 | | The Daily Reckoning | Tuesday, January 11, 2011 |
- A tax is a tax is a tax is a tax...
- Three resource booms to watch this year,
- Plus, Bill Bonner on Euro dominos and much more...
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Did You See The Video About The American Nuke Bomb LOST Under Ancient Ice Fields?
Way back in 1968, an American B-52 crashed in northwest Greenland...
Unfortunately, the nuclear bombs on board got forever swallowed by an ancient ice sheet...
But there's an unknown penny stock set to rise 2,000% from this sorry situation.
Sound unbelievable? Watch this presentation for proof...
|  | | | | A Tax By Any Other Name... | | The Increasingly Complex Relationship Between Man and State | | |  | | Joel Bowman | Reporting from Buenos Aires, Argentina...
"Whatever is true in one form of words, is true in every other form of words, which conveys the same meaning." - John Stewart Mill
Few and confused are the pundits lauding the vitality of the American economy. Worse still, many and confused are those who offer solutions.
More often than not, situations brought about by the wasteful ineptitude of the state are met with calls for more state involvement, as if a double dose of poison will somehow dilute the effects of its initial involvement. We see this everywhere today, as central banks shackle their present and future citizens with more debt in order to treat a problem caused by just that: too much debt.
We offered a broad-brush overview of the nation's general trajectory in the Weekend Edition:
"According to the official figures, the national debt currently stands at $14.01 trillion dollars. That's more than $45,000 per citizen, or almost $127,000 per taxpaying American. If you add in debt held by households, state and local governments and financial institutions, that number (the total US debt) blows out to well over $55.5 trillion, or more than $680,000 per average family. How much in savings does the average family have to offset this amount? $7,918.
"Letting these figures run for a few years," we continued, "based on their current trajectories, we see that, in 2015, the national debt explodes to over $22 trillion. Per citizen, we're now looking at close on $70,000, or $184,000 per taxpayer. Total debt, as measured above, has now grown to over $63 trillion and the average family's share of that stands at nearly three-quarters of a million dollars. Average savings per family, by the way, have now fallen to just $2,791."
Remarkably, the general consensus on how best to overcome this catastrophic trend invariably involves, in some form or another, additional government intervention and, by extension, spending. The debate appears centered on how best to manage this agent of coercion, the state, rather than on whether we need it at all. Indeed, the mere mention of free-market principals invokes fear, uncertainty and, usually, an abrupt end of the discussion. But look at the facts:
Back in 1903, government spending in the US, expressed as a percentage of total GDP (leaving aside for a moment the spurious nature of that measurement), weighed in at a paltry 6.8%, or $25.9 billion dollars. Although the state's "mission creep" tended steadily higher over the next couple of decades (with an conspicuous spike circa WWI), that percentage remained in or around the low teens until the Great Depression, when the combined efforts of President Hoover and FDR's New Deal effectively doubled state involvement. By 1940, government spending accounted for one-fifth (20.14%, or just over $100 billion) of the nation's GDP. Fast-forward to 2010 and spending by the state had rocketed to over 43% of the nation's total economic output.
We'll leave it to the reader to decide whether the nation's star is today rising or setting, whether her future looked brighter at the beginning of the 20th or 21st century.
Of course, arguments from effect tend to be cumbersome and problematic, due in part to the unreliability (not to mention the sheer volume) of statistics supporting this or that outcome. "Lies, damned lies and statistics," goes the old saw. For every honest, objective, impartial statistician, there are ten million idiots who believe his lies.
It is perhaps more helpful, therefore, to return to basic, first principals. Such is the politico-doublespeak of our time that it seems fit to remind ourselves once in a while, if not constantly, of the true nature of things.
If, as William Shakespeare assures us, "a rose by any other name would smell as sweet," then the law of identity to which he refers leaves us with more than just springtime aromas and romantic iambic pentameter. If, as that law states, A really is A (and A only), then we must not forget to apply this cornerstone of logic elsewhere - even, and especially, to those things which omit a decidedly less alluring scent.
With this in mind, let's revisit the relationship between man and the state that governs him.
The state, by its very nature, is an agent of force. Allen Thornton puts it thus is his essay, Laws of the Jungle:
"What do you think 'govern' means? It doesn't mean 'suggest' or 'implore.' It doesn't mean two people sitting down, talking it over, and compromising. 'Govern' means 'force' and 'force' means 'violence.'"
