Archive for the ‘Economy’ Category

When taxes become destructive they’ve surpassed the consent of the governed bending to the will of tyranny.  When regulations strangle competition instead of securing it from evil combinations they’ve become counterproductive and defeat the very purpose for which they were proposed.  When foreign entanglements bleed the nation but do not secure the peace or defeat the enemy they’ve become interventionist vehicles for vested interests.  When spending becomes a hemorrhaging of assists leading to national bankruptcy those who continue to pile debt upon debt seek not the good of the nation but instead its destruction.  When leaders selected to unite instead do all they can to divide they no longer advance the interest of the whole and are instead partisan leaders in a factional fight.

A social contract is one made between a people and their government.  It is an agreement whereby the people surrender certain aspects of their independence for the guarantee of corporate security and the enjoyment of a general welfare.  In the case of most countries this is an unwritten and unconscious arrangement built upon tradition and precedent as in the case of England.  However in the United States we have an actual contract, the Constitution.  This was ratified by the original states and the subsequent states were formed under it and admitted as full partners to it.

All contracts may be legitimately changed over time as long as there are mechanisms either within the document or established by the document to do so.  Within our Constitution there is an amendment process and it has been amended 27 times so far.  Whether we agree with those amendments or not they have been legally ratified and accepted becoming part of the document.  However, over the years our government structure has been changed and our manner of life transformed more by the informal changes than by the formal.  Nowhere in the Constitution is the central government given the power to wage unending undeclared war.  Nowhere is the central government given the right to ignore the requirement to protect the states from invasion.  Nowhere is there found any basis for executive orders, signing statements or bureaucratic regulations to have the force of law without legislative action by Congress.

Well-connected rabble rousers now say equality will not be achieved until everything is equal in everybody’s house.  Leveling the playing field has finally thrown off its cloak of deceit and exposed itself as, “From each according to their ability to each according to their need.”  The professional civil rights entrepreneurs who’ve extorted vast amounts of personal wealth with threats of boycotts and demonstrations have been unmasked as the true purveyors of prejudice seeking to keep race and gender differences alive for their own benefit.  Union bosses build political empires using the legally forced dues of members with more money spent on political activity than on member service.  The union bosses ride in limousine comfort from board meetings to political rallies while their members lose jobs.  The pensions of the bosses are golden parachutes while the pensions of the members are underfunded.

The Land of the Free is held captive, locked in a two party system where both parties are merely two heads on the same bird of prey.  Both parties are dedicated to more spending and bigger government.  Both parties exploit gerrymandering of districts and overwhelming corporate donations to ensure a hierarchy of the perpetually re-elected using a system of seniority to enhance their power.  Legal barriers exist at every turn to stop any new parties from gaining the access that might deflect the central government from its ever increasing growth towards totalitarianism.

When will enough be enough?  When will citizens rise in their righteous anger and demand not a New Deal, not a Great Society, a New Frontier or a Fundamentally Transformed America but instead their original deal.  The one we wrested from the hands of the tyrant King George.  The one we’ve fought to establish and defend from Yorktown to Kandahar and the right of a people to be free to live as they desire, to work for their own benefit and choose their own destiny.  Free from the smothering governmental control which has been the lot of most people in most places since the beginning of time.  When will the yoke of tyranny become too heavy to be borne?  What will be the spark that lights the torches and brings the incensed villagers to the gate of the castle demanding, “Bring the monster out!” so that a stake can be driven through the heart of tyranny and freedom can return to the land?

When that day comes what will we the people do?  Will we try to resurrect the government of old that ultimately brought us full circle or will we be bold enough to forge a new the social contract and design better ways to ensure that the beast of tyranny doesn’t once again break the chains of restraint.

Dr. Owens teaches History, Political Science, and Religion for Southside Virginia Community College.  He is the Historian of the Future and the author of the History of the Future @ http://drrobertowens.com © 2012 Robert R. Owens drrobertowens@hotmail.com  Follow Dr. Robert Owens on Facebook or Twitter @ Drrobertowens

OBAMA’S RESCUE OF CHRYSLER AND GENERAL MOTORS UNPOPULAR WITH VOTERS, CREDITORS, AND GM MANAGEMENT

BY: Bill McMorris – April 30, 2012 5:00 am

President Barack Obama has made the auto bailout a centerpiece of his reelection campaign, using it to bash Republican nominee Mitt Romney. But the tactic may backfire as the general election heats up, public opinion surveys suggest.

Recent polling from Rasmussen indicates that 59 percent view the bailouts as a “failure” and only 44 percent think the bailouts were “good for America.”

The administration has already written off $7 billion in taxpayer losses in the American takeover of Chrysler and General Motors; those losses are expected to climb as high as $23 billion—27 percent of the $85 billion spent on the bailout.

While the bailout is widely credited with saving the two companies, increasing taxpayer losses have made it nearly as unpopular in 2012 as it was when Obama was elected. More than half of Americans still disapprove of the auto bailout compared with 61 percent in 2008.

That has not stopped Obama from using the bailout as a bludgeon against Romney, who backed bankruptcy measures, in a number of campaign speeches.

“We could have just kicked the problem down the road. The other option was to do absolutely nothing and let these companies fail,” Obama told the United Automobile Workers union in February. “And you will recall there were some politicians who said we should do that. Some even said we should ‘let Detroit go bankrupt.’”

The line drew a chorus of boos from the crowd and Obama has used the talking point often in his recent campaign addresses. He has deployed the line in a number of speeches in front of friendly crowds, despite the surprising lack of enthusiasm among Democrats for the bailout.

Obama’s job approval ratings among Democrats remain at nearly 85 percent, according to RealClearPolitics.

That is 20 points higher than the 63 percent of Democrats who support the auto bailout.

Obama is using the talking point as a targeted message to interest groups, rather than a broad appeal to his overall base, bailout experts say.

“The reason Obama likes it is because labor likes it,” one bankruptcy expert said. “The administration went in and took UAW and pulled them up.”

The administration handed $85 billion to GM and Chrysler and guided them through reorganization. Obama took on the role of bankruptcy court and bumped the unions to the front of the line, handing them control of Chrysler, while preserving pay and benefits at General Motors.

“They came in and forced these companies into pre-packaged bankruptcy where unions were made whole and creditors were squeezed out,” the expert said. “In normal bankruptcy they don’t rearrange stakeholders rights willy-nilly…there’s no way those union contracts would have been untouched.”

Labor is not the only constituency to which Obama has tried to appeal by championing the bailout. “After three decades of inaction, we’re gradually putting in place the toughest fuel economy standards in history for our cars and pickups,” Obama said in the same February speech. “That means the cars you build will average nearly 55 miles per gallon by the middle of the next decade—almost double what they get today.”

Obama tied the bailouts to strict environmental standards that have led to increasingly efficient cars, an achievement he has used to woo green advocates. The move has affected more than just the environment, establishing “dangerous” legal precedents, according to some legal experts.

The fuel-mileage regulations are expected to drive up vehicle prices by $3,200 and keep consumers out of car lots, according to the National Auto Dealers Association, which sued to block the regulations. A Washington D.C. Appeals Court tossed the suit, ruling that only manufacturers could sue for damages associated with the expensive rules.

“This is a great incentive for cronyism,” an attorney familiar with the regulations said. “The manufacturers colluded with the feds and they pushed these costs onto car dealers and consumers; the government had its first taste of cronyism and learned that if they can bully enough stakeholders and companies, they can get away with it.”

Auto executives hailed the bailout as a lifesaver in 2008, but are increasingly uneasy about the government’s ownership in the two companies. While the government liquidated a number of its shares in GM during its record-setting stock offering in 2010, it has retained partial control of the company.

