America's Road to 3rd World Status

The following is a good article on how the US headed to 3rd World country status if there are not fundamental reforms.    Have a look at  How the United States Will Become a 3rd World Country by Ron Hera at Hera Research LLC and published in www.marketoracle.co.uk

Here's an excerpt:

The United States increasingly resembles a 3rd world country in terms of unemployment, lack of economic opportunity, falling wages, growing poverty and concentration of wealth, government debt, corporate influence over government and weakening rule of law.  Federal Reserve monetary policies and federal government economic, regulatory and tax policies seem to favor the largest banks and corporations over the interests of small businesses or of the general population.  The potential elimination of the middle class could reshape the socioeconomic strata of American society in the image of a 3rd world country.  It seems only a matter of time before the devolution of the United States becomes more visible.  As the U.S. economy continues to decline, public health, nutrition and education, as well as the country’s infrastructure, will visibly deteriorate.  There is little evidence of political will or leadership for fundamental reforms.  All other things being equal, the U.S. will become a post industrial neo-3rd-world country by 2032.

Nothing is etched in stone, but when a nation runs a $600,000,000,000 dollar trade deficit year after year, it transfers that amount of wealth to China, Korea, Oil Producing Countries, etc EACH YEAR.  Those other parties except paper notes (IOUs) in exchange for real goods until there is a loss of confidence in those promissory notes.  When that happens, there may be a rapid loss of purchasing power as the dollar drops and inflation rises.  The slide to 3rd World Status will be relatively quick on historical timeframe.

Four more years of gridlock in Washington might cause this loss of confidence.  Obama, true to his African ancestry, will continue to act (or, more importantly, to not act) to help the descent into 3rd World status.  That's why my blogs Washington's Anti-Energy Policy, A Real Energy Plan For America, US Govt Policies Are Not Working and Washington is Corrupt All the Way to the Top  are relevant to reversing trade deficits, reversing counter-productive government policies and improving some sort of "rule of law" in this country.

Charles Biderman: Austerity is a Dirty Word

Charles Biderman, with TrimTabs, nicely summarizes in under 4 minutes how we (and Europe) got to where we are today with 30 years of perspective.

Washington's Anti-Energy Plan

While the President drifts off onto another relatively irrelevant topic of gay marriage, the real issues of the day are ignored.

There's never been an administration with any real national energy plan in my lifetime.  The difference today is that there's real potential to improve our trade balance and energy security with the shale oil and gas boom increasing domestic production on private lands (land under Federal jurisdiction has seen a decline in production due to slower permitting and the overreaching drilling ban after the BP disaster).

So, why the Congress and President dither on irrelevant issues, some people have serious ideas for substantial improvements in our energy security and trade balance.  See my A Real Energy Plan For America. 

In an May 10th interview with CNBC, T. Boone Pickens says that he is finished with Washington and national politicians.  He's not finished with business but finished with Washington. He said "that they don't care about energy independence." Pickens has been trying to cajole and promote a plan to the President and Congress to convert the nation's trucking fleet to natural gas and displace as much as 2 million barrels per day of oil with new found shale gas.   His goal is improve the country's national security by reducing our reliance on imported oil.   Saying of Washington, "the whole deal is designed to fail."

I don't how Boone Pickens was to benefit or profit from his negotiation with Washington politicians as the shale oil and gas boom goes on despite Washington.

There has never been any energy plan in my lifetime, but with the hydrocarbon adverse, hand-wringers in Washington, we now have an anti-energy plan with this administration.

Washington Is Corrupt All The Way To The Top

We've heard Obama and the administration were going to go after the bad actors on Wall Street back in the "bail-out" days of 2009.   But why are there no prosecutions?  No one is in jail.  The SEC remains completely asleep at the wheel and Eric Holder's department of justice prosecutions of fraud and securities violations are at a 20 year low.

Well, it turns out that Obama's talk is just  rhetoric:  hypocritical and cynical politics---Chicago style.

