Where are Precious Metals Headed in 2008?

Precious metals have appreciated considerably amidst of all the mess within the US economy. Gold has pushed from under $300 an ounce in 2002 to over $1000 - an all time high in nominal terms, while silver during the same time period rose from under $5 an ounce to over $20.

There is currently much debate over whether this secular bull market for precious metals will continue, or whether it will reverse. Many investors still remember the speculative high of $850 per ounce of gold in 1980 which caused a lot of people to lose money. This article will attempt to argue that precious metals will likely maintain their price levels this time around. We will look at relevant factors such the Gold Cartel, Money Supply Growth, Demand and Supply, The Hayekian Principle and Technical Analysis.

Gold Cartel Losing Strength

The gold rush has only recently been widely published in mass media. Previously gold was shadowed by the stock market boom from 2005 to 2007 by the federal government and the gold cartel. The gold cartel is an alliance between a few of the big bullion trading banks, several central banks with large gold holdings and the US government. This group tries to manage and control the gold price to their advantage, regardless of the disruption they cause to the free-market. Each of the cartel members has their own agenda. The US government for example aims to make the dollar look worthy of being the world’s reserve currency; the government accomplishes this by keeping the price of gold low.

Having a low price of gold suppresses the demand for gold and diverts the demand instead to the dollar. Note that the US dollar became a fiat currency in 1971 having removed any connections to the weight of gold. The central bank members within the cartel follow the US government command; they are also fiat currency, and hence want to keep the price of gold low. The bullion banks within the cartel are there to execute central bank commands, since the central banks themselves cannot actively trade gold.

Since the gold cartel has been shorting gold from the $300 level several years ago, they’ve found it increasingly harder to keep gold prices down due to growing demand for the commodity and devaluation of the US dollar. The tremendous short position accumulated over the years is not favorable for the cartel, especially when gold is at the $1000 level and is not looking to turn back any time soon. The cartel has lost the battle to keep gold prices down. What this means for gold is that if the cartel cover their positions in the next few years, then gold as some economists have already projected, may very well go beyond $3000.

Money Supply Growth

Money supply has been growing tremendously for several years; it was recently measured at a 17% annual growth rate, according to independent research. (See Exhibit 1.) The growth of money supply contributes to higher monetary inflation, which generates higher consumer price index. (See Exhibit 2.) With higher CPI comes rising interest rates. Gold performs strongly in this environment because investors question the purchasing power of the dollar and become nervous about the market uncertainty.

Manipulation by the US government has been a major reason for the increase in money supply. The government continuously shifts the blame to other factors such as greater fuel costs, or labor unions or corporations. Yet, we know the real culprit is the government, since prices would generally decrease in a free market economy. However, the government does not seem to have realized the problem, because it continues to request the Federal Reserve inflate the money supply, at increasing rates, and devaluing the dollar in the process. Although generally bad for the economy due to possibilities of hyperinflation, this trend has and will likely continue to contribute to the gold bull market.

Demand and Supply

A major reasons leading to the gold bull market goes back to economics 101 – increasing demand and decreasing supply for the metal. The increasing demand for gold is driven not only by large institutional investors who are losing confidence in the US dollar, but also by commercial industries and retail consumers in Jewelery, Retail, Industrial and Exchange Traded Funds. From Exhibit 3, we can see that the demand for gold has increased since 2003 but supply has continued to decrease. Supply has fallen by 4% from an already tight 2006 level. The constrain in the supply of gold has also restricted demand – since the metal cannot be purchased if it’s not available in the market.

China and India are two particular markets that have seen exceptional surge in demand for gold, due to the increased economic prosperity of these two countries. (Exhibit 4.) Greater china reached 363 tonnes in 2007, 23% above 2006 levels. This level of demand was good enough to overtake the United States to become the second largest retail market for gold Jewelery in volume, behind India. Looking ahead, gold demand will continue to rise and supply will likely continue to be constrained. This creates a favorable condition for the price of gold to continue to increase in the coming years.

The Hayekian Triangle

The Hayekian triangle is a heuristic device that gives analytical legs to a theory of business cycle. The right-angled triangle depicts the macroeconomy as having a value dimension and a time dimension. The bottom axis is essentially the entire value chain from raw materials to the consumer, and at each stage, there is a decrease in production time. For example, it takes longer to move from raw materials to retail than it is to go from wholesale to retail. The vertical axis is the output delivered to the consumers, or a measure of consumer spending. The slope of the triangle is the interest rate. The lower the rate of interest, the more it benefits businesses to invest in future capacity because it’s easier for projects to exceed the cost of capital. The higher the rate of interest, it is more difficult to increase capacity, because businesses can instead invest the money in long-term treasuries that pay a healthy interest without the risk. As a result, firms that are highly asset intensive like mining tend not to expand when interest rates are high. For the precious metal investor, this is a good sign since the Federal Reserve is undergoing another wave of interest rate cuts. Precious metal companies will be able to use the cash they have accumulated over the years to invest in greater exploration and production.

