Ob:Blog - Economics For People Who Hate Economics

Three meals or a tank of gas

2008-02-09T23:03:00.000-05:00

Its been said by the great philosopher Arnold Rimmer on an episode of the British Sci-Fi sitcom Red Dwarf that "They say that every society is only three meals away from revolution. Deprive a culture of food for three meals, and you'll have an anarchy.". Today I would revise that to three meals or one tank of gas. For those of us that lived through the oil shocks of the 70's and 80's, you may recall the fights that broke out at filling stations between formally happy motorists, station attendants and each other over their God-given right to the unlimited supply of precious petrol.

Its no coincidence that our problems with money and credit began once world oil production peaked in 2005 or 2006, depending on how we count. The exact date is unimportant, the fact that the peak is now in the rear view mirror is devastating. World oil consumption has now surpassed production with most producing countries well past their peak, and the rest at maximum production and declining.

With no new big oil discoveries since the 1960's, discovery is way behind depletion. Competition for limited production can mean war not just at the pump, but across borders as well. Despite what clueless Americans and the idiots they send to Washington believe, the big oil companies don't control the price, or production of oil. 85 percent of oil production is in the hands of nations, not companies. Nations like Russia, Saudi Arabia Mexico and Venezuela. Countries that are consuming more of their oil production internally leaving less for export to places like the US, India and China that can't produce enough for their own population and industry.

The US is producing less than 25% of the oil we consume. Not because we don't want to, because we can't. The shock back in the 70's was when the US oil production peaked. There were plenty of countries around the world that were happy to sell us the oil we needed after a short lesson of what happens when geology meets economics from OPEC. Now the world has peaked. There's nowhere else to import from. Perhaps you should re-think that new Hummer purchase, at least until they start making a plug-in hybrid model.

Chavez seals his fate.

2007-01-08T20:40:00.001-05:00

Regarding this story from AP, (sorry, link no longer works) It seems that among radical socialist reforms proposed by Venezuela's re-elected Hugo Chavez such as nationalizing the electricity, energy, and telecom industries he may have gone a step too far.

Chavez said "he wanted a constitutional amendment to eliminate the autonomy of the Central Bank and would soon ask the National Assembly, solidly controlled by his allies, to give him greater powers to legislate by presidential decree."

Hugo may find out the hard way who really holds the power in a nation stupid enough to allow central banking in the first place. Once a private central bank has the power to create fiat currency, literally a license to print money there is no way they will give it up.

Both Abe Lincoln and JFK tried to take the power to issue the currency back from the central banks, both learned that lesson first hand.

Its a very well kept secret, hidden in plain sight. The banking cartel is the real seat of power, greater than armies, (where do you think the money comes from to finance armies?) greater than politicians, who are just figureheads (who do you think finances the government deficit spending?). Nothing happens without money and credit, and money and credit come from the central bank.

Think you live in a democracy? or more accurately an democratic republic? Just try to do anything without the permission of those that make the money.

What Pilots Understand, or Happy Motoring!

2006-10-27T22:53:00.000-04:00

One thing understood by aircraft pilots can be summarized by the well known saying that any landing that you can walk away from is a good landing. A great landing is one after which you can use the airplane again. All landings are crashes, its just the degree of violence that makes the difference.

The US economy is crashing and all we hear in the media is weather it will be a soft or hard landing. I humbly suggest that it doesn't matter what you call it for any other than political purposes. People are getting hurt.

Its too late to prevent this crash, but perhaps we can learn a little something and try not to make the same errors going forward. Just kidding... We haven't learned this lesson even though the pattern has been repeated throughout recorded history. I suspect that's because of the same reasons many reject the issue of limited resources. There are few people alive today that were old enough to be destroyed by the last "great" depression. And its the same with respect to Peak Oil. Oil has been abundant and virtually limitless from a consumer's standpoint longer than anyone currently alive. Remember the oil shocks of the 70's and 80's? They were short lived and political in nature, so few lessons were learned.

