Blame It On Rio: The President Goes Petro Hunting In Brazil

A good President might try to correct three of America’s biggest problems: intractable unemployment, America’s increasing dependency on foreign oil and a monstrous trade deficit. Yet none not one of these issues concerned President Barack Obama as he traveled throughout Latin America and launched another war upon a Middle Eastern nation.

Libya is ground zero for American air and sea power. Libya has more than 40 billion barrels of crude oil reserves and before its civil war was producing 1.7 million barrels of oil per day, roughly 2 percent of the world’s daily oil output.

No longer can other oil exporters replace shrinking Libyan production. That makes the crisis in Libya not just a potential military one but an economic one as well.

Barack’s Brazilian Solution
Apparently President Barack Obama does not think American roughnecks can be trusted. Boring at vast oil veins under the Gulf of Mexico has been suspended by the President. Now he has made his case for offshore oil development much further south, off the coast of Brazil.

Obama made his proposal while meeting with Brazilian President Dilma Rousseff. The Tupi oil field alone, which lies off Rio de Janeiro in the Santos Basin, has a potential deepwater reserve of 100 billion barrels.

Of course, the Gulf of Mexico has vast reserves, too. But like a good Democrat, Obama has added a middleman, and a foreign one at that.

The prospect of drilling for oil off the coast of Brazil rather than the coastal waters of the Gulf of Mexico seemed to have Obama tickled pink. 

“By some estimates, the oil you recently discovered off the shores of Brazil could amount to twice the reserves we have in the United States,” Obama said. “We want to work with you. We want to help with technology and support to develop these oil reserves safely, and when you’re ready to start selling, we want to be one of your best customers.”

The “you” Obama was talking about is one of the largest corporations in the Americas—Brazil’s state-owned Petrobras oil company. Obama previously offered the company a $2 billion loan guarantee to help develop the oil field, but to date, Petrobras has not given an answer.

While the President has embraced oil production off Brazil, operations in the Gulf of Mexico and off the coast of Alaska are at a standstill because of Obama’s “permitorium” on drilling. The only exceptions being three Gulf permits granted to operations which previously had permits and one allowing for new exploration (which will probably soon get slammed by a lawsuit).

Brazilian oil only makes sense if the United States didn’t have reserves. But the nation does. Still the President wants to invest billions of U.S. tax dollars for oil off Brazil.

And let’s not forget the unemployment problem. Obama promised to get America back to work during his primary run for the Presidency three years ago. But the jobless situation has not improved. According to The Washington Post, real unemployment in the United States may be as high as 16 percent.

Never mind that American rig operators go without work as do a multitude of small businesses that support them.

Fill’er Up With Corn And Check The Oil
Pleasing the Greens seems more important to Obama than getting America back on its feet. Of course, pleasing the Greens won’t produce much work for Americans and will only make the United States more dependent on oil imports. And oh yes, it will add to America’s massive trade deficit which has been weakening the U.S. dollar and therefore aggravating inflation.

Little wonder that on March 25, The Canada Free Press gave its opinion on Obama’s aspirations for Brazil:

“If Obama seems to be taking a wrecking ball to domestic oil production while increasing our reliance on oil from unstable foreign regimes, he at least partially explained his reasoning while in Brazil. ‘In the United States, we’ve jump-started a clean energy industry, and we’ll soon have the capacity to produce 40 percent of the world’s advanced batteries.’

“Of course, ‘jump-started’ is Washington speak [SIC] for subsidized. So in essence, the President is more than happy to trade our energy security and tank our economy to lead the world in the production of batteries.”

The Canada Free Press concluded that nobody can make, “stuff like this up and if it wasn’t so seriously stupid, it might be hilariously funny.”

Obama seems locked into remaking America into a Green nation whether it makes economic sense or not. Before his trip to Brazil, The Economist came out with its Feb. 28 issue, the cover of which said: “Blood and oil.” Within this issue is a Special Report, The Future of Food.

Food and energy have always been interconnected because it takes one to produce the other. Despite dire warnings of the surging global demand for food over the next two decades the Obama administration is willing to grow corn rather than drill for oil. 

While China aims to make 5 percent of its gasoline supply ethanol by 2020, Obama is far more ambitious, demanding that 30 percent of U.S. gasoline be derived from ethanol or alcohol by 2030.

Today ethanol only accounts for 8 percent of America’s transportation fuel yet takes up to 40 percent of the nation’s corn acreage. The Economist warns that if Obama’s 2030 deadline for clean gasoline is met, it will inflate food prices by an additional 15 to 40 percent.

If Obama had read this issue of The Economist, he might have spent less time talking about drilling for Brazilian offshore oil and spent more time learning the truth about ethanol. 

Brazil has no special advantage in finding crude but does have a tremendous advantage in making ethanol. The Economist points out that Brazil generates its ethanol, not from corn but from sugarcane, and the result is that it harvests eight units of energy for every one unit spent. In the U.S., corn produces one and a half units of energy for every one unit spent. 

Yet Obama is insistent that America grow ethanol, food prices be damned.

According to Peter Brabeck, the CEO of food giant Nestlé, “This is the craziest thing (the United States) is doing.”

I take issue with Brabeck. The Obama administration has been doing so many crazy things when it comes to U.S. energy policies it seems impossible to name just one.

Yours in good times and bad,

John Myers
Editor, Myers’ Energy & Gold Report

Ignoring Stupid Fears, Dealing With Legitimate Worries

A few weeks ago I called a friend that lives in Los Angeles. I spoke to his secretary and chided her, asking her if she had bought her iodide pills because of events in Japan.

Funny you should ask she said; her mother was on her way to pick up a bottle for both of them. Later I sat back and wondered: Why is it that we worry about such things?

I suspect tens of thousands of people along the West Coast fretted about radiation while they drank alcohol and smoked cigarettes.

So why shouldn’t we fear radiation from the crisis at the Japanese nuclear power plants? Simple, it doesn’t pass the common sense test. If there was a serious leak there would be a lot of dead Japanese. Also consider in August 1945 the United States exploded two nuclear bombs over Japan. Yet radiation did not spread to Hawaii let alone California.

In fact, if you live on the West Coast and you buy iodide pills off the Internet it could be counterfeit. In that case the remedy is worse than the risk.

Fear is nothing new. It is primal. With the 24-hour news cycle it can be infectious.

When the AIDS scare broke, I had a friend who had been involved in a one night fling with a woman years earlier. After it was announced that Rock Hudson was dying of AIDS there was rampant speculation that a plague was about to be unleashed. My friend was certain he had HIV. He called the local AIDS hotline and demanded a blood test. My friend explained his circumstances at which point the nurse on the hotline told him that the chances he would be killed in a car accident driving to get the test were higher than the likelihood he had the virus.

The list of what we don’t need to fear is almost endless. What I want to address are the things that we should be concerned about and what precautions we can take to protect ourselves.

The U.S. Economy And Stock And Bond Markets
Nothing from the Middle East to Japanese can derail the bull market in U.S. stocks. The Dow Jones Industrial Average stands above 12,000, pushed higher by the tidal wave of fresh money courtesy of Washington bailouts and Federal Reserve quantitative easing. New money in the absence of increased productivity does not create wealth.

President Barack Obama has created a buffer against the Great Deflation of 2008, yet fundamental problems still plague the U.S. economy.

The official government unemployment rate is running at close to 10 percent but the Bureau of Labor Statistics—the agency that accounts for people who have simply given up looking for work—puts the real unemployment rate closer to 16 percent.

The dearth of jobs means a frail recovery in consumer spending. Since that sector accounts for almost two-thirds of the nation’s gross domestic product, this is a problem for the immediate future.

It is possible that the Federal government and the Fed will continue to inject more money into the economy. But before too long, Washington will reach its breaking point; China and Japan will no longer purchase U.S. Treasury debt.

Tens of billions of dollars in Treasuries must be auctioned off weekly. These two nations alone hold more than $2 trillion in U.S. Treasury instruments that can be sold at a moment’s notice. Given the crisis in Japan, there is the possibility that even if Tokyo doesn’t sell Treasuries, it may stop making bids at Treasury auctions. Since the U.S. must sell this debt to finance itself the end result will be higher rates.

That will cripple the U.S. bond and stock markets. This is a real threat to your financial future, especially if you invested in U.S. paper instruments.

To reduce this threat you should have at least 20 percent of your investment funds in physical gold and silver, blue-chip resource stocks and physical cash. Use what proportions work best for you.

Your Personal Habits
It is ironic that the person that could hurt you most is yourself. I am not going to lecture you because there is no need for it. If you smoke, you know you should stop. If you drink more than moderately, you know you should cut back.

But there are other ways to take care of yourself. I used to be fanatical about exercise right up until I was in my early 40s. I took a decade off and the last year has been a tough comeback. But it has been worth it. I shed a few pounds doing simple things like walking every day. Now I can run three miles a day.

As important as the changes I have seen in my body have been the changes I feel in my mind.

You should be more active and try not to watch too much news. I have to for my work, but after a full day of CNN, Fox News and the BBC I feel incredibly tense. The media is good at selling fear. So too is our government.