Technical Analysis

Let us now switch gears and look into the price action of gold over the past year to see if we can dissect where this commodity is headed. From the chart, we can see very aggressive growth especially in the past four month – likely due to the Fed interest rate cuts from 5% to 3% within a 2-3 month window. Both the 13 day and 50 day simple moving average are trending up. The commodity is trading in a healthy channel and does not show signs of breaking down. Short-term support is set at around $960 with medium range support at $755. The RSI has been increasing for some time now, which shows increasing momentum in the price action. In conclusion, most of the indicators are currently showing bullishness for gold.

click to enlarge all images

As we have clearly shown in this report, gold is here to stay. Despite reaching record levels of $1000, there seems to be much more room for gold to grow in the coming months and years, as the M3 money supply continues to increase, driving up inflation and devaluing the dollar. For most investors, it is not too late to invest in this commodity. There are several ways to catch the gold rush:

1. Purchase futures contracts from NYMEX or CBOT.
2. Purchase stocks in the large gold producers such as Barrick Gold (ABX), Goldcorp (GG), or New Mont Mining (NEM) – although many of these have already significantly increased in share prices.
3. Purchase junior gold exploration or producer companies such as Yamana Gold (AUY), Alamos Gold [AGI.TO], or Eldorado Corp (EGO) – many of these smaller mining companies are lagging spot gold prices which may be a better play if you’re looking for greater returns (also higher risks).
4. Purchase gold ETFs such as the Streettracks gold shares (GLD).
5. Finally, for those people who do not want to take too much risk in the market, you may want to purchase gold bullion coins.
   

Appendix

Exhibit 1

US Money Supply – 2003 - 2008

John Williams’ Shadow Government Statistics

Exhibit 2

Reported CPI and Adjusted 1980-2008

John Williams’ Shadow Government Statistics

Exhibit 3

Gold Demand and Supply – 1997-2007

World Gold Council

Exhibit 4

Gold Demand by China and India

World Gold Council

Exhibit 5

The Hayekian Triangle

Auburn University

Disclosure: Author holds long positions in some of the above-mentioned securities

Comments

[Bhakta]

Thanks for a very interesting article. I bought shares in VGPMX for under $9 several years ago, and they are near $40, ditto for TGLDX. They are about the only investments I have no complaint with at this time.

[mongoose]

I think we are in a new up cycle from the 2006 low???? The 60 year cycle in Gold produced a low in 1998/99. This trend should continue well into 2010/11. I have investments in many of the above, and others.

[mjw1949]

I have been tracking gold since 1984 and saw the bottom in 2001.
Ok I should be retired by now. Beware the short term trader..he can be one's own worst enemy. The 850 gold in 1980 adjusted to inflation would be somewhere between $2000 and $3000 in today's money.
I believe there is along way to go.

[marxbites]

None Dare Call It Treason
blog.mises.org/archives/007926.asp
March 17, 2008 10:24 PM by Justin Ptak

Jim Rogers:

"They are really giving up on the dollar, they are driving the dollar down, they are printing money as fast as they can. Look, the Federal Reserve has just in the last week spent 230 billion dollars taking on loans, house loans, mortgages, out of the system. This man Bernanke was never elected by anybody, I don't know where he gets the audacity to spend 230 billion dollars of our money to bail out a few friends on Wall St. This is totally outrageous.

He is next going to be in his helicopter going around the world collecting rent payments from people. Who gave him the authority to do that? To destroy the dollar, to destroy our currency, to essentially destroy the American economy? And, no one ever voted for the man. It is just mind boggling to me.

And then he gives more money to Bears Stearns so these guys can continue to drive around in their Maserati's."

----------------------------------------...

Is the Fed an Inflation Fighter or Creator?
By Frank Shostak
Posted on 10/25/2005
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Every few days, a senior Fed official expresses concern regarding the effect of high gasoline prices on inflation. These comments are always phrased in the way a meteorologist would report on the weather, as if the phenomenon in question is an act of nature. Even stranger, these statements imply that only the Fed can hope to save us from this natural disaster.

To invoke another metaphor, this is like the cook who bakes a poison pie and then arrives on the scene of grave sickness, claiming to be the medic with the antidote.

It is the Fed that creates, not cures, inflation. The surest way to stop it is to stop the printing presses—something that a government with massive debt and the desire to sustain a boom is not likely to do.

The Fed’s latest warnings began on September 5, 2005, when the retail price of gasoline climbed to $3.069 per gallon—an increase of 72.6% from early January of this year.

They believe that the decisive factor in the setting of an inflationary spiral is people’s inflationary expectations. This causes workers to press for higher wages. Businesses try to recoup these wage increases by pushing the prices of goods and services higher. This ignites inflation, or so it is believed.

On October 19, 2005, the President of the Dallas Federal Reserve, Richard Fischer, said at a luncheon in Houston, "I will not waver from advocating policy that discourages expectations of higher core inflation. The object will always be to keep inflation at bay, so that the American business machine can keep on humming."

It is inflationary expectations, so they believe, that keep inflation going once inflation is triggered. Also, once expectations are set in motion it is not easy to get rid of them.

On October 20, 2005, the President of the St. Louis Federal Reserve, William Pool, told reporters, "If confidence in price stability starts to erode and inflation expectations begin to develop, it can be painful and long to reverse those expectations. Undoing inflationary expectations can be a matter of a couple of years."

