Investment Forecast 2011: History And The Doomed Dollar

The administration of President Barack Obama continues to work furiously to float the U.S. economy in order to facilitate his re-election.

Pumping up the U.S. economy has been ongoing for more than two years. Trillions of dollars have been created out of thin air to offset the deflationary destruction of assets that began three years ago. But opting for inflation at all costs is nothing new.

Since the first civilizations there has been a need for money — an instrument which could be a store of value and thus used to expedite trade. Universally, hard assets, most notably gold and silver, have backed money.

But since ancient times there has been the temptation to debase the money in what seems to be an overwhelming desire to have something for nothing. Pontiffs and politicians have for centuries achieved their goals by creating more money. The tendency to inflate the money supply seems to be rooted in human nature.

Julius Caesar understood power came with money and that if he could control Rome’s vast stockpile of gold he would reign supreme.

It was a lesson not lost to his grandnephew, Octavian, who won a civil war largely because he secured Rome’s bullion. Unfortunately, the Empire would list and then sink because of overspending and progressive inflation.

Yet Ancient Rome was not the first great power to fall into ruin from inflation. A thousand years before Caesar, Babylon implemented hard-money and became the center of world power and wealth: A city of gold.

But eventually inflation brought down Babylon’s Tower. King Nebuchadnezzar leveraged the kingdom’s gold to create short-term wealth. He issued receipts — IOUs — and loaned out at interest the great wealth from Babylon’s treasury.

First he doubled and then tripled the empire’s money supply. There was no stock market, but if there had been, it would have soared.

Eventually, foreign claims exceeded the amount of gold in Babylon’s treasury.

Still, the money supply continued to grow. But just as is happening today with the dollar, the growing debt had people demanding more money for their goods and labor. Back in the days of Babylon, inflation went into high gear.

Yet the Babylonians remained undaunted. Their treasury still had lots of silver, so King Merodach-Baladan pulled an interesting trick: He declared that the value of silver equaled the value of gold. Eventually the King declared that copper had a value equal to silver, which had equal value to gold.

You can probably imagine this didn’t work too well. Copper was in far greater supply than silver, which was in even greater supply than gold. Money began losing its value and confidence began to crumble. So did the world’s first great empire.

Babylon’s wealth had been the foundation for its society. The economic crisis led to a civil war. Babylon didn’t fall; it was buried beneath an avalanche of worthless money.

Five hundred years later, the city-states of Greece were issuing metallic coins, the silver obol. Another historical record of monetary inflation soon followed.

After Sparta captured the Athenian silver mines around 400 B.C., Athens was faced with a grave shortage of coins. Over the next couple of decades Athens issued bronze coins with a thin plating of silver. The shortage was made even worse as citizens hoarded the old coins and spent the new. It was the world’s first experience of what has become known as Gresham’s Law: Bad money drives out good money.

Empires Come And Go
It is amazing to think that in 1490 Spain didn’t even exist. Yet within a century it was the greatest power on earth.

The discovery of new lands was the major factor in Spain’s success. In 1492, Christopher Columbus, exploring for Spain, discovered land in the Bahamas, which he named San Salvador and claimed for the Spanish Monarchy. His claims paved the way for future Spanish imperialism. With land came the most important of resources of the age — gold and silver.

The Spanish government seized all of the riches, including the silver mines of the Aztecs. In Peru the Spaniards tapped the richest silver mines in all of the New World.

But Spain would spiral down into decline. Riches from the New World poured into the port of Seville. Spanish expansion was based on finding and bringing precious metals back to the monarchy. Yet no matter how much was brought back, more was spent.

Inflation completely ruined the Spanish economy. Additionally, precious metals being shipped from the Americas often didn’t reach Spain because Spanish ships were pillaged by the English. King Philip had to pay debts to his armies and foreigners, but to pay them he produced more money, making the money worth less and less.

Creditors soon caught on and, when they refused to lend, the Spanish Empire dissolved.

Inflation Boils Even In The 21st Century
History has shown that manipulating the volume of money leads to hyperinflation and economic collapse. Consider what happened in Germany, Zimbabwe, Argentina, Brazil and Peru.

During the era of 1918-1923, the Weimar Republic in Germany began printing money at a dizzying rate, setting off hyperinflation. Prices were rising so fast that workers receiving their pay would immediately run to the store to buy foodstuffs before prices climbed again. Business and industry were paying their employees with wheelbarrow-loads of cash.

In trying to keep up with the falling currency rate, Reichsbank printed a 1,000-billion Mark note that was so worthless that when it was spent few bothered to collect the change. By 1923, with one dollar equal to one trillion Marks and inflation at 30,000 percent, the collapse of German currency was complete.

During the 1980s the South American countries of Argentina, Brazil and Peru all experienced triple digit annual inflation.

In Zimbabwe in late 2008, inflation hit 11 million percent. The government finally acknowledged that its own currency was done and began issuing licenses allowing stores and businesses to begin accepting U.S. dollars, South African rands and other foreign currencies.

The economy had to be “dollarized.” The local currency was worthless as legal tender. Barter trading took over, with the most prominent bartered item being a fuel coupon worth about $30 U.S.

None of these lessons have made an impact on the Obama administration which continues to use the Fed and the Treasury Department to create trillions of dollars in fresh money. The consequences for this reckless action will be felt this year beginning with the…

U.S. bond market, which has a gun to its head despite the fact that during the fourth quarter the U.S. government had no problem selling $36 billion in two-year Treasury notes yielding an unbelievably low yield 0.441 percent. To date, low yields have not fazed bond buyers. That’s because dollar inflation is still coming down the pipeline. This will change as the U.S. Treasury continues its massive sales program to prop up the Obama administration. Warren Buffett was correct when he said, “Debt is a four-letter word.” Once foreign investors, especially the Chinese, understand this it will have a devastating impact on the…

U.S. dollar, which continues to flounder. Last week the Aussie dollar broke above parity with the greenback while the Canadian loonie can almost be exchanged at a one-to-one ratio. A decade ago the Canadian dollar was under 70 cents U.S. and the only relief the greenback has had in a decade-long decline was during the deflationary scare that happened during the banking crisis in late 2008. A weakening dollar and accompanying higher U.S. interest rates will hurt the stock market and the end result will be a continuing bull market in…

Precious metals, which are showing new strength in the New Year. Silver, which has long been a laggard, is at $30 per ounce after reaching a high of $31.10 on Monday. Gold broke through $1,400 before giving up some of its gains. In many ways the precious metal markets are behaving the way they did in the 1970s during the latter part of President Jimmy Carter’s single term. My expectation is that we have yet to see the spectacular blow-off for either gold or silver. I think we will see it this year, with gold moving close to $2,000 per ounce and silver hitting $50 per ounce. Therefore there is more leverage in silver than in gold, but both are worth buying and holding.

Action To Take
Look for an investment crisis in 2011 as inflation makes itself felt on the bond and stock markets. Sell blue chip stocks and all bond instruments. If you want to hold large amounts of cash then do so only in the form of 3-month Treasury bonds. You can always roll those over. You are not losing any income in buying longer term Treasury notes or bonds, just incurring massive risk. Other than money necessary to pay monthly expenses and cover emergencies, I would not keep additional cash in U.S. banks.

Yours in good times and bad,

–John Myers

Myers’ Energy and Gold Report

What Would You Resolve To Do If The World Were To End In 2012?

Countdown to 21.12.2012. It is called the end of time; the end of the world, a.k.a. the end of Mayan Long Count. Whether you call it that or just the apocalypse, some say that all of us have less than two years to live. That’s when the Mayan calendar runs out.

I don’t give a whole lot of weight to the Mayans and their calendar, even if they did build a great empire. If they really had a crystal ball you would think they would have been forewarned that the Spaniards were bringing smallpox to the Yucatán in the 16th Century and they wouldn’t have let themselves be enslaved to relatively few soldiers wearing funny hats and riding strange animals.

Still, there are books out there, along with text and video on the Internet, that claim we are counting down towards destruction worse than Noah faced.

