China: Savers versus Debtors
Hey, as bad as things are becoming in the US, at least we don’t have 100,580.2% inflation like Zimbabwe. But, like the Zimbabweans, we are to a large degree kept from complete disaster by loans from China. In fact, about half of the three trillion dollars we owe to foreign nations is owed to China.
Whereas we Americans like to spend all the money we have, and then spend all the money we don’t have, both on an individual and collective basis (can anyone say 3 trillion dollar war?) the Chinese actually live within their means. In fact, were OPEC to de-peg the price of oil from the dollar and instead sell in euros, as the leaders of Iran and Venezuela would like, and just as Saddam did back in 2000 (funny how all three of them were never on our friendship list), it would shatter faith in the US dollar so drastically that one of the few things giving the dollar value would be the fact the Chinese had enough faith in the currency to buy it up.
You’d think we’d be at least respectfully polite to the Chinese for doing so, but no. I wonder what would happen if China dumped all their reserves at the same time OPEC ditched the dollar?
Today’s article of doom: the FDIC prepares for big bank failures.
Gold is still cheap at $1,000 per ounce
I was lucky enough back in 2003 to buy some gold when it was $300 an ounce. I did this not because I knew anything about investing (I still don’t) but because common sense dictated that when something was cheap as it had been in a generation, and that something had made and broken empires from time past remembrance, it was time to buy that something.
Now gold is nearing $1,000 an ounce. Actually, I don’t think it’s climbed in price much; rather the value of the dollar has plummeted. But that’s other conversation. The reality is that $1,000 is still about half-price if you use some time-honored markers. In 1980, when gold was at its peak in inflation-adjusted dollars ($875 back then was around $2,200 in today’s dollars if you use the government’s conservative inflation calculation methods), oil was also at its peak. No coincidence, of course. Both goods were much surer bets than any currency as far as holding their value. You will always find someone who wants gold or oil — oil is the rum and spices of the modern era and gold is, well, gold.
At that time, oil was $39.50 a barrel. Using the same official government calculations, that equates to $103.76 per barrel in today’s money. Today, oil broke the $102 mark. Considering the explosion of crucial goods globally, like the tripling of the price of wheat in the past year, I think that gold is still underpriced. Gold, the only real money (the rest is paper), would fit right in with 1980 by being roughly double its price. In fact, every day gold climbs, confidence in world currencies declines, especially confidence in dollars. Quasi-government agencies are working hard to prevent gold from exploding, which is why the IMF (International Monetary Fund) is planning on dumping a bunch of gold reserves on the market to keep the supply up and therefore the price down.
But it won’t work. People are really starting to wake up to the fact something colossal, something not seen by any of most Americans, is coming, and they’ll snap up that gold as fast as the IMF dumps it, and the price will continue to soar. A good friend of mine cashed out his entire retirement fund and bought gold with it a few weeks ago, when the price was “at its peak.” Theoretically, it’s possible gold will go back in the 700 or 800 range — and all it would take is for housing prices to start going back up, for oil to drop, for our government to suddenly have a surplus, for our manufacturing base to magically reappear, for food to get cheaper. On the other hand, anyone who buys gold now at its “highest price ever” might well be making the only good financial choice left. Well, other than silver that is, but that’s a story for another time.
Today’s article of doom: Arctic doomsday vault.
The (Mostly Still) Free Internet
It’s hard not to focus on the economic issues right now when there are articles out there like this and this and this (when exactly does a “deep” recession become a depression?). Before the internet, apart from a few mailorder books from a sketchy publisher, where would we actually have had a chance to hear things like, “The Federal Reserve is a private firm, not owned by Americans, with no desire to eat a trillion dollars or more in losses. They are a private firm whose owners reside in London and Old Europe”? I mean, it’s true — it’s easy to verify. The Federal Reserve will explain it to you if you call them up. But I’ll bet they didn’t have many people calling them ten years ago.
Right now, if it exists, it’s on the internet. Conversely, if it’s not on the internet, it doesn’t exist. Not too long from now, with the way our governments all regulate, filter, and delete content to various degrees, prosecuting those purveyors of information they deem unsavory, the internet will be the new history book, the new science book, the new Bible. The internet will be the official version of things, clean and neat, and very definitely missing crucial pieces the government doesn’t like.
It’s easy for us in the West to get upset over China’s control of the internet and persecution of information-spreaders. But censorship has always existed, and always will. It exists right here in the US to an incredible degree. Back at the beginning of the Iraq war, there were several websites hosting pictures taken in Iraq. The pictures, showing bloody remains of children, babies, innocent people — people the US armed forces killed — were immediately taken down. No ISP would host them once the government stepped in and mumbled something about “national security.” I remember looking at these sites, watched them jump from mirror to mirror until they finally disappeared, extinguished. The US government says something like 100 thousand Iraqis have died since 2003 of all causes combined. Independent analysts say the number is more like a million, at least 2/3 of which were civilians killed by direct violence. Who will ever know? Even today in our era of advanced technology and archival ability, the official historical figure chosen will largely be a guess. And there are no more websites that show blown-up Iraqi children. And no one has even heard they existed or were taken down.