Consequently, he believes that the Fed must raise interest rates enough to keep inflationary expectations well contained. He also added that, "if we were to end up overshooting on the federal funds rate target on the high side and we found that the economy slowed more quickly than anticipated then cutting rates could restore growth relatively quickly."

On October 21, 2005, the President of the Federal Reserve Bank of Richmond, Jeffrey Lacker, told reporters that he is increasingly worried about inflation and the prospect that higher energy prices will filter through into other goods. "My concern about inflation is distinctly higher now. We are facing the prospect now of the possibility of the energy price surge passing into core prices."

The latest data gives credence to the Fed officials’ concerns. The rate of growth of the producer price index which excludes energy prices jumped to 0.6% in September after falling 0.1% in August. Year-on-year the rate of growth climbed to 2.4% in September from 2.2% in the previous month and 1.7% in June.

Furthermore, year-on-year the consumer price index rose by a massive 4.7% in September. Additionally, according to a closely watched survey by the University of Michigan, consumers' expectation of inflation 12 months ahead jumped to 4.6% in early October from 3.1% in August.

On account of these developments, it is believed, the Fed must show leadership and act as soon as possible against emerging inflation. Once people see that the Fed is a serious inflation fighter this will calm down inflationary expectations and will keep inflation at bay, or so it is held.

What is inflation all about?

In a market economy, money enables the goods of one specialist to be exchanged for the goods of another specialist. For instance John the baker has produced ten loaves of bread, which he has exchanged for ten dollars. He then uses the ten dollars to buy twenty tomatoes from a farmer Bob. Note that in order to acquire twenty tomatoes John had to produce ten loaves of bread first. In short, his consumption of tomatoes is fully backed up by the production of bread. Also, note that the money here is honestly earned and hence fully backed up by John’s production of bread. Or we may also say that here we have a case where something useful is exchanged for money and money in turn is exchanged for some other useful thing—something is exchanged for something else by means of money.

Let us now consider a case of a counterfeiter—call him Charlie—who instead of producing something useful has created ten dollars by means of printing these ten dollars. He then uses these dollars to buy twenty tomatoes from Bob the farmer. His counterfeiting amounts to an "exchange" of nothing (since Charlie hasn’t produced anything economically useful) for ten dollars, which is in turn exchanged for twenty tomatoes.

Consequently, by means of money, which was created out of "thin air," Charlie the counterfeiter can consume without any production. Note that the money here, which was created out of "thin air," is not supported by any production of useful goods or services. Or we can also say that here we have a case where nothing useful is exchanged for money and money is exchanged for useful things—nothing is exchanged for something useful by means of money out of "thin air."

By creating money out of "thin air," Charlie the counterfeiter has in fact boosted or inflated the stock of money. This inflation of money in turn has enabled Charlie to secure tomatoes at the expense of a genuine wealth producer John the baker. In other words, while John the baker has contributed to the pool of funding, i.e., the pool of final goods this is not the case as far as Charlie the counterfeiter is concerned—he is consuming final goods without putting anything useful to the pool of these goods.

It follows then that the diversion of real wealth from wealth generators to non-wealth generators by means of increases in the money supply is what inflation is all about. Or we can say that inflation is about the economic impoverishment of wealth producers, which is set in motion by means of inflating the stock of money.

Through the increase in money supply, Charlie the counterfeiter adds an extra demand for goods and services without making any contribution to the production of goods and services. In short, the new money that Charlie created together with the previous money is now chasing an unchanged stock of goods.

Now, a price is the amount of dollars paid per unit of a good. Hence with more money now chasing a given amount of goods it implies that the price, i.e., the amount of dollars now paid for a unit of a good, has risen. Note that a general increase in prices here took place as a result of the inflation of the money stock.

Observe that the fall in the purchasing power of money, i.e., general increase in prices, is not what triggers the economic impoverishment of wealth generators. The trigger is the creation of money out of "thin air," or the inflation of the money stock. A general increase in the prices of goods and services is merely the symptom of the inflation of money, i.e., the manifestation of inflation. In short, a general increase in prices reflects the fact that increases in the money supply, i.e., money out of "thin air," have given rise to nonproductive consumption.

Note what we are not saying. We don’t say that inflation is the increase in prices caused by increases in money supply. What we are saying is that increases in money supply is what constitutes inflation.

What is wrong with the popular definition of inflation?

According to Mises,

Inflation, as this term was always used everywhere and especially in this country, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term `inflation' to refer to the phenomenon that is an inevitable consequence of inflation, that is the tendency of all prices and wage rates to rise. The result of this deplorable confusion is that there is no term left to signify the cause of this rise in prices and wages. There is no longer any word available to signify the phenomenon that has been, up to now, called inflation.

In short, what today is called inflation is the general rise in prices, which is in fact only the outcome of inflation. Consequently, anything that contributes to price increase is called inflationary and therefore must be guarded against.

Thus a fall in unemployment or a rise in economic activity are all seen as potential inflationary triggers and therefore must be restrained by central bank policies. Some other triggers such as rises in commodity prices or workers wages are also regarded as potential threats and therefore must be always under the watchful eye of the central bank policy makers.