I hear people saying that because oil prices have retreated from their recent highs that there is no supply problem. Exxon, BP and Shell would love for you to believe that, and are spending millions to get that message out. The reality is that new supplies from recent discoveries are not replacing even the decline in production from the existing major producing fields. Producing countries are rebelling against the bully tactics of the US, and global production is declining while consumption is still increasing. The short sharp decline in prices is the result of a well timed buyers strike. Longer term, prices will increase until demand is destroyed to match declining production, taking the global economy with it.

Among the causes of lower price are that the US government was buying a lot of oil to replace what was drawn from the strategic reserve after the hurricanes of '05, even though the reserve is still at least a million barrels short. That buying has ceased now and takes a lot of demand off the market, The majors and refiners have filled every tank, bucket and tin cup with crude so they can delay new buying for a short while, and hedge funds are selling and shorting energy hard now that the price is declining.

Few people understand the correlation between energy and fiat currency such as the US dollar and every other world currency in existence today. Fiat currency is created by the issuance of debt. In order for the scheme to continue there must be ever increasing debt, just to create enough money to pay the interest on the previously issued debt. Do you see where this is going? in order to create growth, energy is required in increasing volume. If there is less energy available there is less growth, resulting in less borrowing, and the interest cannot be paid. When the interest cannot be paid, default on the existing "house of cards" debt collapses, taking the currency and the economy with it. There must be increasing energy available or the whole thing blows up.

I believe what we are seeing are not normal cyclical energy market fluctuations, but the energy markets starting to wobble. The wobble will increase in amplitude and frequency until the obvious becomes apparent, and the population awakens to energy reality. Until then, Happy Motoring!

When the VIX is low...

2006-10-27T06:55:00.000-04:00

Take your money and Go. When the VIX is high, then you buy. That's how the saying goes anyhow.

You can see from the chart comparing the S&P 500 index to the VIX, the Volatility index, that when the VIX is low its time to get out. Its a pretty good correlation that when volatility is high stocks move up, so why are stocks moving up and the VIX is scraping bottom? For the same reason I have sat out this rally since May. Its fake. Its electioneering, a bear trap, and in typical wall street doublespeak, a bear trap is not a trap set for a bear, its a trap set by a bear.

When will it tip over? Conventional wisdom would predict it will last until the election. But if you believe that, would you wait until then or would you cash out ahead of the crowd?

As Yogi Berra has astutely pointed out, "its hard to make predictions, especially about the future". I'm staying on the sidelines and watching. If the market charges ahead, I missed a good rally, if it tanks, I've avoided a beating. As a chaotic system driven by emotion the only thing for sure is that something will happen... it always does.

What if they gave a recession and nobody came?

2006-09-25T18:23:00.000-04:00

Consumers continue spending despite running out of money. One major difference between this recession and previous serious recessions is the availability of easy credit. In the past we didn't all have a wallet full of credit cards and home equity lines of credit like we do now, and I suspect this is what is keeping spending going despite declining real wages, increased property taxes and insurance costs, inflated food, energy and housing costs and a negative savings rate in the US.

If we continue purchasing and borrowing, how long can we keep the economic balls in the air? Obviously at least this long and probably for a while longer.

With newly available 50 year mortgages, perhaps we can push our debt beyond the grave. In that case we all win, sort of. The way money is created by being loaned into existance, I suspect the lenders, having none of their own money at risk are happy collecting interest payments, and don't even have the slightest expectation that the principal will ever be repaid. Why should they?

Only a few years ago many home buyers were able to get a 15 year fixed rate mortgage instead of the more traditional 30 year. Going with the 15 was a little more expensive monthly, but knocked off 15 years of payments, a much better deal for the borrower.

There is absolutely no reason anyone should enslave themselves to a bank for 50 years. If your only way to get into a house is a 50 year debt, get an apartment, a tent or a hollow log, but don't get a 50 year mortgage.

