned back terminal)
May 10 (Reuters) - Heavy flooding in the U.S. Midwest shut Ohio River terminals, limited barge movements and threatened to disrupt refinery operations along the Mississippi River to the Gulf of Mexico on Tuesday.
There are 10 refineries, including the second largest U.S. refinery, located along the Mississippi River, that can process 2,414,700 barrels per day of oil, or 13.7 percent of the country's refining capacity. (Graphic: http://r.reuters.com/gyt49r )
Scores of U.S. heartland rivers from the Dakotas to Ohio have flooded following a snowy winter and heavy spring rains, feeding near-record crests on the lower Mississippi River. [ID:nN09257616] [ID:nN09232133]
Valero Energy Corp's <VLO.N> 180,000 bpd refinery in Memphis, Tennessee, was in the center of the worst flooding where high waters forced evacuations in residential areas. The river was expected crested near 48 feet (14.6 meters) on Tuesday at Memphis.
In Louisiana, officials opened the Bonnet Carre spillway near the refining hub of Norco, Louisiana, to channel Mississippi River water to Lake Pontchartrain.
The U.S. Army Corp of Engineers was planning to open the Morganza spillway by early next week, which will send flood waters from the Mississippi to the Atchafalaya River, likely disrupting operations at Alon USA Energy's <ALJ.N> 80,000 bpd Krotz Springs, Louisiana, refinery.
REFINERIES AT RISK FROM FLOODS (in bpd)
* Alon USA Energy <ALJ.N> Krotz Springs, Louisiana: 80,000
* Chalmette Refining <XOM.N> Chalmette, Louisiana: 192,500
*ConocoPhillips <COP.N> Belle Chasse, Louisiana: 247,000
*Exxon Mobil Corp <XOM.N> Baton Rouge, Louisiana: 504,500
(Second-largest U.S. refinery)
*Marathon Oil Corp <MRO.N> Garyville, Louisiana: 436,000
*Motiva Enterprises <RDSa.L> Convent, Louisiana: 235,000
*Motiva Enterprises <RDSa.L> Norco, Louisiana: 234,700
*Murphy Oil Corp <MUR.N> Meraux, Louisiana: 120,000
*Valero Energy Corp <VLO.N> Memphis, Tennessee: 180,000
*Valero Energy Corp St. Charles Louisiana: 185,000
TERMINALS SHUT:
Nearly 20 percent of barge terminals the U.S. Coast Guard monitors on the Ohio River remained closed on Tuesday. The Smithland Lock and Dam at mile marker 918.5 on the river remains closed, obstructing barge traffic both up and downstream. [ID:nN09291512]
SHIP TRAFFIC:
The tanker Zaliv Baikal turned back from going to a storage terminal at the port of Baton Rouge because its captain didn't think the vessel had enough clearance beneath the I-10 Bridge over the Mississippi at Baton Rouge.
BARGE TRAFFIC:
Barge traffic is moving along the Mississippi River with some restrictions and no closures. Barges were running near Baton Rouge, but facing difficult river conditions.
Mississippi River restrictions include length of barge (no greater than 600 feet), energy requirement (greater than 250 horsepower), speed (3 miles/hour) and prior notification requests before navigation starts. To that end, barge traffic is open in places like St Louis and Memphis with restrictions. [ID:nWEN2978] (Reporting by Erwin Seba, Kristen Hays, Selam Gebrekidan, Janet McGurty, Bruce Nichols; Editing by Marguerita Choy and David Gregorio)
http://www.trust.org/alertnet/news/factbox-oil-refineries-near-swollen-mississippi-river/
I love these....
Spend It Like You Stole It
By Bill Bonner
04/29/11 Baltimore, Maryland – QE2 is ending in June. But globally, QE3 has already begun. As usual, Japan is the pacesetter. As temperatures rose at its Fukushima reactor so did Japan’s monetary base – at the rate of 100% per week! What happens to all this new, hot money? No one knows, exactly. But today, at The Daily Reckoning, we have advice for everyone – central planners, politicians, and householders, too: if you have money, pretend you robbed a bank.
From the point of view of a modern economist, nothing stimulates better than a bank robbery. The money leaves the cold embrace of a bank vault; soon every pimp and bartender has his pockets full. Hot money gets around.
An article in Rolling Stone Magazine provides an illustration. It explains how one Wall Street wife, and one Wall Street widow, formed a company specifically to take advantage of the US government’s spending spree known as TALF. You’d think the feds had already done enough for the Mack family. John Mack runs Morgan Stanley. Had it not been for the generous support of the US government and the Federal Reserve, he might be parking cars. Instead, the feds bailed out the entire financial sector. First, it bought up Wall Street’s bad bets at inflated prices and then lent banks money at artificially low interest rates; they were invited to lend the money back to the federal government for a sure profit.
Business was so good at Morgan Stanley that the distaff side of the Mack household apparently couldn’t resist. In June, 2009, with her friend Susan, Christy Mack set up an investment company and put in $15 million. Then, they borrowed $220 million from the government. A brave move on their part? If you think so, you are as naïve as a turnip. The fix was in; the two used the money to buy non-recourse loans at deep discount. If the loans increased in value, they would make a profit. If they fell, the government would take the losses. Much safer and more profitable than robbing banks. Two months later, Mr. Mack, perhaps with a little assistance from his blond helpmate, bought a limestone carriage house in Manhattan, with a 12-space garage for the getaway cars.
If you don’t have your own little stimulus scam going, you may want to listen up. Your dollars, pounds, euros and pesos are going to lose value. Don’t trust the government’s inflation figures. An honest measure of the “inflation rate” is available thanks to a pair of professors at MIT. Their “Billion Prices Project” (BPP) doesn’t pussyfoot around. It trolls the Internet, records prices and reveals the most accurate measure of inflation ever. This new index shows the rate of consumer price increases for the last 12 months at 3.2%. This is more than half again as much as the Labor Department’s own tally – 2.1%.
Something is dreadfully wrong. Either a billion prices are in error. Or, people who buy US treasury bonds are. They accept a real yield (based on the BPP numbers) of barely 1.2% on a 30-year dollar-denominated, inflation-sensitive Treasury bond, while the dollar sinks and its custodians actively try to drown it. And, over the last six months, according to BPP, prices have been rising nearly twice as fast – at a 6.1% annualized rate. If these figures hold, bond investors already have a built-in negative yield. The inflation figure for the last 3 months is even higher, 7.4%, about 300 basis points more than the yield on the long bond.
Treasury prices have trended higher for nearly 30 years. Could they be ready to fall now? Maybe. Inflation is not like holding up a liquor store; it’s more like a major bank heist, the product of long planning by trained professionals. Whenever the nominal amount of available money increases faster than the real goods and services that money buys, you can expect rising prices.
In America, real private-sector output reached a plateau at the end of the 20th century. In the last 10 years, it has scarcely increased at all. Total private sector GDP was $9.31 trillion in 2001. Now it is $9.72 trillion. But while real output has been flat, the output of hot “money” has not. When they are not stealing it from the taxpayers, or borrowing it with no intention to pay it back, the feds are counterfeiting it. The Fed will have “printed up” about $1.8 trillion from the end of 2008 to the end of June, 2011 – partly to finance staggering federal government deficits of nearly $4.5 trillion over the three years. This led to an increase in the GDP, almost entirely from government spending, with 79% of household income growth from government transfer payments.
Meanwhile, the US monetary base has tripled in the last 3 years. These increases are not all immediately available to households as “money;” they are mostly still in bank vaults, waiting to be liberated. Then, watch out. Dollars will be too hot to hold.
Regards,
Bill Bonner
for The Daily Reckoning
Read more: Spend It Like You Stole It http://dailyreckoning.com/spend-it-like-you-stole-it/#ixzz1LJBYeeXV
Deflation or Hyperinflation?
Chapter 84 – Bond salesmen's propaganda that "a dollar is a dollar" should be rewritten to say "a dollar is 3¢"
Since most ordinary people, bankers, and company presidents have never studied currency theory, they swallow it hook, line, and sinker when the bond salesmen tell them, "a dollar is a dollar." That piece of propaganda should be rewritten to say "a dollar is 3¢." The nominal dollar is officially worth no more than 14¢ of its 1940 value, unofficially only 3¢.
If computed in 1940 constant dollars, not more than $1,380 exists of the US $46,000 per capita gross public and private debt. More than $44,628 has been destroyed by inflation. But sadly, the owners of this debt do not want to hear about it. They do not wish to know that bonds are issued by governments with the sole purpose of debasement.
To my knowledge, no government in history has paid its debts in currency equal to the purchasing power of the currency lent to them. The people always lose their money on bonds.
It angers me. Bond salesmen should be thrown into the East River.
-The above was written in 1985 by Dr. Franz Pick, in the book "The Triumph of Gold" sent to me by one of my readers. The photos are from Time Magazine.