I am not a fatalist but there is nothing I can do about an asteroid strike, terrorist attack or super-flu. Unless you want to remove yourself from society and live in a bunker, you will die of worry just thinking about such things.

I am not saying be unprepared. I take seriously what Bob Livingston says. My wife and I keep extra provisions such as water and food on hand. More importantly, I don’t take stupid risks. I don’t drink and drive, I do not travel on snow-covered roads and I won’t venture into the bad areas of the city.

If you treat your body and mind better and take fewer risks you will live a longer and happier life.

Yours in good times and bad,

John Myers
Editor, Myers’ Energy & Gold Report

P.S. If you would like to read an interesting book on risk, I recommend you pick up a copy of The Black Swan: The Impact of the Highly Improbable, by Nassim Nicholas Taleb. It is available at Amazon.com by clicking here.

Obama’s War

(Part two of a two part series about Presidents and the Middle East)

President Barack Obama is not who the world thought he was. His policies, including the attack on Libya starting last weekend, prove it.

Candidate Obama promised peace in the Middle East. Yet with Libya, the President is using the same logic and rhetoric as George W. Bush used during the U.S. war against Iraq that began nine years earlier to the day.

After presenting his message of diplomacy it was no surprise that when he took office Obama was viewed by the world as the most highly regarded U.S. President since John F. Kennedy. But as the Middle East has crumbled under the weight of hate and violence, Obama first sat on the sidelines for weeks, refusing to take on even the vilest of America’s enemies; men like Libyan leader Colonel Moammar Gadhafi.

Finally, on March 17, the Obama administration, lead by Secretary of State Hillary Clinton, joined a United Nations resolution that permits "all necessary measures" to impose a no-fly zone, protect civilian areas and impose a ceasefire on Gadhafi’ s military. Enforcement will rely only on air power as the resolution rules out sending ground troops, at least for now. Two days later the U.S. launched its first attacks; ostensibly to “save lives” in Libya.

But as Bush 43 proved in Iraq, no-fly zones can soon be transformed to boots on the ground, and that could mean yet another U.S. war on Arab soil. This is most disconcerting because the United States is already fighting a two-front war in Iraq and Afghanistan.

Last week I wrote about Presidents Ronald Reagan through George W. Bush and their mismanagement in the Middle East. With the region dissolving into mayhem, I thought it important to put this week’s focus on Obama.

Some analysts were calling it Obama’s "deer-in-the-headlights" doctrine. On key issues from Tunisia to Egypt the Obama administration has not shaped events in a positive way, even though it has been the U.S. that has been instrumental in creating this Middle East crisis.

According to the Daily Star, “As revolution has spread from the Maghreb to the Gulf region and back again, President Barack Obama has stuttered and fumbled and sometimes fallen strangely silent. What can explain this from a man whose manner has always been smooth and whose oratorical gifts propelled him from utter obscurity to the White House in just four short years?”

The newspaper went on to ask: “Why has the president seemed so indifferent to democracy in the Middle East?”

The simple answer is that Obama does not have the wherewithal to lead. The other answer is more complicated; that Obama is purposefully undermining democracy in the region and launching a war to help his bid for re-election.

So who is the real Obama? It is an important question with blood being spilled on a daily basis in the Middle East and in the wake of oil prices spiking at more than $100 per barrel, more than twice as high as they were the day Obama was elected.

It is hard to reconcile the differences between candidate Obama and President Obama. It was candidate Obama that gave an inspirational speech in Cairo on June 4, 2009:

“That does not lessen my commitment, however, to governments that reflect the will of the people. Each nation gives life to this principle in its own way, grounded in the traditions of its own people. America does not presume to know what is best for everyone, just as we would not presume to pick the outcome of a peaceful election. But I do have an unyielding belief that all people yearn for certain things: the ability to speak your mind and have a say in how you are governed; confidence in the rule of law and the equal administration of justice; government that is transparent and doesn’t steal from the people; the freedom to live as you choose. These are not just American ideas; they are human rights. And that is why we will support them everywhere.”

We are approaching the second anniversary of that speech. Middle East regimes have collapsed and the U.S. is in yet another war. It remains to be seen exactly how far Obama will use America’s military might in Libya. Whatever actions the President finally settles on, from Libya to Pakistan, it will translate into further Muslim extremism aimed against Americans.

True, Gadhafi has slaughtered thousands of his own civilians. At the same time, Obama leaves Saudi Arabia’s repression of democratic ideals unchallenged even though the House of Saud spends billions of dollars financing Islamic terrorist organizations.

Obama’s policies in the Middle East have been inconsistent. France and Britain first endorsed a no-fly zone over Libya to give anti-Gadhafi insurgents a fighting chance. It took the Obama administration weeks to catch up.

It is Obama’s job to be the leader of the free world, but he has failed miserably at that task. The result is a wave of unrest across the region and another war in yet another Arab country. Fox News has gone so far as to say that the President’s leadership in the Middle East has been nothing less than a “dereliction of duty.”

It could be that Obama is shell-shocked by the huge responsibilities of office; that he is not up to the job.

At stake is not only a democratic future for Libya, but America’s national interest. Libya has oil reserves of 41 billion barrels of crude, the largest of any African nation.

Every President from Ronald Reagan to George W. Bush stood for something, right or wrong. All were decisive. Obama seems to lack leadership qualities by first his hesitancy and now his impulsiveness. That is why he deserves a failing grade when it comes to the Middle East. I just hope his incompetence doesn’t lead to a ground war, this time in Libya.

Yours in good time and bad,

John Myers
Myers’ Energy & Gold Report

Stupid Presidents: How America Blew-Up The Middle East

(Part one of a two-part series on U.S. Presidents and the Middle East)

For more than four decades United States Presidents have made a mess out of the Middle East. Now the region is boiling over. Americans face $4 per gallon gas. In the wake of all this I thought it is a legitimate question to ask: Why has every President since Lyndon Johnson been so utterly stupid when it comes to the Middle East?

I don’t want to speculate at what is at the root of nearly a half century of incompetence, so instead of spewing a conspiracy theory I decided to just grade the last five Presidents when it comes to their handling of the region.

Beside each President I give a grade. Notice the marks fall progressively until I get to our current President, Barack Obama. I would be delighted to get your feedback on what you think of my grades and how you would mark our recent Presidents when it comes to the Middle East.

Ronald Reagan — C+. I would love to give Reagan a higher grade. After all, he used the U.S. Navy to put Libya in its place, ordering two F-14s to shoot down two Libyan jets in August 1981. He cultivated solid relationships with oil producers like Saudi Arabia that brought the inflation adjusted price of oil to its lowest levels since the 1960s. Yet I can’t give Reagan sterling grades for his Mideast policies.

First he put U.S. soldiers in harm’s way in Lebanon in 1983. The end result was 241 American servicemen killed by truck bombers. Guards posted outside the barracks could not stop the Islamic jihad terrorists because they were under strict orders to have no magazine inserted and no rounds in the chamber of their weapons.

Reagan also looses points for not bringing justice to Moammar Gadhafi after his Libyan agents blew-up Pan Am flight 103 killing all 259 on board and another 11 on the ground in December 1988.

Then there is the fact that Reagan armed Saddam Hussein to the teeth to oppose Iran in a war that lasted eight years. Later administrations would argue that the Iraqi dictator menaced the world with weapons of mass destruction (WMD). That turned out to be untrue, but whatever arsenal Saddam had came from the billions of dollars in aid and technology that was provided by the Reagan administration.

On August 18, 2002, The New York Times wrote:

"A covert American program during the Reagan administration provided Iraq with critical battle planning assistance at a time when American intelligence agencies knew that Iraqi commanders would employ chemical weapons in waging the decisive battles of the Iran-Iraq war.”

Reagan also doesn’t score well because of his guns for hostage deal with Iran; that he “forgot” about. When he was pressed on the issue—because it might have meant that he had broken the law—Reagan sounded like the kid who tells the teacher that the dog ate his homework.

George H.W. Bush – C. Some of you might think that Dubya’s dad should get a solid A. After all, he launched Desert Storm, an overriding victory of Coalition Forces that drove Saddam Hussein out of Kuwait and kept a lid on oil prices.

But you might also remember that it was under Herbert Walker’s leadership the U.S. completely missed the fact that Iraq not only had aims on dominating the Persian Gulf—under which sat two-thirds of the world’s conventional oil reserves—but that U.S. intelligence services didn’t notice that Iraqi tanks and troops were massing for invasion of Kuwait.

Then there was the entire lying to the American public by the Bush I administration to justify the war. It started off well with telling the truth—a crazed dictator like Saddam could not control the world’s energy supply. But when the Left leaned on Bush’s argument (which was a great one), his administration changed the story that America had to oppose Saddam because he was the next Hitler. Nobody believed that. So Bush said that Saddam had to be stopped because Iraqi troops were killing Kuwaiti babies in their incubators. It was an incredulous lie, but America got behind him as if he were Franklin Delano Roosevelt leading the nation into World War II.