“GM’s executives have wanted the government out for a while now … it’s a huge PR liability for them—they hate the ‘Government Motors’ stigma,” said Edward Niedermeyer, editor-at-large of TheTruthAboutCars.com. “The government can’t get out now, they don’t want to take an even bigger loss on the bailout.”

GM’s stock price has dropped about $10 per share since its IPO, meaning any sale would increase the taxpayer’s multi-billion dollar losses in the bailout.

Niedermeyer said the administration might wind up its involvement in GM even if it means higher losses. Timing, he added, will play a key role in that decision.

“They’ll wait until after the election before they act,” he said.

BY THE UNIONLABORREPORTt was less than a year ago that Barack Obama’s senior adviser, David Plouffe said:

After 2½ years in office, President Obama now “owns” the economy as an issue, according to top adviser David Plouffe, who added he was confident that voters understand that recovering from a devastating recession Mr. Obama inherited takes time.

“Of course he does,” Mr. Plouffe told NBC’s “Today” show host Matt Lauer when asked point-blank if Mr. Obama owns the economy.

“But the American people understand that we — it took us a long time to get to this mess,” Mr. Plouffe said. “It’s going to take us some time to come out. We are making progress.”

Well, after Friday’s jobs numbers came out (the economy added 120,000 jobs) Labor Secretary Hilda Solis promptly proclaimed: “That’s a noteworthy achievement.”

In fact, for the man who campaigned on the message of “hope” in 2008, the 120,000 jobs added is much fewer (about half) than expected and the edging down of the unemployment to 8.2% is not from job creation but from hopelessness.

There are now 88 million American who are “Not In Labor Force,” according to Department of Labor statistics, which the St. Louis Federal Reserve put into this pretty chart:
Obviously, others are seeing past Obama’s cheerleaders.

The Wall Street Journal stated:

But mostly, the picture was disappointing at a time when all eyes are on the U.S. to help keep global growth humming. The jobless rate, which is obtained from a separate survey of households, edged down to 8.2% from 8.3%, its lowest point in three years. However, that decline was due less to new hiring than people abandoning their job searches.

“I’m nervous,” said Jared Bernstein, former chief economist* for Vice President Joe Biden.

* Although Bernstein, according to his bio, is not really a trained-economist (he just played one in Washington), he is right to be nervous.

And, so should the Obama Administration.

The hard truth for Barack Obama is:

People have given up.

They have gone from ‘Hope’ to Hopelessness.

By Kathy Kristof

Forget the modest 3.1 percent rise in the Consumer Price Index, the government’s widely used measure of inflation. Everyday prices are up some 8 percent over the past year, according to the American Institute for Economic Research.

The not-for-profit research group measures inflation without looking at the big, one-time purchases that can skew the numbers. That means they don’t look at the price of houses, furniture, appliances, cars, or computers. Instead, AIER focuses on Americans’ typical daily purchases, such as food, gasoline, child care, prescription drugs, phone and television service, and other household products.

The institute contends that to get a good read on inflation’s “sticker shock” effect, you must look at the cost of goods that the average household buys at least once a month and factor in only the kinds of expenses that are subject to change. That, too, eliminates the cost of housing because when you finance your home with a fixed-rate mortgage, that expense remains constant until you refinance or move.

The group maintains that this index better measures the real-world impact of price changes, particularly for people on a budget. And, largely as the result of the recent run-up in gas prices, this “everyday price index” (EPI) suggests that Americans are being pinched far more tightly than the official inflation measure would have you believe.

Over the past year, the EPI is up just over 8 percent, according to the economics group. The biggest factor: Motor fuel and transportation costs are up 21.06 percent from year-ago levels. The cost of food, prescription drugs, and tobacco also have increased faster than the government’s inflation measure, rising 3.56 percent, 4.21 percent, and 3.4 percent, respectively.

On the bright side, prices of household fuel (natural gas and electricity) and supplies have increased only 2.74 percent; recreation and personal care products are up less than 1 percent; and telephone or Internet services are down 0.66 percent.

Admittedly, the purchases that the EPI tracks make up slightly less than 40 percent of the average household budget. But Steven Cunningham, research and education director at AIER, says these items are what contribute to the “sticker shock at the gasoline pump and the supermarket check-out line.”

Under President Obama, gas prices have more than doubled — from an average of $1.85 on Inauguration Day 2009 to $3.92 this past week. 

That means the average American family is paying $2,200 more per year in gas today than when Obama came into office. And that is only the increased spending on gas. As gas prices increase, the cost of just about every other product increases as well.

 And Obama is to blame…
 
That’s because instead of taking action to dramatically expand American energy production, Obama has resisted new offshore drilling, rejected the Keystone pipeline that would give America access to Canada’s vast oil reserves, and kept much of our known domestic oil reserves off limits.
 
Obama is so opposed to significant increases in domestic oil production that he goes so far as to claim that “increased [domestic] production doesn’t lower gas prices.” Instead, the President has once again “doubled down” on his so-called Green Energy agenda — an agenda that already is over-funded by our tax dollars with little return in actual energy production.


 
+ + How Obama’s “Green” Agenda Hurts Families
 


The fact is, Obama’s energy policies have damaged our economy by putting a stranglehold on American energy – - driving up gas prices, taking away American jobs and worsening our dependence on foreign oil.

The key to our energy independence is not more wind farms or taxpayer-funded Solyndra boondoggles or crazy EPA “work at home” guidelines. It’s much simpler

– AMERICA MUST PRODUCE MORE OF OUR OWN OIL AND NATURAL GAS!

And the Left’s claim that we lack the natural resources is simply not true. Analysts say Canada and the U.S. together have 400-800 YEARS of recoverable oil resources!

Plus, domestic oil production creates jobs and strengthens our economy.

A former Chief Economist at the U.S. Trade Commission says that doubling our domestic oil production would add 2.5 million jobs and $250 billion to our economy – and cut our dependency on foreign oil and the terrorist-laden oil producing nations in half.
 

In the past week, Obama once again blocked increased domestic production by requiring another “environmental study” that could take 3-5 years. We must break the Obama stranglehold on American oil. Our economy is suffering and our families are paying a high price because Obama and the Left are pushing their radical green agenda over the interests of the American people. 
 


Steve Elliott, Grassfire Nation


By Vedran Vuk, Senior Analyst

As a financial writer, I have two objectives in my work. The first is researching the relevant information investors need to know. The second is a bit more abstract: It’s the process of explaining the research to readers in the most concise, understandable, and entertaining way possible. With the second aspect of my job in mind, I recently tried to think of the best analogy for the slow economic recovery some claim we are in.

This seems like an easy task, but upon closer examination, it’s a bit more nuanced. The word “recovery” immediately conjures a few scenarios. One is being sick and slowly recovering from a cold: each day one feels a little better. Slowly the symptoms start fading and every chicken soup brings one closer to feeling like oneself again. A broken leg reminds me of the same process – one counts down the days until the cast is removed. Each day sees slow but sure progress at recovery. However, neither of these analogies fit the economy – nor all medical recoveries, truth be told. A crucial element is missing: uncertainty.

With the flu, you can pretty much tell when it’s winding down. Even if recovery takes a little longer than expected, you’re usually on a one-way street to feeling well again. The same goes for the broken leg. Unless another accident happens, the leg will get better with time. In the stock market, there’s no certainty to the recovery. Things are slowly improving, but at the same time, the slightest news of a bad Spanish bond auction sends the markets tumbling back into shock. The current economic recovery is one in which conditions are improving, but we remain near death’s door at the same.

In many ways, a patient in an intensive care unit (ICU) is a fitting metaphor for the economy. The person was successfully dragged out of the car accident, his bleeding has been stopped, and the doctors have transferred him to the ICU. Though with each day and even in every hour there is improvement, he’s clearly not out of the woods. He still needs close watching, as things could head south. Furthermore, despite improvements, the true extent of the damage is unknown. Will he walk again? Has there been permanent brain trauma? We don’t know yet, but we can see that he is doing better so far.