The whole point of the deflation versus hyperinflation debate is about the denouement, the final outcome of this 100-year dollar experiment. It is about the ultimate end, and the debate has been going on ever since the 70s when the dollar was separated from gold and it became clear that there would be an end. The debate is about determining the best stance someone should take who has plenty of net worth. And I do mean PLENTY. People of modest net worth, like me, can of course participate in the debate. But then it can become confusing at times when we think about shortages or supply disruptions of necessities like food. Of course you need to look out for life's necessities first and foremost. But beyond that, there is real value to be gained by truly understanding this debate.
I want to apologize in advance for the length of this post, but I have to be thorough if I want to have any chance of winning Rick Ackerman over to the hyperinflation/Freegold side. And I think there is a chance. While deflation and inflation are practically polar opposites, deflation and hyperinflation look almost identical on the surface, with the main difference being the wheelbarrows of worthless cash. As I wrote in 2009 in The Waterfall Effect:
There is a quote I like that comes from Le Metropole Cafe. It goes, "we will have deflation in everything we own, and inflation in everything we use". This is partly true. It is true during the run up to the rubber band snapping. It is true until we hit the waterfall. At that point I have my own version of the quote. "We will have hyperDEflation in everything measured against real money, GOLD, and we will have hyperINflation in everything measured against paper dollars."
My latest post on this subject was called Big Gap in Understanding Weakens Deflationist Argument in response to Rick Ackerman's "Big Gap in Logic Weakens Hyperinflation Argument". Rick also received responses from Jim Willie and Gonzalo Lira. Last week, with regard to Lira and Willie, Rick reported to his readers in "Rick's Picks":
I've concluded there is little to gain arguing on the one hand with a guy who turns rabid whenever someone contradicts him, even in a friendly way; and on the other, with a preening narcissist who comes to argumentation in the same state of sexual arousal that Jeffrey Dahmer must have experienced hovering over the fresh corpses of teenage boys. These guys are bad news, as lacking in civility and manners as buzzards in a scrum, and you'd do well to avoid them both. You might try tuning instead to the hyperinflation arguments of Steve Saville, Peter Schiff and a few others who seem less concerned with trouncing, slicing and dicing opponents than with presenting facts that might better prepare you for the financial crisis ahead. The very best of them, in my opinion, is FOFOA blogspot, where the essays are erudite, the discussion elevated and the arguments as knowledgeable as any you will find on the web.
I would first like to thank Rick Ackerman, and to also acknowledge his perspicacity in this particular regard. And because he has demonstrated such a discerning acumen in his preference for hyperinflationists (among other things), I will try, once again, to help him see the way. As our own Blondie likes to say (and I paraphrase for clarity), "you don't own your baggage, it owns you." Here is Rick's baggage, in his own words:
My instincts concerning deflation were hard-wired in 1976 after reading C.V. Myers' The Coming Deflation. The title was premature, as we now know, but the book's core idea was as timeless and immutable as the Law of Gravity. Myers stated, with elegant simplicity, that "Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender." Inflationists and deflationists implicitly agree on this point — we are all ruinists at heart, as our readers will long since have surmised, and we differ only on the question of who, borrower or lender, will take the hit. As Myers made clear, however, someone will have to pay. If you understand this, then you understand why the dreadnought of real estate deflation, for one, will remain with us even if 30 million terminally afflicted homeowners leave their house keys in the mailbox. To repeat: We do not make debt disappear by walking away from it; someone will have to take the hit.
Rick repeats what he calls "C.V. Myers' dictum" quite often in his deflation-oriented posts: "Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender." I'm going to go out on a limb here and say that this dictum is Rick's baggage, his foundational deflation premise, in a nutshell. And it leads him to his "bottom line" or his analytical conclusion:
Rick's Picks Commenter SD1: To my knowledge, no bank has ever made provisions in their lending criteria. So to anyone subscribing to the hyperinflation theory, all I can say is there is nothing I, and millions of other North Americans, would love more than to take $250,000 of worthless, hyperinflated money that we worked a few days to make, to pay off a mortgage that would otherwise have taken twenty-five to thirty years to repay.
Rick Ackerman:That's the bottom line, as far as I'm concerned.
In this post I will explain the flaw in Myers' dictum. I will go into great detail as to why the missing component in the dictum is the essential (and inevitable) one. I will show how this one flaw in Rick's premise sends his otherwise excellent analysis careening 180 degrees in the wrong direction (with regard to the subject of this post). And I will explain the proper frame of reference from which to view what I am describing. How's that for a kick-off?
First Myers' dictum. "Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender." Rick: "Inflationists and deflationists implicitly agree on this point — we are all ruinists at heart, as our readers will long since have surmised, and we differ only on the question of who, borrower or lender, will take the hit." Me: Yes, someone will pay. But there is a third option that is missing from Myers' dictum. "The hit" can be socialized:
"Human nature has followed this path for thousands of years. You know the old joke about outrunning the bear? Well, these lenders will influence our financial policy as such. They will try to get their debt securities liquefied first, spend the fiat and in this process outrun you and I. Leaving anyone they can beat to the mercy of the hyperinflation bear eating their remaining fiat assets…"
"…hyperinflation is the process of saving debt at all costs, even buying it outright for cash… because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn!"
(The quotes are from FOA on Hyperinflation and FOA on Currency Styling, Currency Management, Dollar Hyperinflation and End Game Scenarios respectively.)
As many of you know, I came to this debate, with no baggage and no hard opinion, in 2008. And in the "doom and gloom internet community" where I arrived there was definitely an equal helping of both deflation and inflation/hyperinflation talk. Most of it I found less than convincing (on both sides). The "deflation side" is actually bigger than you might think. Most of the peak this or peak that crowd, the majority of the survivalist community, and the Great American Collapse people are all expecting a sort of grand deflation, whether they understand the arguments or not.
If you want to think of a grand deflation as a deflating—or grand contraction—of economic activity that was previously "energized" by massive trade deficits, massive credit expansion, and the massive structural malinvestment that flows from those easy money expansions, well then I too am expecting a sort of grand deflation, in many of the same ways they are. But one thing I have learned from the writer that made the most sense to me, the writer that I found most convincing from within my "past baggage" vacuum, is that "deflationists" as a group still have a big gap in understanding.
Rick became a deflationist in the 1970s by his own account. And he certainly wasn't alone. I wasn't even aware of the existence of such a debate in the 1970s let alone 2007, so I can hardly add the wide perspective necessary in this debate from my own personal experience. What I can do, instead, is to share with you this excerpt from the one that spoke convincingly to me, the one that informed my developing view in 2008.
One point I hope you'll find curious in this excerpt is that deflationists have always fixated on residential real estate. This is one of Rick Ackerman's, almost obsessive, objections to the hyperinflation case, and it clearly has roots in his kind. This was written in 2001, just as the housing bubble was developing. My notes in [brackets]:
Somewhere in the 1970s era I was exposed to the thinking of several different deflationists. It seemed that all of their conclusions came to the same end: that dollar deflation would rule the day, no matter what. Mind you now,,,,,, most of them were split on the finer points of the issue, but for all of them; [de]flation would have its day even if prices would rise somewhat. Deflation was always the final outcome.
One of the central themes in these thoughts was concerning how this coming deflation would impact plain old residential real estate. You see, most of these guys advocated selling excess residential property because it was, sooner or later, going down for the count. Mostly because the mortgage markets would be destroyed in the deflation and nobody could buy [prices would collapse to the cash price].
-- Note: The reader has to understand that these discussions were directed towards people and investors that had plenty of net worth. And I do mean Plenty! The argument wasn't about how to survive; rather how to balance a truly conservative estate portfolio. --
As time has passed we can see several major flaws in their thinking. Flaws that cost them a bunch of credibility, if not personal money. [I want to jump in here with a quick quote from Gary North written in 2002:
"I remember in 1975 hearing C. V. Myers tell attendees at a gold conference, 'If you get this one wrong, you'll lose everything.' He was predicting deflation. He got it wrong. He didn't lose everything."
And now back to FOA] One point, that I have touched on here several times, was in understanding just how much ourselves and our economic structure would and did evolve into accepting fiat money use. Even though it was, "god forbid", separated from gold.
In one area alone, the bond markets, investors reacted far differently than deflationists thought they would. Twenty ++ years ago [again, this was written in 2001], it was expected that just gross increases in money printing alone would be enough to crash the bond markets. Not talking about price inflation here, but money inflation and that should have started a deflationary fall in our credit markets. It almost happened, several times, but never followed through. It seemed that the market function had evolved to accept fiat inflation as a prerequisite to modern economic function. In a like comparison to today's thinking; investors assumed that as long as we had an expanding economic stance [nominal GDP growth, credibility inflation and financial product appreciation], sourced by inflating fiat supply, price inflation would not impact long bond credibility. We saw confirmation of this over many years. We saw that our credit markets, especially long bonds, were used in spite of the price inflation threat. Indeed, there was a ready [highly liquid] market demand for bond purchases.
In hind sight, long term holders of bonds did do very well if their position was part of a balanced holding and they didn't need to sell at bad times. Even now, dollar bonds have gained as rates are pushed lower.
Back to the thought:
This whole IMF dollar system has always been based on an expanding fiat theory that swells [nominal] GDP over time. Investors that bet on deflation coming along, after each of our bouts of inflation, were badly burned as deflation was overcome. Economic function returned, essentially because price inflation could not rout the overall market for long credit.