So what happened to the affordable 15 year?
The same thing that happened to tech stocks in the late '90s. Irrational exuberance. Home prices are as overpriced as were the dot comms. Add rising interest rates and the result is unaffordable housing.

Just for fun, let's pretend we want to buy a $200,000 house. If we use a 6% fixed interest rate the house will cost a total of $304,000 with a 15 year loan, $432,000 with a 30 year or $632,000 with a 50 year!

So save your pennies. and when sellers realize that to sell they will have to give up some of that "paper wealth" they thought they had eared, prices will come back to earth. That's when you buy with a good 'ol 15 year note.

Hungarians revolt in the streets after 2 years of government economic lies revealed: When will America get it?

2006-09-19T23:46:00.000-04:00

An article in the Guardian Unlimited tells the story of Hungarian citizens so outraged when it was revealed that the government has been lying about the economy for the past one and a half to two years they took to the streets and demanded the Prime Minister quit.

In the US and many other countries the governments have been lying about the economy for pretty much forever, and it gets worse with every report. The data puked out to the media is so patently false, its amazing they can say it with a straight face.

The US economy is by any real measure clearly in recession right now. The GDP is negative, Inflation is running somewhere between 8% and 11%, unemployment figures have been so twisted for so long any number is meaningless. When will we pour into the streets in a general strike and demand the truth? I'll put it on my "things to do" list, right after "learn Hungarian".

WooHoo! Get the Champagne!

2006-06-29T22:19:00.001-04:00

But I wouldn't be popping that cork quite yet. While the market threw a wild party on the news that the Fed only raised the overnight rate by a quarter point, the hint that they may be able to "pause" really lit the fuse. Of course, the small fact that the Fed and every tout and con artist on Wall Street has been saying this for a year seems to have escaped notice. Hmmm.

What's really going on, and it has become grossly obvious lately is the global stock markets are running purely on artificial liquidity supplied constantly, but unevenly by the Central Banks. When there's an injection of cash, the markets rally. when the magic spigot is closed and the liquidity dries up, the markets drop. Most recently the cash injection from the Bank of Japan (BOJ), Japan's Central Bank has been calling the shots. Its no coincidence that when the BOJ announced in the middle of May that the they would begin raising rates the markets tanked. As long as the cash injections keep coming from one central bank or another this addict will keep stumbling along, but when the dope runs out, its going to be a painful withdrawal.

US no longer calling the shots
With so many creditor nations around the world catching on to the the reality that the US is hopelessly overextended, and the dollar is loosing value again, is it a surprise that they are shifting their reserves out of dollars and into gold, silver and better currencies like the euro and the Canadian dollar? Not that the euro is any great shakes, in many ways its a worse fiat currency than the dollar, but at least lately it has been stronger. Its like comparing one turd to another, they're still both turds. The Canadian dollar has been the shining star, approaching 9/10ths of a USD. For most of my life its been around 7/10ths. Canada has, and exports a lot of gas, oil, timber, and valuable metals. A commodity mother lode, and the two thirds of the world that is really growing, China and India, need a lot of commodities. In contrast, the US is an exporter of dollars, a game that is getting pretty old.

The GDP Myth
The Gross Domestic Product numbers were reported the other day and for the past 3 years have averaged 3.5%. Of course we know that the numbers are juiced up to make the economy look better for whatever idiots are in charge at the moment. Even if we fell off the turnip truck yesterday and accept the official numbers, the problem is that GDP is figured in dollars. Now we know the dollar has lost around 20% to currency inflation alone in the last three years, uh... real GDP is negative. In other words, the USA is loosing ground while the government is telling us its "strong" and "growing". Now, subtract the real CPI, Consumer price Index, which is running around 6-8% and as the startled George Kastanza on Seinfeld once blurted, Shrinkage! The US economy is shrinking at a terrifying rate while the population is growing and has now almost 300 million people.