Operation Desert Storm turned out to be a hiccup when it comes to U.S. wars. The ground war lasted 100 hours. Yet Bush—when he had Saddam on his knees and was able to promote U.S. policies in throughout the Middle East—did a most incredible thing: He stopped advancing U.S. forces at the Iraq border.

Bill Clinton — D: During Clinton’s eight years in office the Middle East was a relatively stable place. The Clinton administration made some important strides in the peace process with Israel and its neighbors. We cannot forget that during the Clinton Presidency cheap oil kept flowing from the region unimpeded.

But none of that can excuse the fact that more than anyone, Clinton was responsible for 9/11. He not only failed to recognize the growing extremism of Islam but he failed to heed warnings that were given to him about Osama bin Laden and al-Qaida which by most accounts Clinton saw as a rag-tag group that created no real threat to the United States.

If Clinton’s mind had been on al-Qaida rather than the Monica Lewinsky scandal, for which only he was responsible, bin Laden would have long ago been dead and most of the world would not know his name.

Following 9/11, NBC News reported that the Clinton administration had multiple opportunities to either kill or capture bin Laden but failed because they did not take him or his organization as a serious threat.

George W. Bush — F: I could write a book on how Bush the younger made a mess of the Middle East and only touch on his administration’s mismanagement of the region. (I say his administration because so much of the blame should go to former Vice President Dick Cheney, former Secretary of Defense Donald Rumsfeld and former Deputy Secretary of Defense Paul Wolfowitz who were the architects of the war against Iraq).

I don’t even hold 9/11 against President Bush. But there are two blunders he should be accountable for:

  1. The failure to kill and capture Osama bin Laden.
  2. Launching the war in Iraq with questionable if not downright untruthful intelligence of WMD and with no end-game in sight other than a vague notion of spreading democracy throughout the Middle East (we can see how that has panned out).

So far the U.S. military operations in Afghanistan and Iraq have cost the lives of more than 5,900 American service men and women. Yet the excuse that the Bush II administration made for not going after bin Laden with “boots on the ground” was they didn’t want to incur heavy U.S. casualties.

Bush compared 9/11 to Pearl Harbor. Yet Roosevelt mobilized an entire nation to fight the Axis in response to Pearl Harbor. The Bush II administration made strafing bomb runs over bin Laden’s lair. There was no massive drop of infantry as one might have expected. Instead, agents of the Central Intelligence Agency were sent over with trunks full of cash so they could hire mercenary warlords.

Instead of finishing off al-Qaida, Bush committed most of the U.S.’s full military might against Iraq. No question Saddam Hussein was a bad man. But was he any worse than Moammar Gadhafi? Time will tell but what we do know is that while Bush was prosecuting the war against Iraq, his administration was instrumental in lifting sanctions on Libya.

Nearly one decade after 9/11, U.S. forces are still on the ground in Iraq. That country is rife with corruption and has become a hotbed for terrorism directed against the United States. And we are still fighting what some think is a losing war in Afghanistan.

Barack Obama — F: I would have thought it impossible for any President following George W. Bush to make a bigger mess of the region. Yet Obama has done so, and he has done it in spades. And Obama has been in office just over two years.

Next week I will tell you why I think that when it comes to the Middle East and Islam, no President has been worse than Obama.

Yours in good times and bad,

John Myers
Editor, Myers’ Energy and Gold Report

Obama Has Sabotaged American Energy Independence

The Middle East, with two-thirds of the world’s oil reserves, is in revolt. Some have blamed President Barack Obama for inciting chaos in Egypt; once an American pillar in the region.

Others have criticized the President for not clamping down on Moammar Gadhafi, the supreme leader of Libya for 42 years, who has created chaos and killed Americans.

The net result is, as the Middle East melts down, oil prices are ablaze: rising from less than $37 per barrel during their 2008 lows to breaking above the $100 per barrel mark. Soaring oil prices impact the cost of all things, from transportation to leisure to foodstuffs.

If Saudi Arabia implodes this will be the world’s worst energy crisis. The House of Saud has bailed out the Western world for four decades. But Saudi Arabia’s ability to ramp-up production is very much in question, as is the nation’s capacity to protect itself from what may be a revolutionary Jihad.

But Obama’s travesty has not only been how he has handled the Middle East but how he has steadfastly refused to develop America’s domestic petroleum production.

Oh Dear! Green Politics Could Mean $10 Per Gallon Gas!
Three years ago, candidate Obama made proclamations on opening up the U.S. to exploratory oil and gas drilling. But the oil executives I have spoken to say Obama has done nothing to increase America’s domestic capabilities.

While Obama has added acreage in Alaska for possible leasing, the best sites have been yanked off the table. Drillers have had to sit on their hands waiting on environmental studies before lease sales are held.

The President’s biggest backers, the Green lobby, have plans to line-up one lawsuit after another to block critical drilling that needs to be done in Alaska and on the Gulf Coast. Environmentalists are blocking millions of barrels of petroleum that would meet America’s long-term needs regardless of what happens in the Middle East.

Last year the National Association of Regulatory Utility Commissioners provided geological evidence that the U.S. has more than 200 billion barrels of oil and 2,000 trillion cubic feet of natural gas that can be recovered affordably with today’s technology. That is roughly two-thirds of Saudi Arabia’s petroleum reserves. Between what oil is in Alaska, the Dakotas and the Gulf, plus what Canada is eager to sell, there is more than enough petroleum to make Middle East oil irrelevant.

Obama and Secretary of State Hillary Clinton openly block domestic petroleum recovery while wringing their hands over the revolt in greater Arabia. The Administration continues to spend billions in aid to Organization of Petroleum Exporting Countries (OPEC) producers like Saudi Arabia, which use some of that money to finance Islamic extremists whose aim is to kill Americans.

Mr. President: Our Future Is In Alaska, Not Arabia
Alaska and its Arctic National Wildlife Refuge (ANWR) hold the key to our energy future. Billions of American barrels of crude lay untouched; locked away by Greens whose extremism matches that of many Muslims.

Thankfully the Greens are facing some opposition. In February, Lisa Murkowski, (R-Alaska), introduced two pieces of legislation to increase domestic oil production.

“Now is the time to develop our domestic oil reserves in the ANWR,” said Murkowski. “For far too long, we’ve kept resources under lock and key that could improve our energy security and create badly-needed jobs. There’s no excuse for continuing to pay foreign countries for resources we have here.”

The American Energy Independence and Security Act would provide the most efficient development of ANWR’s resources by allowing exploration and production within the coastal plain of ANWR.

The new legislation would require the Secretary of the Interior to lease at least 200,000 acres of the 1.5 million-acres within two years of its passage. Infrastructure—including all roads, airfields, drilling pads, pipelines and other facilities—would be restricted to 2,000 acres to minimize environmental impact on the region. Revenue from ANWR oil production would be divided between environmental mitigation and Federal deficit reduction.

The bill will try to make Greens happy. It would dedicate a portion of ANWR revenues to fund renewable and alternative energy development, wildlife and fishery habitat programs, energy conservation and low-income energy subsidies.

My expectation is that it will be flatly rejected, which is a travesty. It makes so much more sense to disturb some wildlife than it does to send our young men and women into combat in the Middle East.

George W. Bush and all of his apologists said we invaded Iraq because Saddam was a bad man. Was he any worse than Moammar Gadhafi? Probably not. Saddam did gas the Kurds, but Gadhafi has turned his tanks and guns on his own people. Saddam’s weapons of mass destruction (WMD) were nonsense.

It turned out Saddam didn’t have any, just as a lot of people in the State Department thought. Finally, if we really wanted to get every “bad guy” with a finger on real WMD, why don’t we invade North Korea? Because they don’t have oil.

Iraq’s invasion was ordered by George W. Bush and not Obama.

The fact is, I didn’t like that President’s Middle East policies either, or the doctrine that came down to the brain trust of Dick Cheney, Donald Rumsfeld and Paul Wolfowitz.

Obama’s Middle East policies are just as wrong-headed. I am in my 50s and I hope to have 20 years ahead of me. In that time solar shingles, electric trains and wind-turbines may revolutionize our way of life. But it won’t happen this decade. What we need is a President that will focus on domestic petroleum production. If he won’t, we will face the same gas lines I saw when I was a kid in college.

With Obama’s recovery already dead on arrival, the nation simply cannot endure a spike in oil prices. Yet the mess in the Middle East and the willful neglect regarding domestic oil drilling makes higher prices assured.

Action To Take
Look for oil prices to top $150 per barrel by autumn. Add to your energy equity positions, including Suncor Energy (NYSE, SU, $47).

Yours in good times and bad,

John Myers
Myers’ Energy & Gold Report

 

PS—Finally, to my readers that point out that there are billions of barrels of oil in the Bakken Oil Basin in North Dakota, the truth is yes there are! However, let me caution you on three points:

  • Federal and state governments need to encourage exploration with further tax breaks.
  • The region will take years to come on-stream.
  • While it is a bonanza, the geology of the region will make it expensive to develop and produce using current technology.

House Of Cards: The World’s Future Hinges On Oil

(Part one of a two part series on oil and the crisis in the Middle East)

At the intersection between peaceful prosperity and a global Jihad stands the House of Saud.  They are the ruling Royal Family of Saudi Arabia, only a few generations removed from their tribal Bedouin forefathers. 

