Gold & Silver Beyond the Limit by Peter Schiff

Perhaps the debt ceiling should be renamed the "national debt target," for it seems Washington is always trying to reach it. One could say it's their only reliable, time-tested achievement. And without fail, upon reaching their national debt target, they promptly extend it further in order to discover how quickly it can once again be attained!

While I have little doubt that the ceiling will be raised, my readers have been curious as to the implications for gold in each of the debt and "default" scenarios possible after August 2nd. This month, I'll outline how each outcome could affect the price of gold and silver.

If the debt ceiling is raised in order to avert imminent default, but the spare time is used to truly bring the federal budget into balance, the US economy might still be saved. But when I say "balanced," I mean it. This would mean not only eliminating the entire $1.5 trillion deficit, but also leaving enough of a surplus to cover all outstanding debt and unfunded liabilities. For perspective, Senator Rand Paul's proposal to but $500 billion a year, widely considered more radical than landing a man on Mars, would only address 1/3 of the annual deficit – it would take cuts many times that for the US to return to solvency.

This is the scenario that President Obama and Secretary Geithner are threatening. They claim that if the debt ceiling is not raised, they will have to immediately begin defaulting on Treasury interest payments. This is rather unlikely, as interest payments make up only 10% of spending, but let's say they stop paying anyway.

If they do this, market interest rates for US debt would skyrocket, meaning the only buyer left at rates the Treasury could afford would be the Fed. In other words, if they default on August 2nd, QE3 will start on August 3rd. Of course, a default would be absolutely devastating to the dollar and a boon for gold and silver. Global confidence in the invincibility of the United States would be shattered, and the underlying problem of excessive spending would still remain to be addressed.

Another interesting scenario would be if Congress didn't raise the debt ceiling and the Treasury just kept borrowing anyway. It's not like the Executive Branch follows laws scrupulously nowadays. What if they just ignored it? Someone could challenge the act in federal courts, but the odds are often in the President's favor. In this case, gold and silver might experience less of an initial spike, but their long-term prospects would be elevated as the world recognized that we were one step closer to becoming a banana republic.

The plans on the table suggest cutting a couple trillion in cumulative spending over the next decade. In other words, they propose cuts that only reduce deficits by about 10-20%; they do nothing to reduce actual debt levels. So if these talks are successful, then instead of a $1.5 trillion deficit each year, perhaps we only suffer a $1.2 trillion deficit. Meanwhile, the debt continues growing. This is "success" in Washington.

Clearly, this is bullish for precious metals. It means more of the same – more spending, more debt, and necessarily more money-printing.

Over the past 50 years, the US debt ceiling has been raised over 70 times. In other words, there is no ceiling at all – it is as fictitious as the idea that central planning works, or that the US has anything resembling a "free market."

So, I guess it stands to reason that regardless of the debt ceiling increase, it is likely that the US will be downgraded by one or more ratings agencies. The effect will be massive because the world's largest pension, mutual, and sovereign wealth funds typically mandate investment only in AAA-rated securities. A downgrade of US debt means those funds must immediately sell off their primary reserve asset. The effect of this cannot be overstated, and gold would be the first and best refuge for an onslaught of orphaned capital.

Despite gold once again hitting new highs, I can only recommend my readers continue to keep a healthy portion of their portfolio in precious metals. Given the sad realities of the US fiscal and monetary situation, it's prudent to assume that nothing will be solved by August 2nd.

http://lewrockwell.com/schiff/schiff131.html

Tech Talk - Gulf of Mexico production and hurricanes

The summer brings back hurricane season, with the threat that such storms bring to the oil and gas well operations in the Gulf of Mexico. And the National Oceanic and Atmospheric Administration (NOAA) has noted that

The Atlantic basin is expected to see an above-normal hurricane season this year, according to the seasonal outlook issued by NOAA's Climate Prediction Center . . . 3 to 6 major hurricanes (Category 3, 4 or 5; winds of 111 mph or higher)

The lessons of this vulnerability were, perhaps, more than most years, evident in 2005. The first sign of problems came with the arrival of Hurricane Dennis in July. It was a storm which severely damaged the BP deep water Thunder Horse drilling platform. 


Thunder Horse after Hurricane Dennis

As that season wore on, the vulnerability of the platforms in the Gulf and the refineries that border it, were exposed in more intensity with the passage of Hurricanes Katrina and Rita. These threats and their analysis were one of the factors that helped, in that formative year, to bring an audience to the pages of The Oil Drum. The Gulf is now home to thousands of wells which, as the evidence from the Deepwater Horizon disaster last year reminded us, has moved further and further away from shore. That vulnerability is perhaps illustrated by a map showing the path of Hurricane Rita through the oil platforms off the Texas and Louisiana coasts.

More: http://feedproxy.google.com/~r/theoildrum/~3/XKeCSNGLX-I/8201

When something hits the comics page…

When something is used as fodder for the Sunday comics, that probably means the typical reader is already aware of it.

Keep that in mind as you read today's Dilbert:

http://www.qando.net/?p=11182

US Debt Crisis: Capitol Hill Ready To Strike Deal - But At What Cost?

America could soon lose its much-coveted triple-A credit rating, possibly by the end of this week, as politicians in Washington race to clinch a deal to solve the debt crisis in what is likely to be a volatile week for global financial markets.

On Monday morning the dollar rose against the yen and Swiss franc as hopes grew that a deal could be reached to raise the $14.3tn ceiling on borrowing to enable US public workers to be paid, and the country to keep functioning. In early trading the New Zealand dollar was just shy of a 30-year high, while the Australian dollar also edged up.

But while there was some relief that an outright US default on debt payments might now be avoided, there was lingering concern that congressmen might not fall behind the $3tn of cuts needed in return for a $3tn rise in the debt ceiling before Tuesday's deadline – when the White House has warned the money runs out.

Anxiety was apparent on both sides of the Atlantic about the implications of the crisis in the US, where data on Friday showing the US economy has stagnated further heightened tensions in the market.

If a deal is done, market experts predict a rally on Wall Street (which lost almost 4% of its value last week), and for the dollar to rise against the Swiss franc.