I don’t know much about the Mayans or how good they or other ancients were at prophesying the future. But after almost 30 years in the business, I know a thing or two about publishing. Frankly, doom sells. After I worked as a reporter in Calgary for a year I came to work for my dad’s newsletter in 1980. I was, as he said, a dumb college kid and ill prepared to be a contributing writer to his newsletter. So I started off reading everything that came into my office. That included almost every newsletter that was published at that time.

One of those publications was The Granville Letter, written by Joe Granville, who knew my dad. Granville had a huge following at the time. In January of 1981, he had become extremely bearish. His office made 3,000 phone calls to clients urging them to sell everything. Granville didn’t make this prediction because he foresaw the Federal Reserve increasing interest rates or a sneak attack by some foreign power. Instead, he said the Dow Jones Industrial Average was going to collapse because California was going to be struck by an earthquake measuring 8.3 Richter in Los Angeles in May.

Here is the really interesting part. Some people actually believed his prediction. You don’t have to take my word for it, just Google, “Joe Granville earthquake.”

On the day of Granville’s dire forecast the Dow Industrials actually fell 24 points, or almost 3 percent, in what was then the heaviest volume in the history of the New York Stock Exchange. As it turned out, Granville had it dead wrong, and not just about the earthquake. Eight months following his prediction the Dow hit its final bottom and started an 18-year bull run which would take it from 777 to 11,750.

My doom and gloom research culminated 11 years ago this month when I was an editor for Mark Skousen’s newsletter, Forecasts & Strategies. I was reading what some others were predicting about Y2K and what they said would be the ensuing economic collapse. Over the years I have read much about coming calamities. I have even been accused of being a doomster myself. (For the record, I have never predicted an earthquake for L.A. or anyplace else, and I really don’t think the world is going to end on Dec. 21, 2012.)

I am not suggesting that you should become like Pollyanna. Like Bob Livingston, I too think we are in for some hard times. That is mostly what I write to you about. But as the clock is set to strike 2011 I thought: “How would we want to live if we thought the world was going to end in 2012?”

I don’t want to touch on pop culture, such as books like On the Beach, or movies like Armageddon, and speculate as to how society would act (probably not very well). Instead, I am interested in how you think you might act. I have a feeling it might make for some interesting New Year’s resolutions.

What Would You Invest In?
If you simply knew the world was going to end in December 2012, I have a feeling not many of you would be too worried about how your portfolio was doing. All the gold King Midas ever touched is not going to do much good in a little more than 100 weeks, and I don’t believe that the person with the most toys wins. So you wouldn’t have to buy any more gold. Finally! And you sure as heck wouldn’t be buying Treasury notes or bonds (although if you are buying them now you just might continue because you are probably crazy).

So there goes one of your biggest worries —  investing — out the door.

What’s next? Living here in cold Canada, I can tell you that I might like a warm vacation; perhaps a trip to Las Vegas or someplace less glitzy. But if you are like me you probably wouldn’t want to travel much, unless it was to visit a loved one. I think I would stick close to home.

Of course you are going to still want money. It will be fun to buy things you can share. And you will feel a lot better spending it without as much worry or guilt.

I drive an older car I like, so I would probably just keep it. Perhaps larger vehicles might come in handy, but I don’t think I would get much enjoyment out of a fancy new Cadillac or Mercedes-Benz. I also think I might want to read more. I thought back to the last time I saw something really good on television and that was 21 years ago when I watched the mini-series Lonesome Dove. (Even though the world probably isn’t ending I recommend you rent it, but be sure to get the original co-starring Robert Duvall.)

I think reading would be comforting. I don’t believe I would delve into what the great philosophers had to say. I could hardly understand them when I was in college so I am quite certain I can’t now. It would be a relief not to have to read the next stupid thing politicians are doing. I would probably turn to the Bible. And I might like to read fact, and even some fiction, about family, friendships and sacrifice.

At the end, that is what it would come down to; the family and friends we care about and letting old grudges subside — that, as well as spending less time worrying about what is going to happen tomorrow. After all, we would know what’s going to happen; if not tomorrow, then at least in 700 tomorrows. Hopefully, that is enough time to come to peace with God, ourselves and the people we love. And I think that is a resolution worth making regardless of the future.

Yours For Many Happy New Years,

John Myers
Myers’ Energy and Gold Report

P.S. Next week I will be back with my annual investment forecast column for the year ahead.

Bad Santa: Obama Has Everything Covered Except Our Future

Christmas has arrived with tax cuts for the rich and more handouts for the unemployed. That is President Barack Obama’s economic plan, and it is not a new one. I’ve been writing about Washington for more than 25 years and the Federal government reminds me of an alcoholic friend who used to say: “Don’t worry; I am going to quit drinking… tomorrow.”

Obama, like so many Presidents before him, pledges he won’t mortgage our children’s future. Yet he and the rest of Washington do exactly that, month after month, year after year. Federal debt could reach $20 trillion in five years. It is hard to know where the breaking point is, but it is out there somewhere and we are headed straight for it.

Fears over the deficit have been going on for a long time. I dug out one of my dad’s newsletters from December 1982 where he declared, “Deficit spending cannot continue indefinitely.” If he were alive today he would be shocked to see the extent to which Federal deficits have climbed.

But just because we haven’t killed our economy off yet doesn’t mean that we won’t. That doesn’t seem to bother Obama, who has been acting like “Bad Santa” on a bender.

Lots of Christmas Cheer for Big Banks
Wall Street’s big banks used government bailouts to post their best two years in investment banking and trading ever. Bloomberg reports heady times for the Big Five — Goldman Sacks, JPMorgan Chase, Bank of America, Citigroup and Morgan Stanley. Together they took in $135 billion from the Treasury Department’s Troubled Asset Relief Program and borrowed billions more from the Federal Reserve’s emergency-lending facilities in late 2008 and early 2009. All that came after the collapse of Lehman Brothers. Since then, the banks have benefited from record low interest rates and the Federal Reserve’s purchases of bonds.

“This is a once-in-a-lifetime opportunity for most of these banks,” said Charles Geisst, a Wall Street historian and finance professor at Manhattan College in Riverdale, N. Y.

Last year, the Big Five generated $127.8 billion in revenue just for debt and equity underwriting and from trading stocks and bonds. They will post almost that much revenue again this year just for those services. What is incredible is that even after being saved by the Federal government — in other words us — we don’t know how fat their piggy banks have gotten because they don’t have to report all revenue streams.

Such accounting doesn’t seem important to Washington. This would explain Obama’s tax cut deal. It is a massive compromise that extends unemployment benefits to the so-called 99ers for 13 months in exchange for a two-year extension of the Bush tax cuts.

Of course the rich like it. As ABC’s David Kerley on World News pointed out: “Extending all the cuts means that someone making $10 million a year will keep $450,000 of their income that would have gone to Uncle Sam… Keeping taxes at this level over the next 10 years could add nearly $4 trillion to the national debt.”

So what is another few trillion dollars here or there? Not much, says the Left, who continue to cry about the unemployment problem; the one that their President was going to fix.

The new Obama deal passed its first hurdle in the U.S. Senate last week. It should make the unemployed happy as well. After all, last year’s gift certificate benefits are running out, “and at the worst possible time,” declare Democrats. After all, Christmas is here!

I have news for the liberals; I too have been laid off a couple times in my life and I can tell you, neither one came at a “good time.”

It’s A Wonderful Deficit
Some Democrats seem to think that Washington has been tighter with money than Old Man Potter in the face of a bank run. That simply isn’t true. In fact, just a few weeks ago the Federal Reserve pumped an additional $600 billion dollars to buy U.S. Treasuries. That’s money that is not even counted on the government’s official ledger. As for Federal government funds, an astonishing amount has been and is going to continue to be spent; a fact that brings peril to the United States.

Meanwhile Obama has thrown his deficit-reduction commission under the bus after it failed to win political support.

"Yields are up… because we got $1 trillion in deficit spending with no signs of fiscal discipline on the horizon," said Julia Coronado, economist at BNP Paribas in New York. "It feels to global investors like the U.S. is becoming Argentina."