Some 10,000 princes control the world’s single largest oil reserve, nearly 300 billion barrels in all.  Yet the Saudi Kingdom has been America’s energy vanguard. However, in the past four weeks more mayhem has occurred in the Middle East than happened during the previous four generations.

In the last month Tunisia and then Egypt fell under the weight of political dissent and the wireless revolution.  Just as revolt spread across Eastern Europe 20 years ago, political unrest is a contagion in greater Arabia and has now infected Bahrain and Libya.  Neither is as politically significant as Egypt, yet both carry far more weight when it comes to the world’s most important resource — oil. 

Last week crude oil surged more than $10 per barrel.  On Thursday it reached the $103 per barrel threshold that has not been seen since 2008.

It was no coincidence that as oil prices rose last week, stock prices fell.  By mid-week the Dow had lost nearly 500 points from where it opened the week and, unless the Middle East is stabilized, Dow 12,000 may be just a happy remembrance.

Global markets certainly seem fragile in the wake of rantings by Libyan strongman Muammar Gaddafi.  His defiance was reminiscent of Hitler’s final days in the bunker.  Fortunately, Libyans don’t fear Gaddafi the way Germans feared Hitler so the Marines won’t have to land on the beaches of the Mediterranean. 

That doesn’t mean that Gaddafi can’t force a bloody civil war onto Libya, which is Africa’s No. 1 oil producer.

Late last week, Italian oil giant Eni, the largest foreign oil company in Libya, said production in the country is being shut down due to ongoing violence. 

Eni produces about 250,000 barrels a day from Libya, which has total oil output of 1.6 million barrels per day. The largest oil firm in the country is the government-run National Oil Corporation. It reports that production is grinding to a halt.  This erases roughly 2 percent of the world’s current oil supply.

Some have tried to calm the markets saying that Saudi Arabia will resume its role as the world’s historical swing producer and will match any falloff resulting from the revolution in Libya.  Not so says Barclays.

"Firstly, the grades and quality of crude available from Saudi Arabia is likely to be different from Libya," says Suki Cooper at Barclays Capital.

Cooper points out that Libya has extremely lightly graded oil which is cheap and easily refined into gasoline. Even Saudi Arabia has heavier oil than Libya. As a result, Libyan oil cannot be easily replaced by oil production from anywhere in the world.

According to Cooper:

“Libyan crude is sweeter, with CPC Blend and Azeri Lights likely to feel the shortages. Effectively, West African crude should receive a higher bid from the Med, with the ultimate effect likely to be seen via a widening in the Brent-Dubai spread, as prompt supplies of Brent-related crudes [SIC] remains the issue.

"Also, the time taken to bring those Saudi barrels to the market is likely to be significantly longer compared to the ongoing Libyan production. Thus, the concept of a barrel for barrel replacement is not a correct one.

"Ultimately, the overall significance of the situation in Libya is more than just about lost barrels. It continues to inject a huge amount of uncertainty in the oil market especially for the medium term, as destabilisation (sic) in the Arab world, home to the world’s largest oil and gas reserves and production, is of extreme significance."

There is a much bigger problem thatBarclays doesn’t address. It is a question the energy world is afraid to even touch on. 

It is the fact the Saudi Arabia’s oil fields have been bled down over the past five decades.  Pressure inside the giant oil domes of Saudi Arabia have fallen drastically since the early 1980s and the House of Saud cannot simply open up the oil taps the way it used to every time Arab unrest raised its ugly head. 

The Saudis have hundreds of oil reservoirs. Yet 90 percent of the country’s oil production comes from only five fields, and all of them were discovered before 1966. The largest is Ghawar, an oil field so large that its production accounts for about 60 percent of all Saudi Arabian oil output. The giant Ghawar Field stands out as the region’s crown jewel.

Ghawar was discovered in 1948 and production started two years later.  In 1981 it reached a peak of 5.7 mb/d. That is almost 1 mb/d more oil than is produced in all of the United States.

Since its discovery, Ghawar has produced more than 55 billion barrels of crude. No one is sure exactly how much crude the Ghawar Oil Field still contains. The evidence suggests that official oil reserve claims have been vastly inflated. It is almost certain there’s not as much oil at Ghawar as the Saudis say. And for an oil-hungry world, that is bad news. But it gets worse.

Mixing Water With Oil

In Saudi Arabia, seawater is injected into oil fields to increase pressure and stimulate production.

Currently, only 30 percent of the oil in a reservoir can be extracted. But injected water increases that percentage — known as the recovery factor — and maintains the production rate of a reservoir over a longer period of time. As the volume of water that is lifted along with the oil increases the volume of oil decreases proportionately until eventually what flows out of the reservoir is almost pure water and the field is no longer worth operating.

The national oil company of Saudi Arabia and Ghawar’s operator is currently injecting nearly 8 million barrels of sea water each day.

It will be decades before Ghawar is abandoned.  But the field can no longer do what it once did — increase output during periods of political instability and soaring prices.  The Saudi safety-net that was Ghawar no longer exists.  The greatest oil elephant the world has ever known is dying. 

Thirty years ago Saudi Arabia could and did ramp-up oil production as high as 14 mb/d.  To meet the current loss in Libya and the uncertainty in the rest of the Persian Gulf 14 mb/d is what it would take to sooth the oil markets.  But regardless of prices or pressure from Washington, the House of Saud will have a tough time keeping oil production above 10 mb/d this year.  Over the short-term that means $100-plus per barrel of oil.  Over the longer term, Saudi Arabia has a much bigger problem than the fact that its wells are running dry. 

As Libya burns and protests erupt in Bahrain, Saudi princes are not fretting about how much oil their country will pump.  They are worried if their blood is about to flow.

Action To Take

Unless you own stocks whose business it is to discover or deliver real assets, sell them immediately.

Yours in good times and bad,

John Myers
Editor, Myers’ Energy and Gold Report 

Nixon To Obama: America’s Disastrous War On Drugs

America is unsettled about the war in Afghanistan and with good reason; it has lasted almost a decade and victory is not in sight. Yet the nation has been fighting a more insidious war for 40 years. It is being waged along our borders, into our communities and next door to our homes. It is the War on Drugs; a conflict that continues to escalate and which threatens our institutions, friends and family.

I don’t pretend to suggest how we wage and win the War on Drugs, only that we must. Psychotropic drugs are eroding the American way of life. And if we don’t find a solution fast America will become the battlefield that Mexico has turned into.

Last week 40 people died in a bloody surge of drug-violence in major Mexican cities. The bloodshed is typical of the growing violence gripping Mexico as the government employs the police and army to crush drug cartels that grow richer and more powerful each passing year.

Last year, 15,000 Mexicans were murdered in the cartel battles that fought against each other and the Mexican authorities. What hasn’t been so widely reported is the increase in cartel activity on the United States side of the border.

In the wake of this infestation the Obama administration has said it has the resolve to win the drug war. If you think you have heard this message before it is because you have. President Richard M. Nixon declared the “War on Drugs” on June 17, 1971.

“America’s public enemy number one in the United States is drug abuse. In order to fight and defeat this enemy, it is necessary to wage a new, all-out offensive,” Nixon said in a national address.

Nixon went on to add: “I have asked the Congress to provide the legislative authority and the funds to fuel this kind of an offensive. This will be a worldwide offensive dealing with the problems of sources of supply, as well as Americans who may be stationed abroad, wherever they are in the world.”

To say it has been a costly and ineffective war is an understatement. The Los Angeles Times estimates that the U.S. has spent $1 trillion in the past 40 years fighting the war on drugs. That is roughly what World II cost the U.S. (According to www.threeworldwars.com, World War II cost the United States $2.1 trillion in 1990 dollars, or just over $1 trillion dollars in today’s money if you run the numbers at www.InflationCalculator.com.)

All this expenditure and yet we continue to lose this war; a war that Presidents Nixon, Carter, Reagan, H.W. Bush, Clinton, W. Bush and Obama all promised to win.

How do we know we are losing it? The U.S. Justice Department reports that Mexican drug cartels now operate in 2,500 U.S. cities and towns.

There is also the U.S. prison rate. In 2008, more than 7.3 million people were in jail, on probation, parole or conditional release. That was 3.2 percent of the entire U.S. adult population or 1 in every 31 adults. According to a study conducted by the U.S. Department of Health and Human Services, between one-third and one half of America’s prison population are incarcerated because of drug related offenses.

Obama likes to talk about meeting the nation’s healthcare crisis, but he has spent little time addressing the financial and spiritual cost of drugs.

Finally, on Jan. 27 Obama said the question of drug legalization and regulation is an "entirely legitimate topic for debate" — the first sitting president to do so since cocaine, heroin and marijuana were made illegal.

In a question-and-answer session on YouTube, the President focused on drug policy. Obama responded to a question from a representative of Law Enforcement Against Prohibition, a group of former law enforcement officers whose experience on the streets has led them to conclude that drug prohibition actually drives crime and does not solve drug problems. You can watch the video of this question and answer here.