This is exactly where the market is right now. We were pulled out alive from the 2008 wreck, and by 2009 the bleeding had mostly stopped. Gradually things have been getting better, but nonetheless we’re still at risk of another plunge. By now, the market should have been on cruise control – only coming into the clinic for an occasional checkup – but instead we’re still on life support. Furthermore, the extent of the damage is still unknown. Will the housing market ever get back on its feet again? Will inflation slowly creep into the economy as a long-term side effect? And if so, how bad will it be?

To make matters worse, the economy has been injected with so much stimulus that it’s impossible to truly evaluate its condition. Once, after injuring my ankle, the doctor prescribed some painkillers. After taking them the following day, I felt great and started foolishly walking around on my bad leg. Only the next morning after the drugs wore off did I realize the additional damage done. Similarly, with trillions pumped into the system, we’re numb to much of the pain. We’re prematurely dancing on our broken leg, and when the medication wears off, we might find ourselves in worse shape.

As we approach record high gas prices, the media seems oddly silent. This video from around this time last year is a good reminder of when high gas prices used to be a bad thing. IN HIS OWN WORDS.

by John Carney

Official Congressional budget estimates understate the peril of rising debt, Fed chair Ben Bernanke told the Budget Committee on Capitol Hill today.
Warning that our nation’s fiscal health has deteriorated appreciably since the onset of the financial crisis and the recession, Bernanke called upon lawmakers to confront the long term fiscal challenges sooner rather than later. If lawmakers don’t confront them, they’ll find themselves confronted by them.
From Bernanke’s prepared remarks:
By definition, the unsustainable trajectories of deficits and debt that the CBO outlines cannot actually happen, because creditors would never be willing to lend to a government with debt, relative to national income, that is rising without limit. One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point. The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will come as a rapid and painful response to a looming or actual fiscal crisis.
Bernanke explained that the Congressional Budget Office’s calculations miss an important reality. As the government’s debt and deficits rise, the economy will slow down—an effect not taken into account by the CBO. So, for instance, when the CBO says that federal spending for health-care programs will roughly double as a percentage of GDP in the next 25 years, it is probably being too optimistic. If debt keeps, rising, GDP will be much lower than the CBO estimates—which will mean that health care spending will be a much larger percentage of the overall economy.
Here’s Bernanke on the effect of rising debt:
Sustained high rates of government borrowing would both drain funds away from private investment and increase our debt to foreigners, with adverse long-run effects on U.S. output, incomes, and standards of living. Moreover, diminishing investor confidence that deficits will be brought under control would ultimately lead to sharply rising interest rates on government debt and, potentially, to broader financial turmoil. In a vicious circle, high and rising interest rates would cause debt-service payments on the federal debt to grow even faster, resulting in further increases in the debt-to-GDP ratio and making fiscal adjustment all the more difficult.
In short, the official estimates members of Congress hear from their budget office are under-estimating our dire economic predicament. If fiscal policy is not brought under control, things will be much, much worse.

Posted by LaborUnionReport
It was less than a year ago that Barack Obama’s senior adviser, David Plouffe said:
After 2½ years in office, President Obama now “owns” the economy as an issue, according to top adviser David Plouffe, who added he was confident that voters understand that recovering from a devastating recession Mr. Obama inherited takes time.
“Of course he does,” Mr. Plouffe told NBC’s “Today” show host Matt Lauer when asked point-blank if Mr. Obama owns the economy.
“But the American people understand that we — it took us a long time to get to this mess,” Mr. Plouffe said. “It’s going to take us some time to come out. We are making progress.”
Well, after Friday’s jobs numbers came out (the economy added 120,000 jobs) Labor Secretary Hilda Solis promptly proclaimed: “That’s a noteworthy achievement.”
In fact, for the man who campaigned on the message of “hope” in 2008, the 120,000 jobs added is much fewer (about half) than expected and the edging down of the unemployment to 8.2% is not from job creation but from hopelessness.
There are now 88 million American who are “Not In Labor Force,” according to Department of Labor statistics, which the St. Louis Federal Reserve put into this pretty chart:

Obviously, others are seeing past Obama’s cheerleaders.
The Wall Street Journal stated:
But mostly, the picture was disappointing at a time when all eyes are on the U.S. to help keep global growth humming. The jobless rate, which is obtained from a separate survey of households, edged down to 8.2% from 8.3%, its lowest point in three years. However, that decline was due less to new hiring than people abandoning their job searches.
“I’m nervous,” said Jared Bernstein, former chief economist* for Vice President Joe Biden.
* Although Bernstein, according to his bio, is not really a trained-economist (he just played one in Washington), he is right to be nervous.
And, so should the Obama Administration.
The hard truth for Barack Obama is:
People have given up.
They have gone from ‘Hope’ to Hopelessness.
_________________
“Truth isn’t mean. It’s truth.”
Andrew Breitbart (1969-2012)

Team Obama and the phantom jobs that never were

Call it the phantom jobs that never were. Prior to the rather anemic 120,000 jobs created in March, the media has been going on and on about the over 200,000 jobs that have been created over the previous three months, the actual number of jobs was falling – yes, that is right, falling, dropping by an average of about 290,500 per month.
The number of people working in March was fewer than the number of people working when Obama became president in January 2009 and essentially unchanged when the recovery started in June 2009.
There are two ways of measuring the number of jobs: a survey of households and a survey of employers. But no matter how you measure it, the answer is the same: there has been no job growth under Obama.
But you won’t hear this depressing information on the news because everyone reports what are called the “seasonally adjusted” employment numbers, not the actual number of jobs.

By Forrest Jones
Bailouts and loose monetary policy won’t create lasting economic improvements but will push up inflation rates that will send the economy tanking and wealthy investors seeing half of their investments wiped out, says Marc Faber, publisher of the Gloom, Boom and Doom report.

The Federal Reserve has pumped trillions of dollars into the economy to stimulate it, while the White House has spent heavily to fuel growth as well.

The government, however, won’t be able to prop up the economy forever, and all that borrowing will come due.When that support fades, the economy and markets will retreat and retreat hard, creating massive losses for investors, especially when inflation rates rise due to the sheer volumes of liquidity in the system.

“I think somewhere down the line we will have a massive wealth destruction. That usually happens either through very high inflation or through social unrest or through war or credit-market collapse,” Faber tells CNBC.

“I would say that well-to-do people may lose up to 50 percent of their total wealth. They’ll still be well-to-do. Instead of $1 billion, they’ll have, say, $500 million.”

Gold will be the best investment now as will stocks for now, which will continue climbing thanks to loose monetary policies before the collapse.

“I think that people should own some gold, and I think that people should own some equities because before the collapse will happen with Mr. Bernanke at the Fed, they’re going to print money and print and print and print. And so what you can get is a bad economy with rising equity price,” Faber says.

Federal Reserve Chairman Ben Bernanke has faced a criticism for his handling of the economy in wake of the downturn.

Critics charge his loose monetary policies, including keeping benchmark lending rates to near zero and pumping trillions of dollars into the economy to reanimate it by purchasing assets like bonds from banks will fuel inflation down the road and aren’t helping that much anyway.

Bernanke and supporters say such extraordinary measures were necessary to steer the economy away from deflationary decline and deeper contraction.

Bernanke also says he’s comfortable with the pace of recovery.

“I think there’s a reasonable chance, looking at the long-run history, that the U.S. economy will return to healthy growth, somewhere in the 3 percent range,” Bernanke said at a recent lecture to George Washington University students, the Associated Press reports.

Some Federal Reserve officials, however, say inflation is threatening to rise above the Fed’s target for an annual rate of 2 percent.

