walleke

Dollar's Purchasing Power Annihilated - The Chart They Don't Want You to See

You never know what might have been. We are certainly better off today than we were 76 years ago. We have modern dentistry - a metaphor for better technology, health care etc. But I think we could have had modern dentistry without debasing the currency. A small inflation may not seem bad but it is a mask that hides the perfidy of government deficit spending. Governments want to direct resource allocation to politically favored projects... and that means war.

I think if we had maintained a gold standard and not debased the currency then the wars of the last 76 years would have been fewer in number, less vicious, and of shorter duration. The "barbarous relic" is really a civilizing influence because it checks government power and maintains financial discipline. But you never know what might have been.

Thoughts on the Current Restructuring of Global Oil Demand

Verrrrry Interrrrresting. The author is bullish on oil. Our great problem is the architecture of our cities which are unnaturally sprawled out due to early gov't interference due to the Interstate Highway System and the Rural Electrifical Project.

Gold: The Long-Run Value

I agree 100% with Mark Joseph. Gold is not an investment. Gold is what is used to make an investment. A good investment is one worth making because you'll have more gold after the investment than before. Shares in a company are a good investment when business is good (or getting better), management is trustworthy and intends to share profits with shareholders, and, of course, the price is right. Bonds are a good investment if the borrower does not default, interest rates are stable or declining, and there is little inflation. If you cannot find a good investment, then gold is a default holding.

The times when money was backed by gold were less barbarous than the times when money was not backed by gold. We have more creature comforts, but hardly more civility. Gold acts as a discipline on national consumption and does not permit the unrestrained spending on armies. The first currency to remove itself from the gold standard was the GBP and was done so precisely so the King of England, who was broke because of civil war, could go to war against France. I believe that was John Law's scheme.

I neither advise nor disadvise owning gold. I have about half my money in gold (GLD) while I patiently await the opportunity of a good investment. I certainly do not recommend gold as a defense against coming armegeddon. The fiat currencies may collapse, but the sun will still shine and the crops will still grow - civilization will not collapse.

U.S. Debt Default, Dollar Collapse Altogether Likely

Food for thought:

1. We will have martial law before we have chaos. Guns and ammunition are more likely to be confiscated than gold.

2. JP Morgan knew more about money than you. He was exactly right that the ultimate utility of gold is as money. It has the correct physical and chemical properties: it is virtually indestructible, sufficiently rare, cannot be conterfeited, infinitely divisible. Gold is not about the end of the world. It is about imposing discipline on bank lending, soveriegn borrowing, money creation, and national consumption.Gold does not make a good circulating medium. Other materials may be used as money but none has stood the test of time. If you need to heat your house, anything that burns can be used as a fuel, but natural gas is superior to camel dung. It is the hobgoblin of practical minds that they only conceive of utility in terms of industry.

3. We sit on knife's edge between deflation and hyerinflation. Which way we go depends on how the government. If the government defaults on its debt - something that has happened several time in our history - we get deflation. If the government uses its ability to "print money" then we get hyperinflation. It is anathema for the Fed to buy newly minted bonds. Open market operations only bought existing bonds. When the Fed buys newly minted bonds this is exactly how we "print money". Recent events indicate this is the more likely scenario.

4. The government fiscal crisis is very long in the making. Observers have commented for decades that the system of deficit spending is unsustainable. They were not wrong. They underestimated the ability of the Fed, inertia, and luck to the delay the crisis. Note the similarity to ecological warnings which began in the fifties. The movie "Soylent Green" is about the effects of global warming. Our epitaph may read "Our warnings gave us too much time."

5. Almost all other countries are in worse shape than the U.S. Economic collapse will occur first in eastern Europe and travel west. All currencies will fail with the exception of the Swiss Franc and maybe a few others.

