The Inflation of Gold: Is a Price Collapse Inevitable? [View article]
Apparently most of you don't read too closely. The total world gold supply has been steadily rising over time. When this happens with paper money, you call it a printing press - but when this happens with gold, you deny it?
At the end of the day, if money supply growth and inflation end up being relatively benign, then gold will come back down. If those of you expecting 10% inflation are correct, then of course gold will skyrocket. I'm expecting more moderate inflation than that - I think Bernanke's secret inflation target is 4-5% (enough to help decrease the burden of Americans' debts without ruining the economy). If inflation is in that range, gold will do fine. But if inflation stays stuck at 2%, that's where gold will eventually underperform.
There have been only short bouts of deflation since the advent of the modern Fed - don't underestimate the power of the printing press that Bernanke controls.
Uncertainty abounds right now. Outside of the traditional fears of a double-dip or new credit crunch, there are threats of terrorism and war in places like N. Korea. Here's a scenario most people have forgotten about right now - what happens to the economy if there's another major terrorist attack in the US? Now that's a black swan.
Sentiment Update: Bulls Making a Comeback [View article]
The interesting question is, if we do double-dip, how many people are just hanging on right now, and get crushed into foreclosure? Residential and foreclosure rates would probably go through the roof - here's a chart depicting some of the impacts of a double dip:
Oil has doubled since Jan 09, while USO is flat! Now that's a terrible excuse for an oil investment. You're better off going with an oil company ETF or individual investments for what that's worth...
Oil doubled while USO went absolutely nowhere. I understand tracking error for leveraged ETFs, but this is a disgraceful performance for an unlevered ETF. Investors seeking oil exposure should be aware.
To those commenting on unfunded liabilities (principally Medicare/Medicaid and Social Security):
You're absolutely right that the entitlement programs are unsustainable, but the point of my article was to take a look at how much the federal government can borrow today.
Anyone with a basic understanding of numbers (including many politicians) knows that Medicare and Medicaid will have to be cut deeply, and will eventually have to be rationed. There's nothing wrong with that - all funds are rationed, as they're finite. That's simple math as well. But politicians don't get votes with that logic, so the needed changes won't occur til the bitter end, I fear.
Transaction Taxes: Why 2014 Might Look Like 1914 [View article]
From an economic perspective, low tax rates across large tax bases are a good thing. They don't alter economic activity as significantly as higher or more targeted tax rates.
From that perspective, a transaction tax is an excellent alternative to the current capital gains tax regime, for instance. I have been planning to blog about just that, and perhaps this article will get me to do so.
Would a Financial Leverage Tax Limit Bank Risk? [View article]
Actually, taxes on smoking do decrease the number of smokers in total. It's as simple as supply and demand - when you raise the price, you'll decrease total sales.
Rather than explicitly banning a risky activity, which is rather authoritarian, I find it preferable to tax the risky activity and use the funds to pay for any damages incurred. This is the case with a financial leverage tax - banks would still be allowed to go out on a limb with leverage, but they'd have to pay up front for that privilege to protect the rest of us.
My Proposal for Genuine Financial Reform [View article]
Marshall, your proposal and mine are suspiciously similar! Jest aside, I agree that a progressive tax on liabilities (I call it a tax on financial leverage) is a good idea.
I actually believe that it should be applied to all corporations with over 1 Billion in liabilities, as a matter of fairness. Funds raised from such a tax could be used for enforcement, and surplus funds could be used to lower the corporate income tax rate.
Would a Financial Leverage Tax Limit Bank Risk? [View article]
I was under the impression that my article provided specifics. I proposed a financial leverage tax which would be affordable at 10x leverage, but which would make borrowing past 15 or 20 times capital completely unaffordable.
The political reality is such that this kind of reform is unlikely - but perhaps it could happen if such a tax were accompanied by matching business tax cuts. The overall point here is not to raise business taxes, but to penalize excess leverage. An alternative approach, which might also be successful, would be to end the business tax deduction on interest above a certain minimum (say $100 million).
Even when we look at oil constraints, however, I think efficiency is a big part of the solution. Average US car fleet efficiency is around 20mpg, and we know that 40mpg is easily achievable with many production vehicles today. We also know that telecommuting, four day weeks, carpooling, and public transit use rose during the last oil price spike in the summer of 2008.
If the entire US car-pooled, we'd cut oil use by close to half overnight. I'm not saying that will happen - but if oil goes to $200, you will see similar sacrifices made across the economy to adjust. One (paradoxical) virtue of the US is that we our economy is incredibly energy intense today, and so when supply constraints hit, we can cut fat a lot more quickly than some other nations. It will hurt, but it need not imply the end of US prosperity in the long term.
On the issue of growth, we're on roughly the same page - I think we may sit close to zero growth for a decade, as the country goes through the wrenching process of reducing energy intensity and cranking up alternatives to oil.
U.S. Economic Energy Efficiency: 1950-2008 [View article]
Thanks for the comments. I didn't attempt to address the question of liquid fuels vs. total energy production in the article, though perhaps I should have.
It's true that Peak Oil is an issue of liquid fuel and not total energy. However, it's also true that many of the same energy intensity reductions that have driven down BTU / dollar GDP over time can help reduce oil usage. Increased telecommuting comes to mind. Reversing the constant gains in horsepower for gains in MPG is another huge factor. So I believe the overall story remains the same, though I may dedicate some future research to this issue specifically.
With regard to the idea that the US has simply offshored all of its manufacturing, and thus reduced its energy intensity: this is only a part of the story. The growth of the internet and the IT revolution are a bigger part of the story, as manual processes have been automated, greatly reducing energy use. This blog (and the slow death of newspapers) is the perfect example of that!