The country is facing the prospects of higher interest rates dictated by bond buyers and not by the Federal Reserve. That would put the U.S. into a much worse recession

And then there is the dollar itself. Last week we learned that the Federal budget deficit rose to more than $150 billion last month, the largest November imbalance ever. The Treasury Department says the November budget deficit was 25 percent higher than the $120 billion deficit in November 2009. That leaves the total Federal deficit approaching $14 trillion.

I hate to give away my age, but I was doing research back when the deficit hit $1 trillion. A lot of people back then didn’t think the U.S. economy could withstand such deficits. They were wrong. However, at some point deficits do matter. The best explanation for why comes from the Dec. 13 Christian Science Monitor:

“Every business person, and anyone who has ever managed a checkbook [sic], knows you can’t survive by borrowing 40 cents of every dollar you spend. Yet this is what our federal government is doing — with no real improvement projected even after the economy recovers.

“Tax cuts, trillion-dollar wars, deep recession, and the spending binge of the past 10 years have boosted our national debt to $13.8 trillion, over 90 percent of our total national output (GDP). This is two and a half times what it was 10 short years ago. Underfunded [sic] Social Security, Medicare and other entitlement benefits add another staggering $50 trillion to what the nation is obligated to borrow. That equates to about $200,000 in debt for every man, woman, and child in our country.

“The country is broke and our lenders are about to run out of patience. As it has already done with Greece and Ireland, the international financial community can at any time begin ‘voting with its feet,’ abandoning our debt for safer investments like commodities, land, or foreign securities. Doing so would cause the dollar to collapse and interest rates to surge. This would trigger renewed recession and a sharp decline in living standards since there is virtually nothing we Americans drive, wear, or work with that doesn’t have substantial foreign labor or material content.”

All of which brings me back to gold. I have had the good fortune to write to you for the past year and a half. As many of you know, I have been suggesting that you buy and hold gold. So far it has been good advice, because when I started writing for Personal Liberty Digest, bullion was trading under $900 per ounce. It is currently at $1,400 per ounce, which puts it close to its recent all-time high.

I have been writing about gold for a long time. I was doing it as a publisher in the 1990s and during that period I was dead wrong. But beginning in October 2000 I started writing Outstanding Investments. At the time gold was trading for $285 per ounce. I was telling subscribers that gold was an excellent buy; that they should accumulate as much of it as they could. Over the decade I have not wavered in that advice.

I bring this up not to brag about my record or tell you how smart I am. Rather I tell you this because I often sign off my columns with a few sentences recommending gold. I have noticed a few reader comments that have mentioned that the reason I endorse gold is because I profit from this advice. One reader a while back even suggested that they had seen me on a Florida station pitching gold coins. The truth is, I am not in the business of buying and selling gold.

Also, it is ludicrous to think I can manipulate the price of gold with my columns even if I wanted to. Consider that the average daily volume of gold cleared at the London Bullion Market Association (LBMA) for October 2010 was 17.1 million ounces worth about $20 billion. This means that an amount equal to the annual world gold mine production is cleared at the LBMA every five days.* Gold is a huge market, where price dictates come from central bankers and world leaders, not newsletter writers.

The only thing that helps me out is if I give sound advice. I have been able to earn a living as an investment writer all these years because I have been right a bit more than I have been wrong. Could I be wrong about gold now? Yes. After all, prices are lofty. That is until you consider the amount of dollars floating around the world.

One thing is certain, there will come a time when gold enters into a deep and prolonged bear market. If I am smart and lucky I will notice the signs. When that happens I will tell you, my readers.

Wishing you a Merry Christmas,

John Myers
Myers’ Energy and Gold Report

 

* This according to the London Bullion Market Association’s clearing turnover statistics released November 12, 2010. http://www.lbma.org.uk/pages/index.cfm?page_id=51&title=clearing_-_most_recent_figures.

Ben Bernanke: The Ghost Of Christmas Future

"At the rate we’re going, it could be four, five years before we are back to a more normal unemployment rate," Federal Reserve Chairman Ben Bernanke, interviewed on 60 Minutes.

You might have thought that Federal Reserve Chairman Ben Bernanke could have waited until after Christmas to spring the bad news. After all, the nation is not looking for a rock in its stocking following two bad Christmases. Yet Bernanke announced his message of bad cheer Dec. 5 on the CBS program 60 Minutes.

So why did Bernanke deliver this cold truth in somber tones about America’s continuing economic crisis? Perhaps because he understands that no one in the Federal government has admitted the truth — that the nation is in for years of tough times.

That is not the message we are hearing from President Barack Obama. Almost two years since the presidential election, Obama still praises the core strength of the U.S. economy and says he is on target with his promise to “rebuild America.” “We’ve got to do everything we can to accelerate this recovery and keep our economy moving forward,” the President recently said.

Not true, wrote Project Syndicate last week. Instead, “Obama has so far managed to only describe the world that he wants; he has not been able to bring it about.”

What America needs far more than Presidential proclamations is jobs. Last week we learned that the United States unemployment rate had climbed to 9.8 percent in November, up from 9.6 percent the previous month. That puts it within a hair of the 10.1 percent peak it reached in October, 2009.

The Obama administration has pushed for unprecedented interest-rate reductions and has instituted stimulus plans to the tune of trillions of new dollars. Still, banks are freezing credit and Americans are not going back to work.

It is true that unemployment, even touching near 10 percent, is not the worst America has experienced. I was just getting started as an investment writer during the rolling recession of the early 1980s when unemployment hit almost 11 percent. But that rate of joblessness was created by a proactive Federal Reserve led by Chairman Paul Volcker. That Fed pushed short-term interest rates to almost 20 percent. That was the price the Fed was willing to pay to squeeze out the inflationary excess of the 1970s. It was a tough pill to swallow, but the medicine was digested in less than two years and the United States, led by the steady hand of Ronald Reagan, was then on firm footing.

Today, unemployment is again almost that high, and not because the President or the Fed has taken tough action. Quite the opposite is true. Bernanke’s Federal Reserve is the most permissive in the central bank’s 97-year history, and makes the 1970s Fed led by Chairman Arthur Burns look frugal.

Bernanke has driven effective interest rates to zero, and is standing by the Fed’s recent controversial decision to initiate a $600 billion Treasury bond-buying program. It is the second round of so-called “quantitative easing,” which is meant to stimulate the economy by keeping rates at zero.

According to Bernanke, the Fed may not be done yet. Responding to the 60 Minutes question about the possibility of additional quantitative easing, Bernanke said: "Oh, it’s certainly possible. And again, it depends on the efficacy of the program. It depends on inflation. And finally it depends on how the economy looks."

“How the economy looks”? I don’t know how the economy looks from Bernanke’s ivory tower, but from my office it looks terrible. And according to my best friend, who has spent nearly four decades hauling heavy loads across North America, things look even worse from the cab of his truck. He tells me that not only is the construction business not picking up, but interstate traffic is also light. Even the line-up at the U.S./Canadian border is shorter than he has seen in decades. Yet he considers himself to be one of the lucky ones this Christmas. He is still working, while nearly one in five construction workers in the U.S. doesn’t have a job.

Business can’t seem to recover. And the Fed’s actions read like a “how-to” book for a Latin American dictator. That means the economy, including the construction business, isn’t likely to pick up any time soon.

“There is, however, a good reason why America’s economic performance has been so slovenly,” says the British newspaper The Independent. “This is not a post-war crisis. It is like a pre-war crisis, a crisis which unfortunately shares many traits with the Great Depression in the 1930s. House price declines, defaults, bank failures, low interest rates, hopelessly weak credit expansion, high unemployment, depressed levels of economic activity: The ingredients were all there in the 1930s and they’re back again today.”

What is different is that the Federal government and the Federal Reserve are doing the opposite of what they did during the onset of the Great Depression. Back then the Federal Reserve raised interest rates and Washington slashed spending. Today the United States is taking on debts than would have been unimaginable a decade ago.

China and India, along with more traditional allies like Japan, have bought into Obama’s plans by lending the U.S. Treasury Department trillions of dollars. The world is hoping that this universal bailout will rescue the U.S. economy and that America’s deep recession won’t become a world depression. But unless these countries start to see things turning around, they may hit the panic button. Then it will be every nation for itself, and no country or corporation will be willing to throw good money after bad.