But any relief is likely to be short-lived if the ratings agencies move quickly to downgrade the debt rating, although some economists believe that a downgraded rating may not have the same impact as it has on some eurozone countries where the cost of borrowing has reached punitive levels.

As the world's biggest bond market, the US is supported by China, which owns up to one third of foreign-held treasuries, although economists at Capital Economics believe China would keep buying treasury bonds even if they were downgraded.

More Here..

President Obama, Congress Reach Private Backroom Debt Deal

 

So much for transparency, accountability, or even public input.

The top Senate leaders expressed optimism today that a deal will be reached to raise the nation's debt limit and avoid a default that could wreak calamity on the global economy.

After taking a procedural vote, the Senate is in recess. Furious negotiations are going on between the White House and Senate Minority Leader Mitch McConnell, R-Ky., to reach a deal before Tuesday's deadline.

The outlines of the proposal on the table would raise the nation's $14.3 trillion debt ceiling in two stages . . . . .

Ending a perilous stalemate, President Barack Obama announced agreement tonight with Republican congressional leaders on a compromise to avoid the nation's first-ever financial default. The deal would cut more than $2 trillion from federal spending over a decade.

Spending that (by the way) was on a massive increase already, so they're reducing the rate of increase more than they are reducing spending on existing programs and rates.

Default "would have had a devastating effect on our economy," Obama said at the White House, relaying the news to the American people and financial markets around the world. He thanked the leaders of both parties.

House Speaker John Boehner telephoned Obama at mid-evening to say the agreement had been struck, officials said.

More Here..

US Economy Needs To Rid Itself Of Debt Addiction

The US can solve its debt crisis but sustainable prosperity lies in improved productivity and real wage growth not asset bubbles

A country where a plutocracy is firmly in control. A country that has racked up whopping trade and budget deficits over the past quarter century. A country where the tax system is biased towards the rich and spending is lavished on the military rather than the poor. This country – where the politics are dysfunctional and the economy a train wreck – is not some tinpot Latin American dictatorship circa 1980 but the United States in 2011.

If the US were any other country it would be seeking help from the International Monetary Fund (IMF). It is considered a blessing that the dollar's role as the global reserve currency of choice means that Washington does not have to suffer this indignity, but in reality the blessing has turned out to be a curse. The security blanket provided by the dollar has allowed Americans to believe that if they close their eyes all their problems will go away.

Policymakers have fostered this belief. They have assumed that the normal rules of economics do not apply to the US and have always looked for the easy way out of any problem. Under Alan Greenspan, an excess of private-sector debt and speculation created the dotcom boom of the late 1990s. When the bubble burst, Greenspan's response was to create an even bigger bubble, this time in the housing market.

At the same time, George W Bush took what had been a solid fiscal position inherited from Bill Clinton and trashed it. Two expensive wars and tax cuts for the well off meant that by the time the subprime mortgage crisis broke the US was saturated in private-sector debt and the public sector balance sheet was in poor shape.

Both Democrats and Republicans are partly right in their analysis of the crisis. The Democrats are right when they say that Bush's tax cuts and military spending were the fundamental reason for the deterioration in the public finances. By the time Obama arrived at the White House in early 2009, he was faced with a budget deficit projected to climb to $1.2tn based on the cost of the recession and of Bush's policies continuing. Obama's stimulus measures have added to the deficit, although the assumption has been that the effect would be temporary rather than permanent.

More Here..

Get Out of the Way and Let the Lemmings Jump

Pay Attention to Government Statistics At Your Own Risk. Feel sorry for anyone who still pays attention to any government economic statistics.

No, I don't think I will. There is a point where even a lemming is responsible for it's own existence. It is understandable that so many follow whatever the media tells them when it's the only resource they know. When those lemmings are constantly lied to by both the government and the media, there is a point where one is forced to take a step back and say What The Fuck. If the ship is going down, and it is, I'm getting out of the way, helping those who are cognitive enough to know that they have to save themselves, and I'm not going to get in the way of millions of lemmings.

The Dollar Vigilante You sure don’t see too many idiots on TV talking about green shoots anymore… whatever happened to that? After two years of “recovery”, does anyone see anything like a recovery in any of the unemployment figures (the blue line being reality and the red line being the government propaganda)? Oh, that’s okay, they say, it’s just one of those pesky “jobless recoveries”. It’s like the 2008 Detroit Lions who went 0-16. They weren’t bad, they were just winless champions. Pay Attention to Government Statistics At Your Own Risk. Feel sorry for anyone who still pays attention to any government economic statistics. It is pure, unadulterated lies and propaganda, plain and simple. You’d be better off listening to a financial adviser who uses the annual Tooth Fairy survey as a gauge of economic strength. More Here..

http://thecomingdepression.blogspot.com/2011/07/even-tooth-fairy-knows-its-depression.html

Deal Or No Deal, Pain Is Coming, Political Posturing and Slight of Hand

With just twelve days to go before the so-called debt ceiling deadline of August 2, Barack Obama has flip-flopped on his opposition to a short-term debt limit deal. This latest move comes after the Republican-controlled House passed its Cut-Cap-and-Balance bill Tuesday. Meanwhile, the so-called Gang of Six, three Democrat and three Republican senators, announced Tuesday that they have a new deal, also. However, all of the details are not worked out and it could be weeks before an actual bill could be drafted and voted on.

So, Obama, who has determined that the only way to get reelected is by focusing on his leadership, is now prepared to take a short-term deal while this latest monster is hatched. Obama himself has yet to put anything on the table in writing, which he views as being the proper way to act as a leader. He thinks America wants someone to lead from behind or the side lines. Obama certainly cannot run on his record, since he has failed at everything, especially in handling the economy and unemployment.

http://www.rightpundits.com/?p=8926

If the government votes to increase our debt limit, even if they double it, we are still teetering on financial collapse. Our problem is not the debt limit, but the debt level itself and excessive government spending (and misappropriation of funds). If the nation does not default, our priority needs to be reducing the scope and cost of federal and state programs. We need to reduce taxes across the board to encourage small business growth. Reducing the tax burden on citizens will spur our economy. 