If inflation is indeed just a general rise in prices, why is it regarded as bad news? What kind of damage does it do? Mainstream economists maintain that general price increases cause speculative buying, which generates waste. Inflation, it is maintained, also erodes the real incomes of pensioners and low-income earners and causes a misallocation of resources.

Despite all these assertions regarding the side effects of what they define as inflation, mainstream economics doesn’t tell us how all these bad side effects are caused.

Why should a general rise in prices hurt some groups of people and not others? Why should a general rise in prices weaken real economic growth? Or how does inflation lead to the misallocation of resources? Furthermore, if inflation is just a rise in prices, surely it is possible to offset its bad side effects by adjusting everybody’s incomes in the economy in accordance with this general price increase. However, once it is established that inflation is about the destruction of the process of wealth generation then all the above questions are easily answered.

We have seen that increases in the money supply set in motion an exchange of nothing for something. They divert real funding away from wealth generators toward the holders of the newly created money. This is what sets in motion the misallocation of resources, not price increases as such, which is only the manifestation of this misallocation.

Moreover, the beneficiaries of the newly created money, i.e., money out of "thin air"—are always the first recipients of money, and so they can divert a greater portion of wealth to themselves. Obviously, those who either don’t receive any of the newly created money or get it last will find that what is left for them is a diminished portion of the pool of real funding.

Additionally, real incomes fall not because of general rises in prices, but because of increases in the money supply, which gives rise to nonproductive consumption. In other words, inflation depletes the real pool of funding, which undermines the production of real wealth—i.e., a lowering of real incomes.

General increases in prices, which follow increases in money supply, are an indication that the erosion of peoples’ purchasing power has taken place. It is not the symptoms of a disease but rather the disease itself that causes the physical damage. Likewise, it is not a general rise in prices but increases in the money supply that inflict the physical damage on wealth generators.

Can inflationary expectations trigger a general price rise?

Recall that according to popular thinking, workers' expectations for higher inflation make them demand higher wages. Increases in wages in turn lift the cost of producing goods and services and force businesses to pass these increases on to consumers by raising prices. It is true that businesses set prices and it is also true that businessmen while setting prices take into account various costs of production. However, businesses are ultimately at the mercy of the consumer who is the final arbiter.

The consumer determines whether the price set is "right," so to speak. Now, if the money stock hasn’t risen, consumers won’t have more money to support the general increase in prices of goods and services. (Remember, that a price is the amount of money per unit of a good).

Consequently, a strengthening in inflationary expectations cannot by itself set in motion a general increase in prices. After all the realization of expectations has to go through the monetary channel. So irrespective what people’s expectations are, if the money supply hasn’t increased then peoples monetary expenditure on goods cannot increase either. This means then that no general strengthening in price increases can take place without an increase in the pace of monetary pumping.

By the same token, a strengthening in gasoline price rises cannot by itself set in motion a stronger rate of increase in general prices. Without the strengthening in the rate of growth of money supply relative to the rate of growth of goods there can’t be a general strengthening in price rises.

However, one could argue that a rise in inflationary expectations will cause the lowering of the demand for money, which with all other things being equal, will result in the decline in money’s purchasing power, i.e., a general rise in prices. However, what does a change in the demand for money have to do with inflation?

Inflation as we have seen is an increase in the money supply that leads to economic impoverishment through the increase in nonproductive consumption. There is however, nothing wrong with changes in the demand for money. This is no different from changes in the demand for any good. The fact that people want to hold less money doesn’t give rise to nonproductive consumption that sets in motion a process of economic impoverishment.

Likewise inflation is not about increases in money supply in excess of the demand for money. According to this way of thinking, as long as the increase in money supply is fully backed up by the demand for money there is no inflation. Note also, that in this way of thinking inflation is regarded as a general rise in prices. However, irrespective of the demand for money, once the money supply increases it sets in motion a process of impoverishment, which also sets in motion the dreadful boom-bust cycle.

It follows that the popular view, which asserts that by means of transparency the Fed can prevent rises in inflation, doesn’t hold water. Irrespective of how transparent the Fed is, what matters here is the rate of increase in the money supply. It is rises in the money supply that cause the physical damage to the process of real wealth formation irrespective of the Fed’s transparency.

Imagine that somehow the Fed did manage to convince people that central bank policies are aimed at stopping inflation and maintaining price stability, yet at the same time the central bank also raises the rate of growth of money supply. So even if inflationary expectations were stable the destructive process will be set regardless of these expectations on account of the increase in the rate of growth of money.

Note that people’s expectations and perceptions cannot offset this destructive process. It is not possible to alter the facts of reality by means of expectations. The damage that was done cannot be undone by means of expectations and perceptions.

Is the Fed an inflation fighter?

Between January 2001 and June 2004, the Fed had pursued an aggressive lowering of the federal funds rate target. The target was lowered from 6.5% to 1% by June 2003. To attain a given federal funds rate target, the Fed must constantly manage the flow of money to financial markets. Changes in the Federal Reserve’s balance sheet, also known as Federal Credit, depict the variability in the monetary pumping to sustain a given federal funds rate target.

Thus, to support a lower fed-funds rate target the yearly rate of growth of Fed Credit jumped from 0.7% in January 2001 to 12% by September 2001. Furthermore, during most of the 2003 period the rate of pumping by the Fed stood in excess of 9%.

