Seems that Russian leaders aren’t so um pleased with Obama.
Russian Leaders Snub Obama
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Category Archives: Politics
The case for inflation
The following are responses that Richard Maybury gave in an interview with Investor Insight.
He makes a case for the coming of a great inflation. We haven’t seen the beginning yet as we are still going through a process of de-leveraging.
Obama is a boomer, and I think an understanding of the boomers is a valuable tool for seeing what is coming. Boomers were raised in government-controlled schools and colleges where they were taught Keynesian and socialist economics. Neither Keynesianism nor socialism contains the concept of malinvestment, meaning the distortions caused by the government injecting massive money into the economy. These two forces, the injection effect and malinvestment, are the foundation of the economic crisis, and I’ve never heard Mr. Obama or his advisors say anything about them.
Money responds to the law of supply and demand just as everything else does. When the supply of dollars goes up, the value of each individual dollar falls, and prices rise to compensate. That’s inflation. Inflation isn’t rising prices. Inflating the money supply causes rising prices.
As prices rise, people become poorer and they demand relief. The politicians stop injecting money, people have less to spend, and business slows down, often causing a recession. The shakeout can be very painful, depending on how long the inflation has lasted and how many new dollars have been injected into the economy.
The government has only two ways to finance its spending — taxes, and printing money. Seven years ago the White House and Congress decided to finance the war by printing dollars instead of raising taxes. According to the St. Louis Federal Reserve’s MZM measure of money supply, the number of dollars circulating in the US on 9-11 was $5.3 trillion, and now it’s $8.7 trillion.
What is generally overlooked is the fact that the Federal Reserve has been inflating the money supply almost without pause ever since the Fed was created 94 years ago. So, underpinning the most recent seven years of injections and malinvestment, we have the residual from the previous 87 years.
Remember that I said events will control Obama much more than Obama will control events. Ever since the Great Depression, the way the federal government has dealt with shakeouts has been by re-inflating. They halt recessions by expanding the money supply further, which stops the shakeout. But that leaves a lot of bad investments in place, and it also creates a lot more. Of course, the so-called rescue pushes the day of reckoning into the future.
The interview continues and he mentions that eventually as the reserve currency the United States will have to do something to regain support of the dollar. He proposes this will be done through a return to the dollar being backed by some basket of currencies. Something will have to be done if the dollar isn’t to be completely destroyed. The entire interview is worth the read. Here it is: Interview.
Look both ways before crossing the street
I received an email from a friend and here is my response. You ought to be able to decipher what the questions were about. These are my opinions of the present situation, and are by no means recommendations.
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1) Voting for McCain…
I really don’t think voting for A or B is going to matter. I’m voting for Ron Paul because I believe that change has to come from going against the herd. I refuse to be partially responsible for either of them being in office.
The odds are in favor of the democrats getting into office and taking over Congress. I’m actually a bit frightened by this, but either situation is grim. Hopefully it will be better than the last 8 years.
2) Deflation / Inflation
This is tricky and something I’ve been trying to better understand. There are many many many factors at work here. We are headed into a MAJOR recession… thus your cutting spending was a wonderful idea. A recession is a drag on the stock market. Many think that after a brief rally it is going to drop much further. I know you are invested at the moment. One way to hedge against a drop is to invest in a inverse ETF fund such as SDS, QID, DXD, or TWM (these are leveraged 2x FYI). These ETFs have saved me much pain. The overall trend in the market is down. Bear market rallies tend to be severe and swift to the upside, while the markets overall continue to decline.
As for Deflation and Inflation what this means is a decrease or increase in the money supply. Generally during inflation when the Fed is creating money prices of everything goes up because there is a surplus of money that has to go somewhere. When the money supply contracts either by the Fed reducing the money supply or debt is paid off. Then prices decrease. However, under a fiat monetary system credit and continued inflation are essential to keep it up. At the moment with the Fed creating TONS of money we are looking at the potential for hyperinflation in the future, which nobody wants. So, the Fed is walking a tightrope between deflation and inflation. I imagine they will lean towards inflation over deflation ultimately. At the moment we are primarily seeing deflation as prices are coming down everywhere (commodities, housing, stocks).
During deflation the market will come down as will all prices. I think that regardless the markets will continue their descent due to the upcoming recession, decrease in consumer spending, decrease in imports and exports, and increase in unemployment. Once the recession takes hold and the effects of the monetary inflation occurring now start to be felt we will probably start to see increases in commodity prices across the board.b With companies facing difficult times I don’t foresee the created money moving into equity markets.
3) War with Iran
The conflict between Iran and Israel is heating up. I received a report that said Israel won’t be doing anything until after the election, but who knows. In this case we would see the value of gold skyrocket, oil go through the roof, and the dollar go through the floor. This is slowly moving from a remote to more plausible reality. I hope this doesn’t happen as the US can’t afford to be involved in another conflict. We are already spread so thin. Because of this and the enormous debt load the US government (its citizens) now carries I fear for the support and longevity of the dollar. At this point I think it important to own some gold and have some money invested in foreign currencies. <Thank you Gary North and Chris Martenson> These are for the long-term and may lose significantly in the short term. There are many uncertainties at the moment.