The Economy Doesn't Have Anti-Lock Brakes
If Big Ben Bernanke sees inflation, which is impossible not to see, and the gentle quarter point tap tap tap, 17 taps even, clearly hasn't worked, like most inexperienced drivers he's likely to stomp the pedal to the floor and throw us off the cliff, or into the mountainside. And soon Hank Paulson also will be jigging the markets. Will it matter? As my friend Chris says, "You can't polish a turd". The Fed will continue to raise rates to stay ahead of the other central banks. Somebody is going to be sacrificed. The dollar and the massive forign debt holders or US adjustable rate mortgagees, the old and the poor, Just like always.

Russians Make Good on their Promise

2006-06-09T22:47:00.000-04:00

As I mentioned in a previous article, Russia began selling oil, oil products and gold on their stock market Thursday. There's nothing unusual about that except the sales are in Rubles, not the US Dollar (USD). While it won't turn the world upside down overnight, it adds to the significant shift away from the USD happening all around the world. Simply put, this reduces the demand for, and therefore the value of the Dollar.

Boing
The Dollar has had a bit of a bounce in the last few weeks after a serious dive that was probably overdone. The bounce back is typical of overdone moves in all the markets and I suspect the downward trend will resume once currency traders get their heads wrapped around the flurry of events we have seen in the last month. Every industry has its own lingo and finance is no exception. The snap back at the end of a big down move is called a "dead cat bounce" because even a dead cat will bounce if thrown down onto the pavement hard enough. Don't be fooled by these bounces, there's more pain ahead. Looking at a chart, these bounces look like a fish hook, and they catch a lot of unwise buyers who jump in too soon.

Late to the Party
When it comes to investing or trading in the markets, I believe in taking a queue from the hip and fashionable. Arrive late to the party and leave early. Leave the risky discomfort of showing up before anything is really happening and the direction of the party can be ascertained. If you pull up in front of the house and there a row of rusty beaters along the curb, keep moving. Leave before the fights and puking starts, and avoid the ugly scene and last minute lurch. Get in when things are going well, make your bets and get out before things start falling apart. Easier said than done, I know.

Baaaaa

2006-06-08T23:05:00.000-04:00

There has been so many excellent commentaries regarding the market action since the May 10 Fed rate hike, I find myself coming up with an idea for an article, only to read that someone else has already written about it. Today, Instead I will point to an amazing article written two years ago by Richard Benson and posted on the Free Market News Network site. Here's a short quote from the article-

"mass retail stock investors act just like sheep. Indeed, for the major market participants, retail investors are there to get “sheared at market tops”. Somebody has to buy when the smart money wants to sell. Moreover, to keep the herd of retail investing sheep grazing on financial investments, there has to be a steady stream of “feel good” press. Therefore, the market is always fed happy stories by the Federal Reserve Governors, the Secretary of the Treasury, and, of course, stock analysts, telling the sheep all kinds of “horse hockey” that everything is all right with the markets and there has never been a better time to invest!"

I highly recommend reading this article because of its raw truth, plain English and insight into mass market behavior. You won't be disappointed. Please read THE FED AND PAVLOV’S SHEEP.

Get the Plungers!

2006-06-01T11:18:00.000-04:00

One positive thing you can say about John Snow is that he had absolutely no effect on US treasury policy. That's a good thing. Neither did his predecessor, Paul O'Neill. It seems when the powers that be want just a neutered mouthpiece to go around making speeches they appoint a former industry leader like Alcoa's O'Neill or CSX's Snow.

In the other case when manipulation of markets are required, like now, A Wall St. master is drafted. Take for instance Bob Rubin. Rubin was a Wall street guy (still is) that understood bonds in ways no mere mortal could. During the Clinton years he bought back government debt with one hand and reissued it at lower rates with the other. This created the illusion of a "surplus" still boasted about by the Dems. It made us feel better and in a confidence game, confidence is the main ingredient. We were in deep debt then, but Rubin's genius made it look like we were paying it off. We weren't really, and that debt has ballooned during the current administration. Without a Wall St. svengali around to cover it up it shows.