6. The misallocation of capital that is the result of fractional reserve banking and a fiat currency is visible everywhere. It is called suburban sprawl. This inefficient design of our cities keeps us addicted to the automobile by confounding mass transportation, Other onerous effects are too numerous to mention. This is what we bought with our gigantic debt. It is difficult to conceive how are cities might have grown and how our population would be distributed if we had maintained discipline with a gold standard.

7. An underestimated cause of our financial crisis is poor corporate governance. No member of management should be on the board of directors. Corporations should not be allowed to proxy unused shareholder votes to management. Mutual funds and institutions that hold shares in trust should be required to vote the shares.

Good digestion to all.

U.S. Mint Actions Discourage Gold Ownership

Value of the metal content of
'09 Presidential Dollar....<$0.03
'76 Eisenhower Dollar..... $3.84
'35 Peace Dollar..............$9...

Gold is not about Mad Max end of the world fantasies. Gold is about imposing discipline on bank lending, sovereign borrowing, and national consumption.

How the Treasury Bubble Will Burst and Why

Gold is used for personal and religous adornment and has very little utility with one gigantic exception: It can function as money. Not just anything can function as money. Gold has the correct physical and chemical properties. It is sufficiently rare, nearly indestructible, almost infinitely divisible. Gold as money does not mean carrying the stuff around or locking it in safety deposit boxes. Gold is so soft it does not make a particularly good circulating medium. It is important that paper currencies based on gold not be fractionally reserved and are freely convertible on demand. Gold can support any size economy.

It surprises me that otherwise sophisticated financial types do not realize a fundamental fact: Money is not arbitrary.

Problems That Detroit Bailout I Doesn't Address

Bilddrummer,
You're absolutely right about rebuilding cities being nearly impossible and impractical. I really didn't mean to promote this as a short term solution; more to illustrate the depth of the problem. Nonetheless, it is time to create policy and incentives to discourage and reverse sprawl.

Yes, it would certainly help to build energy efficient cars. It costs the same to have a door installed on an Explorer as a Focus. Hence, large vehicles are more profitable. Small vehicles will only be profitable with much lower cost structure which primarily means lower labor costs.

My point is that even as we need to financially restructure the auto industry, we also need to retool to different technology, only it is still premature to know what that technology should be.

Problems That Detroit Bailout I Doesn't Address

Thanks for the great article. One point not mentioned, but I think is important: The automobile industry is in a state of looming obsolescense. Everyone knows environmental and economic factors guarantee the future of personal transportation will not resemble the present. The auto makers' management is criticized for not responding to inevitable change. But to what will that change be? The industry is stalling because they know there are many candidate technologies, all of which have their advantages and disadvantages. At present, the most likely technology will be plug-in hybrids, but it is still too early to make a large commitment. What if carbon neutral oil-from-algae becomes a reality? What if there is a breakthrough in fuel cells? What if hydrogen...? What about compressed air?

Noone - at least not me - knows where this is going. There is no point in saving jobs in a buggy-whip industry (irony intended). If the gov't bails out the big three then the Democrats will mandate well-meaning but ill-informed change.

The root problem is that we have designed our cities so that an automobile is a necessity. This is what we bought with the trillions in public and private debt we must now unwind. We built roads, water/sewer, electric grid, and quarter acre lots. Some think we should invest in rebuilding that infrastructure to give people jobs. But this only tries to maintaing an unsustainable status quo. Look how Japan is building thier cities. We should copy. Put that in your pipe and smoke it!

G-20 Summit: A New World Order?

I take issue with Harrison's description of 16th century Spain. They did not "find" gold, they stole it. The Spanish suffered from an aristocratic (and medieval) disdain for work and trade. They expelled the Jews and Moors who populated the merchant class. Hence, they used their stolen wealth to import goods from the rest of Europe.

The increase in aggregate demand combined with increasing population surpassing pre-plague levels created the two hundred year price inflation. The inflation of the sixteenth century was an indication of people becoming wealthier, not poorer. This was not a monetary inflation caused by increasing money supply. No monetary inflation was associated with the much larger increases in gold stock associated with the gold rushes in California, Alaska, Australia, and South Africa.