Oh and least I forget… At this juncture in the Republicans and Democrats are but different sides of the same coin.
Losing our freedoms…
Whenever there is panic and fear, which are growing rapidly day by day there is generally an accompanied amount of control and restriction by the state (the government). Everyone’s focus at the moment is on the stock market and the bailout plan. However, behind the scenes events are unraveling that once again as they have ever increasingly since September 11, 2001 are limiting and curtailing our freedoms. We fought hard for these and to have them taken away as a byproduct of events that could have been avoided…
During times of unrest and ill ease it is imperative that we stand by the constitution and not let it go by the wayside. We expect the state to intervene and save us versus take care of ourselves. The founders of this country who risked their lives to have freedom would be disgusted at how we roll over these days.
Our borders are becoming increasingly difficult to cross with more information required. Ellen Nakashima of the Washington Post wrote an interesting article about the extended search capabilities of the border guards…
The U.S. government has quietly recast policies that affect the way information is gathered from U.S. citizens and others crossing the border and what is done with it, including relaxing a two-decade-old policy that placed a high bar on federal agents copying travelers’ personal material, according to newly released documents.
The policy changes, civil liberties advocates say, also raise concerns about the guidelines under which border officers may share data copied from laptop computers and cellphones with other agencies and the types of questions they are allowed to ask American citizens.
The article continues
But what DHS did not disclose was that since 1986 and until last year, the government generally required a higher standard: Federal agents needed probable cause that a law was being broken before they could copy material a traveler was bringing into the country.
If you or I go through the United States border we may be detained, our personal documents photocopied, our cell phones held onto, our computers searched, and the list goes on. Previously, a customs agent would have to obtain permission from the courts or have a probable cause to commit such acts. No longer is that necessary. The rest of the article cites specific instances where people have been detained for 5.5 hours, been asked about their religious beliefs, who people in their cell phones are, and so one.
Every time I travel internationally I dread going through United States customs. I would rather go through customs in India, China, Egypt or any other country for that matter than the US (there are a few exceptions). Prior to September 11, 2001 this wasn’t as big an issue. However, these days you are automatically assumed to be somewhat guilty, and questioned as such. As a foreigner I can’t imagine what customs is like.
Once I was returning to the United States from Europe. There are many stamps and visas in my passport as I have traveled all over the world. The customs agent started to go through my passport page by page asking me about every country I had a stamp for. The stamps were a couple years old and had no relevance to my present trip so I was becoming quite annoyed. Finally I asked him if he had ever been to India and if not that he had to go because it is such an amazing country. The people are friendly, the food is amazing, and so on. He replied that he doesn’t travel outside the United States. A border agent that doesn’t travel outside the United States seems quite ironic.
State powers seem to be growing within the United States as well. Prior to the Republican National Convention there was a mass arrest in St. Paul Minnesota.
The Glass Bead Collective released video on Thursday of the mass arrests of protesters, media and bystanders at Shepard Road on day one of the Republican National Convention. A number of those arrested were heading to or from the SEIU Labor Day concert on Harriet Island. (Three members of the Glass Bead Collective were among those arrested in the week before the RNC in St. Paul.)
The Glass Bead Collective said the video came from a cameraman who hid his video before being arrested. From the press release, “Video released today shows the indiscriminate arrest of a crowd of two hundred at the waterfront across from a concert on Harriet Island Regional Park during this month’s Republican National Convention in St. Paul. The video includes multiple angles of the event as well as an interview with the cameraman who buried his footage and was one of almost two hundred people arrested for rioting without probable cause.”
Probable Future Outlook for the United States
What concerns me most is looking at the highly probable future outlook…
The gov’t is looking to bail out the Freddie and Fannie (dependent upon congressional approval), which will help out new, but not existing home buyers. By adding their debt the gov’t is using our tax dollars and inflation adjusted dollars to secure them. However, we are projecting a $500 billion dollar short fall this year in the budget, and the national debt is at about 9.7 trillion, and growing ever so rapidly. If we tack on unfunded liabilities now we are talking anywhere from 50-70 trillion in obligations. Effectively the government is insolvent. Now what happens when the gov’t revenues begin to decline due to the slowing economy, baby boomers starting to take their retirements, baby boomers soon to be taking Medicare, and the continuation of the Iraq war / Afghan war / maybe Iran war?
I’m failing to see the light at the end of the tunnel.
Consumers purchased houses as money was cheap. Everyone felt rich so they purchased more consumables, which had no productive value. These weren’t investments into something that would have future economic value, but only immediate gratification and immediate depreciation. Look at who is producing and who is consuming… we in the USA are primarily guilty of the latter and it is all funded through the rest of the world’s savings. At some point the rest of the world is going to tire of this. Then after our HELOCs were maxed out we started to use our credit cards.