Even though some conservatives, such as the late William F. Buckley Jr., provided reasoned arguments for the legalization of drugs, the President has stated he is not in favor of that. Instead he says drugs should be treated like a public health problem.

I am surprised that the White House and the First Lady have put more energy into promoting a healthy diet for our children than they have in saving our children from the ravages of drugs. After all, the President has mostly ignored the drug crisis. Only recently has Obama even addressed the problem, saying that more money will have to be spent on rehabilitation. This extra money, says Obama, will steer non-violent, first-time drug offenders "into the straight and narrow."

I have news for the President: America is not imperiled by the likes of Olympic swimmer Michael Phelps, who was caught on camera smoking grass. The real threat comes from Mexican drug cartels that represent a clear and present danger. They are vast criminal organizations that smuggle unprecedented amounts of cocaine, heroin and methamphetamine into the country.

The Obama administration denies the impact that cartels are having on America. Department of Homeland Security Secretary Janet Napolitano recently told a crowd at the University of Texas at El Paso that it is, “inaccurate to state, as too many have, that the border is overrun with violence and out of control.”

Texas Governor Rick Perry disagrees. Immediately after Napolitano’s speech in which she actually bragged that the Obama administration is protecting the nation from cartel crime, Perry’s office released this statement:

“The federal resources in Texas are woefully inadequate to secure the border with Mexico, and Gov. Perry will continue urging the Obama administration to do its job and protect our citizens from the ruthless drug cartels. It’s unfortunate that a former border governor, who knows the implications of a porous border, continues to downplay the fact that there is a war waging within a stone’s throw, or for that matter, firing range, from our border communities.”

Last year two U.S. consulate employees were assassinated in Juarez, Mexico. Perry ordered Texas National Guard Lakota helicopters to shore up the U.S./Mexican border.

Perry said that the deployment of the helicopters was meant to contain spill-over violence from Mexican drug cartels and that he was willing to put “additional resources on standby to combat any potential situation.”

But defending America’s borders is the President’s job. It seems that Obama is just another President in a long line who has failed to deal with America’s drug problem. The stakes have never been higher than they are for his administration.

Yours in good times and bad,

John Myers
Editor, Myers’ Energy & Gold Report

Is Barack Obama The Manchurian Candidate For The Muslim Brotherhood?

 “The Americans love Pepsi-Cola, we love death.”– Maulana Inyadullah, al-Qaida leader, September 2001.

The extremists may soon hold the reins in Egypt. Islam marches forward while former President Hosni Mubarak is in hiding. Thirty years ago Iran was toppled. Then fell Afghanistan. And just last week it was Egypt, the jewel of the Nile, the Arab gateway to the world.

Never mind what former Secretary of Defense Robert McNamara proclaimed about Vietnam. The real threat to freedom both in America and abroad is much more dangerous today than any domino theory manufactured by Pentagon think tanks in the 1960s. It turned out Communism was soulless. Islam has a soul; a very dark one that wants to engulf the world. It may have just swallowed Egypt.

The Muslim Brotherhood (MB) demanded and got the resignation of President Hosni Mubarak. Today the military controls power in Egypt but soon the MB may institute its own brazen rule. After all they helped force Mubarak’s full and unconditional surrender. This has created a huge vacuum in Egypt, the outcome that the MB was gunning for.

Before fleeing, Mubarak slammed Egypt’s MB as a "dangerous" and “duplicitous” movement. Egypt’s president feared MB because of its close relationship with Hamas and radical groups in Jordan, Kuwait and farther afield.

Before Mubarak’s departure, Egypt’s Director of Intelligence Omar Soliman stated that the MB is:"Neither a religious organization, nor a social organization, nor a political party, but a combination of all three."

The principal danger Soliman warned, is the group’s exploitation of religion to influence and mobilize the public. Soliman asserts that the MB has spawned, "Eleven different Islamic extremist organizations," most notably the Egyptian Islamic Jihad and the al-Gama’a al-Islamiyya.

Soliman termed the MB’s recent success in the parliamentary elections as "unfortunate," adding his view that although the group was technically illegal, existing Egyptian laws were insufficient to keep the MB in check.

What Are Obama’s Real Ambitions?
The real question is why President Barack Obama wasn’t willing to keep MB at check, to help see Mubarak’s government into a peaceful transition. Certainly history called out for this course of action from the White House.

Consider the writings of Edmund Burke, one of the fathers of Conservatism who lived in the 18th Century. Burke wrote extensively about the French Revolution and proclaimed that it was a massive social experiment doomed to fail because it presumed to start a society over from scratch.

“Good order is the foundation of all things,” Burke wrote. The terror that followed the revolution saw the execution of 40,000 French citizens.

In my lifetime something similar happened in Iran. Yet Obama doesn’t seem to have learned anything from history going so far as to ignore pleas by U.S. allies to use Mubarak to help with a peaceful transition towards democracy in Egypt.

Obama, it seems, is either ignorant of the problems posed by an Islamist Egypt or worse, he embraces them.

The MB threatens not just Egypt and the Suez but puts a noose around the most important oil producer in the world, Saudi Arabia. Could it be that for either personal or pragmatic reasons, Obama wants to see the price of oil soar? A death grip around Egypt and Saudi Arabia is a perfect prescription for $150 per barrel oil. Those prices suddenly make green energy a viable alternative.

The American Thinker believes that Obama is not like President Jimmy Carter, a deer caught in the headlights. Instead it says, Obama understands exactly what he is doing in muckraking radical Islam:

“From his notorious Cairo speech to the present, President Obama speaks, and disaster follows.

“Some commentators believe that President Obama and Secretary of State Clinton are so utterly naïve as to make themselves unable to understand what will happen in Egypt as a result of their undermining of the Mubarak regime. The question is justifiably asked: Do they truly believe that the next regime that comes to power will have the interests of the U.S. and the West at heart?

“My fear is that Obama is not naïve at all, but he instead knows only too well what he is doing, for he is eagerly promoting Islamic power in the world while diminishing the West and Israel, however much innocent blood will flow as a result. 

“Inevitably, sooner or later, the Muslim Brotherhood will take power, usher in a barbaric Islamist power in Egypt that will control the Suez Canal, and show no mercy to its own people or its perceived foes.

“So now we see what the present incumbent in the White House has wrought.”

Fact #1: If MB gains control of Egypt, it will dictate the use of the world’s most important water transits. Nearly 2 million barrels of oil per day, most of it destined for Europe, could be cut off without notice even as that continent is in the midst of its worst economic crisis in 70 years.

Fact #2: If the MB wrestles control of Egypt, that sets up Saudi Arabia as Islam’s next target. The House of Saud pumps 8 million barrels of crude per day. If they collapse, a petro-based world collapses. There is not enough oil in the world to compensate for the current petroleum production coming from Saudi Arabia. (Before you write me about the pie-in-the-sky project in the Dakotas, do a bit of research — the U.S. is currently pumping less than 5 million barrels of oil per day, or about what we produced when Truman was in office while oil production for North Dakota will take well over a decade to develop.)

Fact #3: New green technologies only work if oil prices are well above $100 per barrel. If MB rules Egypt radical Islam will set its sights on Saudi Arabia.

That would give Obama’s Green Revolution a lot of traction. In fact, the President’s view of the world as it “should be” can only happen if he instigates a price contagion upon petroleum. Only then can he sit back and say: “Green energy. Mission accomplished!”

I don’t know what is going through the President’s mind, but I do know we have a President very different from George W. Bush. Bush wanted to protect America from Arab oil shocks. Obama seems to be inviting them.

Is it out of Muslim loyalty or Green ambitions? In the end, does it even matter? What matters is that America has a President that is putting his personal goals ahead of the nation. First and foremost for this man is his re-election, with all of his grandiose ambitions that will follow.

Yours in good times and bad,
John Myers
Editor, Myers’ Energy & Gold Report

It’s All About Jobs — His Job!

President Barack Obama has been on a pilgrimage of late, declaring that America will re-invent itself with green technology.   He has even declared that the nation must move away from oil and invest in things that will vastly improve our fortunes; things like solar shingles and cars that run on sunlight and water.

The President has gone so far as to promise that in just four years America will be the first nation in the world to have a million electric cars. 

It is the President’s version of Jack and the Beanstalk.  In that story and in Obama’s imagination, immense wealth and a great transformation will occur overnight.  All we need is a few magic beans (patent pending), water, sunshine and poof, we will have a green beltway to Eden which will be brimming with new jobs.

The President has been talking about jobs a lot lately.  Last week he went to Penn State University to stump his green revolution.  And late last month he announced that he has created at least one new job.  But it is for someone who doesn’t even need it, General Electric Chairman and CEO Jeffrey Immelt, who will focus on growing employment for the nation.  The object of all this media, money and minutia all comes down to saving one job; Obama’s.

“We’re going back to [GE founder] Thomas Edison’s principles,” Obama said in Schenectady, N.Y. “We’re going to build stuff and invent stuff.”