If warring politicians in Washington are somehow able to join hands in a rousing verse of debt-ceiling kumbaya, Pennsylvanians might be tempted to breathe a collective sigh of relief.

But experts say that even if the government can strike a deal to prevent the nation from defaulting on its debt before the money runs out Tuesday, no one should feel too comfortable. Deal or no deal, pain is coming."No matter what, we're looking at severely reduced spending on the federal level," said Michael Wood, research director at the Pennsylvania Budget and Policy Center. "There's no way that can't affect all of us in some way."

For now, it's unclear who has reason to be most worried, but experts say it's difficult to envision federal spending cuts of more than $1 trillion that don't reduce subsidies to education and programs for senior citizens and low-income people.

Competing plans by House Speaker John Boehner and Senate Majority Leader Harry Reid each claim to cut federal spending by roughly $1 trillion over the next 10 years.

It is most certainly a case of pick your poison, experts say, but most say an actual default would be more damaging. Because the federal government spends more money than it takes in, it borrows money to meet all of its spending obligations. In the past, when its credit limit was reached, Congress simply approved a higher limit, allowing the government to keep borrowing and enabling it to keep paying its debts.

More Here..

"Ronnie Cummins" - Monsanto Nation -- Taking Down Goliath

"If you put a label on genetically engineered food you might as well put a skull and crossbones on it." - Norman Braksick, president of Asgrow Seed Co., a subsidiary of Monsanto, quoted in the Kansas City Star, March 7, 1994

After two decades of biotech bullying and force-feeding unlabeled and hazardous genetically engineered (GE) foods to animals and humans‹aided and abetted by the Clinton, Bush, and Obama administrations‹it¹s time to move beyond defensive measures and go on the offensive. With organic farming, climate stability, and public health under the gun of the gene engineers and their partners in crime, it¹s time to do more than complain. With over 1/3 of U.S. cropland already contaminated with Genetically Modified Organisms (GMOs), with mounting scientific evidence that GMOs cause cancer, birth defects, and serious food allergies  and with new biotech mutants like alfalfa, lawn grass, ethanol-ready corn, 2,4 D-resistant crops, and genetically engineered trees and animals in the pipeline time is running out.

http://www.garynull.com/home/ronnie-cummins-monsanto-nation-taking-down-goliath-1.html

Debt Ceiling's Impact is Overrated

The government's debt ceiling has been the focus of heated debate in Washington, as many economists, politicians, and pundits buy into the notion that the debt ceiling must be raised to avoid economic disaster. The reality is that many potential catastrophes have been threatening the U.S. for years now, as a consequence of our growing debt. Treating our unhealthy fiscal state with more debt may stave off withdrawal symptoms for a while, but the underlying addiction to spending remains, and grows worse by the day.

I only wish that the national (bought and paid for) media would focus on the default issue, rather than the angle of increasing our debt limit. What good is increasing, or even doubling, our debt limit when we are so close to defaulting on paying the minimum payments on the nation's credit card? We are borrowing from our children to make interest payments at this point, so I have little faith that our "representatives" with stop playing games long enough to present a practical solution that includes massive spending cuts, which are what the country needs to control it's debt, as well as drastically reducing taxes to restart the failing economy. Wow. It really appears simple when you take a step back to look at the situation from a realistic perspective. 

Despite the fact that a debt ceiling increase only provides temporary, superficial respite, many of those who favor such a move give too much weight to the impact of the debt ceiling. In a recent op-ed in the Washington Post, Virginia Senator Mark Warner argues, "Failing to raise the debt ceiling will increase interest rates, gut consumer confidence, and drag down business investment and job creation." The notion that changing an artificial construct like the debt ceiling will have such a massive impact on real economic conditions comes from viewing the economy in the abstract. Rather, the economy is comprised of people who engage in millions of exchanges every day. Because the economy is not an abstraction but is very real, it is unlikely that an arbitrary debt limit would dramatically affect real economic conditions. Some parts of the doomsday scenario posed by officials like Senator Warner, Treasury Secretary Tim Geithner, and the president may well come to pass: rising interest rates, consumer confidence falling, job creation declining. However, it is not likely to be the sole result of a failure to raise the debt ceiling, as we already see many of these symptoms occurring.

More Here..

http://thecomingdepression.blogspot.com/2011/07/debt-ceilings-impact-is-overrated.html

Michael Nairne: There is a pattern to all this drama

Just like "global warming," financial cycles that lead to a significant crash need to be put into perspective to truly understand their impact and causes. 

Jobless men swarm boxcars for the "On to Ottawa" protest shortly after the stock market crash of 1929 and the beginning of the Great Depression. Economic downturns are cyclical, so investors must be patient to wait for things to recover.
Photograph by: Archive, Archive

It takes a brave soul to read a newspaper today with a steady hand. The world seems to lurch from crisis to crisis. One day it's the possibility of a financial contagion sweeping through Europe. The next, it's the spectacle of political gridlock in the United States that could lead to a debt default. Story after story recounts languishing growth in most of the developed world along with sputtering employment gains.


This torrent of bad news should be no surprise. Leading economists Carmen Reinhart and Ken Rogoff foretold the state of the developed world's economies back in 2008. Their sweeping research into the financial crises of the past few centuries found that, instead of being an extraordinary occurrence, crises are a recurring event.


They also follow a pattern. The stage is set by a debt cycle when borrowing, often real estate-related, skyrockets. The onset of the crisis is marked by collapsing asset values as real estate prices plunge and bankruptcies soar. As asset writedowns proliferate, a banking crisis ensues. Lending and liquidity dry up, investment and consumption collapse, and a deep recession ensues.

More Here..

http://thecomingdepression.blogspot.com/2011/07/michael-nairne-there-is-pattern-to-all.html

Dufus of the day–Rep. Gary Ackerman (D-NY)

Ackerman lectures global warming skeptics and Congressional Republicans on thedifference between "science" and "belief".   He then gives you his version of the "science" that he "believes" proves his point

 

Yes, folks, fogged glasses prove it, he believes it and that settles it.

He is right about one thing – there is global climate change – just as there has been for millions and millions of years.   In the end his plea is for a few measly million dollars to "save the planet."