“I’m expecting inflation to be 2 percent this year, and 2.3 percent next year,” Minneapolis Fed President Narayana Kocherlakota told the Midwest Economics Association’s annual meeting, according to Reuters.

The Federal Reserve has said officially that economic conditions warranting low interest rates will stick around through the end of 2014 although other Federal Reserve officials say rate hikes may be needed before then.

“My estimate is that economic conditions are likely to warrant low rates until sometime in the middle of next year,” Federal Reserve Bank of Richmond Jeffrey Lacker tells CNBC.

“If I had to pick a central tendency in the forecast, that’s when I’d pick for when rates are likely to rise. That’s not a promise, and neither is the committee’s statement. It’s a forecast of what we’re likely to find appropriate in the future.”

Bank of St. Louis Fed President James Bullard has said that keeping rates low for too long can do more harm than good.

“Overcommitting to the ultra-easy policy could well have detrimental consequences for the U.S. and, by extension, the global economy,” Bullard said at a Credit Suisse Asian Investment Conference in Hong Kong, according to Reuters.

Read more: Faber: ‘Massive Wealth Destruction’ Coming, ‘Well-to-Do’ May Lose Half

Food price inflation caused food riots in 2008, when prices rose a whopping 6.8%. In 2011, prices rose 4.8%, which some experts say eventually led to the riots known as the Arab Spring.

In 2012, the U.S. Department of Agriculture forecasts that food prices will rise 2.5-3.5%. The USDA forecast is based on a reduction of some food products, an increase in transportation costs, and a continuation of the circumstances that created food price inflation in 2011.
Answer: Food prices are rising in 2012 because of high gas prices, which themselves are caused by high oil prices. Oil prices are expected to remain around $100 a gallon throughout the summer, thanks to potential military action against Iran and seasonal high demand caused by vacation driving.

Prices for soybean-based food products will rise due to reduced soybean production in South America. In addition, there are ongoing consequences from shortages that caused food prices to spike in 2011.
Reasons for Food Price Inflation in 2011
According to the World Bank, wheat prices in 2011 more than doubled, and corn, sugar and cooking oil prices also soared. High wheat prices were caused by massive wildfires in Russia in 2010. In response, commodity speculators drove prices even higher to take advantage of this trend. Drought conditions throughout the southern U.S. reduced both the number and output of egg-laying hens, raising the price of poultry and eggs. Seafood prices were down, in part, because of decreased fishing capability due to Japan’s earthquake. These temporary causes will linger into 2012. (Source: USDA, Food Price Outlook 2012)
Why Did Food Prices Rise in 2008?
Commodity speculators also caused higher food prices in 2008 and 2009. As the global financial crisis pummeled stock market prices, investors fled to the commodities markets. As a result, oil prices rose to a record of $145 a barrel in July, driving gas prices to $4.00 a gallon. Part of this was based on surging demand from China and India, which escaped the brunt of the subprime mortgage crisis.

This asset bubble spread to wheat, gold and other related futures markets, droving up global food prices dramatically around the world. As a result, food riots by people facing starvation erupted in less-developed countries.
Four Reasons for Long-term Food Price Inflation
Grocery prices have risen 2-3% each year between 1990-2011. There are four global policy shifts that are causing this inflation in world food prices.

First, the U.S. government subsidizes corn production that is used for bio-fuels. This takes corn out of the food supply, raising prices.
Second, the World Trade Organization (WTO) limits the amount of corn and wheat that the U.S. and European Union (EU) can subsidize and store in stockpiles. This reduces the cushion available to add to the food supply when there are shortages, thus adding to food price volatility.
Third, as more people around the world are growing more affluent, they eat more meat. Grains are going to feed the animals that provide meat, further reducing the supply and increasing price volatility.
Fourth, higher oil prices lead to higher food prices. Food is transported great distances, especially if imported. Higher oil and gas prices increase shipping costs, which translates into higher food prices.
Effect of Food Price Inflation
Food riots occurred in 2008 and in 2011. Many say the radical changes brought about by the Arab Spring were an effect of food riots. Researchers point out that these food riots were caused by a spike in prices. However, as prices continue to rise, food riots could become an ongoing response to unsustainable price increases. Unless a concerted effort is made to correct the underlying reasons for food price inflation, global unrest could become a more prevalent result. (Source: “The Food Crises and Political Instability in North Africa and the Middle East.” By Marco Lagi, Karla Z. Bertrand and Yaneer Bar-Yam. arXiv, Aug. 11, 2011 in Wired Magazine, Food Prices Could Hit Tipping Point for Global Unrest, August 15 2011) Article updated March 16, 2012

POSTED BY BECKET ADAMS

Detroit officials have until Thursday (what’s with Thursday deadlines?) to rescue their ailing city from financial insolvency or a state takeover.

“A deal backed by Mayor Dave Bing and Michigan Gov. Rick Snyder, a Republican, would grant the city the power to void contracts and slash costs but not provide state funding or loans to bail the city out of its financial problems,” CNN Money reports.

But fierce “opposition from unions — in a city that remains a bastion of labor power — has so far stymied efforts to pass a rescue package,” the report adds.

If the city council doesn’t get its act together and come to an agreement on the deal by Thursday, Gov. Snyder has announced that he will (legally) appoint an “emergency manager” to take over the day-to-day operations normally performed by the mayor and city council.

“The city council is under pressure from the public and city unions to reject the deal with the state [emphasis added],” Money reports, “At the same time, it would lose its powers if Snyder goes ahead and names an emergency manager.”

And with all these massive fiscal problems, the only action the council has taken this week was to double the city’s corporate income tax to 2 percent.

“Years of decline in population and businesses and a shrinking of the tax base have pushed Detroit into a deep financial hole despite a recent resurgence in the U.S. auto industry,” CNN Money reports.

“Without more cost cutting, the city will won’t be able to pay its bills come June. An estimate in January, the most recently available, was that the city would be down to $20.9 million in the bank by the end of this week,” the report adds.

So let’s say the unions have their way, the city council can’t come to an agreement on the Bing & Snyder deal, and the governor appoints an “emergency manager.” What powers would he/she have to save Detroit? If it comes to that, an “emergency manager” would have the authority “to void contracts with both unions and vendors” and sell off city assets.

Void contracts with unions? Whoa. If the unions don’t like the rescue package, they’re going to hate a Republican-appointed “emergency manager.”

“As the debates, negotiations and lawsuits raged this week, they did so without Bing, who was recently released from the hospital after serious intestinal surgery and won’t return to work for two weeks,” CNN Money reports.

“Both Bing and Snyder say they want to avoid a state takeover, which in itself could be the first step toward the largest municipal bankruptcy in the nation’s history.”

It is projected that 1.8 Million People will loose their jobs.
The coal industry will suffer the same fate as Osama bin Laden under new climate regulations proposed by the Environmental Protection Agency, the head of the United Mine Workers of America said this week.

“The Navy SEALs shot Osama Bin Laden in Pakistan and Lisa Jackson shot us in Washington,” Cecil Roberts, president of the powerful union, said during an interview Tuesday on the West Virginia radio show MetroNews Talkline.

EPA administrator, over the proposed regulations, which would limit greenhouse gas emissions from new power plants. Opponents of the regulations, including Roberts, say the new rules would be the death knell of the coal industry.
New coal-fired power plants would have to install technology to capture carbon dioxide emissions in order to comply with the rules. The technology, known as carbon capture and storage (CCS), “is not commercially available,” Roberts said.

“This rule is an all-out, in my opinion, decision by the EPA that we’re never going to have another coal-fired facility in the United States that’s constructed,” Roberts said.