That of course would mean sweeping deflation like that experienced during the Great Depression. The result could be unemployment that could exceed 30 percent. That would mean mass foreclosures and waves of bank failures. The economic crisis could get so bad that Washington might even forsake the Constitution and subject Americans to martial law.

The good news — if you can call it good news — is that we don’t have to face such catastrophe this Christmas. For now at least, the world is still backing Obama and Bernanke in the greatest bailout ever attempted.

The Ghost of Christmas Future
My late dad C.V. Myers always insisted that the dark forces of deflation will always be stronger than the ability of central banks and governments to inflate weak economies.

The National Inflation Association (NIA) believes the same. After Mr. Bernanke’s 60 Minutes interview, the NIA wrote, “It is more likely that in 4 to 5 years from now, U.S. unemployment will rise to Great Depression levels. Bernanke’s policy of printing money and creating inflation will not create jobs because the money the Fed creates is going to fund non-productive and wasteful U.S. government spending. The only jobs being created are artificial government jobs.”

Action To Take:
Over the next six months we should find out if the NIA is correct. The only way to protect ourselves against either extreme inflation or extreme deflation is with physical gold. Physical silver and resource stocks will do great if we end up with inflation. If money and credit are being destroyed instead, I think you should only hold bullion and a few of the biggest gold corporations in the world. I like both Barrick Gold Corporation (NYSE, ABX, $53.47) and Newmont Mining Corp (NYSE, NEM, $62.00).

Both Barrick and Newmont are at all-time highs, but I think both will go higher yet given either extreme inflation or crushing deflation. Keep in mind that during the Great Depression shares in blue-chip gold mining stocks soared. Homestake Mining stock rose continuously from $80 per share in October 1929 to $495 per share in December 1935. That was a total return of 519 percent (excluding cash dividends) during the most devastating bear market ever.

Except for a few special situations and major gold producers like those mentioned above, most of your money should be either in physical gold or physical cash. And I don’t mean in a bank account either. I don’t know what is going to happen, but if things get very bad I don’t think we can trust the banks. When it gets right down to it, we can’t trust the chairman of the Federal Reserve.

I hope I am wrong, yet fear that I am correct. All of which makes me feel like Scrooge in Charles Dickens’ A Christmas Carol. When Ebenezer’s grave is revealed he is overcome with foreboding. Frantically, he asks the Spirit of Things to Come if these shadows are what will be or what may be. The Spirit says nothing, either because it doesn’t know or because it won’t say. As for me, I simply don’t know.

Yours for better times,

– John Myers
Myers’ Energy and Gold Report

Obama’s Foreign Policy: Plain Stupid Or Darkly Sinister?

Forget Obamacare. With the way the world is spiraling out of control, we could be staring at deathcare. That’s my concern after seeing the latest WikiLeaks document releases which reveal a reckless President in Barack Obama.

The irony in Obama’s actions could almost be comical if they were not so damned scary. After all, the man once hailed as the Peace President — they even gave him “The Prize” — is making foreign policy decisions the way President Lyndon Johnson might have if he had been smoking crystal meth.

Last week we learned not only of the failure of Obama’s foreign policy, but also that his administration has been deliberately deceiving the American public regarding affairs with Muslim governments.

Iran: The Unspoken Crisis
Last week WikiLeaks released more than 250,000 documents. The information is as surprising as it is immense (216 million words in all). It includes the truth about Obama; that he has been talking closely about eliminating Iran’s nuclear weapons program. Those talks have been ongoing not with Israel, but with perhaps an even more important Obama ally: Saudi Arabia. To top it off, the new WikiLeaks provide confirmation that Saudi Arabia is still funding Islamic terrorism. It sounds like a Tom Clancy novel.

Unlike the George W. Bush administration — which constantly warned of the threat that Saddam Hussein posed with weapons of mass destruction — the Obama administration has said nary a word to the American people about Iran, which after all is a much larger and more credible threat than Iraq ever was.

According to Sever Plocker, a columnist for the Tel Aviv newspaper Yediot Ahronot, WikiLeaks strongly suggests the world is in peril. According to Plocker, "The massive leak of American diplomatic telegrams indicates a single picture, sharp and clear… (That) the entire world, not just Israel, is panicked over the Iranian nuclear program.”

Last week The Christian Science Monitor wrote: “Beyond the momentary public relations dividend, one Israeli veteran of diplomacy said the widespread fear of Iran among America’s Arab allies does not bode well for the Obama administration’s foreign policy — particularly its efforts to engage Iran diplomatically.”

America’s foreign policy is a disaster, contends Shlomo Avineri, a political science professor at Hebrew University and a former director general of the Israeli Foreign Ministry.

"When Obama decided on negotiating with Iran, he was doing exactly the opposite of what the American allies are thinking,” said Avineri, adding, "Obama has made all of his friends nervous, and the Iranians are spitting in his face."

It is not just the Jews that are upset about Obama’s recklessness. According to Sir Simon Jenkins in the U.K. newspaper, The Guardian, “It is looking to many in the world that the world’s superpower is roaming helpless in a world in which nobody behaves as bidden."

The German newspaper Der Spiegel described the latest WikiLeaks as indicative of "a political meltdown for American foreign policy. Leaving the trust by America’s partners… badly shaken."

Most troubling is that under Obama’s leadership the United States enlisted some very unsavory partners.

Pakistan On The Brink
The latest evidence also shows that the Obama administration is determined to send billions of dollars in aid to Pakistan and enlist it in fighting the Afghan war, even though Washington believes that Pakistan cannot be trusted with nuclear weapons.

Included in the latest batch of WikiLeaks releases is a cable that describes a "dangerous standoff" with Pakistan over nuclear fuel. Last year the U.S. Ambassador to Islamabad, Anne Patterson, reported that Pakistan was refusing to schedule a visit by American technical experts because, as a Pakistani official said, "If the local media got word of the fuel removal, they certainly would portray it as the United States taking Pakistan’s nuclear weapons."

Pakistan’s Foreign Ministry even refused to allow U.S. officials to visit a nuclear reactor that the United States helped build in the 1960s. "We said no, because it’s now our property, and we will not return it," said a Pakistani official.

According to Abdul Basit, Pakistan’s Foreign Ministry spokesperson, "This only shows that Pakistan is very sensitive about its nuclear program… (That) no one can touch Pakistan’s nuclear facilities and assets."

We learn that Israel is very nervous about world events, and with good reason. WikiLeaks reports a conversation between Mossad chief Meir Dagan and U.S. counterterrorism Chief Frances Townsend to discuss their concerns about Pakistan falling into the hands of Islamic radicals.

Dagan characterizes a Pakistan ruled by radical Islamists with a nuclear arsenal at their disposal as the world’s biggest nightmare; that Al-Qaeda or another "Global Jihad" might be quick to pull the trigger on Pakistan’s nuclear gun.

And we learn that Pakistan is Israel’s President Ehud Barak’s "private nightmare." According to WikiLeaks, Obama is deeply concerned that the world will wake up one day and find "everything changed" in the wake of an Islamic extremist takeover in Pakistan.

WikiLeaks makes it apparent that the Obama administration is treating Pakistan with kid gloves. For example, Washington is even worried how Islamabad might respond if the U.S. were to use force to destroy Iran’s nuclear program. However, revelations about the Obama administration’s mismanagement regarding Pakistan are not new.

In his recent blockbuster, Obama’s Wars, Bob Woodward pointed out just how fragile the leadership in Islamabad has grown with Pakistan President Asif Ali Zardari, who is convinced that the Obama administration is plotting to overthrow and even occupy Pakistan.

Woodward writes:

One evening during the trilateral summit, Zardari had dinner with Zalmay Khalilzad, the 58-year-old former U.S. ambassador to Afghanistan, Iraq and the U.N. during the Bush presidency.

Zardari dropped his diplomatic guard. He suggested that one of two countries was arranging the attacks by the Pakistani Taliban inside his country: India or the U.S. Zardari didn’t think India could be that clever, but the U.S. was behind the attacks, confirming the claims made by the Pakistani ISI (Inter-Services Intelligence).