What's wrong with you people – after that elegant and eloquent speech, how can you not pitch a half billion his way?

I'm just happy to see someone else pointing out that global climate change is an ongoing cycle, and that humans are simply along for the ride. We might as well burn those dollars to keep warm, since this idiot is not going to do anything more productive with it. 

http://www.qando.net/?p=11151

Why aren’t we seeing a jobs recovery? Maybe it’s ObamaCare’s fault

So you're wondering why the "recovery" stalled?  Well we all know that correlation is not causation, but this sure looks suspicious doesn't it?



So looking at the chart, we see job growth starting to pick up at an average of 67,000 a month.  Not earth shattering, but much better than the average (ten times less) after the passage of ObamaCare.

Why, people wonder, would something like that happen with the passage of a bill that is supposed to improve health care and make it cheaper to boot?  Wouldn't that encourage people to hire and expand.

Well … no.  Because we had to pass the bill to find out what was in the bill.  And what we've found out is none to pleasing.

Couldn't agree more.  I've seen any number of people saying "yeah, repeal it" but then asking "what are you going to replace it with"?

Uh, personal responsibility?  How about we try that for a change?   It is each citizen's job to care for themselves and do (and pay for) those things necessary to see that they aren't a burden on the rest of the citizenry.

What a concept, huh?

http://www.qando.net/?p=11134

Abusing the Power to Tax and Spend

Barack Hussein Obama's refusal to send a Balanced Budget Amendment (BBA) to the states as condition of House Speaker John Boehner's support for raising the national debt ceiling has pushed federal funding negotiations to the precipice of the Treasury Department's 2 August default deadline. Boehner has retreated on the House's "cut, cap and balance" plan and its BBA provision is no longer a stipulation in negotiations. He has also reduced the "cuts" in the House plan, and may acquiesce to the larger debt ceiling increase the Democrats want in order to avoid another debt ceiling battle prior to the 2012 elections.
Notably, most House conservatives, including the Tea Party freshmen, are standing with Boehner, choosing a pragmatic approach until 2012, when they hope to strengthen their numbers in the House and Senate, and retake the presidency.
The current budget debate was the first serious consideration of a BBA since it was advocated by President Ronald Reagan in the 1980s and later passed by the House as part of the Republican Contract with America in 1995. (At that time, it received 300 votes, including 72 Democrats.)
Now, as then, Leftist Democrats in the Senate have created a formidable gauntlet to its passage because it would severely undermine their power to redistribute wealth, power that is the only assurance of their perpetual re-election. A BBA would sunset their dynasty.
So, where to from here, and what question should conservatives be asking? First, let me offer a brief review of the current budget/debt crisis.

That notwithstanding, what our Constitution authorizes versus what the courts via judicial diktat have since interpreted it to authorize have rendered Rule of Law null and void. The resulting debt crisis is a menacing threat to Liberty.
So, what's the solution?
Thomas Jefferson warned, "To preserve independence ... we must not let our rulers load us with perpetual debt. We must make our election between economy and Liberty, or profusion and servitude. ... The fore horse of this frightful team is public debt. Taxation follows that, and in its turn wretchedness and oppression."

http://patriotpost.us/alexander/2011/07/28/what-power-to-tax-and-spend/

Do Americans care about the debt ceiling?

I doubt it. 

I also doubt most Americans even understand it, let alone care. Let someone else fix it. Why should I care? It's not my job.

Politicians and financial experts warn of economic collapse if there's no deal to raise the ceiling by next week. The vast majority of Americans don't share that concern, according to a survey.

As congressional leaders continue to duel ahead of the Aug. 2 deadline for raising the U.S. debt ceiling without signs of a deal, a large contingent of respondents to a recent MSN Money poll make clear what they think of the matter: They're sick of hearing about the whole thing.

From July 19-22, just more than 9,100 readers voted in the informal online poll, which asked, "Are you concerned about the debt ceiling?"

Forty-three percent answered that they were sick of hearing about it, while 39% reported feeling a little concern. Only 15% said they were concerned enough that the issue keeps them up at night, and a small minority, 3%, said they didn't know anything about the issue....

Most people are more concerned about who is on Dancing with the Stars this week, or whatever distraction they can find so they don't have tho think about the dark reality looming on the horizon.

More Here..

Consequences Of No US Debt Deal Spelt Out

 

Going Flat Black

When I look at all of the potential ways our economy is headed down the crapper, I can only think about being prepared for the worst. Here are my suggestions, take them at face value. You get what you pay for, as they say. Think simple. Do you have food for now and a way to grow more for the future? Do you have water for now and a way to collect or purify in the future? Do you have the means to protect what you have from those willing to take it from you?

The United States remains on course to default on its debt for the first time in history in six days time, as politicians continue to squabble over the answer. There are signs the American public is growing increasingly frustrated that the White House and Congress cannot strike a deal.

And stock markets around the world are watching closely, with credit ratings agencies threatening to downgrade America's AAA-rating unless a significant solution to the debt and deficit crisis is found.

Officials from two of those agencies, Moody's and Standard and Poor's, are due to address a congressional hearing later today.

So far, all attempts at compromise among the Republican-controlled House, the Democratic-run Senate and President Barack Obama have failed.

The President and Speaker of the House John Boehner have repeatedly clashed, with Mr Obama refusing to accept a plan that would effectively put off the debate for six months, saying that would fail to provide stability to the US economy . . . . . . .

More Here..

Doing the Math on Infinite Growth, It Doesn't Add Up

Since the beginning of the Industrial Revolution, we have seen an impressive and sustained growth in the scale of energy consumption by human civilization. Plotting data from the Energy Information Agency on U.S. energy use since 1650 (1635-1945, 1949-2009, including wood, biomass, fossil fuels, hydro, nuclear, etc.) shows a remarkably steady growth trajectory, characterized by an annual growth rate of 2.9% (see figure). It is important to understand the future trajectory of energy growth because governments and organizations everywhere make assumptions based on the expectation that the growth trend will continue as it has for centuries—and a look at the figure suggests that this is a perfectly reasonable assumption.
Figure 1. Total U.S. Energy consumption in all forms since 1650. The vertical scale is logarithmic, so that an exponential curve resulting from a constant growth rate appears as a straight line. The red line corresponds to an annual growth rate of 2.9%. Data source: EIA.