The flaw in all of this was in the reserve structure of our Dollar IMF money system. The fact that the world had to walk, lock step, with our money policy meant that their goods production would almost always be cheaper than ours; keeping local US price inflation under control. In other words; local US-based price inflation could not get out of hand as long as the rest of the world was willing to use their economic production to control it by selling [products cheaper than we could produce them] into our expanding fiat system.
In this, the dollar [and its securities, and their derivatives] could be inflated without end while our credit markets functioned in a non-inflationary environment.
But there is an end.
A money system like this has a definite timeline and that point is reached when the world can move away from keeping price inflation low in the US. That point is reached when Another money system comes along to challenge the dollar and, in the process, offer these other goods-producing countries a chance to buy some "lifestyle" for themselves.
At first, the show is dull as investors keep right on buying into the dollar argument above: that an expanding fiat base builds non-inflationary [nominal] growth [in both GDP and securities]. This is one reason traders still buy US long credit, not to mention chasing rising dollar exchange rates; they expect more of the last several decades of economic theory to keep right on going. It won't.
The dollar faction saw its match early in the 90s as the Euro was taking shape. To counter this threat, as I have outlined here in several ways, they promoted derivative hedges as a way of insuring dollar dominance. These hedges, including gold derivatives, only served to leverage the entire dollar / IMF system beyond its ability to serve as a real fiat money system, today. [See (my title): Is the Fed selling Hyperinflation Insurance Backed Only by Hyperinflation?]
I mean; that our whole dollar landscape has now become just a trading asset arena: it's now evolving away from any meaningful currency use to trade for real goods. It can head in no other direction because our local economic structure, the USA economic base, cannot possibly service even a tiny fraction of the buying power currently held in dollars worldwide.
So what does this have to do with Real estate?
Take a look at any broad section of the US; Northeast, SouthWest, etc.. If any of the deflationists were correct, their reasoning back in the late 70s and early 80s should have produced at least an average fall in Residential real estate. Can any of you find an "average" of property today, that is lower than early 80s prices?
Of course I'm not talking about the spikes in Hawaii, New York, Denver or San Francisco; those are just blips on an ever rising inflation scale. Even if they fall some from here, it isn't part of a deflationary act playing out. Average home prices will rise all across this country no matter what the future economy holds. A super inflationary stance by the Fed means that even unemployed workers can buy a house and pay for it! Watch how this all comes about. The Dow will not be much different when seen ten years from now; a drop to 5,000 then off again, is a real possibility! [Note: The Dow dropped from 11,000 in 2001 down to 7000 and back up to 12,000 in 2011. Again, FOA wrote this ten years ago in 2001]
The same is true for anything perceived as something real: "even silver" (grin).
The difference is in the drastic ups and downs derivatives will place on all asset markets. My point is that we are on an "end time run" in fiat dollar production that will soon produce a spike in real price inflation that crushes hedge vehicles. One item alone, physical gold, because it is the main wealth asset behind the next currency system [See: RPG #1], will outrun everything by a wide margin. No matter the derivative's hold on it!
As the Euro builds a base [which is happening right now in 2011 – see this, this, this, this, this and this], it will drive an inflationary recognition into our credit markets, then freezing up our derivative markets. That perception will fuel a complete failure of our bond markets and force the Fed to buy up any and all credit; paying in full. [Paying full price for deflating assets? Oh my, would the Fed ever do that? The deflationists never saw it coming!] If needed, Bush and congress will see to it that enough money is printed so we are paid in cash for everything! Don't laugh, this is where we are headed.
[I must insert here the rest of the famous FOA quote from above. I affectionately call it "the front-lawn dump" and it was coined by FOA a full 18 months before Bernanke's famous "Helicopter drop" speech:
"My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms!"
Okay, now back to the original excerpt…] In the meantime, whether or not our economy is growing, stalling or failing, will have little or no impact on price inflation.
You see, living with real serious price inflation goes something like this:
---- "Honey, I talked to Fred again, he can't sell his house! Poor guy, he has had it up for two years now and has to raise his asking price again. No takers, yet. The last couple was just about to close but took a month too long; they almost got the cash together, too. He backed out to raise the asking price, again. Oh well, that's not so bad, we had to jump ours up three times before selling." ----
Inflation runs crazy when a money system is forced to "print out". We will "print out" our dollar, too. Getting there just takes time and an alternative system to cause it.
Now I do realize that it takes a certain talent to distill deep wisdom from a 10-year-old internet forum post. And I can almost hear some of you out there screaming, "but but but… house prices DID collapse… d… d… DEFLATION!" Wrong. Sorry. Residential real estate will ultimately crash to its non-leveraged cash price as credit disappears, just like the deflationists think. But that ultimate cash price, once reached, may actually be higher than today's leveraged prices and be outrunning the availability of cash needed to clear the market! And all the while real estate will keep crashing in real terms (gold).
There is always a shortage of cash during a full-bore, in-your-face hyperinflation, which is why the printer has to keep adding zeros. His press simply cannot keep up with prices at established denominations. It is also why the first to touch the new cash (the "elite") have a very valuable advantage. Hyperinflation is a grand competition for lifestyle retention in the face of forced austerity, just like a race! Here, look at this from the excerpt:
"Honey, I talked to Fred again, he can't sell his house! Poor guy, he has had it up for two years now and has to raise his asking price again. No takers, yet. The last couple was just about to close but took a month too long; they almost got the cash together, too. He backed out to raise the asking price, again. Oh well, that's not so bad, we had to jump ours up three times before selling."
I'll bet the deflationists were thinking in terms of deposit+loan=price, rather than cash. Wrong paradigm. Sorry. When the hyperinflation hits in a reference point purely-symbolic fiat currency paradigm, the market will try to clear for the rising symbolic cash price while the hard currency price (denominated in gold) continues to drop like a stone. Deflationists do have one thing right. Real estate is not a very good investment when preparing for what's coming. That doesn't mean home loan debt won't be hyperinflated away though. It most likely will be. And if you are lucky enough to catch the bottom in the reference point gold paradigm during the crisis, bless you. But it's still a poor investment choice right now, even at 5% down, compared to putting that same cash into physical gold. More on this in a moment.
The point of sharing this FOA excerpt was that deflationists, like other groups that have established encampments cluttered with old baggage, tend to miss what is actually unfolding. And for that, you might want to start with my post The Debtors and the Savers. Understanding the balance necessary to keep the peace between these two groups is fundamental to understanding the political will behind the inevitability of both Freegold and dollar hyperinflation.
Rick seems to have a number of hang-ups when it comes to both gold and hyperinflation. His biggest is obviously real estate and the modern home mortgage. He simply cannot seem to fathom how a system designed and managed by The Power Elites could ever deliver a "windfall" to overleveraged, underwater homeowners or shady, uncouth gold bugs. And, frankly, if you don't make the effort to understand what is actually unfolding, there's a good chance it won't.
To the deflationist, "a dollar is a dollar" just like it is to ordinary people, bankers, company presidents and bond salesmen in the quote at the top. And even though the dollar has already lost almost 99% of its original gold purchasing power, Rick believes The Power Elite will make sure it stays strong until you have worked off every last dollar you owe. Because someone has to pay! (He's right about that.) And it's not going to be "them". (He's mostly right about that too.)
The dollar has a long, storied past. To believe "a dollar is a dollar" is to simply ignore its history. Of course I'm not implying that deflationists are unaware of this chart:
But I am saying that they think the collapse of the dollar's financial system will strengthen the dollar itself and make prices fall in the end. This is a funny notion when you take the totality of the dollar's journey into consideration.
The dollar was once worth 1.555 grams of gold. Then it was reduced to .888 grams of gold. Today it is able to purchase .02 grams of gold, but only at the margin. Notice that I said "able to purchase" instead of "is worth," and I also added "at the margin." That's because the dollar is not worth .02 grams of gold today. Around 60 years into its 100-year life, not unlike the human retirement age, the dollar retired to become a purely symbolic, completely worthless token. And in the big scheme of things, this "retirement from value" is not such a bad thing. Someone emailed me a question the other day and this was my reply:
Hello Mark,
I don't see much wrong with your grasp of the subject, other than those worthless tokens are actually a good thing. What sets us apart from those monkeys is our ability to divide labor in a way that resists the second law of thermodynamics and allows us to organize our environment.
This division of labor requires us to use a medium of exchange in order to avoid the double coincidence of wants.
The question then becomes, what is better as a medium of exchange? Should it be something of value? Or is it more beneficial to the anti-entropic process for it to be something purely symbolic and worthless?
If you answered "something of value" I would ask, Why? Is it because you want to hoard that thing in the case that you produce more than you consume? And what is the net effect on man's battle against entropy if the circulation of that valuable medium slows due to hoarding? Conversely, with a worthless medium, why not just exchange it for that same valuable thing if, in fact, you do produce more than you consume? Seems simple enough to me.