Can the Federal Budget Be Balanced? [View article]
I used the 2008, not 2009, budget as a starting point for the exercise because 2009 contains stimulus spending, TARP, and other spending that is one time or short term in nature.
I am aware that the US government's official deficits don't really match up with precisely with the cash deficits that the government runs from year to year - if you'd like to see the exact deficit (in terms of net increase in US debt) from year to year, here you go:
The Inflation of Gold: Is a Price Collapse Inevitable? [View article]
At the end of the day, if money supply growth and inflation end up being relatively benign, then gold will come back down. If those of you expecting 10% inflation are correct, then of course gold will skyrocket. I'm expecting more moderate inflation than that - I think Bernanke's secret inflation target is 4-5% (enough to help decrease the burden of Americans' debts without ruining the economy). If inflation is in that range, gold will do fine. But if inflation stays stuck at 2%, that's where gold will eventually underperform.
Bill Gross on Quantitative Easing, Economic Stimulus and Recovery [View article]
www.hiddenlevers.com/h...
There have been only short bouts of deflation since the advent of the modern Fed - don't underestimate the power of the printing press that Bernanke controls.
Predicting the Next Black Swan [View article]
www.hiddenlevers.com/h...
Sentiment Update: Bulls Making a Comeback [View article]
www.hiddenlevers.com/h...
Is Crude Oil Headed Back to $57? [View article]
bit.ly/bH1gZ3
Oil has doubled since Jan 09, while USO is flat! Now that's a terrible excuse for an oil investment. You're better off going with an oil company ETF or individual investments for what that's worth...
A Different Kind of Crude Oil ETF From U.S. Commodity Funds [View article]
bit.ly/bH1gZ3
Oil doubled while USO went absolutely nowhere. I understand tracking error for leveraged ETFs, but this is a disgraceful performance for an unlevered ETF. Investors seeking oil exposure should be aware.
A Realistic Look at America's Debt [View article]
You're absolutely right that the entitlement programs are unsustainable, but the point of my article was to take a look at how much the federal government can borrow today.
Anyone with a basic understanding of numbers (including many politicians) knows that Medicare and Medicaid will have to be cut deeply, and will eventually have to be rationed. There's nothing wrong with that - all funds are rationed, as they're finite. That's simple math as well. But politicians don't get votes with that logic, so the needed changes won't occur til the bitter end, I fear.
Transaction Taxes: Why 2014 Might Look Like 1914 [View article]
From that perspective, a transaction tax is an excellent alternative to the current capital gains tax regime, for instance. I have been planning to blog about just that, and perhaps this article will get me to do so.
Would a Financial Leverage Tax Limit Bank Risk? [View article]
Rather than explicitly banning a risky activity, which is rather authoritarian, I find it preferable to tax the risky activity and use the funds to pay for any damages incurred. This is the case with a financial leverage tax - banks would still be allowed to go out on a limb with leverage, but they'd have to pay up front for that privilege to protect the rest of us.
My Proposal for Genuine Financial Reform [View article]
I actually believe that it should be applied to all corporations with over 1 Billion in liabilities, as a matter of fairness. Funds raised from such a tax could be used for enforcement, and surplus funds could be used to lower the corporate income tax rate.
Would a Financial Leverage Tax Limit Bank Risk? [View article]
The political reality is such that this kind of reform is unlikely - but perhaps it could happen if such a tax were accompanied by matching business tax cuts. The overall point here is not to raise business taxes, but to penalize excess leverage. An alternative approach, which might also be successful, would be to end the business tax deduction on interest above a certain minimum (say $100 million).
U.S. Economic Energy Efficiency: 1950-2008 [View article]
In terms of liquids constraints, I myself have blogged on the issue numerous times before:
truecostblog.com/2009/.../
Even when we look at oil constraints, however, I think efficiency is a big part of the solution. Average US car fleet efficiency is around 20mpg, and we know that 40mpg is easily achievable with many production vehicles today. We also know that telecommuting, four day weeks, carpooling, and public transit use rose during the last oil price spike in the summer of 2008.
If the entire US car-pooled, we'd cut oil use by close to half overnight. I'm not saying that will happen - but if oil goes to $200, you will see similar sacrifices made across the economy to adjust. One (paradoxical) virtue of the US is that we our economy is incredibly energy intense today, and so when supply constraints hit, we can cut fat a lot more quickly than some other nations. It will hurt, but it need not imply the end of US prosperity in the long term.
On the issue of growth, we're on roughly the same page - I think we may sit close to zero growth for a decade, as the country goes through the wrenching process of reducing energy intensity and cranking up alternatives to oil.
U.S. Economic Energy Efficiency: 1950-2008 [View article]
U.S. Economic Energy Efficiency: 1950-2008 [View article]
It's true that Peak Oil is an issue of liquid fuel and not total energy. However, it's also true that many of the same energy intensity reductions that have driven down BTU / dollar GDP over time can help reduce oil usage. Increased telecommuting comes to mind. Reversing the constant gains in horsepower for gains in MPG is another huge factor. So I believe the overall story remains the same, though I may dedicate some future research to this issue specifically.
With regard to the idea that the US has simply offshored all of its manufacturing, and thus reduced its energy intensity: this is only a part of the story. The growth of the internet and the IT revolution are a bigger part of the story, as manual processes have been automated, greatly reducing energy use. This blog (and the slow death of newspapers) is the perfect example of that!
Can the Federal Budget Be Balanced? [View article]
I am aware that the US government's official deficits don't really match up with precisely with the cash deficits that the government runs from year to year - if you'd like to see the exact deficit (in terms of net increase in US debt) from year to year, here you go:
truecostblog.com/2008/.../
Note that the 2008 data in the above link is slightly out of date, as it was written before final numbers for 2008 were published.