From Breitbart.com's "Justice for Sale at Holder's DOJ"

Holder and Obama’s anti-Wall Street “law and order” rhetoric has turned out to be a smokescreen that allows the Obama campaign to talk the talk of the 99% while taking money from Wall Street’s 1%.  The result is extortion by proxy.  As President Obama put it to the Big Finance executives who met with him at the White House just two months into his presidency, “My Administration is the only thing between you and the pitchforks.”

Not surprisingly, of the elite bundlers who made up Obama’s 2008 campaign, the second most represented industry after law was the securities and investment industry.  It’s a level of hypocrisy that has outraged even committed leftists.  Industrial Areas Foundation activist Mike Gecan put it squarely: “I’m from Chicago, I’ve seen this game played my whole life."

So what have the securities and banking industries received for their political contributions? 

As Boyer and Schweizer report entitled "Why can't Obama Bring Wall Street to Justice?", Department of Justice criminal prosecutions are at 20-year lows for corporate securities and bank fraud.  And while large financial institutions have faced civil prosecution, those typically end in settlement fees with the major banks that represent a fraction of their profits, often paid through special taxes on mortgage-backed securities.  

It’s the most crass and cynical brand of politics imaginable, the Chicago Way writ large: pay to play justice from the nation’s highest law enforcement official. 

Washington is, in part, in the hands of Chicago mobsters.

Austerity? What Austerity?

Paul Krugman is on a rant these days; raging about how "austerity" is causing all of the problems in Europe.  But there is scant evidence of any spending cuts at all.   Here's a chart below (click to enlarge) that shows that spending has been increasing in nearly every country.  Only Greece, Spain, Italy (and slightly in Ireland) is where there is some actual drop in spending but only reversing some large prior increases--all are only reduced back to 2008 levels (2007 for Greece).

You've heard about all the austerity in Britain.  Forget it, spending is increasing.  Hat tip to Brian Doherty at Reason for the chart reference.

Francois Hollande just won an election in France denouncing "austerity" but you can see from the chart below that French government spending is up, up and away.  No austerity in sight.  What opium is the French population smoking??   There is a price to be paid however.  French Government bond yields are now over 1.8 percentage points greater than German bonds (3.4% ten year French yield vs. 1.6% ten year German yield).

There is certainly no austerity in the US either.  Obama is lambasts reduced INCREASES in spending as "cuts" in govt spending.  The "Ryan budget" increases federal outlays from roughly $3.6 trillion this year to nearly $4.9 trillion in 2022.  But Obama called this a "cut" because he wants to increase spending to $5.8 trillion in 2022.  He has called Ryan's attempt at sanity a "radical right wing" tactic and "social Darwinism".   Do you think it's campaign season?   If American's buy this, then they deserve what they get.

Perhaps the chart is misleading as it's expressed in current prices and based on purchase power parity/

That said, my point is that we live in a time, where in political circles,  reductions of spending increases are lambasted as "cuts".   Nonsense!   Basically politicians never actually cut spending until horrific crises intrude.

Crises are coming as sure as the sun rises in the East.

The US Gov't Economic Policies Are Not Working

Did you ever notice that Bernanke keeps citing the Great Depression of the 1930s for his lessons in the current environment?    But the government of FDR never did get the nation out of the depression--until all-out wartime spending in 1941.

The current government's policies of "stimulus", TARP, QE, stock market 'jimmying', and starving savers with zero percent interest rates are also NOT WORKING!  

From a great article by Jim Grant, called "A Piece Of My Mind," Jim asks why don't we look at the depression of 1920-21 under President Harding instead?

If Chairman Bernanke were in the room, I would respectfully ask him why this persistent harking back to the Great Depression? It is one cyclical episode, but there are many others.

I myself draw more instruction from the depression of 1920-21, a slump as ugly and steep in its way as that of 1929-33, but with the simple and interesting difference that it ended. Top to bottom, spring 1920 to summer 1921, nominal GDP fell by 23.9%, wholesale prices by 40.8% and the CPI by 8.3%. Unemployment, as it was inexactly measured, topped out at about 14% from a pre-bust low of as little as 2%. And how did the administration of Warren G. Harding meet this macroeconomic calamity? Why, it balanced the budget, the president declaring in 1921, as the economy seemed to be falling apart, "There is not a menace in the world today like that of growing public indebtedness and mounting public expenditures." And the fledgling Fed, face to face with its first big slump, what did it do? Why, it tightened, pushing up short rates in mid-depression to as high as 8.13% from a business cycle peak of 6%. It was the one and only time in the history of this institution that money rates at the trough of a cycle were higher than rates at the peak, according to Allan Meltzer.