Concludes Thornton: "When you advocate any government action, you must first believe that violence is the best answer to the question at hand."
While it is true that a great many individuals voluntarily enable it, that fact remains majority rule does not turn fallacy to truth. It does not morph debt into credit, liability into asset, nor wrong into right. A rose is a rose ("is a rose is a rose") whether the majority believes it to be so or not. Likewise, acts of force are exactly that, regardless of how many people vote for them and whatever name they are so given.
The expropriation of private property - which in any other domain is punishable by the very institution that holds a monopoly on such an action; the state - is commonly known as theft. Of course, when the state commits such an act, on threat of imprisonment, fine or other use of force, we refer to it by a subtler label: tax. Let us not be confused here. There exist only two possible forms of wealth transfer - one voluntary, the other coercive. One can no more be "voluntarily taxed" as one can be "partially pregnant." A = A, no more, no less and no other.
Might the problem, therefore, be the agent of force itself - the ever- expanding, increasingly costly, over-reaching arm of the state? And, if so, why are we debating how best to manage it instead of working to rid ourselves of its existence?
To paraphrase that long dead poet: What's in a name? That which we call force, by any other name still robs us of our liberty.
| | | | | Byron King's Energy Scarcity Investor Uncovers... |
Video Presentation: Check Out This Canadian Penny Stock!
This Canadian penny stock play just won the rights to an estimated $172.5 billion oil bonanza... The profit potential could be enormous for investors who get in early.
Resident geologist Byron King has all of the details in this exclusive video presentation. There's still time to get in...
Click here to watch the presentation immediately. (Turn your speakers on.)
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| | The Daily Reckoning Presents | | The Biggest Resource Stories for 2011...and Beyond! | | |  | | Byron King | I'm going to countdown three of 2010's biggest resource stories - not to reminisce about profitable investments from the year gone by, but to highlight what I believe will be very profitable investments in the year ahead...
No. 3: The Continuing Gold Rush
The gold price soared nearly 30% last year - punctuating a spectacular decade-long run that has seen the gold price quintuple! So has gold finally reach a "bubble phase?" Is the great gold bull market on its last legs?
In a word, No!
If gold is in a bubble, then it's one heck of a bubble. Not even the 2008, economy-wrecking market crash could pop it. Gold is not in a bubble; it's in a big bull market, plain and simple.
As stories about quantitative easing and other forms of overt currency debasement crossed the newswires last year, investors became increasingly concerned about the value of the paper they call "wealth." Increasingly, these concerned investors have been shifting some of their wealth from paper to gold...and other hard assets.
Plus, it's easier than ever to "own" gold (so to speak) via the rise of exchange-traded funds (ETFs) like SPDR Gold Trust (NYSE:GLD). With a click of your mouse, you can buy into the new gold rush - although in many respects it's better to buy real gold and take delivery, a point that I've made over and over.
At the same time, the world's gold buyers are chasing declining mine output. That is, despite the rising price of gold, the world is likely past the point of Peak Gold output. All the output from new mines isn't replacing the decline in output from older mines.
But demand is the main story in the gold market...demand for real money, not the paper kind. The monetary universe is changing in a fundamental way, with the price of gold serving as the barometer, thermometer and inclinometer. The cozy old economic order - post World War II, with the US dollar as the world's reserve currency - is passing away, and things won't ever go back to the long, lost "good old days."
I've had endless discussions with skeptics about "why gold prices are rising." Of course, the skeptics can deny, up and down, the meaning of rising gold prices. But at the end of the day, investors and savers around the globe are becoming increasingly fearful of holding paper currencies.
I won't even go into the monetary problems that national governments across the world are facing with fiat currencies. Just accept the fact that mankind's monetary default position is gold, and that's been the case for 5,000 years or more. Don't fight history.
Here at Agora Financial, we've been recommending that readers buy gold since the late 1990s, when it was selling for under $300 per ounce. We still like it at $1,375 an ounce.
When it comes to gold, there's one key idea to take into 2011: Gold is money. And gold makes better money than the government-issued kind. The big risk of owning currency and bonds is that any Tom, Dick Harry - OK, the politicians and bankers - can create as much of it as they want. This year and next, your biggest risk is in not understanding that concept.