Growth has become such a mainstay of our existence that we take its continuation as a given. Growth brings many positive benefits, such as cars, television, air travel, and iGadgets. Quality of life improves, health care improves, and, aside from a proliferation of passwords to remember, life tends to become more convenient over time. Growth also brings with it a promise of the future, giving reason to invest in future development in anticipation of a return on the investment. Growth is then the basis for interest rates, loans, and the finance industry.

Because growth has been with us for "countless" generations—meaning that everyone we ever met or our grandparents ever met has experienced it—growth is central to our narrative of who we are and what we do. We therefore have a difficult time imagining a different trajectory.

At this point you may realize that our sun is not the only star in the galaxy. The Milky Way galaxy hosts about 100 billion stars. Lots of energy just spewing into space, there for the taking. Recall that each factor of ten takes us 100 years down the road. One-hundred billion is eleven factors of ten, so 1100 additional years. Thus in about 2500 years from now, we would be using a large galaxy's worth of energy. We know in some detail what humans were doing 2500 years ago. I think I can safely say that I know what we won't be doing 2500 years hence.
Figure 2. Global power demand under sustained 2.3% growth on a logarithmic plot. In 275, 345, and 400 years, we demand all the sunlight hitting land and then the earth as a whole, assuming 20%, 100%, and 100% conversion efficiencies, respectively. In 1350 years, we use as much power as the sun generates. In 2450 years, we use as much as all hundred-billion stars in the Milky Way galaxy. Vertical notes provide historical perspective on how distant these benchmarks are in the context of civilization.

We can explore more exactly the thermodynamic limits to the problem. Earth absorbs abundant energy from the sun—far in excess of our current societal enterprise. The Earth gets rid of its energy by radiating into space, mostly at infrared wavelengths. No other paths are available for heat disposal. The absorption and emission are in near-perfect balance, in fact. If they were not, Earth would slowly heat up or cool down. Indeed, we have diminished the ability of infrared radiation to escape, leading to global warming. Even so, we are still in balance to within less than the 1% level. Because radiated power scales as the fourth power of temperature (when expressed in absolute terms, like Kelvin), we can compute the equilibrium temperature of Earth's surface given additional loading from societal enterprise.
Figure 3. Earth surface temperature given steady 2.3% energy growth, assuming some source other than sunlight is employed to provide our energy needs and that its use transpires on the surface of the planet. Even a dream source like fusion makes for unbearable conditions in a few hundred years if growth continues. Note that the vertical scale is logarithmic.

Once we appreciate that physical growth must one day cease (or reverse), we can come to realize that all economic growth must similarly end. This last point may be hard to swallow, given our ability to innovate, improve efficiency, etc. But this topic will be put off for another post.

More: http://feedproxy.google.com/~r/theoildrum/~3/3vlM3HdLgz4/8155

The More Things Change...

I posted an article on Seeking Alpha entitled “A History of Market Violence” on March 5, 2009. This, of course, was the day before the market bottomed on March 6, 2009 at 666.79 on the S&P 500 Index. Much time has passed since I posted this article, so I hadn’t read it for quite a while. But a comment from a reader in one of the posts over the weekend caused me to revisit it, and it was striking what I found. Even though nearly two and a half years have passed with the market rallying +105% from its March 6, 2009 trough to its May 2, 2011 peak, virtually nothing has changed. All of the same underlying problems that were plaguing the economy and markets at its very bottom are still festering today, over two years later. And in some cases, they’ve become quite a bit worse. Given where we are now in the cycle, this suggests potential downside for stocks in the months ahead.

Returning to July 2011, it is worthwhile to revisit each of these items point by point.

First, the discards. Point number 2 warrants no further discussion, as monetary policy prior to the downturn remains what it was. Point number 6 on protectionism has also not surfaced as a problem to this point, short of a few minor rumblings along the way.

But the remaining items are notable. Here is where we stand today over two years later.


The aggressive fiscal and monetary policies enacted worldwide were supposed to buy us time. But clearly, we are no further along than we were nearly three years ago in addressing the major dilemmas facing us at the depths of the crisis.

This raises an important issue. On March 5, 2009, when I wrote my original article, the S&P 500 stood at 682.55 and was hours from bottoming at 666.79 the next day. Over two years later it peaked at 1370.58 on May 2, 2011 and still stands at 1316.14 as of July 15. Thus, the stock market more than doubled along the way since I wrote my original article, but virtually none of the underlying problems have been solved. So if many of the issues that were prevalent when the market was trading at 682 on the S&P 500 on March 5, 2009 are still problems today, in an already sluggish global economy that is showing signs of slowing further, is the market rally that we have achieved all along the way sustainable? Has the economy truly achieved what the market has so unflinchingly priced in to this point? Or are we at risk for considerable downside in the months ahead?

More Here..

The Gang of Six is back

Gangs of anything are rarely good things.  And when it comes to the Senate's Gang of Six, that caution is doubly true.  Today the Gang proposed a bipartisan deficit plan to which the president–eager to kick the deficit can down the road past the 2012 election–gave his qualified approval.  There is only this summary (PDF) available at the moment, and there is much to digest.
The good news is that there is at least some sanity in it.

• Personal and corporate income taxes would be reduced to a top rate of 29%.
• The Alternative Minimum Tax–which has turned into a horrific taxation burden–will be eliminated.
• The CLASS Act provision of Obamacare would be repealed.