But then something wonderful happened: Markets cleared, and a vibrant recovery began. There were plenty of bankruptcies and no few brickbats launched in the direction of the governor of the New York Fed, Benjamin Strong, for the deflation that cut an especially wide and devastating swath through the American farm economy. But in 1922, the first full year of recovery, the Fed's index of industrial production leapt by 27.3%. By 1923, the unemployment rate was back to 3.2%. The 1920s began to roar.

If you object to using the template of 1920-21 as a guide to 21st-century policy because, well, 1920 was a long time ago, I reply that 1929 was a long time ago, too. And if you persist in objecting because the lessons to be derived from the Harding depression are unthinkably at odds with the lessons so familiarly mined from the Hoover and Roosevelt depression, I reply that Harding's approach worked. The price mechanism is truer and enterprise hardier than the promoters of radical 21st-century intervention seem prepared to acknowledge.

In notable contrast to the Harding method, today's policies seem not to be working. We legislate and regulate and intervene, but still the patient languishes. It's a worldwide failure of the institutions of money and credit.

I'd like to see Jim Grant as the next Chairman of the Federal Reserve.

What would he do? He would begin to normalize interest rates, argue to make the Fed's sole mandate to maintain price stability (remove the full employment mandate) and study the re-establishment of a modern day gold standard.

The Worst Chart In The World

For those people and economists that advocate more government spending (and debt creation) to combat the current recession should look at the following charts.   Not only is more government spending not helpful---it's arguably harmful.   The charts speak for themselves (click on any image for enlarged version).

Looking at the above chart, you can see that "Keynesian" spending "firepower" is continuing to drop.   We live in a time where Nobel Prize winners are big disappointments.  For instance, Paul Krugman (and fellow Leftists) continue to advocate more and even massive government spending to combat the slack economy.  For ordinary citizens without PhDs, it's obvious that something has changed and, as a country, we're not getting any "bang for the buck" from government deficit spending.

Now for more evidence that this trend continues but above the red trend line drawn above.  Take a look at the following chart showing vastly diminished returns for government (public) debt creation.  For the first quarter of this year, US government debt increases $359 billion for a measly $142 billion in GDP rise.  That works out to about $0.30 when you calculate Change in GDP/Change in Debt.

Please, someone stop the madness!

Bucket List

Do you mind if I brag a bit?

Here's a list of a number of notable things that I've seen or done:

• Hiked in the Swiss Alps
• Visited Milford Sound and Franz Joseph glacier in New Zealand
• Scuba dived at many places including Great Barrier reef, Red Sea, Bahamas, Belize and Indonesia
• Hiked in The Himalayas up the Annapurna Base Camp
• Raft trip in Nepal
• Hiked in the Grand Canyon for 2 weeks
• Snow skied in Switzerland
• Visited Petra in Jordan
• Visited Yosemite and Denali National parks 
• Hiked many times in Yellowstone NP
• Traveled around-the-world twice for pleasure taking 3 months or more for both trips
• Visited Buenos Aires and Iguazcu Falls
• Visited Macchu Picchu as part of a long trip in South America; seen Lake Titicaca, Bolivia, Chile, Peru and Argentina
• Traveled to Venice, Rome, Madrid, Barcelona, Prague and many other places in Europe
• Worked in 7 foreign countries on 5 continents

What's on my bucket list??

• Sail around the world (maybe on someone else's boat?)
• Travel in North America in an RV for 6 to 8 months
• Visit Lake Louise and Banff Alberta
• Hike the 2000 mile Appalachian Trail
• Snorkel or Scuba dive with whale sharks (you know, the filter-feeders that are as big as a bus)
• Visit Anchor Wat
• Go back to Argentina and spend time in Mendoza and the southern glaciers
• Visit southern Chile and the National parks there

What's your dream?  Let me know.