No. 2: The Shale Gas Revolution
Just a few years ago, the energy investment idea du jour was to build liquefied natural gas (LNG) terminals to handle future imports to the voracious US hydrocarbon market. Remember Cheniere Energy, once the darling of newsletter writers? Now there's talk of re-tooling some of America's LNG systems for the exportation of natural gas. Instead of bringing foreign gas to our shores, the newest idea is to liquefy natural gas in North America and export it to Europe and China. In terms of gas, the world has turned upside down.
The world energy landscape has changed with new developments in extracting natural gas from shale beds and tight sands. Innovative extraction technologies have dramatically altered the economics of natural gas extraction in North America. South Africa's Sasol Corp., for example, is teaming up with Talisman (NYSE:TLM) to turn otherwise stranded gas into liquid fuel in northern British Columbia. It's a truly revolutionary process - a point that The New York Times made a few days after I mentioned this joint-venture to the subscribers of Outstanding Investments.
Companies like Consol Energy (NYSE:CNX) and MarkWest Energy (NYSE:MWE) are also benefitting from US, Canadian and now global shale gas development. Even our friends the Chinese are coming to the US, to learn how we're cracking shale for gas, so they can duplicate the effort back in the Motherland.
At the same time, the technology for freeing shale gas is finding its way into the oil patch, with companies like Venoco (NYSE:VQ) working to turn California's Monterey Shale into a vast new oil resource. There are a lot of hydrocarbon molecules out there. The trick is to harvest them.
Forward-looking investors should not ignore the fact that shale gas development will provide enormous opportunities for the oil service guys, particularly Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI).
There's much more to come with the shale gas revolution. We're just in the early innings on this one. There's plenty of good investing ahead, and a lot of hydrocarbon molecules yet to be sucked out of the crust.
No. 1: The Rare Earths Boom
Rare earths are a group of exotic elements of the Periodic Table (Lanthanides, mostly), with unique electrical, magnetic, optical and other properties. Without them there's basically no clean tech, green tech, advanced electronics, electric cars, and much more. It's not that rare earths are geologically "rare." It's more that they're so darned hard to process in industrial quantities, and into high tolerance end products. That is, the end products are mostly in the nature of "designer molecules."
Thus, doing the rare earths gig is far more than basic exploration, mining and crushing. Doing rare earths correctly involves being really good in chemistry and chemical engineering as well. There's nothing easy about it.
The big rare earths story for 2010 was how an otherwise obscure sector of the mining and processing industry became a destination point for billions of dollars of new investment. As 2010 drew to a close, we were in a market mania, in some respects, with some rare earth stocks "melting up." The story was driven by China and its precipitous reductions in export quotas - front page news across the globe.
You may have seen the statistic that China controls about 97% of the world's rare earths supply. Let's not quibble about the exact number - a few fractions one way or the other. And when China ratcheted down its rare earths quotas during 2010 - part of a long-range strategic industrial policy, I must add - it shook the Western world to its industrial foundations. It's all been a shock to the global trading system.
This shock has produced some shockingly large gains in the shares of rare earth mining companies. A lot of these stocks have become very volatile and frothy. So caution is warranted. But the rare earth story is very real and very exciting.
Don't miss this one!
Regards,
Byron King,
for The Daily Reckoning
Joel's Note: Byron recently sent a research presentation to his Outstanding Investments readers, instructing them on 9 specific ways to play gold in the coming year. If you are interested and want to take a look, turn your speakers on and visit this link.
| | | | | Why Some People DIDN'T Go Broke In The Bust |
From 2008 until now, some people watched their gains go UP...as high as 448%, 556%, and even 579%...
On what? Not gold or blue chips. And obviously not real estate. Yet they could soon do it - and so could you.
Click here to watch the free new video that shows you how.
| | | | | | Bill Bonner | | How to Get Trapped by Sovereign Debt | | |  | | Bill Bonner | Reckoning from Paris, France...
It's a new decade. Time for a new thought. A new idea. A new theme.
When did we have our last new idea? Was it in this century? We can't remember.
Fortunately, in the world of money the fewer ideas you have the better. Ideas are usually wrong. They are like mutations. Most are sterile. Dead ends.