Unsaid in his “Stuff Speech” is that the plant he was speaking from dates back to when Edison was helping invent the Industrial Revolution.  After the President’s speech the media did not make much of the fact that GE has fewer than half its workforce in the United States and that more than 50 percent of its revenues come from foreign operations.  Like the rest of the world, G.E. understands that its fortunes are not dependent upon the U.S. 

Also unsaid is that the world will be happy to buy blue print proprietary technologies that Obama is willing to give away in an effort to be re-elected. 

Let’s take away words like traitor and poser and ask ourselves a simple question: Can America sell enough high tech turbines to offset all those dog-toys from China and petroleum from the Organization of the Petroleum Exporting Countries?  Probably not.

Nevertheless Obama recently proclaimed: “We can out-compete any other nation on Earth.”

Not so said The New York Times

“Let’s not kid ourselves: Talking about ‘competitiveness’ as a goal is fundamentally misleading…  [Instead] that talk of competitiveness helps Mr. Obama quiet claims that he’s anti-business. That’s fine, as long as he realizes that the interests of nominally “American” corporations and the interests of the nation, which were never the same, are now less aligned than ever before.”

Maybe I am jaded, but I believe that the only interest Obama has in his heart is self-interest.  He also has many powerful disciples, including the mighty Oprah Winfrey.  She was the first guest on the new CNN talk show hosted by Piers Morgan. English and a younger version of Larry King and with only a fraction of the wives, Morgan proclaimed Oprah to be, “the American Queen” and said she and President Barack Obama are arguably the two most powerful people in America. 

When asked whether Obama’s performance in office had been disappointing, Winfrey angrily declared:

“I don’t think he (Obama) has been disappointing at all.  I really do not. I really do not, because I believe that I understand the heart of him. And I understand that when he took this role on, he took it on to really bring a sense of betterment to the United States of America and the people of this country. And I know that in his heart, that is his ultimate and primary role.”

What Oprah seemed to be saying is that Americans do not yet understand or appreciate the President and the mission he has undertaken to save us.  Obama remains to Oprah as she proclaimed him to be three years ago: “The chosen one”.

While Oprah didn’t specify on exactly why most Americans are either too ignorant or too stupid to “get it,” Obama is finally getting a grasp of things.  Following two years of ramming Obamacare and gays in the military down America’s throat, the President realizes it might be a good time to work on that little problem he and his cabinet have been calling, “the worst economic crisis since the Great Depression.” 

Recently, the President revealed his Franklin Delano Roosevelt-like ambitions which he has spelled out in grand and green changes for the future.  I don’t know about you, but I felt better just thinking Obama was just another crooked Chicago politician.  The idea that the President has grandiose plans is downright disturbing. 

Vice President Joe Biden recently wrote an email in which he thanked activists of the Democratic National Committee, Organizing for America.  In it, Biden asked them for their continued support: "We knew it would take time. We knew it would be hard. And we knew we would sometimes make mistakes."

Biden continued. "But we did not lose sight of what we came to do. Together, we took on difficult issues that had been put off for decades. And some say we have accomplished more in two years than any administration since Roosevelt’s."

Biden went on to say that the administration’s success is, "literally proof that the organizing you do on the ground — the conversations you have with your friends and neighbors — is working." 

The Vice President’s email contained a list of legislative accomplishments, including healthcare reform, financial regulatory reform, the stimulus, the auto bailouts and the repeal of the military’s "Don’t ask, don’t tell" policy.

When you see a list like that it is hard to argue with Biden’s logic.  The only thing missing is that FDR was president for 12 years while Obama is just two years into his presidency.

It is yet to be determined whether Obama’s green schemes will get him re-elected.  I am optimistic they won’t.  If anything, Obama is proving himself to be most like Jimmy Carter.  Rising inflation, the crisis in the Middle East and an environmentalist President seem all too familiar.  Hopefully, Obama won’t spend one more day in office than Carter did.

Yours in good times and bad,

–John Myers
Myers’ Energy and Gold Report

Islam Is Afire While Obama Fiddles

“Is that a fiddle I hear there somewhere drifting through those fired dry sands?”–Raphie Frank

Another week with Barack Obama as U.S. President and radical Islam grows even stronger. Egypt, America’s largest and most important ally in the Middle East, is aflame as revolutionary forces marched and even burned President Hosni Mubarak’s Ruling Party headquarters.

As I write to you the streets of Cairo are ablaze following a week of mass demonstrations in which thousands of people have attacked the police and ignored curfews. The people want to end the 30-year dictatorial rule of Mubarak, but radical elements are quickly bending the protests their way in an all out effort to turn the land of the Pyramids into the home of martyrs.

If the extremists in Egypt can do what they did in Iran, then the Middle East — home to two-thirds of the world’s oil reserves — will turn to Islamic law.

Egypt sits at the crossroads between Europe and the Middle East. Not only does it have the largest Arab population but also the strongest conventional army in the region. Since the fall of the Shah in Iran, Egypt has provided the glue that held the Middle East together. It was Egypt that was the first Arab nation to recognize Israel and it is always Cairo at center stage in any Middle East peace process.

Political analyst Simeon Mitropolitski sums up what is at stake:

“Egypt offers a completely different political and social model, something between the Iranian and the Taliban versions of Islamic state. In 1954 this organization was banned and shortly afterward it was accused of trying to assassinate President Nasser, a champion of alternative secular social and political model.”

Regardless of what is at stake, Egypt is burning and the Obama administration has once again been caught off guard.

On Monday, Washington was desperately trying to fly more than 2,400 U.S. citizens out of Egypt. It appears that no contingency plan was made for this revolt. Again, American intelligence services appear to be anything but intelligent.

So far the State Department has put a remarkable positive spin on events, just like they did when the Shah was toppled. But wishful thinking isn’t going to create a new Egypt built on Thomas Jefferson’s ideals. It is far more likely that America and the world will have to deal with an Islamic-ruled Egypt, if not now then in a few short years.

One of the most immediate worries is the Suez Canal, a waterway that opens into the Red Sea and which is a choke point for much of the world’s oil supply. Egypt’s primary export is cotton. The world isn’t going to fall apart because of a cotton shortage. Yet whoever rules Egypt also has their hands on the Suez spigot. This could have an immediate short-term impact on oil deliveries — the price of crude has surged more than $6 per barrel in just the past two trading days.

Rioting in Cairo could spread fast. Many businesses have shut down operations. Egypt’s stock market (EGX) has been closed after it fell 16 percent last week.

Outside of Egypt the financial center of the Middle East, Abu Dhabi, has been hit the hardest. On the Dubai exchange shares plummeted to a one-year low. If unrest grows and the Suez Canal closes it won’t be some far off stock exchange falling, it will be the New York Stock Exchange. But there is something far more worrisome than a 25 percent correction in the Dow Jones Industrial Average or even $5 per gallon gasoline. Rather think of the ramifications if Egypt, a center post of America’s war on terror, falls into the hands of the enemy.

Forget Robert McNamara’s incorrect domino theory that was projected for Southeast Asia in the 1960s. If Egypt crumbles there really will be a cascade of giant dominoes headed straight for the West and riding atop each one of them will be a crazed terrorist with a bomb strapped to his back.

It is still too soon to say what will arise from this revolt, but it could center on the growing power of Egypt’s Muslim Brotherhood (MB). According to the Business Insider:

“The MB would be calamitous for U.S. security. What’s more, their current defenders don’t really argue that point, as much as they seem to dismiss it as not important or something we can live with. The MB supports Hamas and other terrorist groups, makes friendly noises to Iranian dictators and torturers, would-be uncertain landlords of the critical Suez Canal, and opposes the Egyptian-Israeli agreement of 1979, widely regarded as the foundation of peace in the Mideast. Above all, the MB would endanger counterterrorism efforts in the region and worldwide. That is a very big deal.”

This leaves the United States at the mercy of another Iranian crisis, but this time around is far worse. 

True, Iran was a major oil exporter and Egypt is not. However the world was consuming only half as much oil when the Shah fell compared to today. More importantly, during the Iranian revolution Saudi Arabia had enough spare oil production capacity to replace all of Iran’s oil exports. In fact, the House of Saud increased oil output from 8 million barrels per day to more than 12 million barrels per day. That is something that Saudi Arabia can no longer do.

If another Islamic Revolution gains traction in Egypt how much longer will there even be a Saudi Arabia as we know it? Egypt has been a great counter-balance against extremism in the Middle East for almost 40 years. It has provided critical support to Arab oil producers like Saudi Arabia and Kuwait and it has been the primary reason there has been peace between Israel and the Arab world.

The Middle East is a bigger tinderbox than ever and once again Obama has shown that, under his leadership, the world continues to become a less safe place. Is it his fault that Egypt is burning? No. But it is his fault that he and his Secretary of State, Hillary Clinton, didn’t see it coming and weren’t able to force Mubarak to reform his dictatorial rule before it was too late. Now the world will have to pay the consequences.

Action To Take

Double down on your oil investments. Canadian oil sands can only benefit from the trouble that is brewing in the Middle East. If you have not yet bought shares in Suncor Energy (NYSE, SU, $41) I urge you to do so. The price of the stock has doubled in the past two years. I expect that it could double again over the next year.