The union chief used colorful language to underscore his pointEPA administrator, over the proposed regulations, which would limit greenhouse gas emissions from new power plants. Opponents of the regulations, including Roberts, say the new rules would be the death knell of the coal industry.
New coal-fired power plants would have to install technology to capture carbon dioxide emissions in order to comply with the rules. The technology, known as carbon capture and storage (CCS), “is not commercially available,” Roberts said.

“This rule is an all-out, in my opinion, decision by the EPA that we’re never going to have another coal-fired facility in the United States that’s constructed,” Roberts said.

The union chief used colorful language to underscore his point.

“I noticed this past week the vice president was talking about the campaign and he mentioned that Osama Bin Laden was dead and General Motors was alive,” Roberts said. “He should have gone on to say that the coal industry is not far behind with respect to what happened with Osama Bin Laden.”

While the United Mine Workers of America likely won’t actively oppose President Obama’s reelection bid, Roberts said the new EPA regulation could prevent the union from endorsing the president.

“That’s something that we have not done yet and may not do because of this very reason. Our people’s jobs are on the line,” Roberts said, adding that Obama has “done a lot of great things for the country.”

Roberts’s comments underscore the vehement opposition to the new EPA regulations in coal states whose economies rely heavily on the fossil fuel.

The rules would require new power plants that burn fossil fuels to release no more than 1,000 pounds of carbon dioxide per megawatt‐hour.

The agency said new natural-gas plants will be able to meet the standard without adding any additional technology. But new coal plants would need to add new technology like CCS, in which carbon dioxide emissions are collected and sequestered in the ground rather than released into the atmosphere.

The rules give new coal-fired power plants flexibility to meet the standard. Instead of meeting the standard on an annual basis, new coal plants that install CCS can use a 30-year average of their carbon dioxide emissions, according to EPA.

The proposed standards come as plans to build new coal plants have been waylaid by competition from inexpensive natural gas — which is undergoing a production boom — and other factors.

Environmental groups have cheered the regulations, with Sierra Club Executive Director Michael Brune noting that they will “make it nearly impossible to build a new coal plant.”

Roberts, in Tuesday’s interview with host Hoppy Kercheval, took aim at the Sierra Club, arguing the environmental group’s campaign to shut down coal plants is killing jobs.

“This is a broader problem for me than it is for the Sierra Club or the EPA,” Roberts said. “And I’m convinced, Hoppy, that if you give the Sierra Club enough money, they could shut your job down. I don’t know how they’d do it, but they’d figure out a way.”

Posted by the Right ScoopArianna Huffington: Nobody believes Obama’s jobs rhetoric anymore

Posted by The Right Scoop on August 4th, 2011 in Politics | 46 Comments

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The reality of a bad economic situation is beginning to set in on the left and some of the more honest lefties are now admitting that there isn’t a hopeful outlook for Obama’s re-election. I’ve included the entire interview of Arianna Huffington with LarryO because of not only the way she trashes Obama and his renewed focus on jobs, but also the way that she talks about how disenfranchised people on the left feel with this debt deal. She even goes as far as saying that Obama needs ‘intense therapy’ so that he can explain to himself why he agreed to such a debt deal. Just the way she characterized it surprised me because it’s not even over yet. We’ve only been through one phase of the deal and I can assure you that the left will push hard for tax increases the next go round as they hold the defense cuts hostage.

But then she starts talking about Obama’s recent pivot toward jobs again. Arianna says that she went back and counted the number of times Obama said he was focused on jobs and apparently it’s so many times that she says no one believes him anymore. She points out that Obama is very focused on campaigning for 2012, and while she agrees that’s an important goal, she says the only number that people will care about in 2012 is the unemployment rate and that there are no prospects for it going below 9%.

What’s funny to me is that the premise that began the interview was that LarryO was trying to find a way to convey hope about economic conditions that are less than hopeful, to help the President as much as they possibly could, and yet it’s their hopelessness that made me feel more hopeful.

Watch the whole interview. It’s not as difficult as it normally would be:

Since the second half of 2009, the U.S. economy has grown at a rate of 2.4%, a full percentage point below average long-term growth

Since the second half of 2009, the U.S. economy has grown at a rate of 2.4%, a full percentage point below average long-term growth.

By EDWARD P. LAZEAR

How many times have we heard that this was the worst recession since the Great Depression? That may be true—although the double-dip recession of the early 1980s was about comparable. Less publicized is that our current recovery pales in comparison with most other recoveries, including the one following the Great Depression.

The Great Depression started with major economic contractions in 1930, ’31, ’32 and ’33. In the three following years, the economy rebounded strongly with growth rates of 11%, 9% and 13%, respectively.

The current recovery began in the second half of 2009, but economic growth has been weak. Growth in 2010 was 3% and in 2011 it was 1.7%. Who knows what 2012 will bring, but the current growth rate looks to be about 2%, according to the consensus of economists recently polled by Blue Chip Economic Indicators. Sadly, we have never really recovered from the recession. The economy has not even returned to its long-term growth rate and is certainly not making up for lost ground. No doubt, there are favorable economic numbers to be found, but overall we continue to struggle.

During the postwar period up to the current recession (1947-2007), the average annual growth rate for the U.S. was 3.4%. The last three decades have experienced somewhat slower growth than the earlier periods, but even in the period 1977-2007, the average growth rate was 3%. According to the National Bureau of Economic Research, the recovery began in the second half of 2009. Since that time, the economy has grown at 2.4%, below our long-term trend by either measure. At this point, the economy is 12% smaller than it would have been had we stayed on trend growth since 2007.

Worse, the gap is growing over time. Today, the economy is four percentage points further from the trend line than it was the first quarter of 2009 when this administration’s nearly $900 billion fiscal stimulus efforts began. If forecasts of around 2% growth turn out to be accurate, we will add to that gap this year.

Contrast this weak growth with the recovery that followed the other large recession of recent decades. In the early 1980s, the economy experienced a double-dip recession, with contractions in both 1980 and ’82. But growth rates in the subsequent two years averaged almost 6%. The high growth that persisted throughout the 1980s brought the economy quickly back to the trend line. Unlike the current period, from 1983 on, the economy was in rapid catch-up mode and eventually regained all that had been lost during the early ’80s.

Indeed, that was the expectation. As economist Victor Zarnowitz of the University of Chicago argued many years ago, the strength of the recovery is related to the depth of the recession. Big recessions are followed by robust recoveries, presumably because more idle resources are available to be tapped. Unfortunately, the current post-recession period has not followed the pattern.

The 2007-09 recession was induced by a financial crisis and some, most notably economists Carmen Reinhart and Kenneth Rogoff (authors of “This Time is Different: Eight Centuries of Financial Folly”), argue that financial crises pose more difficult recovery problems than do policy-induced recessions.

The early ’80s recession could be viewed as induced by the Federal Reserve’s tight monetary policy (i.e., raising interest rates), which was designed to rein in inflation. Growth returns more rapidly, they argue, when the policy hindering it changes (i.e., the Fed lowers interest rates) than when the economy is struggling after a severe credit crisis like the one we experienced after the 2008 collapse of Bear Stearns.

But some, Stanford economist John Taylor being their leading spokesman, argue that the current recession was caused by Fed policy as well—rates remained too low for too long in the lead up to the subprime mortgage fiasco. The Great Depression also began with a financial crisis but saw high growth rates following contractionary years, and the output lost in negative years was eventually regained through higher subsequent growth.

Are there other factors that may have contributed to the slow recovery that we are experiencing? It would be difficult to argue that government polices over the past three years have enhanced confidence in the U.S. business environment. Threats of higher taxes, the constantly increasing regulatory burden, the failure to pursue an aggressive trade policy that will open markets to U.S. exports, and the enormous increase in government spending all are growth impediments. Policies have focused on short-run changes and gimmicks—recall cash for clunkers and first-time home buyer credits—rather than on creating conditions that are favorable to investment that raise productivity and wages.