Enter the new Wall St. genius;
And I don't mean that facetiously. Is it really a coincidence that the day after the drafted Hank Paulson burst onto the scene the dollar made a leg up, precious metals and commodities are diving and there are unexplained movements in the physical and financial markets? Me thinks the plunge protection team is firing on all cylinders. In order to save the dollar they have to drive the prices of commodities and precious metals (real money) down, and make the stock market rally to create the illusion that worthless paper money has value. As powerful as they are, their effect is limited and the trend will resume. We'll see how it plays out.

A friend will help you move...

2006-05-30T22:11:00.000-04:00

But a real friend will help you move a body. That's the message that today's booting of Treasury Secretary John Snow revealed. The Bush administration no longer trusts Mr. Snow to be its Spokes-liar. Oh, John was making the rounds, lying through his horse teeth and pumping the propaganda all right, but he wasn't a very convincing liar. He never really drank the Kool-Aid and always had that big toothy smile that says to our sub conscience; Liar!

Snows replacement, Henry Paulson, is a big-three Wall St. cannon that is well connected and has been a big Republican funder as would be expected. Remember, He who controls the money controls the country. Elected representatives are powerless next to those that control the nations money, the Federal reserve and the big 3 Wall Street firms, Morgan Stanley, Citibank and Goldman Sachs. Now Wall street bankers not only control the Fed, but the Treasury as well.

Bush needs to move a body. The body of an out of control public debt, ballooning trade imbalances and a depreciating US Dollar. Its a big fat body and it will take the biggest guns of Wall street and a piano case to disguise it from the public until after the midterm elections. If Joe Six-pack gets wind of the screwing he's getting by the double confiscation of his money by inflation and devaluation, the administration and their minions will be out on their collective asses in November.

Alas poor Sawbuck, I knew him well

2006-05-17T23:48:00.000-04:00

Inflation up, housing down, employment weak, dollar diving, gold zooming. So what. It doesn't amount to a hill of beans when it comes to weather the Fed will raise interest rates again. They will because they have to.

All the usual suspects are being paraded out for the media like always, except this time these are not really the things that the fed will be evaluating. I'm sure Helicopter Ben Bernanke would like the luxury, but the world's currencies are in big trouble and the only way the US treasury can finance its ballooning debt is to make the US securities it sells to foreign investors in Asia and Europe more attractive than other countries debt. US treasuries already pay a few percent more than other government's bonds but other countries are raising their rates, and so the Fed has to keep raising to stay ahead.

The old one - two punch
This is a dangerous game. Not only is the USD diving related to other world currencies, but those other currencies are weak themselves, multiplying the damage. Add to this the disgorging of US dollar reserves by China, the European Central Bank, Russia and the rest of the central banks. That money is being used to buy gold, other hard assets and commodities driving their prices up. The damage caused to the confidence of foreign debt holders when the Dubai Port deal was served up as the issue it never was but the political opportunity it became was perhaps the tipping point. Dollars loaned outside the country ultimately have to come back home. If they are rejected by their home country, they become worthless. The world's investors have not missed this point as the Americans have. The Fed will have to raise interest rates at an accelerating rate if they hope to keep the dollar from complete destruction. Its probably a hopeless case, but that's unlikely to keep them from trying.

The foreign central banks are finally loosing their faith in the US dollar as the world's reserve currency. Its no surprise, lots of smart people have been writing about this for years. Iran has stated their intention to sell oil in Euros and now Vlad Putin has announced that the Russians will switch to selling their oil and gas from the dollar to the Rouble. Russia is one of the largest producers of oil and gas in the world. This means buyers, including the US will have to buy Roubles first in order to buy Russian hydrocarbons. Putin said in his annual state of the nation address: "The Rouble must become a more widespread means of international transactions. To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in Roubles,".