Yours in good times and bad,

–John Myers
Myers’ Energy & Gold Report

With Gun Control, Canadian Criminals Are Making A Killing

“After a shooting spree, they always want to take the guns away from the people who didn’t do it.”–William Burroughs

When I lived in Spokane, Wash., I exercised my right as an American citizen to own a handgun. As an American living in Canada, I no longer have that right. And while there may be fewer guns in Canada, I feel less safe than I did in the U.S. That is because up here it is the criminals that have guns.

There is no constitutional right to bear arms in Canada. Instead, most of us hope that we won’t someday look down the barrel of a gun drawn by a felon.

It is a worry I hope Americans don’t ever have to live with. But you don’t have to be much of a prognosticator to expect a crackdown on guns following the Tucson tragedy. Just days after the murders which almost took the life of Congresswoman Gabrielle Giffords (D-Ariz.), Democratic Rep. Carolyn McCarthy (D-N.Y.) was already planning to introduce legislation that would put restrictions on law abiding citizens’ freedom to obtain firearms.

No doubt McCarthy and other liberals will decry gun ownership and will stump about the need to make America safer.

But I can tell you laws don’t make people safe. Canada has some of the strictest gun control legislation in the world. Yet Canadian criminals seem to have easy access to guns.

Such was the case on New Year’s Day 2009. I was in my office in Calgary. I looked out the window and saw half a dozen police cruisers racing down Bonaventure Drive, sirens blaring. They went to a usually quiet strip mall two blocks from my office.

It was around 3:45 p.m. when a car pulled into the parking lot of the Bolsa Vietnamese Restaurant. One man remained in the car while two others entered the restaurant. There they shot dead two members of a rival drug gang.

An innocent victim, 43-year-old Keni Su’a who happened to be eating alone that day, was also shot dead.

The press named it the Calgary New Year’s Massacre and it was an escalation in an ongoing war between rival drug gangs: The “Fresh Off the Boat” (FOB) and the “Fresh Off the Boat Killers” (FK).

This and many more murders have happened even as the Canadian government has cracked down on gun registration. None of which seems to have bothered immigrant gangs like the FOB and FK who have gone from carrying knives to toting high-powered assault weapons. Such guns were in use again this past New Year’s Day when two gang members fired shots that killed one man and left another in serious condition.

This is happening in Calgary which has a population of 1 million. Things are more dangerous in larger Canadian cities like Montreal, Toronto and Vancouver. And it is not just the drug gangs that breed gun violence in Canada. There is no shortage of crazies who always seem able to arm themselves.

In 2006 a Canadian gunman uploaded pictures of himself posing with a rifle. He bragged on his blog that he loved the Internet game based on the Columbine shootings. One day he decided to stop playing. He went to a Montreal college and, when all was said and done, he killed one person and seriously wounded another 19 before he shot himself.

On Jan. 13 the Ottawa Citizen, concluded that Canadian gun legislation is a failure:

“As strict as Canadian gun laws appear, they do not prevent the movement of illegal firearms in or out of this country, nor their possession, and only cover those firearms that have been registered. Last year, Canadian police services reported some 8,000 victims of violent gun crime, ranging from assault to robbery and homicide — a rate of almost one person per hour victimized by violent gun crime. On average, more than 1,200 Canadians are killed and more than 1,000 injured with firearms each year.”

Canada’s stringent gun laws don’t simply take aim at handguns. In 2001, the registration portion of Bill C-68 was implemented. With that law the Federal government demanded all firearms — including rifles and shotguns — be registered. Then, in 2003, Ottawa passed a law that failure to register any and all firearms would result in criminal charges.

There are a lot of old ranchers and farmers in Alberta that couldn’t be bothered to do the paperwork on an old Winchester. In the eyes of Ottawa’s bureaucrats these people are criminals.

Canada Once Embraced Guns

I was born in Alberta and I grew up around guns. On my 12th birthday my dad bought me a single-shot .22 rifle. On my 18th birthday he bought me a 12-gauge pump action Remington shotgun. I never imagined that a time would come where I would have to level my shotgun at a person; that I would take deadly aim with it.

But that happened when I as a senior at the University of Calgary and was cramming for a final. Around midnight I heard a car screech to a stop outside my parent’s home which sat on an isolated street. I was home alone with the family dog, Elsa, a Great Dane with a gentle disposition.

In the news had been reports that two men were terrorizing women on Calgary streets. Two young women, Laurie Boyd and Debbie Stevens, had been dragged from their cars at night and murdered.

I heard pounding at the front door. I knew something was seriously wrong when I opened the door to find my girlfriend Angela standing before me crying. Before I could even ask her what was happening a second car pulled into our driveway with the high-beams on.

I took Angela inside and went outside to see what the commotion was about. I brought the family dog with me and kept her leash wrapped tightly around my hand.

Two men were walking straight towards the door; neither one saying a word and neither showing any regard for me or our dog which was growling and barking.

I dragged the dog back inside and gave her to Angela. I remembered the Remington that I kept in the front closet. I found it and then fumbled for the single target load shell that I kept in the corner of the hat shelf. It was all the ammunition I had, but I was damn happy to have it.

I was shaking, but I loaded the shell. I slipped back outside. I was surprised at how close these strangers were to me; perhaps fewer than 20 paces. I remember the taller of the two had his hand reached inside his coat.

It was dark so at first I don’t think they noticed my shotgun. But they knew it was there when I raised it to my shoulder and pumped the fore-end, chambering the shell.

In a split second they spun and ran to their car, roaring off into the darkness.

More than a year later two men, Jim Peters and Rob Brown, were charged and convicted on multiple charges of murder.

My girlfriend Angela later became my wife. To this day we don’t know if those men were the Calgary serial killers. All these years later we remain certain of two things: These men had evil intentions and we were damned lucky to have that shotgun.

Yours in good times and bad,

– John Myers
Myer’s Energy and Gold Report

Bailing Out Obama: The Federal Reserve’s New Mandate

“Quis custodiet ipsos custodes?” (“Who watches the watchmen?”)

The Federal Reserve is a traitor to the American people and the nation it has sworn to protect. Recently, the Fed has acted less like a central bank and more like President Barack Obama’s personal piggybank. The Fed seems hell-bent on re-electing Obama for a second term regardless of what it costs.

How is the Fed doing this? By creating trillions of new dollars to re-flate a U.S. economy that is fundamentally flawed by the unprecedented spending of a President and Congress.

The Federal Reserve’s recklessness — orchestrated by Chairman Ben Bernanke — is putting at risk the savings of every American. His actions are straightforward — to create trillions in new aggregate dollars, making each existing dollar able to purchase less.

The central aim of America’s central bank seems simple: Hold together the economy until Obama is re-elected in November 2012. This month the Fed began a second round of quantitative easing, or QE2. This second round of cash creation is meant to jump-start the economy and silence Obama’s critics who complain he hasn’t engineered his promised recovery.

In December the Fed exceeded its authority for the first time when it began purchasing $600 billion in U.S. Treasury securities. Besides flooding the world with fresh money, Bernanke announced in January that he wants to keep interest rates low so the fledgling recovery can fly.

According to Forbes, the Fed’s actions have drawn opposition around the world.

“China, Russia, Brazil, Germany and the U.K. all believe that it will seriously weaken the dollar, possibly forcing other countries to devalue their own currencies and impose more trade restrictions against the U.S. Brazil and other emerging economies also fear that by loosening credit, the Fed could cause new destabilizing asset bubbles abroad.”

Forbes doesn’t point out that none of this is in the Fed’s charter. Instead the job of the Federal Reserve is to faithfully manage the economy and create stability for world markets.

I stumbled upon one of my old textbooks which said: “One of the statutory goals of the Federal Reserve System is to ensure stable prices. This goal can only be achieved if the public believes that the Federal Reserve is taking effective measures to ensure them.”

That is how the Fed is supposed to operate. Created in 1913, the Federal Reserve System had two prime directives: “The dollar over the President; the economy over the Party.”

And for nearly a century the Federal Reserve followed that code of conduct. It was through such actions that the Fed helped establish American economic dominance.

Even after President Franklin D. Roosevelt made it so citizens could not redeem dollars for gold, there have been extended periods when Americans trusted in the dollar more than they trusted gold. Consider President Ronald Reagan’s two terms and the decade that followed. During most of those years, Paul Volcker was Chairman of the Federal Reserve. The result was that between January 1980 and June 1999, the price of gold fell from $850 per ounce to $253 per ounce.

But that was a different era. Today the Federal Reserve and its Chairman no longer hold sacred protecting the purchasing power of the dollar. The once-independent Fed now seems intent on serving the President and promoting his economic policies.

Of course, Bernanke has been a loyal public servant to two Presidents. He was first appointed by President George W. Bush in the winter of 2006. Then Obama re-appointed him. Over those five years Bernanke has used every power at the Fed’s disposal to pump up the U.S. economy, even though it has delivered a devastating bear market for the greenback.

In a short statement given in Martha’s Vineyard in August 2009 with Bernanke at his side, Obama lauded the Fed chief’s “temperament, courage and creativity.” It was these personal characteristics, said Obama, that had helped Bernanke navigate America out of a Great Depression.