This Isn't a Bottom, It's a Disturbance in The Force

To capitulate, or not to capitulate: that is the question:
Whether 'tis nobler in the mind to suffer
The slings and arrows of outrageous losses,
Or to take arms against a sea of sellers,
And by opposing end them? To go bust: to lose more;
No more; and by going bust I say we end
The heart-ache and the thousand natural shocks
That my brokerage account is heir to, 'tis a consummation
Devoutly to be wish'd. To go bust, to lose more;
To buy: perchance to reocver: ay, there's the rub;

A-Power Energy Announces Huge Contract, Stock Down 11%

Global warming guarantees that investing in wind is not insane. Oil is mostly used as a transportation fuel, wind is used for electricity generation.

Wind is not a solution to our energy problems since we cannot harness enough to substitute for coal/nuclear etc. But it is very clean and cheap and we will surely use as much as we can.

O Bailout Package, Where Art Thou?

Ransome,
If the bailout fails credit markets freeze up and paychecks start bouncing.
If the bailout succeeds the dollar ceases to be the world's reserve currency. See Dean LeBaron's website and watch his excellent videos. Also, read his books.

The heart of this crisis is long in the making. It is the deficit spending of the US gov't. This is the millstone around the economy's neck that made lowering Fed funds rate essential. Otherwise, we would have had this crisis five years ago. The "bailout" is another attempt to kick the can down the road a few more months.

The other heart of this crisis is also long in the making: poor corporate governance. It is an abdication of fiduclial responsilbility to allow the CEO to be chairman of the board, or any member of management to be on the board. The gigantic salaries and bonuses of CEOs were justified by claiming to align the behavior of the CEO with the interests of the company, but instead aligned the behavior of the company with the interests of the CEO.

IMHO

Oppose the Treasury's Bailout Plan

The underlying cause of the blow-up of the investment banks is poor corporate governance. This problem is pervasive across industries. The CEO is also chairman of the board and is paid gigantic salary or bonus in the form of stock options. All this is done in the name of aligning the behavior of the CEO with the interests of the corporation but has instead aligned the behavior of the corporation with the interests of the CEO.

Value Investing vs. Value Pretending

Thanks, Joe, for the delightful article. I enjoy the picture of the old stock ticker. I don't have an Aunt Bea or Grandpa Earl either, but I do have an Aunt Margie and Grandpa Julius. One quibble: I think people thought of stock investments as "growth investing". Consider IBM or National Cash Register (NCR) ...

America's Fiscal Crisis: Tough Decisions Needed Now

The financial problems the US faces are severe and the sky is black with chickens coming home to roost. It is useless, and does no justice to your missive, to blame "imbecile politicians" and call Greenspan "manipulative". The problems you write about here and in your other posts are very long in the making I believe the root of our problems is government spending designed to maintain (or create) a status quo and prevent the creative destruction of favored industries - especially agriculture - and prevent the evolution of society toward some percieved evil - like urbanization. We have a romantic vision of ourselves as independent yeoman farmers and good small-town eggs for breakfast folk. Little house on the prarie, Mayberry, and all that.

Thus, our do-something congress can cite the following "success" stories: Interstate highways, Rural electrification, Tennessee Valley. Projects like these have permitted us to build our cities in very inefficient sprawls. We got exactly what we wanted, we even call it the American dream. This is what we purchased with our debt. (That plus a meddling foreign policy.)

We are not addicted to oil. We are addicted to the automobile. We will gladly accept electric cars and stop buying gasoline, but we cannot stop buying automobiles. Unfortunately, there is no practical alternative to the internal combustion engine. If all cars were electric we would need to triple our electricity generation.

The question for investors is how will the gov't react when a bond auction goes badly and a debt crisis ensues? Default or print money? Everyone assumes the answer is print money.

I remember reading an article in Playboy magazine forty years ago on how to solve the problem of the national debt. The author's ideas: Tax organized religion and tax orgnaized crime. .