The bad news–and there's always bad news with these guys–is that the budget reduction portion of it is notional.  As usual in Washington, it calls "cuts" what the rest of us would call "reductions in the rate of spending increases".  In other words, spending isn't actually reduced at any point, they just promise not to spend as much as they previously said they would. The main problem points include:

• None of the plan's "spending caps" apply to entitlement programs, only discretionary spending. So the 800-pound gorilla of the budget remains untouched.
• Reform tax expenditures for health, charitable giving, homeownership, and retirement. These aren't expenditures! They are allowing you to keep your money for IRAs, 401(k)s, Mortgage interest, etc.  So, that sounds…ominous. Especially since the plan assumes that these, and similar reforms will net an additional $1 trillion in revenue.
• No reform at all of Medicare of Medicaid.
• A politically-imposed requirement to use the Chained-CPI as an inflation measure, presumably to cut down on cost-of-living increases, as the Chained-CPI understates inflation even more than the current CPI does.
• Requires the tax code to become more "progressive", so you can expect serious increases in Capital Gains taxes.
• No Social Security reform at all, unless there's 60 votes for it in the Senate, i.e., sponsors for such reform prior to its submittal to the Senate for consideration. So, essentially, never.

There's no information at all on how big or expensive government will be, say 10 years down the road. No information on how strict the spending caps will be, making me expect another Gramm-Rudmann deal: Good on paper, ineffective in practice.
Basically, this plan, so far as I can tell, contains some eye-candy on income taxes to draw in the supply-siders, with the actual deficit reduction portion sounding…sketchy. Or in the case of entitlements, by far the source of most federal spending, non-existent.

http://www.qando.net/?p=11113

Failure to raise debt ceiling would put economy in peril

 

The real problem is government spending, which has contributed to a 4 trillion dollar increase in the national debt in only three years. What good will increasing the debt limit when that debt continues to rise? Government spending needs to be drastically cut to help our country survive. 

Our nation is heading toward an Aug. 2 deadline to raise the debt ceiling and avoid defaulting on our debt. If Congress doesn't act quickly, the United States will face an economic disaster that could have easily been prevented.

The U.S. owes its creditors trillions of dollars. Our government has a responsibility to pay back that debt with interest, just as any American with a credit card knows. Last week, Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee. Chairman Bernanke's message was very clear: a default will signal to the global financial markets that the United States is not a trustworthy borrower. The Treasury Department has also stated that defaulting on our debt would result in an almost 1 percent decrease in gross domestic product, hurting job creation and having a devastating effect on the economy. To put it bluntly: we can't afford a default.

If we don't raise the debt ceiling, the world will lose confidence in the U.S., and its credit rating will almost certainly be downgraded from its current, bulletproof triple-A grade. Losing our triple-A credit rating will increase our interest payments, adding at least $100 billion in new debt service payments for the country and making it more difficult to get our fiscal house in order.

More Here..

18 Signs That Global Financial Markets Smell Blood In The Water

Can you smell it? There is blood in the water. Global financial markets are in turmoil. Banking stocks are getting slaughtered right now. European bond yields are absolutely soaring. Major corporations are announcing huge layoffs. The entire global financial system appears to be racing toward another major crisis. So could we potentially see a repeat of 2008? Sadly, when the next big financial crisis happens it might be worse than 2008. Back in the middle of 2008, the U.S. national debt was less than 10 trillion dollars. Today it is over 14 trillion dollars. Back in 2008, none of the countries in the EU were on the verge of financial collapse. Today, several of them are. This time if the global financial system starts falling apart the big governments around the world are not going to be able to do nearly as much to support it. That is why what is happening right now is so alarming. As signs of weakness spread, the short sellers and the speculators are starting to circle. They can smell the money.

More Here..

Fwd: Challenge is Not the Debt Ceiling - It`s the Debt

From: U.S. Senator John Cornyn <newsletter@cornyn.enews.senate.gov>
Date: July 22, 2011 5:11:40 AM CDT
Subject: Challenge is Not the Debt Ceiling - It`s the Debt

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July 22, 2011 Unsubscribe Update My Profile About Senator Cornyn Texas Services for Texans Issues & Legislation For the Press Student & Teacher Contact Please note: this email newsletter is coming from an unmonitored account. Please do not reply to this email address. To reply to our office, click here to use the contact form on our website. If you wish to change your email address or update your contact information, click here to update your profile. If you wish to unsubscribe, click here. Cornyn: Challenge is Not the Debt Ceiling – It's the Debt Reinforces Need to Pass Cut, Cap, and Balance in Senate WASHINGTON—U.S. Sen. John Cornyn (R-Texas) a member of the Senate Budget Committee, recently spoke on the Senate floor in support of the Cut, Cap, and Balance Act and to address the continued failure of Democrats to propose a plan to address our debt crisis. To watch the full video of Sen. Cornyn's speech, click here. "For those colleagues who are critical of this proposal, my question for them is, where is your plan? Where's your plan? "Just to criticize what responsible Members of Congress are trying to propose as a solution to a problem when you have no plan of your own is irresponsible in my opinion. "The President finally got engaged a few weeks ago, but the problem we still have is we don't know the detail of what the President's proposed solution to the plan is. He will not say publicly, in detail, what his plan is. "And unfortunately…all of the negotiations so far, that apparently are still continuing, are behind closed doors. Behind closed doors. "And if there were a grand bargain to be had, I'm confident what would happen is it would be rolled out here on the floor of the Senate or in the House at the last minute, without adequate time to review it or to debate it, or for the American people to read it and see how it affects them to give us feedback. "We are representatives of a constituency, and the 25 million people I represent in Texas would like to have a chance to read it, and then to tell me what they think about it. "I want to remind my colleagues of the challenge before us, and it is not the debt ceiling – it is the debt. And those who think that it's not real, I think are just whistling past our fiscal graveyard." ### Share on Facebook Share on Twitter CONTACT INFORMATION WASHINGTON DC 517 Hart Senate Office Bldg. Washington, DC 20510 Main: 202-224-2934 Fax: 202-228-2856 SOUTH EAST TEXAS 5300 Memorial Drive Suite 980 Houston, TX 77007 Main: 713-572-3337 Fax: 713-572-3777 SOUTH TEXAS 222 East Van Buren Suite 404 Harlingen, TX 78550 Main: 956-423-0162 Fax: 956-423-0193 WEST TEXAS Wells Fargo Center 1500 Broadway Suite 1230 Lubbock, Texas 79401 Main: 806-472-7533 Fax: 806-472-7536 SOUTH CENTRAL TEXAS 600 Navarro Suite 210 San Antonio, TX 78205 Main: 210-224-7485 Fax: 210-224-8569 CENTRAL TEXAS Chase Tower 221 West Sixth Street Suite 1530 Austin, TX 78701 Main: 512-469-6034 Fax: 512-469-6020 EAST TEXAS Bank One Building 100 E. Ferguson Street Suite 1004 Tyler, TX 75702 Main: 903-593-0902 Fax: 903-593-0920 NORTH TEXAS 5001 Spring Valley Road Suite 1125E Dallas, Texas 75244 Main: 972-239-1310 Fax: 972-239-2110 Update My Profile - Unsubscribe - Privacy Policy

A Run on the United States Government

The business world and the public are beginning to realize that few investments are solid anymore, with the government being even less so.