Take your shit and get out
Add to this mess, all the countries nationalizing their natural resources. Russia, Indonesia, Venezuela, Bolivia, Nigeria, countries all over the world are kicking out international mining, oil and other resource companies and taking over the production for themselves. What the hell took them so long? What nation in their right mind lets outsiders take their resources and receive a pittance for them while their citizens live in poverty? Puppet governments propped up by the former empires of Europe and the US, that's who. As the empires loose their grip of rule and their currency fails, there is little left in the way of corrupt influence, and we're watching it happen right now.

What's a body to do?
If you have any adjustable rate debt, be it a mortgage or credit cards, do whatever you can now to either pay it off or refinance it to a fixed rate or you will be road kill. Rates are going up. They have to.

If you have any assets denominated in US dollars, or even other world fiat currencies, sell them into any market rally and buy gold and silver, they are the only way to preserve the wealth you have managed to accumulate so far.

If you think this piece is rough, and you've got the balls, read what Chris Laird over at PrudentSquirrel has to say.

What the Bling Said, or The Gold Whisperer

2006-05-04T00:06:00.000-04:00

Throughout recorded history and probably long before that, people have been attracted to and understood the inherent value of the soft yellow metal. Gold has always been man's store of wealth because its rare, its identifiable, portable, and its dividable. Gold is the one thing on earth that satisfies all the requirements necessary to be the ultimate medium of exchange.

And gold can speak to you. Not in some mystical or magical way, nor literally, but gold tells its story. Quietly, subtly, and only if you are listening closely.

The shiny metal doesn't boast or talk about itself much, no, its too modest, too humble, but it speaks in soft tones about many other things. Gold has confidence because it has always been the standard by which all other money or currencies have been measured. Gold is, er... the gold standard.

US dollars, Euros, and all the world's other currencies are poor excuses for storing value because they can just be printed up by the billions on fifty year old printing presses. Nothing special. Paper money and metal coins (not worth their face value) issued by the world's governments are a fantastic resource for these free spending, empire building governments because they can create all they want for practically no cost. That, is its strength, and also its weakness. Like Paris Hilton, they have no limits, no understanding of value and no morals. Gold just sits back and quietly watches from the back of the room, biding its time to be noticed again.

If the issuers of these fiat currencies could just keep their pants on and carefully increase the money supply in proportion to the growth in their economies, today gold would be just a pretty material which makes nice jewelry. But like people, governments get carried away, think they know everything and get in trouble. And that's where the world's fiat currencies are today. In trouble. I know this because the gold told me.

The price of gold is going up against all the world's currencies. But gold is really worth the same as it was a thousand years ago. I had a tough time in school with algebra, but it seems to me that if gold stays the same and it is now worth more dollars, or euros or francs, the value of those currencies have decreased. By a lot. Click this CHART if you want to see what Gold has been talking about recently. Remember its not that gold is worth more. Its that your money is spiraling down a rat hole.

Coins with gold or silver content are no longer in circulation in the US and most other countries simply because the value of the precious metal in the coin is worth more than the face value of the coin. Remember 90% silver coins before 1964? Once a coin's content is worth more than the face value they are hoarded out of circulation. Even the lowly penny, made of zinc and copper are now worth about 85% of their face value. Once they cross the 100% level all is lost. Every other denomination will be traded for pennies, melted down and sold for scrap.

I have a feeling that gold has more to say. Are you listening?

New! Core Rate Diet, Loose Weight Fast!

2006-05-01T23:18:00.000-04:00

A new and amazing weight loss system has been developed based on official government research! Loose all the weight, yes that's right, all your weight! Its the new Core Rate diet based on the wildly successful government Core Rate of inflation measurement. How does cooked government measurement of the economy relate to a weight loss system? Lets begin with the basics.