“Mr. President,” Khalilzad said, “what would we gain from doing this? You explain the logic to me.”

This was a plot to destabilize Pakistan, Zardari hypothesized, so that the U.S. could invade and seize its nuclear weapons.

There you have it; the leader of America’s most important ally on the War on Terror believes that WE are the terrorists. Wikileaks also revealed that Saudi King Abdullah has spoken contemptuously of Zardari. Abdullah has called Zardari the greatest obstacle to peace in the region, and was quoted as saying: "When the head is rotten, it affects the whole body."

I haven’t even touched on Afghanistan and the ongoing war over there, which is looking to be unwinnable. Last week the publication Foreign Policy warned: “Obama’s goal in reaching out to the Muslim world has always had both short-term and long-term dimensions.”

One can choose to believe that Obama is more hapless than Jimmy Carter on his worst day. Either that, or entertain the notion that something more sinister is at work. I myself can’t say it is the latter, although one thing is certain: Obama is creating…

A Perfect Storm For Gold
Obama promised to restore world confidence in the United States. But two years after taking office, he has done the opposite. On the domestic front, he has mounted inflationary strategies, while U.S. foreign policy has been a series of missteps that are breaking the confidence of traditional allies. The Obama administration has in fact spied on Western diplomats while secretly working deals with Arab leaders; some of whom have malevolent intentions towards the United States.

All of this is undermining the U.S. dollar and putting a springboard beneath the price of gold. Is the world on the brink of war? I don’t know. The better part of me says not. But world tensions are building, and there has been a complete lack of leadership by the Obama administration. Of that I am convinced. I fear that Obama may be like the great German strategist Otto von Bismarck. More than a century ago, Bismarck’s power-politics and the resulting entanglements led to the First World War. We can only hope that America’s President doesn’t push us towards a Third World War.

Action To Take
We may see some further correction in the price of gold from its November high of $1,421 per ounce on the London Fix. We may even see the price breakdown below $1,300 per ounce, but there is support between $1,123 and $1,187 per ounce London prices. Given the macroeconomic fundamentals (the Federal Reserve purchases of U.S. Treasuries) and growing instability around the world — in large part because of the Obama administration — I expect to see bullion at $1,800 to $2,200 per ounce before the end of 2011. Therefore I urge you to hang on to gold and, if possible, even add to your position.

Yours for future wealth and happiness,

John Myers
Myers Energy And Gold Report

Government Motors: President Obama’s Hollow Victory

A shiny new initial public offering (IPO) hit the market last month for a rusted old automaker. On Nov. 18, General Motors re-emerged on the New York Stock Exchange after surviving bankruptcy. The carmaker’s IPO, priced at $33 per share, was one of the biggest ever and came about sooner than expected for the once busted company.

On the very first day of trading, General Motors stock (NYSE, GM) rose 3.6 percent on heavy volume. At this writing, it is trading around $33 per share. Before you melt down grandma’s silver tea set for shares of GM, keep in mind that the company still has much to overcome.

In an effort to boost growth, GM just unveiled a new brand in China, targeting Asian buyers. Whatever GM is working on becoming, it will be a far cry from what it once was: The crown jewel of American industry. While GM is no longer the biggest automaker in the world, it is the largest overseas automaker in China.

“So what’s the difference?” Democrats ask as they race to proclaim the GM bailout a stroke of genius by President Barack Obama. This is what The Hill proclaimed under the headline, President Obama’s Capitalist Triumph on Autos:

“Let’s see if those Adam Smith wannabes on the Republican right, and Roger Ailes of Fox who again called President Obama a socialist, will give the president a standing ovation for his capitalist triumph in saving the American auto industry.” [Emphasis added]

Really? Yes indeed, writes The Hill:

“General Motors is now profitable. The auto business is coming back big time. The major Wall Street firms, private equity funds, mutual funds and hedge funds have been breathlessly trying to get their hands on the new GM stock. Remember when they called it ‘Government Motors’? Now they can call it Profitable Motors. Now they can call it the capitalist stock they all crave. Now they can praise the President for a job well done.”

Before you start applauding Obama, you may want to consider the fact that General Motors isn’t out of the woods yet; not even after the Troubled Asset Relief Program (TARP), which provided the nation’s largest car company with $50 billion in taxpayer money following its June 2009 bankruptcy.

General Motor’s IPO has reduced the government’s stake in the company from 61 percent to 36 percent. But the United States is still a huge shareholder, and for the Federal government to break even on its investment it will have to sell its remaining stake for about $50 per share. That is almost 50 percent higher than where the stock is trading now.

The Democrats don’t seem to think this will be a problem. In fact, Obama was quick to claim outright victory with the GM bailout, which he claims has saved more than 1 million jobs across all 50 states.

“We are finally beginning to see some of these tough decisions that we made in the midst of the crisis pay off,” Obama said.

It seems a bit early to proclaim victory by the President or anyone else. That is because we are not seeing anything close to a typical economic recovery for the auto industry.

Not Your Father’s Oldsmobile
The Daily Mail points out the facts: “At the bottom of the recession in June 2009, U.S. car sales had fallen a record-breaking 39 percent from their pre-recession rate of 16 million units a year in late 2007 to 9.7 million units. Based on analysis of previous recessions, by June this year car sales should have recovered 71 percent from 2009’s low. Instead sales have recovered a meager 14 percent.”

Detroit once dominated the car industry. Today the Big Three are in various states of disrepair while Toyota is the world’s largest car manufacturer.

According to Jess Toprak, an analyst at True Car Inc., GM’s future depends on the company moving 80 percent of its production outside the United States, principally in South America and China. That does not bode well for creating American jobs. The Democrats also seem to be ignoring the fact that Detroit automakers have been in a state of decline since the 1970s and that Washington has intervened for them, beginning with the Chrysler Corporation Loan Guarantee Act of 1979.

Furthermore, the United Auto Workers (UAW) union lost another 76,000 members last year, bringing its total membership to 355,000. This puts membership at levels not seen since the late 1930s, just after the fledgling organization had won recognition at General Motors. As the chart below shows, the UAW is an organization that is just a fraction of the size it was 30 years ago.

To believe that Obama has rescued GM is to ignore history and the inconvenient truth that U.S. automakers have been in a state of decline for decades.

In the Feb. 3, 1992 issue of Myers’ Finance & Energy I wrote: “Detroit’s Big Three auto chairmen have sallied over to Japan to hide behind the skirt of President (George H.W.) Bush as he begged for leniency from Japanese auto manufacturers. Further humiliation came when Japan gave trade concessions to placate the U.S. entourage. As one Japanese auto executive said, ‘our feelings are of sympathy for America’s plight.'”

I continued by saying Detroit was broken down and rusted out; that in the 1950s America manufacturers built three out of every four cars made world-wide and sold nine out of every 10 cars in the United States.

Given the Big Three’s long decline, The Hill must think as Henry Ford did, “History is more or less bunk.”* That might explain why that publication has waxed praise about the TARP bailout.

Built Like A Wok
The Democrats want to claim victory on TARP now that the Presidential election is less than two years away. As Charlie Wilson, President Dwight D. Eisenhower’s nominee for Secretary of Defense and the former CEO of GM pointed out: “What was good for our country was good for General Motors and vice versa. The difference did not exist. Our company is too big. It goes with the welfare of the country.”

So the Left is bragging that Obama saved the auto industry. But the truth is, only a few GM plants have reopened in the U.S. And while GM still earns most of its money in North America, the company’s focus for the future is overseas. For example, GM already sells more autos in China than it does in North America. And the company recently announced that it will start exporting Chinese-made Chevrolets to Latin America and the Middle East. Don’t be surprised when the people in the Midwest buy Chevy trucks made in Shanghai.

The fact is, TARP is not creating American jobs. Oh yes, Obama has helped the new GM; the one that will employ tens of thousands of low-cost Asian workers. The original GM, along with the rest of Detroit, is going to be as obsolete as the Edsel.