What happens if the United States dollar loses its status as the reserve currency? Then everyone with dollars will flood the markets and purchase any tangibles possible. Money is a commodity just like gold and silver, but it can easily be created. However, due to the nature of its existence it is a exchangeable commodity and considered legal tender. As people want dollars the price rises and as people desire them less the price falls. Why would anyone want dollars when you look at the future for the US economy besides necessity and political reasons.
People are already losing their HELOCs because banks are worried that consumers won’t be able to afford them. Legal or not this is happening. I also heard from a Real Estate agent in Seattle that banks are asking for 25% down on new mortgages.
In an earnings call in late January 2008, Bank of America executives said credit card delinquencies in California, Florida, Arizona, and Nevada—states with high foreclosure rates—increased five times as fast as in other states, suggesting that consumers struggling with their mortgage debt are also finding their credit card bills hard to pay. “We’re focused on getting paid for the risk we take,” said Joe Price, chief financial officer. – US News and World report 2/28/2008 — Link to the story
The GSE bailout will help to prolong the issues that the financial industry is facing. The USG will do everything in its power to support the system through its tax system. It also gives individuals and institutions more time to pull their money out of the dollar. An immediate collapse would make that very difficult and costly.
And Gary North just posted this lovely article that illustrates that nobody has a clue as to the extent of what is really going on. Link to the article Unfortunately this is for members only, which I highly recommend subscribing to. I don’t get paid a dime on referrals.
I’m getting the sense that things could get a whole lot worse than any of us imagine. In that case I’d consider moving out of the county. Sure the dollar is rallying, and commodities are falling, but how long will this last? Peak oil has passed so we are biding our time before demand outstrips supply. Without oil or with really expensive oil life becomes much more difficult. Panic would ensue in the streets.
For those of us who believe in the concept of revision to the mean take a look at the Case Schiller index since 1890. Looking at the graph we have never seen housing prices rise so dramatically so quickly. Every boom period was followed by a bust or contraction and revision to the mean. We are beyond the mean… we are in outer space. Thank you Fed for the cheap money, and for removing banking reserve restrictions, and inflating the money supply. Hey it had to go somewhere and housing seemed the place to be. Then it went to commodities, which are now taking a fall as well. However, I see no reason that the long term forecast for commodities won’t be higher. The commodities I speak of in this case are precious metals, petroleum, and food. Essentially all the necessities to keep the world moving.
As for housing it will have to come back down to reasonable values. If we encounter a period of hyperinflation then housing will be a good asset to hold onto. However, if we have a depression I could argue the opposite. In a depression the purchasing power of your dollar increases. Depression means contraction of the money supply, which isn’t necessarily a bad thing. In fact part of the Fed’s charter is to contract the money supply when needed, but that hasn’t been the case as of late.
Full Story from Mises.org
And what’s next? Commercial Real Estate?
NEW YORK: U.S. commercial real estate prices are likely to tumble over the next 12 to 18 months as more borrowers default on their loans and regulators crack down on banks, pushing even more properties onto the market. Since the market’s peak in 2007, the availability of debt – the lifeblood of commercial real estate – has dried up and choked off sales.
Borrowers have resisted selling because of falling prices. Banks have not sold off their troubled loans, fearing a huge write-down of all commercial real estate loans. But it looks as if the clock is running down. “We’re going to see a whole lot more trouble going forward,” said Peter Steier, vice president of Inland Mortgage Capital in New York.
Link to the article
It continues:
Commercial real estate sales in the United States are expected to fall 66 percent this year from $467 billion to an estimated $159 billion. This is because debt, especially securitized debt in the form of commercial mortgage-backed securities, or CMBS, is either unavailable or prices are too high and the terms too strict for borrowers, Reis said.
“One of our biggest problem areas is pretty much the state of Ohio,” said Kevin Donahue, senior vice president Midland Loan Services, a CMBS servicer that steps in when a loan is showing signs of imminent trouble. “If we keep going, by the second quarter of 2009, I think the entire state of Ohio will become a subsidiary of Midland.”
I discoved this last bit from Chris Martenson @ www.chrismartenson.com.
Australia confirms presence in Iraq linked to oil!
Well it isn’t directly out of the United States, but from Australia. At about 1:00 in the clip energy was listed as one of the reasons that the Australian army has a presence in Iraq. Granted this is old news I thought it pertinent to post. Yes, folks energy is a motivating factor in invading Iraq.
How much have we spent on this war?
Iraq War Cost
Noonan and Murphy on Palin
Well I’m trying to stay neutral with the whole Presidential election coming up. Wow we actually get to “choose” another president. Perhaps the VP of this Presidency won’t go hunting with his “friend” and mistake him for a duck. Anyways, before I go off on a political rant I wanted to put up a quick post that found its way to my inbox via MoveOn.org. We have the pleasure of listening to John McCain’s former campaign chief Mike Murphy and former Reagan speechwriter Peggy Noonan discuss their “true” feelings on John McCain’s selection for VP.
-Aren’t politics fun!
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