The effect of Fed’s pumping is manifested by the up-trend in the growth momentum of the CPI since June 2002 (see chart). Note that the general rise in prices as depicted by the rate of growth in the CPI is driven by the past actions of the Fed.


By responding to the symptoms of inflation that the Fed has itself created the US central bank gives the impression that it fights inflation. Once it is realized that inflation is increases in the money supply, it becomes obvious that the source of inflation is the Fed and fractional reserve banking. It also becomes obvious that rather than fighting inflation, it is the Fed itself that generates the inflationary process. On this Mises wrote,

To avoid being blamed for the nefarious consequences of inflation, the government and its henchmen resort to a semantic trick. They try to change the meaning of the terms. They call "inflation" the inevitable consequence of inflation, namely, the rise in prices. They are anxious to relegate into oblivion the fact that this rise is produced by an increase in the amount of money and money substitutes. They never mention this increase. They put the responsibility for the rising cost of living on business. This is a classical case of the thief crying "catch the thief." The government, which produced the inflation by multiplying the supply of money, incriminates the manufacturers and merchants and glories in the role of being a champion of low prices.

It is amazing that almost forty years ago the champion of present inflationary policies, Fed Chairman Alan Greenspan wrote the following,

The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

Conclusions


Devastating: $5
For the past several weeks, Fed officials have warned the public about the growing inflation threat. Officials blame the growing risk of inflation on the rising price of gasoline as a result of the rise in crude oil prices and hurricane Katrina. Despite all this Fed officials are resolute that it is their duty to protect the US economy from the inflation menace.
According to officials, what is needed to counter the looming inflation threat is to prevent an acceleration in inflationary expectations. This, it is held, can be achieved by pursuing a transparent and credible policy to counter inflation. It is overlooked by most experts that the source of inflation has nothing to do with the high price of oil and high gasoline prices.

The main source of inflation is the Fed itself. Various measures that Fed officials are promising to employ in the fight against inflation rather than fixing the problem will make things much worse. These policies only generate a further misallocation of resources, which in turn undermines the process of wealth generation.



----------------------------------------...
Frank Shostak is an adjunct scholar of the Mises Institute and a frequent contributor to Mises.org. Send him MAIL and see his outstanding Mises.org Daily Articles Archive. Comment on this article on the Mises Economics Blog.

[guntherd20]

Ok Dr Shostak, great explanation of "power" beyond the control of us little guys. Please tell us powerless ones how best to protect what we have worked for and saved over many years.

[wiztrader]

Jim Rogers is right, where does the Fed get $200B? This outrageous growth in money flow is destroying our dollar.

[BlueSky&Sunshine]

The bottom line seems to be that gold's recent rise to $1000+ is sustainable and in fact it will remain in a strong primary uptrend. But other writers are warning that a sharp if only short/mid-term correction is likely. Then again there's also talk of a deflationary spiral that could see gold sink from it's current high for several years. The question then is: How strong a stomach to gold bugs need to have? Do we hold our gold and ride out the correction? Or do we try to trade it - with all the timing errors, tax consequences, and other headaches that this entails? Or do we bail out at what we hope is a peak? My 2 cents worth: Given: The increasing demand for gold (new exchange opened in China recently along with recent poor performance of Chinese equities, long-term aversion to USD and US equities by foreigners, the apparent start of an inflationary cycle), The unstable and gradually diminishing supply of gold, and Potential for geopolitical events, especially involving crude oil or the US current account deficit (e.g. sharp devaluation of USD), it seems to me that IF you can afford an unrealized 15 - 20% loss on gold for perhaps 2 years, then holding long positions now, and either opening them (if you aren't already long) or adding to them at the bottom of the nearterm correction, is the least risky course of action. Any better ideas?

[poet1]

if you believe the market is manipulated, that the dollar will keep sliding down, that there will be another 'take-under/s' like bear stearns, that the next shoe to drop is hedge funds, or derivitives, then buy gold & hold.

if you think there will be a miracle, and the dollar will regain & retain all the value it has lost to date, then don't buy gold.

[pseydocyst]

people talk about gold going up. The truth is that the dollar is going down.

The dollar is going down due to massive inflation.

There is a huge amount of counterfeit dollar bills out there. Pretty soon people will not be taking dollars anymore.

[vaduz]

very interessting, especially about the cartel. i cannt understand how
one can be short from 300 to 1000 usd whithout going bust.
but the basic trend seems really to be up further to new highs.

[menthatmeanjustwhattheysay]

...where does the Fed get $200B?





Where do they get it?

It come straight off the printing press.

Well, actually in our electronic age there is no need to waste ink and paper to create $200,000,000,000...they just magnetize a few microns on some chip and $200,000,000,000 is created instantly.

It will be a sad state of affairs if OPEC ever starts to demand gold for their crude.

But this is just part and parcel for the American sickness that has shrouded our country over the last decade.

America is built on debt, gambling and excessive spending.

Without compulsive spending and conspicuous consumption we would fail as a country.

70% of our 'economic heath,' better termed as 'economic sickness' is based on consumer spending. When the consumer can't compulsively spend any longer our economy collapses...we are not a healthy country.