Sincerely,
FOFOA
http://fofoa.blogspot.com/
Market Valuation: The Message from the Q Ratio
April 1, 2011 monthly update
The Q Ratio is a popular method of estimating the fair value of the stock market developed by Nobel Laureate James Tobin. It's a fairly simple concept, but laborious to calculate. The Q Ratio is the total price of the market divided by the replacement cost of all its companies. Fortunately, the government does the work of accumulating the data for the calculation. The numbers are supplied in the Federal Reserve Z.1 Flow of Funds Accounts of the United States, which is released quarterly.
The first chart shows Q Ratio from 1900 to the present. I've extrapolated the ratio since the latest Fed data (through 2010 Q4) based on a combination of the price of VTI, the Vanguard Total Market ETF, and an extrapolation of the Z.1 data itself.
Click for a larger image
Interpreting the Ratio
The data since 1945 is a simple calculation using data from the Federal Reserve Z.1 Statistical Release, section B.102., Balance Sheet and Reconciliation Tables for Nonfinancial Corporate Business. Specifically it is the ratio of Line 35 (Market Value) divided by Line 32 (Replacement Cost). It might seem logical that fair value would be a 1:1 ratio. But that has not historically been the case. The explanation, according to Smithers & Co. (more about them later) is that "the replacement cost of company assets is overstated. This is because the long-term real return on corporate equity, according to the published data, is only 4.8%, while the long-term real return to investors is around 6.0%. Over the long-term and in equilibrium, the two must be the same."
The average (arithmetic mean) Q ratio is about 0.71. In the chart below I've adjusted the Q Ratio to an arithmetic mean of 1 (i.e., divided the ratio data points by the average). This gives a more intuitive sense to the numbers. For example, the all-time Q Ratio high at the peak of the Tech Bubble was 1.82 — which suggests that the market price was 158% above the historic average of replacement cost. The all-time lows in 1921, 1932 and 1982 were around 0.30, which is about 57% below replacement cost. That's quite a range.
Click for a larger image
Another Means to an End
Smithers & Co., an investment firm in London, incorporates the Q Ratio in their analysis. In fact, CEO Andrew Smithers and economist Stephen Wright of the University of London coauthored a book on the Q Ratio, Valuing Wall Street. They prefer the geometric mean for standardizing the ratio, which has the effect of weighting the numbers toward the mean. The chart below is adjusted to the geometric mean, which, based on the same data as the two charts above, is 0.65. This analysis makes the Tech Bubble an even more dramatic outlier at 179% above the (geometric) mean.
Click for a larger image
Extrapolating Q
Unfortunately, as I mentioned earlier, the Q Ratio isn't a very timely metric. The Flow of Funds data is over two months old when it's released, and three months will pass before the next release. To address this problem, I've been making extrapolations for the more recent months based on changes in the market value of the VTI, the Vanguard Total Market ETF. In an effort to improve my estimates, I'm now using an average of the VTI extrapolation and an extrapolation of the Flow of Funds data itself.
Bottom Line: The Message of Q
The mean-adjusted charts above indicate that the market remains significantly overvalued by historical standards — by about 65% in the arithmetic-adjusted version and 79% in the geometric-adjusted version. Of course periods of over- and under-valuation can last for many years at a time, so the Q Ratio is not a useful indicator for short-term investment timelines. This metric is more appropriate for formulating expectations for long-term market performance. As we can see in the next chart, the current level of Q has been associated with several market tops in history — the Tech Bubble being the notable exception.
Click for a larger image
Please see the companion article Three Market Valuation Indicators that features overlays of the Q Ratio, the P/E10 and the regression to trend in US Stocks since 1900. There we can see the extent to which these three indicators corroborate one another.
http://dshort.com/articles/Q-Ratio-and-market-valuation.html
Migration Of The Black Swans
By Giordano Bruno
Neithercorp Press – 3/31/2011
The phrase "Black Swan" is really making the rounds these last few months. Uttering the term a year ago would have earned you a collection of confused looks and a general attitude of disinterest. Now, people behave as if they had learned about economic shockwave events and the global domino effect when they were in kindergarten. The problem is that when this kind of terminology hits the mainstream, in most cases it comes prepackaged with dumbed down and diluted definitions which promote an inadequate, cartoonish understanding of the circumstances.
To be sure, most Americans are well aware that the world's political and economic foundations are about as stable as fresh pudding under a heat lamp. The problem is that they are now being conditioned by the mainstream media to view the idea of collapse as "cinematic"; a kind of live action fantasy in which we all get to play the part of the audience, watching safely from the dark in our cushy theater seats with a bag of overpriced popcorn, Dolby surround sound, and a hot date to keep us company during the boring parts. Three years ago, even mentioning the idea of a breakdown in society or a financial catastrophe beyond a minor recession earned you the label of "doom monger"; a rather inept and naïve attempt on the part of the MSM to silence any economic analysis that stepped outside the establishment Keynesian framework. Today, I turn around to look at a magazine stand at the airport and right in front of me is Newsweek openly declaring
"Apocalypse Now"!
Is the mainstream finally catching up to the alternative media? No. The MSM is merely adopting pieces of our common language and twisting them to fit a more globalist friendly viewpoint. Because our readership is growing exponentially, and our traffic is skyrocketing while corporatized news sources are floundering, the MSM is losing its ability to obscure our fact based journalism with their over funded and highly sterilized adaptation of reality. So instead, they attempt to co-opt our particular vocabulary, and our news focus, while adding their own subtle spin and sensationalism. When people not familiar with the alternative media and the more in-depth information we provide talk about a "Black Swan event", a depression, hyperinflation, etc., their concept of the implications of such disasters is far different than ours. They are living in the Disney version of financial and social Armageddon.
Of course, when the curtains raise, the previews are over, and the show begins, none of us will be lounging comfortably outside these calamities to simply watch. We will all be inexorably involved, whether we like it or not. So, carry on with the media war we must. Educating the masses on the ENTIRE story behind international events and their consequences continues to stand as a top priority, until that final straw caves the camel's back and disseminating the truth becomes a needless exercise in pointing out the horrifyingly obvious.
First, let's examine the veiled reverberations of recent "Black Swan" events, the wider view of the chain that ties them together, as well as what we should expect in the near future in the wake of their aftermath…
Fukushima Mon Amour
If I could choose only one tragedy to be categorized as a textbook example of a Black Swan, it is the earthquake and subsequent tsunami off the coast of northern Japan which led to the current and precarious meltdown of the nuclear reactors at Fukushima. Now, the immediate concerns of Western nations, especially citizens of the U.S., have automatically turned to the threat of radioactive fallout traveling across the Pacific. Unfortunately, radioactivity is the least of our troubles in the face of Japanese nuclear core exposure. Again, Japan is currently the number three economy in the world, and the effects of the Fukushima incident have contributed to the possibility of a full spectrum crisis.
First, we must always keep in mind that incidents in areas like Japan or the Middle East are NOT the direct cause of global economic or social turmoil; they are only trigger points for an avalanche that has been building for the past three to four years. If Fukushima had occurred in 2007, international markets would have easily absorbed the blow, but today, economies everywhere have been so weakened by the implosion of the banker created derivatives bubble and the inflationary fiat measures of private organizations like the Federal Reserve that they no longer have the capacity to shield themselves from unexpected catastrophes. Big banks have been playing a massive game of Jenga with the global economy, pulling one support after another until the whole construct begins to sway and tremble. One gust of wind, one tremor, one wrong move, and the whole thing comes crashing down. If you want to place blame for the chaos we are about to see in the aftermath of
Fukushima, be sure to place it where it belongs; on the doorstep of corporate monstrosities like the Fed, Goldman Sachs, JP Morgan, HSBC, etc.
Second, Japan's official debt to GDP ratio now stands at 225%, way above the limit usually attributed to a country on the verge of complete debt destruction. The cost of rebuilding the areas damaged by the tsunami alone is estimated at around $300 billion. My primary concern in light of Japanese instability, though, is the severe weakening of their export markets. Japan is almost entirely reliant on its export capacity to support its ailing economy, meaning they are dependent on other countries to continually purchase their goods. However, in 2008, Japanese exports were pummeled, and have not improved anywhere near levels reached previous to the credit collapse, at least according to initial numbers for 2010:
http://www.bloomber g.com/news/ 2010-11-24/ japan-export- growth-slows- more-than- forecast- as-economy- loses-trade- boost.html
The earthquake and nuclear meltdown of 2011 have sealed Japan's fate. It could take ten, twenty, even thirty years for them to recuperate from this setback. Manufacturing in the Asian nation has already deteriorated at the fastest pace in nearly a decade:
http://www.bloomber g.com/news/ 2011-03-30/ japan-manufactur ing-shrinks- most-since- 2009-in-first- sign-of-quake- impact.html
Japanese food exports are being shunned by international markets for fear of radioactive contamination. Prime Minister Naoto Khan is now pleading with the WTO to urge its members to avoid curbing imports of Japanese goods, claiming that the government is on top of the Fukushima situation:
http://www.reuters. com/article/ 2011/03/30/ us-japan- quake-idUSTRE72A 0SS20110330
This hardly appears to be the case though. Reports of radioactive iodine 10,000 times safe levels in the water table below Fukushima have surfaced; reports which the Tokyo Electric Power Company is now vaguely stating "may be incorrect":
http://www.bloomber g.com/news/ 2011-03-31/ japan-reviewing- water-tests- showing-iodine- at-10-000- times-limit. html
The secrecy surrounding Japan's nuclear meltdown is highly disconcerting and reminiscent of the Chernobyl incident in 1986, which the Soviet Union also refused to report honestly. Nearby cities were completely uninformed as to the true danger of the meltdown, and the international community was without a clue as to the extent of the radiation until Sweden, nearly seven hundred miles away, discovered radioactive particulates in its atmosphere. The problem with a containment breach in a nuclear plant is that it releases a steady stream of radioactive materials into the environment until the plant is finally buried under tons of concrete, lead, boric acid, and sand, as opposed to a nuclear weapon, which detonates, irradiating surrounding particles, which then dissipate after around two weeks. Fukushima, if left uncontained, could spew radioactivity for decades. The Japanese government does not seem to be providing forthright information about the real
jeopardy involved.