Most ideas are dead ends too. Because they are necessarily stupid. At any given time, both in past, present, and future, there are an infinite number of things going on. An idea is merely a way of understanding a little bit of them. You try to capture a part of what is going on...an important part, you hope, in a single metaphor. And you hope others will say: "Oh, that's what's going on!"
But in order to put it into a containable, bounded thought...you have to ignore everything else. All the things that don't quite fit...all the things that make no sense...all the extraneous facts and circumstances. In fact, you have to ignore almost everything that is going on in order to focus on one idea that makes sense to you.
Every idea is like a jealous mistress; she insists that you look only at her. As a result, you miss more than you see...
But that doesn't stop us from having a good time with an idea from time to time. And we've got one today.
We'll introduce it in a moment...
First, let's take a look at the news. We begin by noticing that the English seem to have a better idea of what is going on in America than the Americans themselves. The London "Telegraph" reports:
The US is drifting from a financial crisis to a deeper and more insidious social crisis. Self-congratulation by the US authorities that they have this time avoided a repeat of the 1930s is premature.
There is a telling detail in the US retail chain store data for December. Stephen Lewis from Monument Securities points out that luxury outlets saw an 8.1pc rise from a year ago, but discount stores catering to America's poorer half rose just 1.2pc.
Tiffany's, Nordstrom, and Saks Fifth Avenue are booming. Sales of Cadillac cars have jumped 35pc, while Porsche's US sales are up 29pc.
Cartier and Louis Vuitton have helped boost the luxury goods stock index by almost 50pc since October. Yet Best Buy, Target, and Walmart have languished.
Such is the blighted fruit of Federal Reserve policy. The Fed no longer even denies that the purpose of its latest blast of bond purchases, or QE2, is to drive up Wall Street, perhaps because it has so signally failed to achieve its other purpose of driving down borrowing costs.
Yet surely Ben Bernanke's 'trickle down' strategy risks corroding America's ethic of solidarity long before it does much to help America's poor.
The retail data can be quirky but it fits in with everything else we know. The numbers of people on food stamps have reached 43.2m, an all time-high of 14pc of the population. Recipients receive debit cards - not stamps - currently worth about $140 a month under President Obama's stimulus package.
The US Conference of Mayors said visits to soup kitchens are up 24pc this year. There are 643,000 people needing shelter each night.
Jobs data released on Friday was again shocking. The only the reason that headline unemployment fell to 9.4pc was that so many people dropped out of the system altogether.
The actual number of jobs contracted by 260,000 to 153,690,000. The "labour participation rate" for working-age men over 20 dropped to 73.6pc, the lowest since the data series began in 1948. My guess is that this figure exceeds the average for the Great Depression (minus the cruelest year of 1932).
The long-term unemployed (more than six months) have reached 42pc of the total, twice the peak of the early 1990s. Nothing like this has been seen since World War Two. The Great Correction continues, in other words.
And more thoughts...
In the markets... The Dow fell 37 points yesterday. The price of gold rose $5. Nothing very important. The news this morning is dominated by Europe's debt woes. Portugal is the latest nation to suffer an attack by the bond vigilantes. Investors insist on 7% interest to fund Portugal's budget deficits. That's less than the 10% they want in exchange for lending to Greece, but it's 4% more than Germany pays.
Most importantly, it's too much. Here's the problem with national debt. When you have too much of it, you're trapped. You can try austerity. You can try refinancing. You can try to "grow your way out." But at a certain level of debt, it's too late. You're already off the cliff. All you can do is fall.
This is what happened to the Germans after WWI. The reparations demanded by France and Britain were so high that the Germans couldn't pay. And when they tried to pay, the outflow of capital so weakened their economy that they were even less able to pay.
And imagine a bailout. The Chinese have come to rescue Portugal...and behind the Chinese stands the European bailout fund. But these friendly lenders are a menace. At the end of the operation, you're in worse shape than you were before.
But maybe the bailouts give you time to "work your way out?" Possibly. But it depends on the circumstances. Greece, for example, owes an amount equal to 130% of GDP. All that debt has to be rolled over...often several times...before it could possibly be paid. Lenders want 10% interest to cover them against the risk of default. If all the debt carried a 10% coupon, it would take 13% of GDP to pay the interest alone. And if Greece could collect taxes at the same rate as in the US, it would take nearly 100% of all tax receipts just to keep up with the interest payments.