China on the other hand is built on selling its output not only to its countries citizens but the entire world...especially the USA. America has become the bitch of China.

With one breath we talk about cutting global warming and how we have to cut our dependence of fossil fuel.

Then with the next breath we demand no cut backs in our standard of living, we must spend and consume above all else...build more, build faster, build bigger.

The GDP must only go up, up and away...all the while this consumption just increases global warming and keeps depleting the fossil fuels faster and faster. Sick...sick..sick mentality, buy more cars, build more houses and monstrosities of architecture, spend more but 'cut back' to save our dear fossil fuels.

And leading the pack of over consumers is the USA.

www.nationmaster.com/graph/ene_oil_con-e...

Consumption is ingrained in us and we know no other way. And even if we wished to amend our ways, how could all our retirement funds take the hit?

You see we have the tiger by the tail and cannot let go...but our grip is getting tired and all hell is going to break loose soon.

Our world population has grown to levels where it has passed the point of no return for supporting a sustainable human population as we know it today when it comes to their energy demands.

And what does all that consumerism lead to?

It leads to the mess we are in now and the bigger mess the world will be in once India and China pick up momentum to copycat the envious lifestyle that they have held in high esteem as the 'American Dream'

The problem is not with the earth having enough land for all its people - the problem is with earth providing ad infinitum for all the needs the people crave.

The more people born, the more heat is produced from their life and all their cravings, As such, the warmer and more polluted the earth gets and the more energy they all use and the earths resources are depleted.

Fueling the problem of consumption is the games the Federal and World banks play with interest rates. They manage the economies in ways to fuel consumption and mask the real trend.

Witness the recent cries for Federal bankers to lower interest rates...so the stock market can go up...fueled by spending of the consumer.

It is drug habit that Greenspan got us hooked on and we just can't get away from.

Our economy is not based on sustainable health - it is based low interest credit to encourage compulsive spending, debt and living a life of constant consumption with a 'disposable mentality' when it comes to durable goods.

All this consumption to artificially fuel our economy to make our retirement funds only go up contributes to more and more global warming and the depletion of our natural resources.

Then the governments juggle the numbers to make the inflation figures seem artificially low, so everyone's retirement portfolio will make them happy so they will continue to buy and consume more...and on it goes....IT IS ALL WE KNOW and the bill is coming due soon!

I think our countries future will be that of...'America...a Democratic, Communist Nation Under God.'

Life as we know it in America is coming to an end in the not so distant future.

And maybe I am using the wrong word with communism?

Maybe it should be Nationalism? Socialism? I don't know since I have little interest in politics.

As far for what I means, it could be compared somewhat to Plato's Republic. Where the republic came first and people came second.

But with the US, the injection of Democratic values as well as a spiritual foundation that supports our country from its earliest beginnings would 'hopefully' separate us from the atheist based communists that have been run as dictatorships.

Am I as Christian zealot?

No, I am an agnostic freethinker.

As for why I have come up with such a bold statement as 'America...a Democratic, Communist Nation Under God?'

See these DVD's

1940's House PBS (albeit our enemy is not Germany...it is energy) And witness something along the lines of a 'Democratic, Communist Nation Under God.'

www.amazon.com/1940s-House-Marguerite-Pa...

A Crude Awakening
www.oilcrashmovie.com /

End of Suburbia
www.endofsuburbia.com /

Oil Apocalypse
store.aetv.com/html/product/index.jhtml?...


See these books:

www.amazon.com/Out-Gas-End-Age-Oil/dp/03...

www.amazon.com/Hubberts-Peak-Impending-W...

www.lastoilshock.com /


...put it all together and you have 'America...a Democratic, Communist Nation Under God.' as the 'best fit ' equation.

And for dessert...add 'politics as usual'

See:

en.wikipedia.org/wiki/Who_Killed_the_Ele...

And we can see nothing substantive will or can be done in the US to fix our woes.

BTW, do I like communism?

No, not really, I like things EXACTLY as they are. I like being an energy whore and sucking down the crude just as you do. I like running my dirt bikes, jet skis, RV and driving my car.

But what I like doesn't matter...neither does what you like matter.

What does matter is 'what our country likes' or more appropriately 'needs' in order to survive.

If we look at the root of communism it is that of the commune-ist. The hippy communes and the Israeli Kibbutz's and the modern day survival devotees that plan to buy some land and develop a 'survival community' to live of the land all share in the same commune-ist dream.

But the point is not to persuade you to be a communist, but to foster a realization that for the US to survive, we must put 'what matters to our country' on the front burner...and as our country survives...so do we survive.

Alan Watts used to say, it doesn't matter what you think, it doesn't matter what you like, it doesn't matter what you hope for...all that really matters is what IS.

Sure we keep our treasured paper money, our guns, and what have you.

Guns are a populations last line of defense.

Look at Afghanistan...they beat Russia and the US is still having trouble with 'the people' there....all because of an armed population.

BTW, whenever I think of the Afghanis I think back to the poem.

"When you're wounded and left on Afghanistan's plains,
And the women come out to cut up what remains,
Jest roll to your rifle and blow out your brains.
And go to your Gawd like a soldier" ~ Kipling

So NEVER, NEVER give up your guns...for when the guns go, so does your freedom. Guns are the foundation of freedom.