Of course, if they were forthright, there would certainly be alarm amongst the citizenry, but even more so, a flight of investment dollars from Japanese industry and stocks. The only equity in Japan which seems to be attracting investment is the Yen itself, which skyrocketed against the U.S. dollar at the onset of the crisis:
http://www.rttnews. com/ArticleView. aspx?Id=1577203
The Yen has climbed steadily against the dollar since the early 1970's, from 300 yen per dollar, to only 80 yen per dollar after Fukushima. I find it interesting that now, during times of financial uncertainty, global investors would rather pour their savings into the currency of a country that is about to be radioactive, rather than put their savings into the U.S. Greenback! What does that tell you about the level of trust the world currently has in our currency?
Being that Japan is a dedicated export economy, the higher the Yen goes, the more strenuous the exchange rate, and the less other countries will buy from them. G7 nations have since attempted to artificially knock down the rise of the Yen, but their efforts have yielded little success. The Yen still stands at around 83 per dollar. Hardly an improvement that will make Japanese exports more viable.
So, where is this all leading…? High speed deflationary depression for Japan. But that's not all! The ASEAN trading bloc, led by China and fueled by the rising Yuan, has been pushing Japan to join the fold for years. Japan has been less than receptive to the proposition for numerous cultural, political, and financial reasons. But now, with the complete downfall of the country underway, and their export capability crumbling, Japan may go begging to join ASEAN. Already, ASEAN is beginning to offer help in Japan's rebuilding process:
http://ph.news. yahoo.com/ asean-benefit- japan-reconstruc tion-20110329- 054529-485. html
What does this mean for the U.S.? It means the Japanese will likely begin a progressive dump of their vast reserves of U.S. Treasuries and dollars, replacing them with Yuan bonds. Its means a severe devaluation of the dollar in the near future along with the possible end to its World Reserve Currency status. It means hyperinflation in America. This is the true nature of a Black Swan event. It is not a single incident, but a chain reaction that spreads like cancer through an economic system, leading to broader misfortune than anyone dared imagine.
Once Upon A Time In The Middle East
The effects of the revolutionary fervor in the land of OPEC are a bit more obvious than those caused by Japan, at least, for the most part. Crude oil is now climbing towards $107 per barrel at the publishing of this piece. World markets are swinging wildly like a cheap carnival ride. Political alliances (especially between the U.S. and its primary oil suppliers) are becoming strained. The dollar's peg to oil is now under threat. But this is really no surprise. As we have discussed in past articles, it is exactly what happened to the British Empire in the early 1950's when it attempted to strong arm Middle Eastern governments and maintain the oil trade under the Pound Sterling. Eventually, the British became embroiled in Arab conflicts and revolts they could not possibly untangle, and their main debt holders (one of which was the United States) threatened to dump British Treasuries and the pound sterling as the world reserve currency. Sound
familiar….?
So now that America is repeating the blunders of the British (most likely by design), what can we expect from turmoil in the Middle East?
First, crude prices are going to continue expanding. Not so much due to supply concerns (Libya, for instance, makes up only 2% of global oil production), but because of the escalating distrust of the U.S. and its interests in the region, leading to a likely decoupling of oil from the greenback. The Obama Administration's response to this growing danger has been, interestingly, to focus not on the devaluation of the dollar, but instead, to distract us with more nonsensical supply side theories. The president (and I use that term loosely) has seen fit to present yet another model for "green alternatives" which would supposedly diminish Americas dependence on foreign oil supplies. Unfortunately, this plan's main drive is to cut oil importation to the U.S by one third over the next ten years while we are at the very onset of an energy crisis. Keep in mind that this plan does NOT include utilizing the extensive crude oil reserves discovered in
America's northwest:
http://www.reuters. com/article/ 2011/03/30/ us-obama- energy-idUSTRE72 S3C820110330
http://www.usgs. gov/newsroom/ article.asp? ID=1911&from= rss_home
Absolutely brilliant! Let's cut our oil supply by a third while the dollar is in the midst of losing its reserve status and Obama fumbles about with biofuels that rely mainly on corn, a commodity which is also exploding in cost due to dollar devaluation, and requires more energy to refine than it eventually produces. Does anyone doubt anymore that this government is deliberately sabotaging our economy?! Holy Frijoles!
China's move over the past two years to purchase more oil from Russia instead of the Middle East while dropping the dollar as a reserve currency in bilateral trade now seems almost clairvoyant, doesn't it?
As the destabilization of the Middle East spreads, the most volatile situation is not even necessarily that of oil and the dollar, but that of Syria. Due to its alliances and its tensions with Israel, Syria has become the keystone of the Middle East. Any disruption in Syria could lead to widespread war in the region, involving not just the U.S., but also Russia. Protests have begun to rage in the country, just as in the rest of the Arab nations, which has suddenly peaked the interest of the publication `Foreign Policy'; the official magazine of the Council on Foreign Relations, a well known globalist think tank. In a recent article, they called the state of affairs in Syria the "Syrian Time Bomb":
http://www.foreignp olicy.com/ articles/ 2011/03/28/ the_syrian_ timebomb? page=full
Foreign Policy covers the basics of the Syrian connection, but omits a very important factor; the revamped Russian naval base on the coast of Syria itself. I have written several articles over the past four years covering the possibility of a Syrian chain reaction. Here is a quote from one, published in June, 2010 to illustrate the potential for calamity that could unfold if Syria is invaded or even politically pressured by the U.S. or Israel:
This leads us to what may end up being the most important news of last year besides the "Great Recession"; a defense pact signed between Iran and Syria:
http://www.jpost. com/servlet/ Satellite? cid=126044741951 3&pagename= JPArticle% 2FShowFull
So, what elements are we dealing with here? We have a nuclear armed Israel itching to attack Iran. We have Iran engaged in a defense pact with Syria against Israel. We have Syria with Russian navy bases and weapons on its soil, and we have the U.S. rampaging through the Middle East encroaching on the borders of Pakistan and Yemen, essentially pissing off everyone. What we have is a Globalist made recipe for disaster, using the same ingredients they have used for the last several major wars.
http://neithercorp. us/npress/ 2010/01/will- globalists- trigger-yet- another-world- war/
There is little doubt, Syria is in the beginning stages of revolution at this very moment. The government has responded with the same murderous tactics that have been attributed to Gaddafi in Libya, including shooting down protesters using snipers (meaning soldiers were not firing in random panic, but deliberately picking targets and killing unarmed citizens in cold blood):
http://www.washingt ontimes.com/ news/2011/ mar/25/violence- erupts-around- syria-protesters -shot/#
Will the U.S. or the UN respond to Syrian upheaval as they have in Libya? If they do, expect a powder keg reaction far more violent than we have yet seen, and also expect Russia to begin taking a much greater interest in the affairs of the Middle East. The hidden consequences of the Black Swan strike again…
Swan Lake, Or Swan Dive?
The flow of events from one into the other, melding and changing like the currents of a river, can become confusing, if not downright terrifying. The underlying rush of economies and political tensions is often obscured by disinformation, as well as the distracting nature of simultaneous cataclysms. What is created in the torrent of this global swell is a kind of `factory of fear'; a frenetic blast of winding grinding machinery swirling around us with menacing gears made of panic and dread. A step in the wrong direction, and we lose an arm or a leg. Black Swan incidents are not the source of this pandemonium. In fact, they sometimes shock the masses into clarity. They reveal the hidden landmines strewn about our financial and social landscape. They cause migrations of decline and surprisingly erratic reactions within a system, but also expose the fallacies inherent in that system as well. The key is to not allow fear to drive our response to the now
unmistakable problems we face.
Whether we stand in defense against one adversity, or a thousand at once, is irrelevant. The bottom line is that we cannot lose focus, we cannot fail, and we cannot stop. There is no other choice but to move forward, and to prevail.
You can contact Giordano Bruno here: giordano@neithercor p.us
keep 'em coming landm19.
bbotcs, he'll get in the flow after a few.
EPA Ready to Massively Increase ‘Permissible Radioactive Release’ Guidelines
March 31st, 2011
Via: Tennessean:
The EPA is preparing to dramatically increase permissible radioactive releases in drinking water, food and soil after “radiological incidents,” according to Public Employees for Environmental Responsibility.