No Serious Budget Plan

While this administration hasn't proposed a serious budget in 1000 days and there is not one in sight, any attempt to bring sanity to our nation's fiscal nightmare is derided as irresponsible or worse!  The President has excoriated Paul Ryan's serious plan to tame entitlements and reduce deficits.   Meanwhile, not a finger is raised in the White House to come up with any new ideas.

As usual, the President or the Democrats don't have a plan. The plan is more of the same, kick the can down the road and criticize anyone in the opposition for trying to fill a vacuum of leadership.

If you can't budget, you can't lead!  A 'fluffy' budget proposal from the White House was defeated 97-0 recently in the Democratically controlled Senate and a previous year's "fluff-bomb" was defeated almost unanimously last year in the House.

I hate it when the President and other politicians called a reduced increase a "cut". Take the House GOP budget plan. It increases federal outlays from roughly $3.6 trillion this year to nearly $4.9 trillion in 2022. In the AP speech the president called this a "cut" because he wants to increase spending to $5.8 trillion in 2022.     Oh, and by the way, Government Spending is rarely "Investment."

From James C. Capretta at National Review,

....So we hear from the president that the GOP favors creating a “you’re-on-your-own economy,” wants to “end Medicare as we know it,” seeks to revert to “social Darwinism,” and plans to eviscerate the social safety net to pay for a tax cut for the rich.   None of this is true. No matter. The president has decided that the only path to electoral victory is to become attack-dog-in-chief.

But what about the actual substance? Is there anything at all to what the president is saying?

The president is attempting to argue in these speeches is that the keys to higher economic growth in the United States are higher marginal tax rates on the successful, no reforms to entitlement programs, and more government spending on selected “investments.” To say that this is a pathetic plan for growth would be to give it too much credit.

Medicare may indeed "end as we know it" if we do nothing.  The President's sole idea for budget reform is the wimpy, trivial and ineffective "Buffet Rule" which failed a vote in the Senate this week; perhaps because it would raise just $5 billion in taxes each year when the deficit is $1,300 billion per year!    Trivial!

How dare Obama claim that he deserves a 2nd term!

A Real Energy Plan for America....

Here's a real energy plan for America given that we have a growing surplus of shale natural gas:

1. First, individuals and private enterprise could convert cars to compressed natural gas.   Automobiles consume about 9 million barrels oil per day, so the import savings could be 9 million barrels per day total if all cars were converted to electric, compressed natural gas (CNG), or even methanol from natural gas.  There are conversion kits to convert cars and trucks to CNG   All we need is refilling stations.   To power ALL cars with natural gas would require a 100% increase in US natural gas production.  This would be very aggressive, so let's say we target 1/2 of that amount---to save 4.5 million barrels per day in the next 10 to 12 years.
2. Convert trucks to natural gas (of which we have a long term surplus).  That would save 2 million barrels per day.   Again, let's target 1/2 of that, to save 1 million barrels per day.
3. Other ideas to reduce petroleum consumption would include expanded natural gas powered buses for mass transit or compressed natural gas fleet vehicles.  Americans will ride buses if they come every 3 to 5 minutes.  I know I would.
4. If the other 50% of cars (not converted to natural gas) were converted to electric power there will very likely be enough existing electric grid capacity if we recharge only at night when demand is low.   
5. We use coal for almost 50% of our electricity production but Obama is trying to shut down many existing coal power plants, refusing permits for new power plants and doing it while he promotes the Chevy Volt!   Coal has a place on the energy "table."   Coal can be also be converted to natural gas and America has a 270 year supply of coal at current consumption.  It doesn't burn as dirty as people think, so it doesn't deserve it's reputation.
6. Allow exploration in ANWR (a flat mosquito-infested swamp in NE Alaska that no one visits or could visit even if they wanted to) that will definitely boost North Slope production.  How much is there; no one knows.  If it's the same as other parts of the North Slope, then you might expect 2 million barrels per day.  Don't tell me you can't drill your way out of a problem!   Politics, misinformation and Malthusian pessimism are the enemy.  
7. Allow exploration and production offshore Southern California.  It's a known place of giant oil fields.  The last two fields developed there had more than 1 BILLION barrels of oil each. There are many more. Assume an extra 1 million barrels per day from exploration and production in Southern California waters alone.
8. Shale oil might provide an additional 1 million barrels per day or much more across the vast shale basins.
9. Canadian oil sands are good for 2 million barrels per day.  Let the Canadians send oil to America via the Keystone Pipeline for refining in America!   (With Canadian oil, we could afford to tell Hugo Chavez to go to hell!   He wouldn't last 3 months after we cut him off from our refining.  Because Venezuela has heavy oil, it can't be refined in just any refinery---a refinery must be configured for heavy oil processing.)
10. The entire East Coast and the entire West Coast of the US are off-limits for oil or gas energy exploration.  No one, NO ONE knows what's there (or not).  There's no reason not to!  Only politics, ignorance and a complete failure to understand the consequence of chronic trade deficits and compromised national security by politicians are ruining this country.