Obviously, that wouldn't work. Greece is working its way INTO more debt, not out of it. The only way out is default, or "restructuring," to sugar coat the pill.
And now the vigilantes have come ashore on the Iberian Peninsula. They are rampaging through Portugal. How long will it be before they cross the border into Spain? And then, into France?
*** We met a friend for a drink last night. He's an American who has lived in Paris for twenty years.
"I'm glad you're back here," he began. "There's no better place for an American to live than here in Paris. It's much better here than in the US. Almost everywhere in the US you have to get in your car and drive somewhere - to a mall - just to get a cup of coffee. That's no way to live.
"It's much better here. Especially if you're an American. Because you can pretty much ignore all the nonsense that goes on here. If you're French, Paris isn't so much fun. French salaries, after all the social charges, are too low to enjoy it. Besides, the French have to know all the social codes and stick to them. But we can do what we want. They just dismiss us as crazy foreigners. And if you're French, you'll get all worked up about what goes on in the government or in your business. Running a business here is a nightmare. But I don't even read the local news. I've never paid any attention to what the government does. Why should I? I can't even vote here.
"And if you're French you have to worry about the country going broke. There is no way they can continue to pay all those people who are retired. They seem to live forever...and they're very expensive. France is going broke. But it doesn't bother me...
"Trouble is, America is going broke too."
In terms of debt and deficits the country that most resembles France is the United States of America. Both are going broke. But so are many other "European" nations...and eventually, probably all of them.
There are the nations of Europe. Then, there are the nations of Europeans - Argentina, Chile, Australia, New Zealand, Canada, and the US.
The point is, most of them are going broke. Their model is exhausted. This was the social welfare model derived from Bismarck - take from workers; pay to non-workers. It was okay as long as the pool of workers was growing faster than the pool of non-workers. But that's no longer the case.
Curiously, the nation furthest along on the road to bankruptcy is a non-European nation that picked up the model early, Japan. Already, there are more people retiring in Japan than there are people entering the workforce. Overall, the population is falling, while the number of people over 65 increases at 3% per year. In 1990, there were more than 4 people working for every retiree. Now there are barely two.
Practically all the European nations, and all the nations lived in predominantly by people from Europe...as well as Japan...are headed down this dead-end road.
*** We're back in Paris this week. What rotten weather! It is raining. It is cold. At 8AM it is still dark outside. So, we went for a cup of coffee at a café near the office.
In one corner, a group of middle-aged men spoke a language we didn't recognize. At the bar, younger men were speaking in Arabic. A couple of Africans came in. They too were speaking in tongues we couldn't identify.
Across from us was a red-haired man of about 35. We recognized him. He is the fellow who sits on the street all day. He doesn't beg. He doesn't talk. He doesn't even look; he spends the entire day staring at the sidewalk. He was the only other European in the café. A complete mad man.
Regards,
Bill Bonner
for The Daily Reckoning
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Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com
| | |  |  |  | Volcker Leaves the Obama Team
Now, here's some bad news. As far as we could tell, the Obama team only had one good man on it...former Fed chief and DR hero Paul Volcker. But word came last week that Volcker is out as head of the president's economic advisory committee. Dear Readers are reminded that Volcker saved the day back in 1979. He pledged to cut inflation. He kept his word. It wasn't easy.
A Long Winter for the Unemployed
Official US Debt Tough to Calculate | Synonymous Terms for Quantitative Easing
I was having a leisurely breakfast with the family when I read where Philipp Bagus, writing at Mises Daily newsletter, quotes James Bullard, president of the St. Louis Federal Reserve Bank, as saying, "it's important to defend inflation from the low side as we would on the high side." I thought to myself, "Defend inflation? Inflation needs to be defended from being too low? Arrgghhh!"
Mistakes With Minimum Wage
A Day in the Life of the National Debt | China's View From Across the Pacific
All we can do this morning is pause to take a breath. In the last 48 hours, the Chinese have checked the following items off their national to-do list... We discussed the last item yesterday. We'll get to the other two shortly. But first, we pause to consider what it is the Chinese see when they look across the Pacific at the "sole superpower."
Silver and Gold Rally, But Still Aren't in the "Mainstream"
Synonymous Terms for Quantitative Easing | |
| | The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. |  |
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