…
The radiation guides called Protective Action Guides or PAGs are protocols for responding to radiological events ranging from nuclear power-plant accidents to dirty bombs.
Drinking water, for example, would have a huge increase in allowable public exposure to radioactivity, the group says, that would include:
A nearly 1000-fold increase in strontium-90
A 3000 to 100,000-fold hike for iodine-131
An almost 25,000 rise for nickel-63
The new radiation guidance would also allow long-term cleanup standards thousands of times more lax than anything EPA has ever before accepted, permitting doses to the public that EPA itself estimates would cause a cancer in as much as every fourth person exposed, the group says.
These relaxed standards are opposed by public health professionals inside EPA, according to documents PEER said it obtained under the Freedom of Information Act.
http://www.tennessean.com/article/20110316/NEWS08/110316027/1969/NEWS/Group-warns-EPA-ready-increase-radioactive-release-guidelines-?odyssey=nav|head
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Wonder why?
right....no problems here...oh by the way what is the accurate reading...oh we'll have to get back to you on that.
Like there is a shortage of radiation detectors/ measuring instruments at a nuke plant?
US Unemployment Another Counterfeit Figure from the Fed
By Bill Bonner
03/23/11 Paris, France – What were we talking about yesterday? Oh yes…something about a big, nasty bird…and Japan.
First, let’s report the news from yesterday…then we’ll come back to this subject. To give you a preview, Japan is using quantitative easing – money printing – to cover the holes in its budget. With the need to rebuild its economy and its infrastructure, our guess is that it’s going to do a lot more of it.
Back in the USA, stocks went up a bit yesterday. (Or they went down a bit, we can’t remember…) Gold and the dollar were about even. Nothing much worth reporting, in other words.
But investors, politicians, and economists all seem to think the economy is on the road to recovery. The only people who don’t seem to believe it are the people who actually live and work in the real economy – people who shop at the supermarket and depend on wages.
Which reminds us of a funny incident. A Fed governor recently tried to explain to an audience of ordinary citizens how the government figured the “core” inflation rate. The lumpen didn’t go for it at all. They heckled the poor man. “When was the last time you went to the supermarket,” they asked.
The most recent inflation numbers tell us that prices rose 0.5% in February. For the mathematically challenged dear reader, this is an annual rate of 6%, or 550 basis points above the rate at which the Fed lends money.
But wait…the feds tell us not to pay any attention to this number. They want us to focus on the “core” number, from which they’ve taken out the things that are going up – food and energy. Having taken out the prices that are going up – even though they are essential items – they thus magnify the items that are left. Notably, housing. And guess what? Housing is going down. So, falling house prices make it possible for the feds to report a low “core” rate of inflation – which is a lie and a fraud. The average family is actually spending more and more money just to keep food on the table and gas in the tank.
And here’s another counterfeit figure from the feds: it was widely reported last week that the unemployment rate was down to its lowest level in almost two years. The unemployment numbers are so cruelly twisted by the feds we feel sorry for them. The most obvious way is by means of “seasonal adjustments.” Look what seasonal adjustments did to the latest numbers. USA TODAY has the report:
WASHINGTON (AP) – Unemployment rose in nearly all of the 372 largest US cities in January compared to the previous month, mostly because of seasonal changes such as the layoff of temporary retail employees hired for the holidays.
The Labor Department said Friday that the unemployment rate rose in 351 metro areas, fell in only 16, and was unchanged in 5. That’s worse than December, when the rate fell in 207 areas and increased in 122.
Other seasonal trends, such as the layoff of construction workers due to winter weather, also contributed to the widespread increase.
Nationwide, the unemployment rate dropped to 9% in January from 9.4% the previous month. It ticked down to 8.9% in February. But the national data is seasonally adjusted, while the metro data isn’t, which makes it more volatile. The metro data also lags the national report by one month.
See what we mean? Fewer people actually have jobs, but if you “seasonally adjust” the numbers, unemployment is going down.
Prices are going up everywhere too, but if you take out the stuff that is going up, you see prices stable.
And here are some other little facts that come to our attention this morning: one out of ever five houses in Florida is vacant. Holy sawgrass! How are the feds going to show housing prices going up?
Back to Japan…
We were just pointing out that while everyone is looking for “black swans” it may be the white ones that bite. They might be imposters. Scratch the paint off and they’re often gray…and nasty.
Take QE2, for example. The Japanese are running out of money. The government already owes 2,000% of annual tax receipts…the savings rate is falling to zero…and deficits are bigger than ever.
What’s a poor Japanese central banker to do? Turn to QE! It hasn’t worked yet. But it hasn’t done any harm either. The inflation rate in Japan really is near zero. Japanese exporters are desperate to bring down the yen. Everyone wants a little inflation…everyone wants more money to rebuild after the recent disasters…everyone wants QE!
So, give it to them…good and hard!
Which is why we think Japanese stocks are a good bet. They’ve been going down for 21 years. They’re cheap. If the economy bounces back – as Warren Buffett cheerfully expects – Japanese stocks will do well. If the economy doesn’t bounce back…as we cheerfully expect…it will be off to the races with QE. The effects won’t be immediate, we predict. But they will be dramatic. One day, prices will soar. People will rush into stocks to protect themselves. Japanese stocks will be the world’s top performers…like Zimbabwean stocks were at the height of that country’s recent hyperinflation.
Buy Japanese stocks now. Put them away. Wait until you read about them in the paper.
Bill Bonner
for The Daily Reckoning
Read more: US Unemployment Another Counterfeit Figure from the Fed http://dailyreckoning.com/us-unemployment-another-counterfeit-figure-from-the-fed/#ixzz1HZhkqlLs
Must be a lot of hung overs out there today? Pretty silent. eom
Surviving a Societal Breakdown
By Bill Bonner
03/16/11 Baltimore, Maryland – “…little electricity or gasoline…” reports an eyewitness from The Washington Post, visiting Sendai, Japan. “Nearly all restaurants and shops are closed…roads blocked…supplies depleted…the devastation is catastrophic.”
“Fuel almost non-existent…survivors will spend a fourth night in near freezing temperatures without food or water…”
We were elaborating on the benefits of having a family stronghold…a retreat…a bolthole somewhere. When the going gets tough, you need a tough place to go to.
Oh yes…dear reader…the world is a dangerous place. Just so far this year, we’ve seen two big blow-ups – one in the Arab countries…the other in Japan.
Neither was expected. What’s next?
Obviously, we don’t know. If it’s a big, nasty surprise, we hope we’re not here in Bethesda, Maryland, when it comes.
Why? Because the supermarkets would be cleaned out in minutes…the gas stations would run dry…and we’d be trapped in a hostile environment. We’re only here temporarily, while our youngest son finishes high school nearby. We have no family. Few friends. And none of the deep roots you need to survive a prolonged period of crisis and breakdown. Here, we are just anonymous passers-by… We would have to depend on the kindness of strangers and the competence of government officials.
What do you need to survive a disaster? First, you need access to water. As we’ve seen in Japan, even the most developed and sophisticated infrastructure in the world can collapse when it is struck by an earthquake and a tsunami. Public water pipes break. It can take weeks or months to replace them – assuming the government and local utilities are still functioning.
That’s why it’s a good idea to have your own private source of water – a spring, a well, a small, clean stream. Failing that, you should have enough water stocked up to last at least a couple weeks.
Then, you need to worry about food. How long could you live on what is in your refrigerator? We could make it for about 24 hours. Then, it would be slim pickings. And what if the supermarket were closed? What if the 7-11 were stripped bare? What if trucks couldn’t make deliveries?
Well, surely the president would call out the National Guard. Yes, if everything is working as it should…and the National Guard doesn’t have more important things to worry about.
Just as a precaution, you should maintain a stock of canned goods and dried food. Enough to last two weeks is the minimum. A month is better. Then, rotate your stock – don’t leave it untouched for so long it goes bad.
Having an inventory of basic foodstuffs and water is essential. It will keep you calm. You won’t be in desperate straits. It will give you time to carefully assess the situation and choose your best option.
Option?
Well, yes. What if the breakdown stays broken down for months? War…hyperinflation…a full collapse of the financial or political system – the crisis could take many months to run its course. In the meantime, supply and distribution systems may be severely or completely interrupted. You need a strategy.
And that’s where the family stronghold comes into play. First, you must be able to get there. When we were confronted with the Y2K crisis more than a decade ago, we lived in Paris. Maybe the French bureaucrats would be able to maintain order…and maybe they wouldn’t. We just kept our tank full of gas, just in case. It only took one tank of gas to get out to our country house. We figured we’d wait for the desperate mobs to leave the streets. Then we’d drive out of the city and make our way to the country. Once there, we had food stockpiled in the pantry and firewood ricked up to the eves in the barn. There were cattle on-the-hoof in the fields and chickens in the henhouse.
Your stronghold should be a place where you can live almost indefinitely – on local resources. It doesn’t mean you have to have everything you need on your own property. But you have what it takes to trade with your friends and neighbors to get what you need. You may have to barter for a cow…or vegetables…with the local farmers, for example. You may have to improvise with tools and machinery. You will almost certainly get your hands dirty. And you should keep on hand some small gold and silver coins. They could be useful.