There you have it. The above steps, without any credit for most of the offshore east and west coasts, could mean a gain of 4 million barrels of day of oil production, then a saving of 4 to 5 million barrel per day by using domestic natural gas for a substantial reduction of our oil imports from 14 million to less than 6 million barrel per day (of which 2 million bpd can come from Canada).

Now that's an energy policy!  If America can put a man on the moon in 10 years, then we could do this!   The only thing missing is leadership and faith in America like John F. Kennedy.   Obama has neither faith nor leadership.  

The Angry Left

The political left wing is angry these days...even 'screeching angry.'   The President is lashing out at the Supreme Court and saying incredibly stupid things doing it.   ObamaCare took an astonishing "shellacking" in oral arguments at the Supreme Court last week--so thoroughly was the case defeated in the arguments.  The left is thoroughly shocked!   Maureen Dowd, from the crumbling leftist bastion at the New York Times, called the Supremes "hacks in black robes."   Nice.

It's not just the Supreme Court that doesn't like it.  The polls continue to show public dislike for ObamaCare.   How can that be???   And those pesky Republicans are so wrong about trying to reduce the deficit and slow down the massive power grab by the EPA, Environmentalists and Federal government!  Paul Ryan is evil!  How dare they challenge us because we're so right!   Republicans only love the rich!

The economy is not doing what it's supposed (or promised) to do.  Green jobs are nearly non-existent.  Iran and Russia didn't do what they were supposed to do.   And according to the President, any business NOT in the green energy business is evil.    Taxes must be raised!    There is no tax that the President doesn't love.   It's that and bashing the only success story in the economy, the conventional hydrocarbon energy business, are the President's total scope of vision.    Oh, and government spending must never be cut!

With reality intruding on their world views, the left is sharpening their attack.    Gone is hope and change replaced by attacks and class warfare.  Barack Obama and the Left's entire world view is shattering before their very eyes and it's making them angry.

The problem is that reality is against the Left's views.  America is a politically center-right country.   Although the electorate was wooed (fooled) by rhetoric in the last election to try "hope and change," America is, and always has been, a fundamentally conservative country.   And, after a disastrous experiment with Obama, conservatives are going to take back both houses of Congress and probably the Presidency at the election polls this November.

Expect even more screaming and gnashing of teeth on the left this November.

The President (and the political left) is wrong about nearly everything. They haven't learned the greatest and loudest lessons of the 20th and even louder lessons of the new 21st century.  Rarely has history spoken louder than about the failure of central planning, bloated national governments, government intervention, and statism leading to waste, corruption,  high taxation and economic stagnation if not curbed.

Why the Left is Wrong

Democrats are fundamentally pessimists. Republicans are more optimists.   Republicans have a faith and Democrats don't.   The harvest of faithlessness is cynicism and pessimism.

Republicans have a long way to go to restore their image as effective gov't and budget administrators and as free-marketeers and they need to forget all the emphasis on socially conservative issues.