Money??

Well, money will not be worth much anyway. Money is nothing more than stored energy. But since the crude dried up, the 'real energy' behind the money has vanished...and so did private industry.

So, what is money good for nowadays...to wipe your ass?

Not really, the government supplied toilet paper works better than that.

What about the coal mines? All government owned. If you want to eat you work in the mines or where the gov places you...it is that simple.

This is how our country can claim to be a 'communist democracy' We are not a slave driven dictatorship, You still have 'some freedoms.' You can work or not work as you please. But, don't expect a gov handout if you do not want to contribute to the countries survival needs....and as our country survives so do we survive.

Religion? Well, the atheists can still be atheists and the Christians, Muslims and Jews can still worship as they like.

But the big difference in our government is; instead of the ego based decisions that politicians and the titans of business get sucked into, the politicians will put the long term US viability as top priority over personal profit.

How do we accomplish this? I don't know, since politicians are normally ego based, lying, power hungry individuals. But this is an area that has to be perfected the best we can with accepting we deal with imperfect humans.

If we look at the various powers the government has though executive orders, we are pretty much there (a Democratic, Communist Nation Under God.) without much effort.

Here are just a few of them...

EXECUTIVE ORDER 10990 allows the government to take over all modes of transportation and control of highways and seaports.

EXECUTIVE ORDER 10995 allows the government to seize and control the communication media.

EXECUTIVE ORDER 10997 allows the government to take over all electrical power, gas, petroleum, fuels and minerals.

EXECUTIVE ORDER 10998 allows the government to take over all food resources and farms.

EXECUTIVE ORDER 11000 allows the government to mobilize civilians into work brigades under government supervision.

EXECUTIVE ORDER 11001 allows the government to take over all health, education and welfare functions.

EXECUTIVE ORDER 11002 designates the Postmaster General to operate a national registration of all persons.

EXECUTIVE ORDER 11003 allows the government to take over all airports and aircraft, including commercial aircraft.

EXECUTIVE ORDER 11004 allows the Housing and Finance Authority to relocate communities, build new housing with public funds, designate areas to be abandoned, and establish new locations for populations.

EXECUTIVE ORDER 11005 allows the government to take over railroads, inland waterways and public storage facilities.

sonic.net/sentinel/gvcon5.html

What happened to all our individual freedoms with these executive orders?

It was lost long ago in the deluded American dream that believes the individual American can survive on their own. Without a strong government you guys would be speaking Chinese or Russian. What happened to the personal property of Iraq when the US took it down? Ditto for your homes and McMansions if another country decided 'to move' here.

You think it is political biz as usual in the US in the upcoming election?

It makes little difference.

The world is in a death spiral and politicians as well as industry are pretending this problem does not exist. No Politician can fix our woes. the best we can do is to make the most of our dilemma.

We can only blame ourselves, for it is just how we have built our world over the years....too many people, living outside of natures intended balance and not an infinite supply of energy to fuel all our demands.

So Dem or Rep...any politician in charge had better come to terms with how things really are and not live in dream land...we are running out of time as our fossil fuel supplies dwindle.

You know every country will not run out of crude all at once.

Without energy our country is open for takeover ... no jets...no tanks...no transport on the ground or in the air. Luckily we will still have nuclear powered submarines and aircraft carriers as long as the uranium holds out. But the jets on the flattop all use jet fuel. All the supplies for those subs and carriers petroleum dependent.

Other countries such as Russia that have a good supply of nationally based crude may not be so kind to keep on selling it to us, We will need a 'local and continual' source somewhat within our borders for national security. You see, jet fuel as well as gasoline deteriorates and cannot be stored indefinitely. So we must always be producing some of it to replace the stale stuff to supply the military.

So long before the crude dries up the government must 'secure a supply' of crude for it own needs. This is what is driving the North American Union. This is why illegal aliens are pretty much free to do what they wish in the US.

en.wikipedia.org/wiki/North_American_Union

NAFTA came about as a way for the US to get its hands on the energy output of Canada and Mexico. And part of that agreement (unwritten) was to relax the law somewhat on the illegals coming from Mexico.

In short...if you want our crude you take some of our illegals

As our world changes and our drug supply dries up, things will only get worse. And the bigger the city - the bigger the hellhole it will become. And this time RIGHT NOW is the defining moment as to whether most of our population will die off or not in the crisis that awaits us in the not so distant future.

Besides crude oil, have you ever thought about how much of our life is dependent on natural gas for cooking, heating and hot water?

How many of our homes are set up for efficient heating with natural methods such as wood, pellet, passive solar?

My house is not.

I never gave this subject any thought until I learned about peak natural gas. And by then it was too late.

My house is as far as it can be from the 'ideal house' that can be heated my natural methods. And to make maters worse, I live in the NE US, where it gets plenty cold.

Do you know that much of your life is dependent on natural gas *outside* its use as an energy source?

Natural gas is a raw material in many of our products we depend on.

Almost all the helium we produce comes from natural gas.

Propane, synthetic fertilizers, ammonia?

They are totally dependent on natural gas.