There are some positive developments. The labor market is improving, albeit slowly. Profits remain high and the stock market has enjoyed some recent success. We can hope that these indicate better times and higher growth ahead. But unless we move to a set of economic policies that are aimed at growing the economy rather than at promoting social agendas, this may be the first “recovery” in history that fails to see us return to long-term average growth.

Mr. Lazear, chairman of the President’s Council of Economic Advisers from 2006-2009, is a professor at Stanford University’s Graduate School of Business and a Hoover Institution fellow.

A version of this article appeared April 3, 2012, on page A15 in some U.S. editions of The Wall Street Journal, with the headline: The Worst Economic Recovery in History.

European markets took a serious dip on Friday rattled by fresh concerns over the eurozone debt crisis and a poor US employment report. Paris’ CAC 40 slipped 3.6 percent while London’s FTSE 100 index of leading companies dropped by 2.3 percent.

Worries that the U.S. economy is stalling and may be heading back into recession caused a severe slump in stock markets around the world on Friday.

With European indexes already shaken by a disagreement between the EU and Greece over how to plug a deficit gap, worse-than-expected U.S. jobs data drove investors to unload stocks.

The U.S. Labor Department announced that the world’s largest economy created no new jobs in August, disappointing forecasts for a 93,000 increase. The figure was the worst in almost a year, leaving the unemployment rate unchanged at 9.1 percent.

Investors watch the jobs report as a key barometer of the health of the U.S. economy, which despite its recovery from the worst of the sub-prime mortgage crisis and the global financial meltdown has struggled to create new jobs.

“The stagnation in U.S. payroll employment is an ominous sign,” said Paul Ashworth, economist at Capital Economics. “The broad message is that even if the U.S. economy doesn’t start to contract again, any expansion is going to be very, very modest and fall well short of what would be needed to drive the still elevated unemployment rate lower.”

Britain’s FTSE 100 closed down 2.3 percent to 5,292.03 while Germany’s DAX slumped 3.4 percent to 5,538.33 and France’s CAC-40 shed 3.6 percent to 3,148.53.

Wall Street also slid – the Dow industrials fell 1.4 percent to 11,336.08 and the S&P 500 lost 1.6 percent to 1,185.54.

In Europe, concerns about the debt crisis flared up again after international debt inspectors paused their review of Greece’s finances.

An EU official, who declined to be named because of the sensitivity of the issue, said there were disagreements over the country’s deficit 2011 and 2012 figures and how to make up for the budget shortfall.

Greek finance chief Evangelos Venizelos, however, denied that the pause it was due to a breakdown in talks.

The uncertainty, however, put extra pressure on European stock markets and the euro, which fell to $1.4214 from $1.4273 the day before.

In Asia, Japan’s Nikkei 225 index, Asia’s biggest market, ended a six-session winning streak, falling 1.2 percent to 8,950.74. Hong Kong’s Hang Seng index declined 1.8 percent to 20,212.91.

Mainland China’s Shanghai Composite Index fell 1.1 percent to 2,528.28 amid concerns over the potential impact of currency appreciation.

In Seoul, South Korea’s Kospi shed 0.7 percent to 1,867.75, ending six consecutive gains. Markets in Australia, New Zealand, Thailand and Singapore also fell.

Benchmarks in the Philippines and India, however, bucked the losing trend to gain less than 1 percent each.

In currencies, the dollar was down slightly at 76.76 from 76.79 yen the day before.

New Japanese Prime Minister Yoshihiko Noda named Jun Azumi, a 49-year-old former journalist, to succeed him as finance minister Friday as he launched his Cabinet. Japan, the world’s third-largest economy, is struggling with the effects of a currency that remains near an all-time high against the dollar.

“We expect Noda to maintain the links he formed with the BOJ as finance minister and continue with a policy framework that includes forex market intervention,” Naohiko Baba, chief economist for Goldman Sachs in Tokyo, wrote in a report Friday, referring to the new prime minister’s relationship with the Bank of Japan.

The central bank carries out currency market intervention on behalf of the finance ministry.

Benchmark oil for October delivery was down $2.16 to $86.77 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose 12 cents to settle at $88.93 per barrel on the Nymex on Thursday.

In London, Brent crude for October delivery was down 90 cents at $113.39 on the ICE Futures exchange.

Doug Casey on the Illusion of Recovery

(Interviewed by Louis James, Editor, International Speculator)

[Skype rings: It's Doug Casey, calling from Cafayate, Argentina. He sounds tired, but pleased with himself.]

Doug: Lobo, get out your mower; it’s time to cut down some green shoots again, and debunk a bit of the so-called recovery.

L: Ah. I have to say, Doug, the so-called recovery is looking more than “so-called” to a lot of smart folks. Even our own Terry Coxon says the recovery is real, albeit weak.

Doug: Terry’s probably looking at it by the numbers, some of which are reported to be improving. But let’s come back to the numbers later and start with fundamentals. The first order of business, as usual, is a definition: a depression is a period of time in which the average standard of living declines significantly. I believe that’s what we’re seeing now, whatever the numbers produced by the politicians may seem to tell us.

L: I was just shopping for food and noticed that the bargain bread was on sale at two for $5. My gas costs almost as much per gallon. That’s got to hurt a lot of people, especially on the lower income rungs. I don’t need to ask; a member of my family just got a job that pays $12 per hour – about three times what I made working for the university food service back when I was in college – and it’s not enough to cover his rent and basic bills. If his wife gets similar work, they’ll make ends meet, but woe unto them if anyone in their family crashes a car or requires serious medical treatment.

Doug: That’s just what I mean. Actually, the trend towards both partners in a marriage having to work really started in the early ’70s – after Nixon cut all links between the dollar and gold in August of 1971. Before then, in the “Leave it to Beaver” era, the average family got by quite well with only the husband working. If he got sick or lost his job, the wife was a financial backup system. Now, if something happens to either one, the family is screwed. I think, from a very long-term perspective, historians will one day see the ’60s as the peak of American prosperity – certainly relative to the rest of the world… but perhaps even in absolute terms, even taking continued advances in technology into account. Maybe the ’59 Cadillac was the bell ringing at the top of that civilizational market.

My friend Frank Trotter, president of EverBank, was just telling me that the net worth of the median US citizen is only $6,000. That’s the median, meaning that half of the people have less than that. Most people don’t even have enough stashed away to buy the cheapest new car without going into debt. It used to be that people bought cars out of savings, with cash. Now they have to finance them over at least five years… or lease them – which means they never ever have even that trivial asset, but a liability in the form of a lease.

The bulk of the 49 percent below this guy don’t even have that – with the concentration of wealth among the top one percent, most of those below average have seriously negative net worth, at least compared to their earning capacity. In other words, the US, Europe, and other so-called First World countries are in a wealth-liquidation cycle that will be as profound as it will be protracted.

By that I mean that people are on average consuming more than they produce. That can only be done by living out of capital – consuming savings – or accumulating debt. For a time, this may drive corporate earnings up, and give this dead-man-walking economy the appearance of returning health, but it’s essentially, necessarily, and absolutely unsustainable. This is an illusion of recovery we’re seeing – the result of our Wrong-Way Corrigan politicians continuing to encourage people to do the exact opposite of what they should do.

L: Which is?

Doug: Save. People shouldn’t be getting new cars, new TVs, and new clothes. They should be cutting expenses to the bone.

The Obama administration, just like the Baby Bush administration before it – there really is no great difference between the Evil Party and the Stupid Party – and its minions in the US and its cronies around the world, stubbornly stick to the bankrupt idea that economic growth is driven by consumption. This is confusing cause and effect. Healthy consumption follows profitable production in excess of consumption, resulting in savings – accumulated capital – that can either be spent without harm, or invested in future growth.