Of course, your standard of living will surely go down – at least in money terms.
But some people actually yearn for simpler, more “authentic” lives. Some find genuine satisfaction in small community life, with heavy emphasis on self-sufficiency and survival skills. As for us, we’re never happier than when we’re cutting firewood or planting a garden. Keep your laptops and your hard drives. Give us a wrench and a hammer! Dining “al fresco” on “dinde aux groseilles” at a fancy restaurant is fine…but we’re just as happy eating a turkey sandwich outside in the yard.
A breakdown in complex civilization? Bring it on! Well, maybe not…
Regards,
Bill Bonner
for The Daily Reckoning
Read more: Surviving a Societal Breakdown http://dailyreckoning.com/surviving-a-societal-breakdown/#ixzz1GunlVW5O
Broken window theory?..eom.
Japanese Officials Say Nuclear Fuel Rods Likely Melting In All Three "Troubled" Japanese Reactors
Submitted by Tyler Durden on 03/14/2011 11:31 -0400
Meltdown
It just got worse. From AP:
Japanese officials say the nuclear fuel rods appear to be melting inside all three of the most troubled nuclear reactors.
Chief Cabinet Secretary Yukio Edano said Monday: "Although we cannot directly check it, it's highly likely happening."
Some experts would consider that a partial meltdown of the reactor. Others, though, reserve that term for times when nuclear fuel melts through a reactor's innermost chamber but not through the outer containment shell.
We can only hope that the team that did not test for an 8+ magnitude earthquake did a better job at fortifying the containment shell which is the only thing separating radiation from the outer world.
http://www.zerohedge.com/article/japanese-officials-say-nuclear-fuel-rods-likely-melting-all-three-troubled-japanese-reactors
Japan earthquake: Meltdown alert at Fukushima reactor
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God I hope this isn't true:
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Japan earthquake: Meltdown alert at Fukushima reactor
Physics professor says another Chernobyl is highly unlikely
Continue reading the main story
Japanese Earthquake
•Japan tsunami Live
•Economy 'will rebound'
•Eyewitness: 'Walls vibrate'
•Man rescued at sea
Technicians are battling to stabilise a third reactor at a quake-stricken Japanese nuclear plant, after the latest explosion rocked the facility.
Fukushima Daiichi plant's operators said they could not rule out a fuel rod meltdown, after a cooling system broke.
They are frantically injecting more water into reactor 2 after its fuel rods became almost fully exposed.
A cooling system breakdown preceded explosions at the plant's reactor 3 on Monday and reactor 1 on Saturday.
The latest explosion, said to have been caused by a hydrogen build-up, injured 11 people, one of them seriously, and sent a huge column of smoke billowing into the air.
The operators are playing down any health risk and say the thick containment walls shielding the reactor cores have so far remained intact.
But the US said it had moved one of its aircraft carriers from the area after detecting low-level radiation 160km (100 miles) offshore.
Continue reading the main story
Analysis
Richard Black Environment correspondent, BBC News
---------------------------------------------------------------
The fuel rod exposure at Fukushima Daiichi number 2 reactor is potentially the most serious event so far at the plant.
A local government official confirmed the fuel rods were at one point largely, if not totally exposed; but we do not know for how long.
Without coolant around the rods, temperatures can rise to hundreds of degrees Celsius, almost certainly resulting in some melting.
This opens the possibility of a serious meltdown - where molten, highly radioactive reactor core falls through the floor of the containment vessel and into the ground underneath.
However, engineers appear to have restored some water flow into the reactor vessel and if they are successful, temperatures will begin to fall again rapidly.
Tens of thousands of people have been evacuated from a 20-km exclusion zone around the Fukushima Daiichi plant.
Experts say a disaster on the scale of Chernobyl in the 1980s is highly unlikely because the reactors are built to a much higher standard and have much more rigorous safety measures.
In other developments:
•Two thousand bodies have been found on the shores of Miyagi prefecture, Japanese media are reporting
•The government said it would pump 15 trillion yen ($182bn; £113bn) into the economy to prop up markets, but the Nikkei slumped more than 6%
•Prime Minister Naoto Kan postponed planned rolling powercuts, saying they may not be needed if householders could conserve energy
http://www.bbc.co.uk/news/world-asia-pacific-12733393
Every little bit helps...eom.
Lights go out in Seoul amid energy crunch
On Wednesday March 9, 2011, 11:27 am EST
SEOUL (Reuters) - The bustling entertainment districts of one of the world's largest cities, Seoul, were pitched into darkness early Tuesday as the government clamped down on energy use to cope with rising oil prices.
Neon signs and outdoor lights were ordered switched off in the business and entertainment districts of the South Korean capital, in a tangible sign of how the oil price rise is hurting the resource-starved country.
President Lee Myung-bak has called for a tighter national energy policy to counter the impact of higher prices stemming from a wave of unrest across the Arab world and North Africa.
South Korea is the world's No.5 crude oil buyer and No.2 liquefied natural gas (LNG) importer after Japan, and has boosted spending to acquire assets and develop oil and gas reserves, with a heavy focus so far on the Middle East and the Arctic.
Brent crude hit a high of almost $120 per barrel on February 24, the highest since 2008.
South Koreans have also been hit hard at gas stations, with pump prices jumping around 6 percent along with crude price rallies since December, while the government has been criticizing the fat margins of local refiners.
About 92,000 establishments nationwide have been targeted by the government lighting restrictions, local media reports said. Those failing to adhere to the regulations could face up to 3 million won (US$2,700) in fines.
The government in Asia's fourth-largest economy wants to curb inflation as it battles rises in crude oil and producer prices and housing rents, and has put a freeze on utility rate increases.
Analysts estimate that every additional 10 percent rise in annual average prices on international oil markets would lift South Korea's annual average inflation by around a fifth of a percentage point.
That means if global oil prices rise 10 percent above initial expectations on average for the year, South Korea's annual average consumer price inflation will reach 3.7 percent in 2011, instead of the 3.5 percent expected by the central bank. Last year's actual inflation was 2.9 percent.
Lee's government has been working on policy measures to stem inflation as campaigning starts for by-elections in April that will be a crucial gauge of support for him and his Grand National Party before parliamentary and presidential votes next year.
Economic policy is likely to figure highly on the political agenda ahead of the elections.
Finance Minister Yoon Jeung-hyun said Monday that the government may lower its 3 percent crude oil import tariff, while it was not considering lowering domestic taxes on oil.
(Reporting by Jeremy Laurence and Cho Mee-young; Editing by Chris Lewis)
http://finance.yahoo.com/news/Lights-go-out-in-Seoul-amid-rb-3067363020.html?x=0&sec=topStories&pos=main&asset=&ccode=
BILL GROSS JUST SAID – SELL EVERYTHING!!!!!!
Posted on 2nd March 2011 by Administrator in Economy |Politics |Social Issues
Bill Gross, Zero Hedge
Bill Gross manages more money than any man on earth. He lost some credibility during the financial meltdown as he appeared to be in bed with the US Government. But, over the last few months he has been speaking the whole truth and nothing but the truth. Today’s monthly outlook is brutally honest. I can’t believe no one asks this question of Bernanke when he is sitting in front of Congress.
The Fed is buying 70% of all the debt the Treasury is issuing. They are supposed to stop buying it in June. Who the hell will buy it then? The Libyans? The Egyptians? The Tunisians?
Bill Gross will buy it if the interest rate offered is 2% higher. The endgame is approaching rapidly. When they find Bernanke dead from an overdose in the next few months, it will be too late to sell. Get the hell out of the bond market and stock market now!!!
Bill Gross Asks The $64,000 Question: “Who Will Buy Treasuries When The Fed Doesn’t?” His Answer: “I Don’t Know”
Submitted by Tyler Durden on 03/02/2011 09:19 -0500
After serving as the inspiration for the Chairsatan’s latest appellation with his February missive, Bill Gross now goes for the jugular with the $64,000 question: with “nearly 70% of the annualized issuance since the beginning of QE II has been purchased by the Fed, with the balance absorbed by those old standbys – the Chinese, Japanese and other reserve surplus sovereigns. Basically, the recent game plan is as simple as the Ohio State Buckeyes’ “three yards and a cloud of dust” in the 1960s. When applied to the Treasury market it translates to this: The Treasury issues bonds and the Fed buys them. What could be simpler, and who’s to worry? This Sammy Scheme as I’ve described it in recent Outlooks is as foolproof as Ponzi and Madoff until… until… well, until it isn’t. Because like at the end of a typical chain letter, the legitimate corollary question is – Who will buy Treasuries when the Fed doesn’t?” Bingo, we have a winner. This is precisely the issue that Zero Hedge has been exposing over the past 6 months, and is the reason why the Fed is now locked in a QEasing corner from which there is no exit. To his credit, Gross attempts to provide an answer: “Someone will buy them, and we at PIMCO may even be among them. The question really is at what yield and what are the price repercussions if the adjustments are significant… What I would point out is that Treasury yields are perhaps 150 basis points or 1½% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%.” And the stunner: “Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market handoff and stability in currency and financial markets. 15% gratuities may lie ahead, but more than likely there is a negative two-bit or even eight-bit tip lying on the investment table. Like I did 45 years ago, PIMCO’s not sticking around to see the waitress’s reaction.” Translation: Pimco just issued a “sell” rating on everything.