A “run” is a mass withdrawal of cash funds from a borrower. We are in the midst of a continuing worldwide credit crisis, punctuated by “runs” of varying prominence and publicity.
These runs are rational, not panics and not due to quirks of psychology. They occur when investors realize that their funds are endangered in an institution. They try to get them out before they lose them.

Looks like I'm not the only one pulling whatever I can extract from the clutches of these organizations and putting them under my mattress.

The danger comes when the institution no longer is getting cash inflows in sufficient amounts to pay off all its obligations. In businesses, this comes about through sour investments. In governments, it comes about through wasteful spending that fails to be recovered in tax revenues.
In the year 2008, we saw runs on major Wall Street investment banks, money market mutual funds, domestic banks and foreign banks. Now we are seeing runs on governments in Europe such as Greece and Portugal. Sovereign debts are being sold down hard as investors flee from them, converting their bonds into currency.
Three years from the 2008 credit crisis, the Federal Reserve is still providing massive credit to U.S. banks. This props them up against bank runs. Every so often, the FED extends credit to foreign central banks to prop them up so that they can prop up their financial institutions. These are stopgaps. All of this propping up depends on faith in one currency: the U.S. dollar.

With the fact that the Federal Reserve is a private entity, not a federal agency or division, but is managed by a board that consists of executives from the major banking firms, it is easy to see how this can lead to a situation where only those running the show could end up benefiting from a failing financial system.

Runs on various institutions often show up as a flight into short-term U.S. treasuries, i.e, the dollar. This is because the treasury market is deep.
Since the dollar is also a credit instrument, it is subject to credit risk. What happens when trust in the dollar drops sharply? What happens to all these financial institutions being propped up by creating dollars when trust in the dollar fails? That is when the financial system cracks wide open. That is when governments will be tempted to freeze funds in banks and prevent withdrawals the way that Argentina did. That is when the FED will be tempted to guarantee almost any institution against cash withdrawals, but when such a guarantee will be ignored. That is when gold will soar in price against the dollar and all other fiat currencies.
I am describing a run on the United States government. This will be a withdrawal of cash financing from the U.S. government. This is the ultimate credit crisis upheaval. This will be accompanied by mass social unrest and political reorganization. Stock and bond prices will fall sharply. The S &amp; P 500 will lose at least 60 percent. Government bonds will yield at least 10 percent. This event is foreseeable. It is also avoidable, but not without much pain and travail. Hence, although foreseeable and avoidable, it may still occur.

Combine those realizations with the one that puts the Fed into focus. It is independent, but not regulated by our own government.

Whether we like it or not, we are all currency speculators now. This is hardly a burden we can relish.
Whether or not a run on the United States government occurs is in the hands of its creditors. It depends on their trust in the dollar. Their trust depends on their understanding of America’s political economy.
Anyone who looks objectively at actions being taken by the U.S. government to bolster its credit or cause its credit to deteriorate has to reach a very negative conclusion. Why? Simply because the country’s leadership has been taking it downhill for decades on end. America is like a bright and fresh red apple in which rotting has been proceeding inexorably. The apple still has some edible portions but large parts of it are gone. The seeds need to be planted and a new tree grown.

http://dumpdc.wordpress.com/2011/07/16/a-run-on-the-united-states-government/

End the Fed.

What's the Next Chapter in the Economic Saga?

The past several years in the economy and investment markets have been extraordinary. We have had the deepest recession since the Great Depression of the 1930s. Banks, brokerage firms and AIG went bust, or almost failed before the great bailout. The venerable firm of Lehman Bros. actually failed, while others were merged and/or propped up by massive politician-backed infusions of cash. The predictions were dire, and the politicians flinched and bailed out the financial industry, not to mention General Motors and Chrysler.

The Federal Reserve moved to make money widely available at a nearly 0 percent interest rate. When that was not enough, they bought hundreds of billions of dollars of Treasury debt as the federal government ballooned its expenditures in the face of falling tax receipts. The sharp expansion of credit fired up the stock and commodity markets, but it did little to spur everyday economic activity

Now we are debating the debt ceiling at the federal level. State and local governments are raising taxes, cutting expenditures and employees. Even venerable Penn State is feeling the cutbacks. In the private sector, new hiring is agonizingly slow.

We are in a worse economical position today than in the late 20's through the early 30's. The news media won't hardly report on the existence of a recession, but we are closer to a major depression.

We have a presidential election coming up in 15 months. Historically, the party in power pulls out all the stops to make the markets and the economy look great just in time for voters to make their selections. Ours is not a perfect system. Yet what stops are left to pull out to make the economy improve in the next 15 months? Indeed, what is next?

The financial world may read like a Russian novel (that is, long-suffering), but we hope to avoid it becoming a Greek tragedy.

More: http://www.statecollege.com/news/columns/whats-the-next-chapter-in-the-economic-saga-809506/

Too Big Not to Fail

Back during the financial crisis of 2008, the American people were told that the largest banks in the United States were "too big to fail" and that was why it was necessary for the federal government to step in and bail them out.  The idea was that if several of our biggest banks collapsed at the same time the financial system would not be strong enough to keep things going and economic activity all across America would simply come to a standstill.  Congress was told that if the "too big to fail" banks did not receive bailouts that there would be chaos in the streets and this country would plunge into another Great Depression.  Since that time, however, essentially no efforts have been made to decentralize the U.S. banking system.  Instead, the "too big to fail" banks just keep getting larger and larger and larger.  Back in 2002, the top 10 banks controlled 55 percent of all U.S. banking assets.  Today, the top 10 banks control 77 percent of all U.S. banking assets.  Unfortunately, these giant banks are also colossal mountains of risk, debt and leverage.  They are incredibly unstable and they could start coming apart again at any time.  None of the major problems that caused the crash of 2008 have been fixed.  In fact, the U.S. banking system is more centralized and more vulnerable today than it ever has been before.