Our population boom was fueled by synthetic fertilizers made from natural; gas. Once the gas dries up so does the fertilizer and a shortage of fertilizer equals a shortage of food.

Natural; gas is also used as an energy source to produce steel, glass, paper, clothing, brick, electricity

We will run out of natural gas, just as we deplete our crude supplies in the near future.

www.amazon.com/High-Noon-Natural-Gas-Ene...

www.enotes.com/how-products-encyclopedia...

www.ipm.iastate.edu/ipm/icm/2003/4-14-20...

www.eia.doe.gov/kids/energyfacts/sources...

Many people just think of crude oil for gasoline production.

From this list we can see that we are still massively depend on crude for our non sustainable lifestyle. There is no replacement for crude...crude is in the details of our life. So even if we all stop driving we will just be postponing the inevitable that our artificial way of living is going to change in the not so distant future.

A partial list of products made from crude oil:

Solvents Diesel Motor Oil Bearing Grease
Ink Floor Wax Ballpoint Pens Football Cleats
Upholstery Sweaters Boats Insecticides
Bicycle Tires Sports Car Bodies Nail Polish Fishing lures
Dresses Tires Golf Bags Perfumes
Cassettes Dishwasher Tool Boxes Shoe Polish
Motorcycle Helmet Caulking Petroleum Jelly Transparent Tape
CD Player Faucet Washers Antiseptics Clothesline
Curtains Food Preservatives Basketballs Soap
Vitamin Capsules Antihistamines Purses Shoes
Dashboards Cortisone Deodorant Footballs
Putty Dyes Panty Hose Refrigerant
Percolators Life Jackets Rubbing Alcohol Linings
Skis TV Cabinets Shag Rugs Electrician's Tape
Tool Racks Car Battery Cases Epoxy Paint
Mops Slacks Insect Repellent Oil Filters
Umbrellas Yarn Fertilizers Hair Coloring
Roofing Toilet Seats Fishing Rods Lipstick
Denture Adhesive Linoleum Ice Cube Trays Synthetic Rubber
Speakers Plastic Wood Electric Blankets Glycerin
Tennis Rackets Rubber Cement Fishing Boots Dice
Nylon Rope Candles Trash Bags House Paint
Water Pipes Hand Lotion Roller Skates Surf Boards
Shampoo Wheels Paint Rollers Shower Curtains
Guitar Strings Luggage Aspirin Safety Glasses
Antifreeze Football Helmets Awnings Eyeglasses
Clothes Toothbrushes Ice Chests Footballs
Combs CD's Paint Brushes Detergents
Vaporizers Balloons Sun Glasses Tents
Heart Valves Crayons Parachutes Telephones
Enamel Pillows Dishes Cameras
Anesthetics Artificial Turf Artificial limbs Bandages
Dentures Model Cars Folding Doors Hair Curlers
Cold cream Movie film Soft Contact lenses Drinking Cups
Fan Belts Car Enamel Shaving Cream Ammonia
Refrigerators Golf Balls Toothpaste Gasoline

www.beloit.edu /~SEPM/Geology_and_the_enviro/Petroleum_...

Realize this, throughout history many great nations that once were are not around any longer.

Hopefully the US will understand this and start accepting the truth that something has to give and it can't be business as usual.

Always remember, none of us will be ultimate survivors, we all have to die one day. But the successful survivor extends his or her life beyond an earlier death...a death that was caused by ignorance of how to make that life last longer.

You still have some valuable time left to prepare for what awaits you down the road.

We are in the 'Indian Summer' of a carbon based world. Don't wait until the winter sets in to start work on your preparedness efforts.


Also see:

Beyond Civilization: humanity's next great adventure
by Quinn, Daniel

Beyond Oil: the view from Hubbert's Peak
by Deffeyes, Kenneth S.
www.princeton.edu/hubbert /

Bowling Alone: the collapse and revival of American community
by Putnam, Robert D.

Breathe No Evil
Safe-Tek Publishers

Collapse
en.wikipedia.org/wiki/Collapse_(book

The Coming Economic Collapse - how you can thrive when oil costs $200 a barrel
by Leeb, Stephen

Crossing the Rubicon: the decline of the American empire at the end of the age of oil
by Ruppert, Michael C.

Dancing at Armageddon: Survivalism and Chaos in Modern Times
by Richard G. Mitchell Jr

The Long Emergency: surviving the converging catastrophes of the twenty-first century
by Kunstler, James Howard

The Oil Depletion Protocol : a plan to avert oil wars, terrorism and economic collapse
by Heinberg, Richard

Peak Oil Survival: preparation for life after gridcrash
by McBay, Aric

Powerdown: options and actions for a post-carbon world
by Heinberg, Richard

Resource Wars: the new landscape of global conflict
by Klare, Michael T
www.amazon.com/Resource-Wars-Landscape-C...

A Thousand Barrels a Second: the coming oil break point and the challenges facing an energy dependent world
by Tertzakian, Peter

Twilight in the Desert: the coming Saudi oil shock and the world economy
by Simmons, Matthew R.

Zoom:the global race to fuel the car of the future
by Iain Carson and Vijay V. Vaitheeswaran.


Thanks for the OP...xlnt article.

And thanks for everyone's participation here!

Great venue for our trouble financial times.