Consumption doesn’t cause an economy to grow at all. To paraphrase: “It’s productivity that creates wealth, stupid!”

L: Policies aimed at encouraging consumption, instead of increasing production, are what turned the savings rate negative in the US and resulted in the huge sovereign debt issues we’re seeing in supposedly rich countries…

Doug: Well, the governments themselves have spent way more than they had or ever will have, and that’s par for the course when you believe spending is a virtue. However, it’s the false signals government interference sends to the market that caused the huge malinvestments that only began to go into liquidation in 2008. That has to do with another definition of a depression: It’s a period of time when distortions and malinvestments in the economy are liquidated. Unfortunately, that process has barely even started. In fact, since the bailouts started in 2008, these things have gotten much worse. If the government had gone cold turkey back then, cut its spending by at least 50% for openers, and encouraged the public to do the same, the depression would already be over, and we’d be on our way to real prosperity. But they did just the opposite. So we haven’t yet entered the real meat grinder…

L: Those false signals the government sends to the market being artificially low interest rates?

Doug: Yes, and Helicopter Ben’s foolish leadership in the wholesale printing of trillions of currency units all around the world – I don’t really want to call dollars, euros, yen, and so forth money anymore. When individuals and corporations get those currency units, they think they’re wealthier than they really are and consume accordingly. Worse, those currency units flow first to the state – which feeds it power – and favored corporations, which get to spend it at old values. It’s very corrupting. There is also an ongoing regulatory onslaught – the government has to show it’s “doing something” – which makes it much harder for entrepreneurs to produce.

In addition, keeping interest rates low encourages borrowing, and discourages saving – just the opposite of what’s needed. I don’t believe in any state intervention in the economy whatsoever, but in the crisis of the early 1980s, then-Fed Chairman Paul Volker headed off a depression and set the stage for a strong recovery by keeping rates very high – on the order of 15-18%. They can’t do that now, of course, because with the acknowledged government debt at $16 trillion, those kind of rates would mean $2.5 trillion in annual interest alone – more than the government takes in taxes. At this point, there’s no way out. And there’s much more tinkering with the system ahead, at the hands of fools who remain convinced they know what they’re doing, regardless of how abject their past failures have been.

L: And yet, the interventions seem to be working. The “orderly default” in Greece seems to have saved the Eurozone for now, and critically important employment figures in the US show definite signs of improvement.

Doug: Perhaps, but let’s take a closer look. I advocate the Greek government defaulting, overtly and immediately, on 100% of its debt, for several reasons. First, it would punish those who lent it money to do all the stupid and destructive things it’s done. Second, it would ensure that the Greek government wouldn’t be able to borrow again for a very long time. Third, it would liberate young and yet unborn Greeks, who are being turned into serfs by all that debt. It would also mean that most European banks would fail. Tough luck for those who relied on them. When new banks are established it will serve as a lesson to people to be more careful about where they put their capital. Anyway, it would be much less of a catastrophe than the way we’re currently heading.

Here in the US, the twelve-month fiscal deficit is still over $1.2 trillion, an extreme situation that is gutting the value of the dollar, because it’s mostly financed by the Fed buying US debt. It’s temporarily expanded the eye of the storm we’re in, but it’s done nothing to dissipate the storm itself. Their easy-money policies may have bought them a little more time, but they will only make it worse when we do exit the eye of the storm.

There’s a third definition of a depression that I use: a depression is the end phenomenon of an inflation-caused business cycle. Inflation is the sole cause of business cycles, and inflation is caused by governments and their central banks printing money. The government – the state – is 100% responsible for society’s economic problems. But it arrogantly represents itself as the cure. And people believe it. There’s no hope until the psychology of the average person changes.

L: As Bob Lefevre used to say: “Government is a disease masquerading as its own cure.” Want to update us on when you think the economy will return to panic mode?

Doug: Earlier this year, I was expecting it sooner than I do now. Unless some black-swan event upsets the apple cart suddenly, I would not expect us to exit the eye of the storm at least until after the US presidential elections this fall. Maybe not until early 2013, as the reality of what’s in store sinks in. I pity the poor fool who’s elected president. In a way, I hope it’s Obama who wins, mainly because the worthless – contemptible, actually – Republican candidates yap on about believing in the free market, which means if one of them is somehow elected, the free market will be blamed for the catastrophe. Too bad Ron Paul will be too old to run in 2016, assuming that we actually have an election then…

L: So, what about those numbers, then? Employment is up, and the oxymoronic notion of a “jobless recovery” was one of our criticisms before…

Doug: Yes, but look at the jobs that have been spawned; they are mostly service sector. Such jobs can create wealth for certain individuals – it looks like we’ve put more lawyers to work again, as well as waiters and paper-pushers – but they don’t amount to increased production for the whole economy. They just reshuffle the bits around within the economy.

L: Unlike my favorite – mining – which reported 7,000 new jobs in the latest report, if I recall correctly.

Doug: Yes, unlike mining, which was more of an exception than the rule in those numbers. But that’s making the mistake of taking the government at its word on employment figures. As we’ve discussed before, if you look at John Williams’ Shadow Stats, which show various economic figures as the US government itself used to calculate them, unemployment has actually reached Great Depression levels.

The US government is dishonestly fudging the figures as badly as the Argentine government – which is, justifiably, viewed as an economic laughingstock in most parts of the world. One reason things are going to get much worse in the US is that many of those with economic decision-making power think Cristina Fernandez Kirchner is a genius. A little while ago there was an editorial in the New York Times – the mouthpiece for the establishment – written by someone named Ian Mount. Get a load of this. I’ve got it in front of me.

If you can believe it, the author actually says: “Argentina has regained prosperity thanks to smart economic measures.” The Argentine government “intervened to keep the value of its currency low, which boosts local industry by making Argentina’s exports cheaper abroad while keeping foreign imports expensive. Argentina offers valuable lessons … government spending to promote local industry, pro-job infrastructure programs and unemployment benefits does not turn a country into a kind of Soviet parody.”

Well, no, I guess it turns it into something the US can ape. He goes on: “Argentina is hardly a perfect parallel for the United States. But the stark difference between its austere policies and low growth of the late 1990s and the pro-government, high-growth 2000s offers a test case for how to get an economy moving again. Washington would do well to pay attention.”

The guy has obviously never been here, though he admits that “Argentina is far from perfect.” His modest concession is that the taxes to imports and exports have “scared away some foreign investment, while high spending has pushed inflation well over 20 percent. And it would be laughable to suggest that the United States follow its lead and default on its debt.”

When I first read the article, I thought I was reading a parody in The Onion. I love Argentina and spend a lot of time down here. It’s a fantastic place to live – but not because of the government’s economic policies. Its only competition in state stupidity is Brazil, which regularly destroys its currency. Fortunately, though, the Argentine government is quite incompetent at people control, unlike the US. It leaves you alone. And there’s a reasonable chance the next president down here won’t be actively stupid, which isn’t asking much. But it’s amazing that the NYT can advocate Argentine government policy as something the US should follow. A collapse of the US economy would be vastly worse than that of the Argentine economy – the US dollar is the world’s currency. Here in Argentina they’re used to it and prepared for it to a good degree. Very unlike in the US.

L: In the US, the welfare state has bloated beyond imagination. The damage already done is less visible because where there used to be private charity soup kitchens, there are now “food stamps” that look like ordinary credit cards, making the destitute among us look like everyone else at the supermarket. There are 50 million recipients, and that number is growing, not declining.

By the way, John Williams is a speaker at the Casey Research Recovery Reality Summit we have coming up, April 27-29 in Weston, Florida. Perhaps this would be a good time to invite our readers down to hear John’s take on what the numbers really are – and to meet us. We’ll both be there.