Inflation is the increase in the supply of money created by the banking system, in the USA, that's the Federal Reserve. Most people think inflation is the rise in prices of things or services, but that's like blaming rain on wet streets. When more money is created than the growth in the economy, that excess money has to go somewhere. Somewhere like assets and items. Stocks, real estate, food, oil, and all the things we buy to sustain ourselves and our lifestyles. In an honest system, heh heh, once a month or so we would add up all the costs of a standard basket of items we are likely to buy and compare the total to the same basket bought last month. if it cost 2% more this month we would say that inflation is up 2% per month, and multiply by 12 months to get the annual rate. If it cost 2% less we would say that inflation fell by 2%. But wait, the government never does anything in a simple and honest way so lets see how they play some games with the methodology to skew the numbers to make the economy look better than it really is, this manipulation also enables them to cheat people on fixed incomes out of their money since their income is tied to the government published inflation rate.

One dirty trick they use is the substitution of items. If for instance the price of beef rises too much this month, they assume that people who would normally buy beef will instead buy less of it or perhaps buy cheaper chicken so they substitute the price of chicken for the price of beef. The result is that the inflation rate will be falsely skewed downward. Its not a comparison of real prices at all. Its a lousy trick, but those kind soles that would generously give the government the benefit of the doubt might be able to see some logic in this. Personally, I don't buy it.

The really criminal part is the so called Core Rate. In this travesty, they start with the already twisted inflation rate we were just discussing, but they take out food and energy. They tell the unwashed masses this is because food and energy prices are "volatile". If you're talking about Taco Bell and gasoline I would tend to agree, man are they volatile. But that's not what they mean. They mean the prices move up and down too quickly and would produce an unrealistic picture. In reality it shows the accurate picture that they don't want you to see. If this month they reported the inflation rate was 22% because gasoline shot up (sound familiar?) We'd all be running around with rifles and Fed governors would be hanging from trees like christmas tree ornaments.

All right already you say, what about the diet? Is this some kind of bait and switch scam? How can I use this information to loose those 40 pounds of old cheeseburgers I've been carrying around my midsection?

Introducing the Core Rate Diet (tm)! Its so simple too, just do what the government does to the inflation numbers, only in this instance we're dealing with another kind of inflation. Body inflation. Here it is in two easy steps:

1. Eliminate food from your diet. That's it, just follow the Core Rate methodology and take food out of your life! Simple!

2. Now remove energy from your lifestyle. Don't buy any gas for your car and just walk or ride your bike everywhere, and have your electricity turned off by the power company. Without fuel to power your car think of all the extra exercise you will be getting, and add the shivering in the winter at home and all the sweating in the summer!

Subtract all the calories you're not eating and subtract all the calories you're burning from all the exercise and shivering and pretty soon your weight will drop like a 16 ton anvil! That's right, all your weight will completely fucking disappear! Problem solved, no more "fatty" you! Brilliant!

If you want to read more about all the ways the government cooks the "official" numbers click on over to John Williams' enlightening web site and read the Primer On Government Economic Reports.

Alan, you could have been...

2006-02-06T00:38:00.000-05:00

Good riddance Mr. Greenspan. Not that it will make much difference, the course drawn over the years has been set in stone and the likely result is already well developed. A friend in the mortgage business tells me that all she has been writing lately are interest only loans with no money down. Yikes. Home prices have cooled, which is a good thing except that no one can afford them or the taxes on them now, except with nothing down, interest only loans. Oh, and these big mortgages are usually adjustable rate to boot, so no only can't the buyers afford them now, but their payments will be increasing with the Fed raising rates, while their wages are flat to decreasing, especially when you consider that the real rate of inflation is running way above the "official" government numbers.

More about the numbers later, but suffice it to say that the numbers reported and trotted out to the "general public" are cooked so well they could kick the crap out of an Iron Chef.

Asset inflation born in the go go 90s has never had a chance to work its way out of the economy, some say it has been building since the stock market crash of 1987 and the failure and bailout of the Long Term Capitol Management hedge fund. I would tend to agree. Since then the asset bubbles have never popped, or even had a slow leak, They have not been allowed to pop, thanks to Greenspan's Fed policy of "if its broke, print money until it goes away". This insane inflation of the money supply just threw fuel onto the fire and moved the bubble from one asset class to another. In the most recent case, from the Dot Com stock market bubble to real estate.