It really is difficult for ordinary Americans to get a handle on just how large these financial institutions are.  For example, the "big six" U.S. banks (Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo) now possess assets equivalent to approximately 60 percent of America's gross national product.

These huge banks are giant financial vacuum cleaners.  Over the past couple of decades we have witnessed a financial consolidation in this country that is absolutely unprecedented.

This trend accelerated during the recent financial crisis.  While the big boys were receiving massive bailouts, the hundreds of small banks that were failing were either allowed to collapse or they were told that they should find a big bank that was willing to buy them.

As a group, Citigroup, JPMorgan Chase, Bank of America and Wells Fargo held approximately 22 percent of all banking deposits in FDIC-insured institutions back in 2000.

By the middle of 2009 that figure was up to 39 percent.
That is not just a trend - that is a landslide.

Sadly, smaller banks continue to fail in large numbers and the big banks just keep growing and getting more power.

Today, there are more than 1,000 U.S. banks that are on the "unofficial list" of problem banking institutions.

In the absence of fundamental changes, the consolidation of the banking industry is going to continue.

Meanwhile, the "too big to fail" banks are flush with cash and they are getting serious about expanding.  The Federal Reserve has been extremely good to the big boys and they are eager to grow.

For example, Citigroup is becoming extremely aggressive about expanding....

Citigroup has been hiring dozens of investment bankers, dialing up advertising and drawing up plans to add several hundred branches worldwide, including more than 200 in major cities across the United States.

Hopefully the big banks will start lending again.  The whole idea behind the bailouts and all of the "quantitative easing" that the Federal Reserve did was to get money into the hands of the big banks so that they would lend it out to ordinary Americans and get the economy rolling again.

Well, a funny thing happened.  The big banks just sat on a lot of that money.
In particular, what they did was they deposited much of it at the Fed and drew interest on it.

Since 2008, excess reserves parked at the Fed have grown by nearly 1.7 trillion dollars.  Just check out the chart posted below....

The American people were promised that TARP and all of the other bailouts would enable the big banks to lend out lots of money which would help get the economy going for ordinary Americans again.

Well, it turns out that in 2009 (the first full year after Congress passed the bailout legislation) U.S. banks posted their sharpest decline in lending since 1942.

Lending has never fully recovered since the crash of 2008.  The big financial institutions like Goldman Sachs, Morgan Stanley and JPMorgan Chase have been able to get all the cash that they need, but they have not passed that generosity along to ordinary Americans.

In fact, the biggest U.S. banks have actually reduced small business lending by about 50 percent since the crash of 2008.

That doesn't sound like what we were promised.

These "too big to fail" banks have been able to borrow gigantic amounts of money from the Fed for next to nothing and yet they still refuse to let credit flow to local communities.  Instead, the big banks have found other purposes for all of the super cheap money that they have been getting from the Fed as Ellen Brown recently explained....

It can be very profitable indeed for the big Wall Street banks, but the purpose of the near-zero interest rates was supposed to be to get banks to lend again. Instead, they are, indeed, paying "outrageous bonuses to their top executives;" using the money to engage in the same sort of unregulated speculation that nearly brought down the economy in 2008; buying up smaller banks; or investing this virtually interest-free money in risk-free government bonds, on which taxpayers are paying 2.5 percent interest (more for longer-term securities).

What makes things even worse is that these big banks often pay next to nothing in taxes.

For example, between 2008 and 2010, Wells Fargo made a total profit of 49.37 billion dollars.

Over that same time period, their tax bill was negative 681 million dollars.
Do you understand what that means?  Over that 3 year time period, Wells Fargo actually got 681 million dollars back from the U.S. government.
Isn't that just peachy?

Meanwhile, the big financial giants have not learned their lessons and they continue to do business pretty much as they did it prior to 2008.

The big banks continue to roll up massive amounts of risk, debt and leverage.
Today, Wall Street has become one giant financial casino.  More money is made on Wall Street by making side bets (commonly referred to as "derivatives") than on the investments themselves.

If the bets pay off for the big financial institutions, mind blowing profits can be made.  But if the bets go against the big financial institutions (as we saw in 2008), firms can collapse almost overnight.

In fact, it was derivatives that almost brought down AIG.  The biggest insurance company in the world almost folded in 2008 because of a whole bunch of really bad bets.

The danger from derivatives is so great that Warren Buffet once called them "financial weapons of mass destruction".  It has been estimated that the notional value of the worldwide derivatives market is somewhere in the neighborhood of a quadrillion dollars.

The largest banks have tens of trillions of dollars of exposure to derivatives.  When the next great financial collapse happens, derivatives will almost certainly be at the center of it once again.  These side bets do not create anything real for the economy - they just make and lose huge amounts of money.  We never know when the next great derivatives crisis will strike.  Derivatives are essentially like a "sword of Damocles" that perpetually hangs over the U.S. financial system.

When I start talking about derivatives I get a lot of people in the financial community mad at me.  On Wall Street today you can bet on just about anything you can imagine.  Almost everyone in the financial world has gotten so used to making wild bets that they couldn't even imagine a world without them.  If anyone even tried to put significant limits on futures, options and swaps it would cause Wall Street to throw a hissy fit.

But someday the dominoes are going to start to fall and the house of cards is going to come crashing down.  It is an open secret that our financial system is fundamentally unsound.  Even a lot of people working on Wall Street will admit that.  It is just that people are so busy making such big piles of money that nobody wants the party to stop.

It is only a matter of time until some of these big banks get into a huge amount of trouble again.  When that happens, we might really find out whether they are "too big to fail" or whether we could get along just fine without them.

http://theeconomiccollapseblog.com/archives/too-big-to-fail-10-banks-own-77-percent-of-all-u-s-banking-assets