From Bill Gross March Outlook.
Two-Bits, Four-Bits, Six-Bits, a Dollar
A successful handoff from public to private credit creation has yet to be accomplished, and it is that handoff that ultimately will determine the outlook for real growth and stability.
Because quantitative easing has affected all risk spreads, the withdrawal of nearly $1.5 trillion in annualized check writing may have dramatic consequences.
Who will buy Treasuries when the Fed doesn’t? The question really is at what yield, and what are the price repercussions if the adjustments are significant.
The Gross family legend is rather full of Paul Bunyan tall tales passed down over the years but none perhaps more self- revealing than “The Day When I Gave the Waitress a Negative Tip.” Admittedly I was young and full of testosterone but the service was terribly sloooww and I was in a big hurrrryyy! Finally presented with a $2.00 bill, I took two bucks and wrote the following on a nearby napkin: “Thanks for the sh…ty service, negative tip – you owe me 25 cents.” I didn’t stick around to see the reaction, but I’m sure it was a unique experience for the young lady. I was, of course, like any 21-year-old, in the business of establishing a repertoire of “unique” experiences and this was but one notch on my Paul Bunyan Axe.
These days, my negative two-bit tip would hardly leave a dent in the estimated $25 billion annual pool of tips left at American restaurants. No matter. What was revealing at the moment back in 1965 was what it said about me: impatient, willing to disappoint people (at least strangers) and a little inconsiderate of some people. Maybe a little imaginative too. In any case, social scientists have recently confirmed that tipping does send a message and that it is more about the man or the woman in the mirror than the quality of the service. The primary reason for tipping appears to be social approval. Theoretically it is a power tool, a financial weapon that commands “treat or trick,” but studies since the 1940s have shown that most people do not have the requisite nerve to stiff a waitress even for unreasonable service. And too, William Grimes, in The New York Times, pointed out a decade ago that a waitress who touched her customers when asking if the meal was OK, raised her tip from 11 to 14% of the tab. Waiters’ personal introductions, as well as crouching at the table when taking an order, also worked famously. And here’s an interesting tidbit: Solo diners leave an average tip of 19.7% while a five-some drops all the way to 13.2%. Evidently, the size of the tip is a factor, and a reason why restaurants charge 16%+ for groups of six or more. That surely would have enraged Leo Crespi, who at the turn of the 20th century proposed the formation of a National Anti-Tipping League. While ahead of his time, he would likely play second fiddle to yours truly 65 years later who invented the “negative tip.” Recently my 22-year-old son, Nick, carved a notch on his own Paul Bunyan Axe with a negative $1.00 tip adjusted for 45 years of inflation. Tip off the old block, I’d say!
Speaking of investment tips, no clue or outright signal could have been any clearer than the one given in December 2008, labeled “Quantitative Easing.” While the term was new, the intent was obvious: (1) pump public money into the financial system to replace private credit that was being destroyed in the process of deleveraging; (2) lower interest rates on intermediate and long-term mortgages/Treasury bonds and in the process flush money into risk assets – most visibly the stock market; and (3) forecast publically then hope that higher stock prices would lead to a wealth effect, and in turn generate new private sector lending, job creation and a virtuous circle of economic expansion that would heal the near-fatal wounds of Lehman and its aftermath. If that was the game plan, then so far, so good, I’d say. Interest rates are artificially low, stocks have nearly doubled since QE I’s first announcement in December of 2008, and the U.S. economy will likely expand by 4% this year, although a $1.5 trillion budget deficit must share QE’s Oscar for most stimulative government policy of 2009/2010.
Many critics, though, including yours truly, would wonder whether Quantitative Easing policies actually heal, as opposed to cover up, symptoms of an unhealthy economy. They might at the same time ask simplistically whether it is possible to cure a debt crisis with more debt. As I have discussed in numerous Investment Outlooks, the odds of an ultimate QE success seem critically dependent on several criteria: (1) initial sovereign debt levels that are relatively low. Reinhart and Rogoff in their book “This Time Is Different” have suggested an 80–90% of GDP limit to sovereign debt levels before they become counterproductive; (2) the ability of a country to print globally acceptable scrip – especially enhanced if that nation has the reserve currency status now ascribed to the U.S.; and (3) the willingness of creditors to believe in future real growth as a rebalancing solution to current excessive deficits and debt levels.
Most observers would agree with us at PIMCO that QE I and II programs were initiated and employed under the favorable conditions of (1) and (2). The third criterion (3), however, is more problematic. A successful handoff from public to private credit creation has yet to be accomplished, and it is that handoff that ultimately will determine the outlook for real growth and the potential reversal in our astronomical deficits and escalating debt levels. If on June 30, 2011 (the assumed termination date of QE II), the private sector cannot stand on its own two legs – issuing debt at low yields and narrow credit spreads, creating the jobs necessary to reduce unemployment and instilling global confidence in the sanctity and stability of the U.S. dollar – then the QEs will have been a colossal flop. If so, there will be no 15%+ tip for the American economy and its citizen waiters. An inflation-adjusted “negative buck” might be more likely.
Washington, Main Street – and importantly from an investment perspective – Wall Street await the outcome. Because QE has affected not only interest rates but stock prices and all risk spreads, the withdrawal of nearly $1.5 trillion in annualized check writing may have dramatic consequences in the reverse direction. To visualize the gaping hole that the Fed’s void might have, PIMCO has produced a set of three pie charts that attempt to point out (1) who owns what percentage of the existing stock of Treasuries, (2) who has been buying the annual supply (which closely parallels the Federal deficit) and (3) who might step up to the plate if and when the Fed and its QE bat are retired. The sequential charts 1, 2 and 3 are illuminating, but not necessarily comforting.
What an unbiased observer must admit is that most of the publically issued $9 trillion of Treasury notes and bonds are now in the hands of foreign sovereigns and the Fed (60%) while private market investors such as bond funds, insurance companies and banks are in the (40%) minority. More striking, however, is the evidence in Chart 2 which points out that nearly 70% of the annualized issuance since the beginning of QE II has been purchased by the Fed, with the balance absorbed by those old standbys – the Chinese, Japanese and other reserve surplus sovereigns. Basically, the recent game plan is as simple as the Ohio State Buckeyes’ “three yards and a cloud of dust” in the 1960s. When applied to the Treasury market it translates to this: The Treasury issues bonds and the Fed buys them. What could be simpler, and who’s to worry? This Sammy Scheme as I’ve described it in recent Outlooks is as foolproof as Ponzi and Madoff until… until… well, until it isn’t. Because like at the end of a typical chain letter, the legitimate corollary question is – Who will buy Treasuries when the Fed doesn’t?
I don’t know. Reserve surplus sovereigns are likely good for their standard $500 billion annually but the banks are now making loans instead of buying Treasuries, and bond funds are not receiving generous inflows like they were as late as November of 2010. Who’s left? Well, let me not go too far. Temporary voids in demand are not exactly a buyers’ strike. Someone will buy them, and we at PIMCO may even be among them. The question really is at what yield and what are the price repercussions if the adjustments are significant. Fed Vice Chairman Janet Yellen in a speech just last week confirmed the theoretical rationale that Treasury yields are directly linked to the outstanding quantity of longer-term assets in the hands of the public. If that quantity is suddenly increased in one year as the charts imply, what are the yield consequences? What I would point out is that Treasury yields are perhaps 150 basis points or 1½% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%. This conclusion can be validated with numerous examples: (1) 10-year Treasury yields, while volatile, typically mimic nominal GDP growth and by that standard are 150 basis points too low, (2) real 5-year Treasury interest rates over a century’s time have averaged 1½% and now rest at a negative 0.15%! (3) Fed funds policy rates for the past 40 years have averaged 75 basis points less than nominal GDP and now rest at 475 basis points under that historical waterline.
As a counter, one would argue (and I would partially agree) that the U.S. and indeed developed global economies must keep yields artificially low for some time if post Lehman healing is to take place. But that of course is the point. By eliminating QE II, the Fed would be ripping a Band-Aid off a partially healed scab. Ouch! 25 basis point policy rates for an “extended period of time” may not be enough to entice arbitrage Treasury buyers, nor bond fund asset allocators to reenter a Treasury market at today’s artificially low yields. Yields may have to go higher, maybe even much higher to attract buying interest.
Investors should view June 30th, 2011 not as political historians view November 11th, 1918 (Armistice Day – a day of reconciliation and healing) but more like June 6th, 1944 (D-Day – a day fraught with hope for victory, but fueled with immediate uncertainty and fear as to what would happen in the short term). Bond yields and stock prices are resting on an artificial foundation of QE II credit that may or may not lead to a successful private market handoff and stability in currency and financial markets. 15% gratuities may lie ahead, but more than likely there is a negative two-bit or even eight-bit tip lying on the investment table. Like I did 45 years ago, PIMCO’s not sticking around to see the waitress’s reaction.
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