According to The Wall Street Journal, GM has been abandoning several North American plants and is continuing the massive downsizing that began last year. And UPI recently reported GM is holding fire sales on its U.S. assets.

“Auctioneers are selling lots of hammers, wrenches and 22-ton metal-cutting machines.” The buyers of these tools are foreign companies; corporations that will use these tools to build automobiles on foreign soil and sell them back to Americans; many who trusted in Obama’s vision.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

 

* The famous quote by Henry Ford was just part of what he said to the Chicago Tribune in May 1916. “History is more or less bunk. It’s tradition. We don’t want tradition. We want to live in the present, and the only history that is worth a tinker’s damn is the history that we make today.”

Happy Thanksgiving, America!

Tomorrow is perhaps America’s most important holiday, and it comes amidst the most positive change that has happened in a generation.

The Tea Party led the GOP to victory and it has given new hope to America. Furthermore, it is the Tea Party that has inspired many to challenge a leftist President and overthrow a liberal House of Representatives. It is the Tea Party that is setting a new course; one based on the blueprints that built this great nation.

Change has come quickly. Before the midterm election, it seemed many were giving up hope. And while the Tea Party does not yet have a unified agenda, its candidates have pushed for a balanced budget, the eventual elimination of the Federal debt and will try to repeal President Barack Obama’s healthcare reform law.

The Tea Party has instilled new passion and direction in the conservative movement, and it has done so from the bottom up. The ideas and inspiration from the Tea Party come mostly from ordinary people that Americans can understand, not intellectuals like William F. Buckley, Jr.

Liberty Still Thrives Inside America
Keep in mind that I’m a dyed-in-the-wool realist. My wife tells me that I see the glass half empty, and years ago Personal Liberty Digest co-columnist Chip Wood called me Calamity John.

But I am far more optimistic this Thanksgiving than I have been in years past. The recent election has demonstrated that libertarian ideals are still alive.

That is a relief, because America may be the only nation that still has a conservative voice. It certainly has fallen silent in Canada.

Two summers ago my wife and I traveled to Ottawa, Ontario to our eldest son’s wedding. Our daughter-in-law’s parents had some friends that were active in Canada’s Progressive Conservative (PC) Party. At the wedding rehearsal I spoke politics with a few of them. I had spent much of the previous 20 years living in Spokane, Wash., and was woefully ignorant of the political climate that had changed in Canada. I was shocked at how these “Conservatives” not only liked President Barack Obama but were also inspired by his policies regarding bailout and healthcare bills.

They were members of the political party that had helped elect John Diefenbaker, one of Canada’s great Conservatives, just 50 years earlier. Yet as Canadian Conservatives they believed in the ideology of Ted Kennedy rather than the ideals of Ronald Reagan.

Back when Diefenbaker was Prime Minister there were two principals: the Liberal Party and the PC Party. Today there are three other major Canadian political parties at the national level: the Le Bloc Québécois, the New Democratic and the Green Party. The last two are on the far Left.

And despite the success of the Tea Party, there is no conservative movement like it in Canada. It is an interesting distinction, writes Canada’s most influential newspaper, The Globe and Mail:

“Canada and the United States are remarkably similar countries — so similar, that no one else on earth can tell the two of us apart, unless this Austrian or that Sri Lankan has an ear so well attuned to English that she can distinguish Newfoundland from Missouri accents. Yet politically, we are solitudes…

“(Yet) for all our shared geography and history, Canadians are more Japanese than American. Or more German. Or Norwegian. We accommodate ourselves to the political reality we inhabit. Only the Americans are perpetually up in arms against the status quo. It makes for more unstable, more dysfunctional, but ultimately more democratic politics.”

For the past four decades Canada has moved further and further to the left; so far, in fact, that Canada seems devoid of citizens who even know what individual liberties are, let alone demand them.

Northern Sheep
Tom Flanagan is a United States-born, Calgary, Alberta academic, and was an adviser to Canadian Prime Minister Stephen Harper. Flanagan has said he doesn’t think a group like the Tea Party will bloom north of the 49th Parallel because Canada’s political system — unlike the U.S. primary system — is not required by law to hold free and open nomination contests.

“You could have an insurgency here and there in Canada, but a wide uprising like we saw in the U.S. just isn’t possible here,” Flanagan told The National Post.

Others in Canada have pointed out that there is no Tea Party because Canada’s economy is so much better off. I can tell you that this is nonsense; that by most measures the U.S. has a higher standard of living and a better economic future than does Canada.

The real reason there is no Tea Party in Canada is that Canadians sheepishly accept what government dictates. Let me give you an example. When I was going to the University of Calgary in the 1970s, Ottawa instituted the unpopular metric system. Many Canadians complained when the provinces made all road signs metric. Yet the signs were erected and were soon accepted.

Around that time, Washington State was also putting up metric road signs. But those signs didn’t catch on. That was because drivers were tearing them down.

Perhaps the differences between Canada and the U.S. are not surprising; not when you consider the United States revolted against King George III, while those further north were happy to be co-opted by the British Empire.

Yet there was a time when conservatism had a strong voice in Canada. Today such ideals and the concept of individual liberty exist almost exclusively inside the U.S. As much as ever, America is a last bastion of freedom. One can only hope that with time American ideals will spread.


Canada is hardly alone on turning its back to the freedoms and responsibility that made western democracy so successful, says Mark Steyn in his New York Times bestseller, America Alone: The End of the World as We Know It.

“Today in your typical election campaign, the political platforms of at least one party in the United States and pretty much every party in the rest of the West are all but exclusively about secondary impulses: Government health care (which America is slouching towards incrementally but remorselessly), government daycare (which was supposedly the most important issue in the 2006 Canadian election), government paternity leave (which Britain has introduced). We’ve elevated the secondary impulses over the primary ones: national defense, self-reliance, family…”

But even as the rest of the world turns its back on libertarian values, America has not. That makes this year’s Thanksgiving special. Hopefully there will be even more to celebrate in two years.

Best wishes on Thanksgiving,

John Myers
Myers Energy And Gold Report

The Tea Party May Save Us Yet

There has been a huge sigh of relief in the corridors of Calgary’s oil towers following the Republican victory in the mid-term election. The GOP win assures much-needed changes in the Federal government’s energy policy; changes that will benefit American consumers as well as Canadian petroleum producers.

It seems certain that climate change legislation in the United States is dead for at least the next two years, and hopefully forever. That is good news for Alberta’s oil sands industry, which has been facing an uphill battle against Greens inside the old Democrat-controlled Congress.

"I think the playing field for Canadian energy will be a lot more level now,” said Republican David Wilkins, the Bush administration’s last ambassador to Ottawa.

Former Canadian diplomat Colin Robertson agrees and says that while special interest groups will still keep up their lobbying efforts against oil sands, climate change legislation is DOA. That closes the casket on what could have become a border levy on Alberta’s oil sands.

A Fresh Look For Oil Sands
While Canadians may hate guns and embrace universal healthcare, many are happy about the Tea Party’s influence. This is true of Canadian petroleum executives who understood the threat of ousted Speaker of the House, Nancy Pelosi (D-Calif.). They realize that the 112th Congress will have a far more balanced approach to petroleum. Incited by President Barack Obama, Democrats had been making “clean energy” their mantra.

Finally, some sanity is restored. There is a growing realization that wind and solar power are incredibly expensive and are without significant infrastructure, and an understanding that neither will make a noticable dent in America’s energy appetite before the end of this decade.

This truth didn’t seem to faze House Democrats who wanted a national renewable-electricity standard. They were blissfully ignorant of a fundamental truth — that Green energy is more pie in the sky than it is juice on the grid.

Democrats also misunderstood America’s growing dependence on Arab oil. Consider the Obama drilling moratorium in the Gulf of Mexico following the Deepwater Horizon disaster. Neither he nor House Democrats seem to comprehend that oil from the Gulf of Mexico was helping the U.S. reduce oil imports. And while the largely untested Bakken formation of the Dakotas and Montana is promising, it was Gulf Coast production that was making the difference.

Stopping The Greens Before It’s Too Late
A more conservative Congress can take immediate steps to re-establish offshore oil drilling and open up oil exploration in Alaska. This cannot happen too soon, as America faces an immense energy crisis — one that the Obama administration has recklessly ignored.