During the late 90's the stock market was on fire and people were piling in afraid they were going to miss it, stocks were going up, people were working, making money and a greater part of the population was feeling the wealth effect.
This wealth effect has been well studied and shows that when people's net worth is increasing they tend to spend a percentage of that new wealth. Even if it's just on "paper". The same thing has happened as real estate prices have increased. The ugly little secret is that that crappy 3 bedroom, 2 bath home isn't worth any more, its just that money is worth less so it takes more of it to buy it. The wealth effect is balancing on a house of cards that is the illusion of wealth. The effect is real, people "feel" rich and consumer spending based on this false reality has been barely keeping the economy afloat. Getting cash out and refinancing has been the money supply keeping things going. This is about the worst strategy for homeowners because as home prices fall back to their historic levels many will owe more than the house is worth and will have to walk away without the equity they were counting on to pay the loan and finance their lifestyle with.

How does this bubble move from one asset class to another? Cheap money. The Idiot Greenspan dropped interest rates so low that they were below inflation, so the Fed was literally printing and giving money away. Not only does this hurt people on a fixed income because they can't make anything on their savings or CDs which they depend on for income, but flooding the economy with money reduced the value of each dollar, which is in fact inflation. This disproportionally hurts the poor because the little money they are able to make doesn't buy shit anymore. Its no surprise there is a larger percentage of people living in poverty today than in decades. Unskilled wage earners were never well off, but they were able to put food on the table and live a reasonable life. No more. You saw the result in New Orleans, whole areas of the city in poor condition, rented homes week to week. When they left, there was no reason to return. Why come back to claim some trashed particle board furniture?

Since the Federal reserve (which is neither federal or a reserve) bludgeoned its way into our lives in 1913 in blatent violation of the US constitution, the dollar has lost 95% of its value. That's not a typo. Inflation of the money supply by the Fed and the greedy government has diluted the dollar so much its now worth a nickel. Maybe. Inflation increased at a fair clip, but it really got going since 1971 when Tricky Dickie Nixon abolished the gold standard. Up until then there was at least some gold and silver in reserve effectively backing up the value of otherwise valueless paper currency (remember real silver coins and "Silver Certificate" bills?). But once the dollar was cut loose, inflation has accelerated to this day.

People tend to accept some inflation as normal. It really isn't. In an economy where productivity is always rising, that is, each worker is able to produce more and more due to new technology, new machinery, and better communications, prices of each item should decrease over time, not increase. Deflation is the norm. This is how people can afford to buy the things they make, and exchange them with others for what the others make. The medium of exchange is money. Real money has value. Real money is made of metal. Fiat currency, paper money backed up by nothing, does not. That's why people want more of it, because its only based on the promise to pay, and all it takes is a printing press to make more of it. Metal has to be dug out of the ground and there is a limited amount available. That is real value.

Why do these nutters wantonly print money destroying its value and creating inflation? Because the worst thing that could happen to the money creators (the Fed and Banks) is deflation. Our economic illusion is built on debt. Money is created by loaning it into existence. I'll write more on this later, but imagine if new money is not created, there isn't any money to pay the interest on all the money already created. Its a system that feeds on itself and has only one possible outcome. Collapse. Mr. Greenspan has done his part to prolong the illusion and put off the inevitable, but that doesn't change the ultimate conclusion. It just pushes it into the future. The ugly bit is that like an angry boil, it gets worse until it is lanced or it pops on its own. The resulting pain and scar are unavoidable. In 5000 years there has never been a fiat currency that did not end up worthless except the ones now in use around the world. Your day will come too my son.

The wealthy know how to protect their wealth, that's how they stay that way. They hold real money and let the debt slaves use the fiat rubbish. Get it?

Alan, you could have been John Galt, but you ended up as Wesley Mauch.