Right now, we’re on the verge of passing an “Anti-Hate” law to combat “hate” on the internet. Lobbyists been trying for years and they’ll eventually get it written into law. Those marketing types must get paid a lot of money to come up with Orwellian names like the “Patriot Act.” Too bad the anti-hate law basically leaves it up to the government to define hate and define the groups the protection applies to. In the words of Noam Chomsky, “If we don’t believe in freedom of speech for people we despise, we don’t believe in it at all.”
Today’s article of doom: ten weeks of wheat reserves.
Don’t Like the Answer? Change the Formula
If you were one of the last gasping members of Generation X, you might recall the time in the mid-90s when the SAT scoring system was redone, making it much easier to get a higher score. In fact, when colleges looked at your score, they made a note of which year you took the test in order to account for this difference, which amounted to over a hundred points on average.
The reason they did this was because, historically, the average SAT score (Math and English combined) was 1000. Over time, as students in this country became less engaged, less intelligent, less whatever you want to blame it on, the average dropped to below 900. It didn’t look good, so the SAT administrators simply changed the scoring formula. Presto! Students once again averaged 1000.
Our government likes to use the same recalculation solution. Take, for example, the CPI, the Consumer Price Index. Back in 1980, when inflation was rampant, unemployment was rising, gold and oil were exhorbitant, the Middle East was unstable — in short, when things were like they are now — the government calculated the CPI one way. It intended to show how fast the price of consumer goods were rising, to give an indication of how the average person buying potatoes, socks, and gasoline was being affected.
Back then, the CPI was rising rather quickly, and it didn’t look good. So, the government simply changed the formula and dropped things left and right. Wheat? That’s a commodity. No need to note the doubling of the price in wheat. Heating oil? C’mon, that’s not really a consumer good. Let’s count the price of TVs — everyone needs one of those. And they’re so cheap nowadays!
The result is a measurement of inflation that is completely at odds with the experience of the average consumer. Anyone compare grocery receipts from 2007 prices lately? Strange that they’re almost 15% more when Bernanke assured us last year the inflation rate was being monitored and was only 2%. Using the current CPI rate, we are told consumer goods are only rising at about 4% according to the government’s official statistics. However, using the formula we dropped in 1980, the number is about 12%. Which sounds closer to reality to you?
The Federal Reserve increased the number of dollars in circulation by about 15% last year. They printed it up and loaned (essentially gave) the money directly to the banks so the banks could back up their worthless mortgages with some hard assets and keep loaning out more money — at ten to thirty times the amount they received, of course. Bottom line is cash is a good just like shoes or soap and its inherent value is based upon supply and demand. The more supply, the less the demand, and therefore value. When the Federal Reserve increases the dollars in circulation by 15%, the value of each dollar you hold is therefore necessarily decreased in value by the same amount. No matter what slick story the government has, they cannot fight basic arithmetic. I have yet to find a bank that will offer a 15% interest rate on their savings accounts, so even saving money is losing money right now. Is it any surprise the price of goods is heading towards 15% as time catches up with the Fed’s printing decision?
Today’s article of doom: your friendly backyard detention camps
1.3% Growth (Minus Cost Increases)
I’ve wanted to start this blog for several months now, and I feel a bit guilty for not starting sooner. I debated creating my own template, getting another URL, and hosting it myself — all which led to ultimate procrastination.
I shouldn’t feel guilty, however, because now I don’t need to spend so much time defending my position that the economy in this country is going to Hell in a handbasket overnight despite the government’s upbeat talking points. That’s because the government has stopped disagreeing with naysayers like myself. Now it’s down to the nuances of the English language.
Today, the Federal Reserve said projected growth for 2008 was somewhere between 1.3 and 2%. Hey, that’s cool — it’s still growth right? Well, no. Especially considering our population (and therefore cost burden) will likely increase more than 1.3 or 2% this year, due to birth rate and immigration. And the costs for food, gas, energy, and healthcare are likely to increase much more than 2% due to inflation. That’s what Bush means when he says with a smile, “We will have growth.” He neglects to say, “We also will have more expenses.” Well, anyone who uses GDP as the indicator of an economy’s health is a little silly anyway. That’s like focusing on your 2% raise and ignoring the 15% cost of living increase.
Of course, the other significant number Bernanke mentions is the unemployment rate of 5%. Well, 5% isn’t much, right? If you assume the unemployment rate roughly corresponds to the number of working-aged people who are unemployed, you’d be wrong. The “unemployment rate” includes only people who are taking unemployment insurance. And that insurance doesn’t last forever, whether or not the person finds a job. You usually get 6 months, sometimes longer, and then you’re not part of the official unemployment rate anymore. Neither are those who are unemployed because they are in prison, are disabled, retired, or don’t bother to demonstrate an eagerness to work (required for unemployment benefits). And of course, students aren’t counted.
A more relevent question to me would be “What percentage of American households do not contain an adult with a paying job?” 15%? 20%? One can only guess.
Today’s article of doom: mother of all meltdowns.
Crashing Down Now! 