President Obama left out the one characteristic that Bernanke seems to have in spades — loyalty. Only loyalty can explain why Bernanke has been playing fast and loose with interest rates while initiating monetary policies that have spawned hundreds of billions of dollars in fresh new money.

Bernanke certainly has more than his share of critics. During his second Senate confirmation, 70 Senators voted in favor of Bernanke, but 30 voted against him. That was the narrowest margin by which a Fed chairman was ever won a nomination.

Still, Obama and many members of his administration applaud Bernanke. As long as he can keep the Chinese lending and investors from balking on Big Board stocks, Bernanke can help Obama be re-elected.

But holding the economy together won’t be easy. The Chinese and other foreign investors are growing restless about throwing money into U.S. Treasuries — those pesky bonds Washington needs to keep selling every week just to stay in business. Meanwhile, people like Congressman Ron Paul (R-Texas) are not turning a blind eye to Bernanke.

According to Paul: "There is something fishy about the head of the world’s most powerful government bureaucracy, one that is involved in a full-time counterfeiting operation to sustain monopolistic financial cartels, and the world’s most powerful central planner, who sets the price of money worldwide, proclaiming the glories of capitalism.”

And there is more to this than just Paul’s opinion. There is hard evidence that the United States — under the leadership of Obama and his loyal lieutenant, Bernanke — is headed for an inflationary maelstrom. Fueled by the Fed’s program of quantitative easing, MZM money supply has soared $475 billion in the past six months. This is the money the Fed lends to the banks which is then lent out at a multiple. That is why MZM is sometimes referred to as super-money, and can be a catalyst in creating inflation.

Another broad measure of money, M2, has also been rising at an alarming rate, as you can see in the chart below.

That the Fed is pushing such rapid monetary growth may underscore just how frightened Federal Reserve Governors are that we will see a double-dip recession, perhaps even a full-fledged depression. But remember, the Fed is supposed to be worried about protecting the integrity of the dollar. It appears instead that the Fed wants to protect itself along with the rest of the Ruling Elite.

More than 150 banks shut their doors last year. Five-hundred banks could close this year. The Federal Reserve will do whatever it takes to see that doesn’t happen, the dollar be damned.

One final thought — it is probably premature to celebrate the eviction of Obama from the White House in two years as much as we might like to. There are a lot of powers at work, the Federal Reserve included, that will be working to ensure the status quo.

Yours in good times and bad,

John Myers
Myers’ Energy and Gold Report

Obama’s Ultimate Betrayal

Welcome to 2011; another year for President Barack Obama, whose energy policies are dictated not from the White House but from Abu Dhabi and Riyadh.

Obama’s Christmas gift to the nation was the December announcement by the President himself to clamp down further on domestic oil and gas drilling. Welcome to the New Year where pump prices now average more than $3 per gallon.

Despite the worst recession since the Great Depression, we are paying the highest gas prices since 2008. All thanks to Obama’s need to go Green, which is enriching Arab oil producers while putting America’s future at risk.

Obama regulators have been busy slipping in ill-advised energy policies. First came the pre-Thanksgiving announcement that oil exploration and drilling in Alaska would be curtailed. All for a good cause, said the Obamaites, to help save vast expanses of polar bear habitat. Then Obama’s Department of the Interior made a pre-Christmas policy change that would further cut domestic oil supplies by making energy-rich lands untouchable.

It seems that Obama forgot that designating Federal lands as wilderness areas was supposed to require an act of Congress. Yet the day before Christmas Eve, Obama’s Department of the Interior did a coup d’état. As a result, the Obama administration alone is able to judge where oil can or cannot be drilled. In doing this, Obama has thwarted George W. Bush’s policy that restricted unilateral action by the White House.

Then there is the drilling in the deep-water Gulf of Mexico. Nearly three months after the Obama administration lifted its ban, oil companies are still waiting for approval to drill the first new oil well in the Gulf. In fact, the petroleum industry expects the wait to continue until the second half of 2011, and perhaps well into 2012.

This long delay by the Obama administration is costing Big Oil billions of dollars that they have tied up in Gulf projects; projects that are now on hold while petroleum companies pay out thousands of dollars every day on rigs that stand idle.

Last week the Wall Street Journal wrote this indictment of Obama’ energy policy:

“Their impact goes beyond the oil industry. The Gulf coast economy has been hit hard by the slowdown in drilling activity, especially because the oil spill also hurt the region’s fishing and tourism industries. The Obama administration in September estimated that 8,000 to 12,000 workers could lose their jobs temporarily as a result of the moratorium; some independent estimates have been much higher.

“The slowdown also has long-term implications for U.S. oil production. The Energy Information Administration, the research arm of the Department of Energy, last month predicted that domestic offshore oil production will fall 13 percent this year from 2010 due to the moratorium and the slow return to drilling; a year ago, the agency predicted offshore production would rise 6 percent in 2011. The difference: A loss of about 220,000 barrels of oil a day.”

All of which leaves America more susceptible to an Arab oil embargo. The last one happened in the 1970s when the U.S. was pumping twice as much oil as it is now.

With the U.S. gulping more foreign crude than ever, Arabs could bring America to its knees. You would think that a President as smart as Obama would understand the risk he is putting the nation in; a nation which he has sworn to protect.

Perhaps the greatest waste of American resources is out West where there is potentially hundreds of millions of barrels in oil reserves and trillions of cubic feet in gas deposits; all of it just waiting to be drilled and pumped to a thirsting nation. Yet our President is obstructing America from meeting its energy needs.

Ben Lieberman of The Washington Times explains:

“Utah is particularly hard hit, with up to 6 million acres in jeopardy of being locked away from development. Rep. Rob Bishop, Utah Republican, told The Salt Lake Tribune, “[This decision will seriously hinder domestic energy development and further contribute to the uncertainty and economic distress that continues to prevent the creation of new jobs in a region that has unduly suffered from this administration’s radical policies.”

But there is more. Two days before Christmas the Environmental Protection Agency (EPA) undertook a Pearl Harbor-like pre-emptive attack on U.S. refiners with an order that will place severe limits on carbon-dioxide emissions. The EPA, in language Joseph Stalin would have been proud of, said: “The details have yet to be determined.”

The Moroccan Candidate
The bottom-line is that under Obama, Washington is certain to increase the cost of converting oil into gasoline. If you are looking forward to spending $5 per gallon at the pumps, you will love Obama’s bold new move to make America more green.

The $5 per gallon is not just a number I picked out of the air. The former president of Shell Oil says that’s entirely possible as high demand pushes the price of crude oil higher and higher.

Culminating some time by the third quarter of 2012, retail pump prices in places like California and New York will reach roughly $5 per gallon, said former Shell Oil president John Hofmeister.

Former energy secretary Bill Richardson was asked about Hofmeister’s stark prediction: “I hope he’s wrong, but this is a very volatile energy market and we haven’t moved as fast as we should in America towards reducing our dependence on fossil fuels.”

Hofmeister underscores the urgent need to develop domestic oil production and he even accuses the Obama administration of being anti-oil.

“I have no problem moving beyond oil but not today, not tomorrow, not 2011 or 2012. We can’t. It’s simply impractical and unreal,” Hofmeister said.

Meanwhile, the Department of Energy (DOE) has put out a statement saying it will continue to pursue responsible oil and gas production while focusing on vehicle efficiency standards and investing in electric vehicles, bio-fuels and mass transit.

Obama’s DOE must think America alone can make the Earth green. What the President seems to forget is the fact that China, India and Russia, along with a host of Third World polluters, are using coal and even wood furnaces to drive their industries.

It appears to me that Obama’s Green policies are nothing more than collateral damage to a nation that needs domestic petroleum and the jobs that that industry provides. Instead Obama’s policies seem to be helping Arab oil exporters.

If you think I exaggerate, consider this from the Dec. 29 Economist, not known as a bastion of conservative ideals: “Mr Obama’s team of managing the Middle East is even more inept than Mr Bush’s. The American right and many Israelis think he is too pro-Arab.”

Dubya Billboard: “MISS ME YET?”
People in the petroleum industry don’t believe Obama is pro-North America, at least not when it comes to energy. Canada’s oil sands — which help keep America on the road every day—have been labeled “dirty oil” by Obama Democrats (as if the crude they pump out of the Saudi desert was somehow clean). And given the political realities that exist in many parts of Alaska, Sarah Palin has a greater chance of hitting a gusher with an errant shot from her AR-15 than Big Oil has with a drill-bit.

Despite Bush’s multiple mistakes in the Middle East, he was a patriot who at least wanted to ramp up domestic oil and gas production. That’s not true of Obama, who seems intent on increasing America’s dependency on Arab oil.

As I write to you, oil has topped $90 per barrel. I believe that by summer it will break over $100 per barrel. That makes Big Oil a good investment. But at what cost?

Under Obama’s presidency we are headed for an energy crisis worse than anything President Jimmy Carter could have engineered. Just how high oil prices will go I don’t know. Much depends on what happens in the 2012 election.

Yours in good times and bad,

John Myers
Myer’s Energy and Gold Report

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