Doug: That’s true. Several readers made it to the event we just had at La Estancia de Cafayate, which went very well. We have some of the most interesting people in the world reading these conversations – it’s fun to get to meet more of them.

L: Ah, that must be why you sound both upbeat and tired. A pity I didn’t get to sit in on Coffee with Casey with you in the new spa you built down there…

Doug: Yes, it’s been a long couple of weeks, but I am pleased. You should see the place now; not only has the spa been completed since you were last here, they’re making good progress on the hotel, and there are houses going up all over the place. I’m tickled pink with our world-class 3,500 square-foot gym, where I was pumping iron for an hour today, and resistance swimming pool, among lots of other stuff. But the real attraction isn’t the toys, it’s the people.

L: I’ll see it next time. It may be time to sit down with an architect. Meanwhile, back at the ranch here, what are the investment implications if the Crash of 2012 gets put off until the end of the year, or even becomes the crash of 2013?

Doug: There are potentially many, but generally, the appearance of economic activity picking up is bullish for commodities, especially energy and raw materials like industrial metals and lumber. That’s not true for gold and silver, so we might see more weakness in the precious metals in the months ahead. I wouldn’t count on that, however, because government policy is obviously inflationary to anyone with any grasp of sound economics. That will keep many investors on the buy side. Plus, the central banks of the developing world – China, India, Russia, and many others – are constantly trading their dollars for gold. There are perhaps seven trillion dollars outside the US, and about $600 billion more are sent out each year via the US trade deficit.

L: I know I bought some gold and silver in the recent dip and would love to have a chance to do so at even lower prices ahead.

Doug: That’s the logical thing to do, given the fundamental realities we started this conversation with, but a lot of people will be scared into selling if gold does retreat. A good number will sell low, after buying high – happens every time, and is a big part of why commodities have such a tricky reputation. Most investors just don’t have the strength of conviction to be good speculators. Instead of looking at the world to understand what’s going on and placing intelligent bets on the logical consequences of the trends, regardless of what anyone else says or does, they go with the herd, buying when everyone else is buying and selling when everyone else is selling. This inverts the “buy low and sell high” formula. They let their thoughts be influenced by newspapers and the words of government officials.

L: In other words, everything you see calls for gold continuing upward for some time – years – making any big retreats along the way great buying opportunities for those with the guts to act on them. Same for silver, and doubly so for the precious-metals mining stocks, and triply so for the junior stocks.

Doug: Just so. I look forward to the day when I can sell my gold for quality growth stocks – but we’re nowhere near that point. But silver might correct less than gold if gold corrects due to the appearance of economic recovery – silver is, after all, an industrial metal as well as a monetary one.

L: Agreed. And I can see the positive implications for energy as well, but Marin was just saying that natural gas has dropped below $2. That’s apparently starting to force oil and gas companies to remove reserves from their books – because reserves need to be economic, not just exist – which the market isn’t going to like. He sees some great bargains on solid companies ahead, and not just “gas” companies as many oil companies, including the major ones, produce both. Marin said one major company gets half its top line from gas sales. This is a huge shift.

[Ed. Note: Louis is referring to Marin Katusa, chief energy investment strategist for Casey Research and editor of Casey Energy Opportunities and Casey Energy Report.]

Doug: The devil is always in the details – it’s dangerous to oversimplify things, painting with a broad brush, as in, “A recovering economy will be bad for gold” or “A recovering economy will be good for energy.” You have to understand these markets well enough to really see how different forces and factors will affect them. Marin is unquestionably one of the sharpest analysts I’ve met in my life. He’s actually something of a genius, both academically smart and very street smart, in addition to being a workaholic. He runs a lot of my money. He’s done spectacularly well, and I expect him to do even better, because he constantly learns. Not much gets by him.

L: Good reminder. So, if we’re looking at signs of economic recovery for a time, would you buy into copper, nickel, or other base-metal plays?

Doug: Well, just because we might see signs of a temporary economic recovery, that doesn’t mean we will – and even if we do, they could easily be swept aside by any number of events, such as Europe taking another turn for the worse, or Japan or China starting to come apart at the seams. But, as a hedge, some near-term bets on industrial metals might not be a bad thing.

L: How about agriculture?

Doug: That’s one thing for which demand can never go down. Economic upturns or downturns may affect the mix of what people eat, but they won’t stop people from eating – or, if they do, we’ll have more pressing concerns than which way to play the markets. I remain especially bullish on cattle.

L: Anything else?

Doug: [Laughs] Many things. The right technology companies should do well; finding ways to do things faster-better-cheaper always adds value. Select mainstream equities in currently profitable sectors might do well as well – but I’d be very careful there. I can’t stress enough how close to the edge of collapse the global economic house of cards is – it could take another year or more to topple, or it could be starting today.

L: Which leads to the other reason for owning precious metals – not as a speculation on skyrocketing prices, nor as an investment for good yield, but for prudence.

Doug: Yes. Gold remains the only financial asset that is not simultaneously someone else’s liability. Anyone who thinks they have any measure of financial security without owning any gold – especially in the post-2008 world – is either ignorant, naïve, foolish, or all three.

Look, we saw it coming, but everyone in the world could see Humpty Dumpty fall off the wall in 2008. Now we’re just waiting for the crash at the bottom, and no amount of wishful thinking otherwise is going to change that. It’s a truly dangerous world out there, and blue chips are no longer the safe investments they once seemed to be. You don’t have to be a gold bug to see the wisdom of allocating some capital – and not just a token amount – to cover the possibility that I’m right about what’s coming. There’s some opportunity cost associated with taking out this kind of insurance, but it’s not catastrophic if I’m wrong, and the cost of failing to do so if I’m right is catastrophic. That really is the bottom line.

L: Financially. If you’re right about the coming Greater Depression, people also need to take steps to batten down the hatches on their physical life arrangements.

Doug: Right. As we’ve said many times now, your government is the greatest threat to your well-being these days. If at all possible, you should be taking steps to diversify your political risk. Foreign bank accounts are not illegal for most people in most countries, though they need to be reported. Getting one is a good start. Buying real estate I like in various countries is one of my favorite ways to diversify risk in my life. That’s partly because I like speculating in real estate, but much more so because whichever government thinks you’re its tax slave can’t force you to repatriate real estate you own abroad. Most of all, it’s because it’s good to have places to go if things get ugly wherever you happen to be.

L: Very well. Any particular triggers you think we should watch out for – warning signs that we really are about to exit the eye of the storm?

Doug: In the US, the Fed being forced to raise interest rates would be one, or inflation getting visibly out of control – which would force a change in interest rates – would be another. Who knows – Obama getting reelected could tip the scales. War in the Middle East could do it, or, as we already mentioned, China or Japan going off the deep end. The ways are countless. Black swans the size of pteranodons are circling in squadron strength. A lot of them are coming in for a landing.

People will just have to stay sharp – sorry, there’s no easy way to survive a depression. As my friend Richard Russell says, “In a depression everybody loses. The winner is the guy who loses the least.” It will take work and diligent attention to what’s going on in the world and around us. We’ll do our best to help with The Casey Report, but each of us is and must be responsible for ourselves.

L: Okay then, thanks for the guru update. No offense, but in spite of the investments I’ve made betting that you’re right, I hope you’re wrong, because the Greater Depression is going to destroy many lives, and the famines and wars it spawns even more – millions, I’m sure. Maybe more. The mind balks.

Doug: Oh, I agree. I only wish I could believe otherwise, because I’m sure it’s going to be even worse than I think it will be… although I hope to be watching it in comfort and safety on my widescreen TV, not out my front window.

L: I think we need to find something more upbeat to talk about next time.

Doug: [Chuckles] Maybe. If there’s something important in the news we should cover it. It’s sure to be fodder for comedy – at least black comedy.

L: As you say. ‘Til next week then.