The GOP gets it, especially the conservative wing of the Party, which understands that fossil fuels are and will remain essential to America’s national security. Oil will account for more than 90 percent of U.S. transportation energy and more than two-thirds of U.S. electricity through the end of this decade. The newly elected conservatives promise to be an enormous improvement over the previous Congress, which was focused on strengthening the Energy Independence and Security Act of 2007; an act which Obama reinforced last year with stimulus money.

What most Americans don’t realize is what folly taxpayer’s money was being spent on. There is a hidden clause in the Energy Independence and Security Act which was signed into law in 2007. It is found within Section 526.

According to that section, all Federal agencies — with the exception of NASA — are prohibited from purchasing carbon-intensive unconventional fuels:

“No Federal agency shall enter into a contract for procurement of an alternative or synthetic fuel, including a fuel produced from non-conventional petroleum sources, for any mobility-related use, other than for research or testing, unless the contract specifies that the life-cycle greenhouse gas emissions associated with the production and combustion of the fuel supplied under the contract must, on an ongoing basis, be less than or equal to such emissions from the equivalent conventional fuel produced from conventional petroleum sources.”

The U.S. military could not get its fuel from Alberta’s oil sands and instead had to rely on oil from nations like Saudi Arabia and Venezuela, two countries renowned for their grassroots hatred of the U.S.

Last month, Energy & Capital pointed out what an obstacle this is, because America’s military is the world’s single largest purchaser of crude oil. Most anyone outside the Democratic Party will take Alberta over Arabia.

That is because most people have some common sense. They understand that having a strategic supply of oil next door in a democratic nation that shares a common language and core values is a good thing. But “most people” does not include Pelosi or Obama.

An Early Thanksgiving
Thank Heaven for the GOP’s victory. Without it, Obama would have been free to sign a climate bill that would have targeted Canada’s oil sands industry. Instead, Obama has been forced to admit that his hopes to put a price on the cost of carbon dioxide emissions — which he and the Greens blame for global warming — will be put on hold for at least the next two years. If you drive a car or heat your home you have to say: Hallelujah and pass the petroleum!

As you know, most Republicans campaigned against a so-called Cap-and-Trade bill that would have put a ceiling on U.S. climate pollution. We have a President that made “Going Green” a priority right after socialized medicine. Obama’s Cap-and-Trade bill was in fact passed by the House, but stalled in the Senate because it was rightfully branded harmful to the U.S. economy by conservatives and others who were not corrupt or feebleminded.

Energy Injustice Derailed
Obama has not given up on saving the environment. The President said he will push for more piecemeal incentives for developing alternative energies that could help the U.S. reduce its “carbon footprint.”

The Greens may get their way if Obama continues forward with his economic policies. A recession turned depression would certainly reduce America’s carbon footprint. It might even make the most radical of the Greens happy.

If you think I exaggerate, consider KAIROS, a coalition of half a dozen large liberal church groups in Canada that includes the United Church, some Catholics, Mennonites and Quakers. They have a staff of more than 20 and an annual budget that exceeds $4 million. Their largest project is called Energy Justice.

According to their Web site: “KAIROS is in the midst of Re-Energize: Time For A Carbon Sabbath, a three-year campaign for personal, community, and political change.”

You might think that Canadian Christian groups might be worried about the lack of democracy or even women’s rights in big Arab oil-exporting countries, some of which are known to finance terror groups like al-Qaida. Instead KAIROS, which unbelievably gets $1.5 million per year from the Canadian Federal government, has set its sights on something it considers far more evil: Alberta’s oil sands.

What is most frightening is that environmental groups like KAIROS have plenty of allies, including Obama, Pelosi and Senate Majority Leader Harry Reid (D-Nev.).

Liberty For All
And while many Canadians decry American conservative policies, Canada, too, is reaping the rewards of the conservative revolution spreading within the U.S. Canada is like American liberals who oppose handguns yet sleep better at night knowing that criminals are wary of breaking into their homes because at least a few of the neighbors are packing pistols.

Both Canada and the U.S. need Alberta’s oil sands. Canada has roughly 180 billion barrels of proven oil reserves, second only to Saudi Arabia. More than 95 percent of these reserves are oil sands deposits in Alberta. In the past decade, Canada’s oil production has steadily risen as new oil sands have come on-stream to replace aging, mature fields. This has been fortuitous to the United States, whose own aging fields have been in drastic decline. That the previous Congress thwarted this marriage of necessity borders on treason.

Next week I will be giving thanks with my family that there is new hope with the new Congress; hope sparked by the conservative ideals of the Tea Party, which are arresting the energy idiocy that is Obama and his Democrats.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report

And The Band Played On

Another election is over and the sweet promise of more change in two short years is wistfully blowing. It looks like it will be a humdinger of a Thanksgiving for Republicans.

While I will be giving thanks, I won’t be celebrating. The new Congress, packed with what Bob Livingston correctly calls the Ruling Elite, will be rearranging the deck chairs on the Titanic.*

Some think the nation took a turn for the worse with President Franklin Delano Roosevelt. I disagree. What came after FDR was total victory over Hitler and Tōjō as well as immense new wealth. By the late 1950s America was rich, stable and could call on the most dominant army ever assembled.

From the ashes of World War II the United States was the only major power that became richer rather than poorer. By the early 1950s the U.S. was the world’s largest creditor and was posting unprecedented trade and budget surpluses. America’s immense agriculture base and mineral wealth were just beginning to be exploited, and the country was the number one producer and exporter of crude oil.

Writing for Benjamin M. Rowland’s 1977 book, Balance of Power or Hegemony: The Interwar Monetary System, Charles P. Kindleberger said that in 1950 Washington possessed $20 billion in gold reserves or almost two-thirds of the world’s total of $33 billion.

In 1950 America’s per capita gross domestic product was seven times that of Japan’s and was almost double that of Great Britain’s. Today Japan and Great Britain have per capita GDPs that measure more than three-quarters of America’s. In fact Ireland, home to one of the worst famines of the post-Industrial Revolution, has a higher per capita GDP than does the United States.

America’s economy was also a dynamo that just kept spinning faster. Measured in constant dollars, the nation’s GDP rose tenfold between 1940 and 1969.

A half century later the U.S. was the largest borrower in history, the biggest buyer of fossil fuels and was posting staggering deficits. And by the dawn of the 21st Century the U.S. held slightly more than 25 percent of the world’s official gold reserves, or about $355 billion worth. That won’t even pay down 4 percent of the $13 trillion in U.S. Federal debt.

The onset of the massive decline began in the 1960s under President Lyndon Baines Johnson. It is worth noting that that Democratic President’s agenda was similar to President Barack Obama’s. Both set out to redistribute America’s wealth and both sent young men to fight and die in a losing war halfway around the world.

America was on the brink of revolt following Johnson’s election in 1964. It is worth remembering that things did not get much better after his successor — the deeply conservative President Richard Nixon — was elected four years later. Over the next decade American’s fortunes became progressively worse, and the nation has continued in a state of decline that persists to this day.

It all adds up to America’s grand decline, declared National Affairs earlier this year in an article with the headline, “Complexity and Collapse: Empires on the Edge of Chaos.

“Imperial collapse may come much more suddenly than many historians imagine,” is the summation of that article written by Niall Ferguson. “A combination of fiscal deficits and military overstretch suggests that the U.S. may be the next empire on the precipice.” You can read the article here.

Ferguson cites two troubling trends in America’s decline:

First, that America’s public debt may skyrocket from 44 percent of GDP before the 2008 financial crisis to more than double that figure within a generation.

Second, China will have a larger economy than America in 17 years and India’s GDP will exceed America’s in less than 40 years. If so, the U.S. could soon be a third rate power.

Ferguson is not the first historian to point out that America is an empire in decline. In 1987, Paul Kennedy’s book, The Rise and Fall of the Great Powers: Economic Change and Military Conflict From 1500 to 2000 traced the decline of dominant nations beginning 500 years ago.

Kennedy’s conclusion is that all great powers have a natural progression that starts with a rise to prominence and then an inevitable decline. This erosion of wealth and influence has affected every leading power including Spain, the Habsburgs and Britannia.

“Imperial expansion carries the seeds of future decline,” wrote Kennedy. "If a state overextends itself strategically… it runs the risk that the potential benefits from external expansion may be outweighed by the great expense of it all.”

This phenomenon of "imperial overstretch," says Kennedy, is common throughout history.

Even America’s own regression has long been understood. In the 1960s, Arkansas Senator William Fulbright, the Democratic chairman of the Foreign Relations Committee, wrote the book, The Arrogance of Power. He was highly critical of overspending and the Vietnam War. The title became something of a slogan for the antiwar protests of the 1960s.

In the 1980s I started doing my own research into America’s decline. I found that in the 1950s one out of every three cars made worldwide was built by General Motors. At that time, GM sold more than one out of every two cars made in America. By the late 1980s, GM’s share of the domestic market had fallen to around 35 percent, and today it stands at less than 20 percent.

At the height of American power, General Motors President Charles Wilson said, “What’s good for General Motors is good for the country.” I think the converse could also be argued. America’s Ruling Elite seem as arrogant as Charles Wilson and Henry Ford II and if that is the case the nation itself is headed for bankruptcy. The only difference is that General Motors could count on Washington to bail it out. But who can bail out America?

Yes, we have elected a new Congress. And yes, in two years we might have a new President. But how much of a difference will it make? Not much. Consider that America has been in a state of decline for more than four decades. The nation’s multitude of problems — the war in Afghanistan, the energy and debt crisis, illegal immigration and spread of immorality — cannot be cured over the next few years.

My friends, the die is cast for America just as it was for all the great empires. Consider Spain. In the late 16th Century it was the most dominant power in the world. One hundred years later the plague, corruption and sweeping emigration had reduced Spain’s population from 8 million to 7 million. By then it hardly mattered who carried the crown once worn by the laudable Charles V.

A more contemporary example is England. After compiling huge debts and barely surviving the onslaught of Nazi Germany, did it much matter if Conservative candidate Winston Churchill or his opponent, Labour’s Clement Attlee, formed the Government that was elected in 1945? Of course it didn’t; not in the long run. And neither will it much matter who we elected last week or whom we elect two years from now.

Action To Take
It is important to note that when all empires collapse so, too, do their currencies. I believe the dollar is doomed and don’t see much hope for the euro either. Keep the bulk of your assets in physical gold with a sprinkling of silver and only a select group of natural resource stocks.

Yours for real wealth and good health,
John Myers
Myers’ Energy and Gold

* Footnote: The origin of this quotation is The Washington Post, May 16, 1976, when Rogers Morton, an American public relations officer, told the newspaper: "I’m not going to rearrange the furniture on the deck of the Titanic."

The Election Can’t Save Us From The Fed

"We can pay anybody by running a printing press." — Thomas Gale Moore, a Ronald Reagan economic advisor, 1986.

Don’t expect America’s fortunes to change in the wake of yesterday’s election. Even if some semblance of sanity comes to Congress we are still left with that other dysfunctional institution, the Federal Reserve, which is bent on inflating the United States economy, the dollar be damned.

Part of the problem is Ben Bernanke, the chairman of the Federal Reserve. He was reappointed by President Barack Obama last year and has shown himself to be a kindred spirit to the President. Both had zero business experience before moving to government. Bernanke spent most of his life learning economics as taught by Harvard and MIT, before becoming a professor at Stanford and Princeton.

Bernanke has been hailed as the world’s leading expert on the Great Depression. If you are worried this doesn’t qualify him to help resurrect the U.S. economy you are probably right. It is doubtful that the Pentagon would have put famous historian A.J.P. Taylor in charge of combat operations in Vietnam because he knew so damn much about World War II.

Bernanke is making sure that the Fed does what the central bank calls quantitative easing. That is a fancy term for saying they are “printing money” commented The Wall Street Journal last week, pointing out that such terminology makes it easier for the American public to swallow than if the Fed just came out and admitted what it is really doing.

But even The Journal has it wrong. In today’s world Washington doesn’t run printing presses. The truth is that creating new money today doesn’t have anything to do with paper and ink (if it did the Greens would be screaming about the forests). Instead it is done at the push of a button. 

Rather than print money, the Federal Reserve buys assets — usually government bonds, mortgage-backed securities — from banks or on the open market. There is thus more dollars sloshing around in the economy.

So where does the money to buy these assets come from in the first place? In fact says MoneyWeek, “The central bank just creates it out of nowhere.”

The Fed is fighting the depression of the 1930s. It raged before the Internet, TV, and the hula hoop and ended 13 years before Bernanke was born.

In the high-tech age, creating money to float the economy is very simple. The Treasury simply records on its computers the amount of securities the Fed purchased and this new money goes into the banking system to be loaned out at some multiple.

How much money are we talking about? According to Goldman Sachs, the Federal Reserve may soon purchase $2 trillion of assets to stimulate the U.S. economy. Goldman estimates that as much as $4 trillion of additional large-scale asset purchases might be poured into the economy to meet the Fed’s targets. All this money is being created because the Fed has exhausted its usual mechanism of increasing the money supply: Lowering the interest rate at which banks may lend one another their reserves held at the Fed. Currently the Federal funds rate is now zero.

I didn’t go to Harvard or Princeton, but even I understand Economics 101. Creating more dollars — in this case trillions more dollars — will devalue each and every dollar. That means that money you have tucked away in a retirement fund or bank account is going to be worth less, a lot less regardless of who is in Congress and how they are voting.

Back when I was in college I was taught the purpose of the Federal Reserve was to protect the integrity of the dollar. And for most of the 20th Century the Fed did protect the integrity of the dollar. Even when I first started writing about the markets, the Fed under Paul Volcker made the country and the world swallow a bitter pill by jacking up the Fed Funds rate, which nearly doubled between 1979 and 1981; jacking up the interest rate that banks charge each other rose from 11.5 percent to 21.5 percent. That led to a bad recession, but the U.S. dug its way out because the dollar remained intact.

Now we have the Fed as appointed by Obama. And as the chart below shows, under Bernanke, the Federal Funds Rate has been pushed to zero, lower than at any point in more than a half a century. Unlike Volcker, who worried about the stability of the nation’s currency — the world’s currency — The Wall Street Journal recently summed the central bank’s goal: “The Fed hopes to chase investors out of Treasuries into other, riskier securities. Like stocks.”

Since when did it become the Fed’s job to get bullish on stocks? What’s next, moving the Merrill Lynch Bull statue outside the Eccles Building?

Effective Federal Funds Rates

Now The Bad News
Moreover, I am wondering if Bernanke and the Federal Reserve Bank presidents have really thought through their actions. What if money isn’t moved out of the Treasury market and into the stock market but is instead moved into euros, gold or anything besides U.S. dollars?

China and Japan are sitting on $1.7 trillion of U.S. Treasury debt. China’s is holding one-fifth of its annual gross domestic product (GDP) in Uncle Sam IOUs. Their leaders might be Communists, but they are not idiots. With the Federal Reserve set to magically create four trillion new dollars you can bet that some of the guys wearing the Chairman Mao suits think it might be time to pull the plug on their Treasury investments.

If this happens, and the Chinese do begin to liquidate Treasuries, it would create a level of financial havoc that would make the Great Depression seem like a bump in the road. I can’t see any way we are going to get out of this unscathed.

I write this before the elections have happened, so I don’t know if the GOP won. But what should scare you is that it doesn’t matter. Congress could include Santa Claus, the Easter Bunny and the Tooth Fairy, and as long as we have a Federal Reserve acting as recklessly as the one now controlling our economic fate, we are in a lot of trouble.

Action To Take
Regardless of the election’s outcome and your expectations for 2012, please don’t get bullish on Big Board stocks or bonds. The core of your holdings should be in physical gold, along with some silver. If you want to get some leverage stick to resource stocks that are involved either in precious metals or hydrocarbon energy.

Yours for real wealth and good health,

John Myers
Myers’ Energy and Gold Report