“I Wouldn’t Hold My Gold in the U.S. At All” – Faber

I Wouldn’t Hold My Gold in the U.S. At All” – Faber

Dr Marc Faber has again urged people in the world to be diversified, own physical gold and to be their own central bank.


Dr Marc Faber on Gold

In another fascinating interview with Bloomberg, Dr. Marc Faber covered Japan’s massive QE experiment, the slump in oil prices and the importance of diversification and owning physical gold.

The interview was extensive and he covered a lot of ground which helped put the current major economic trends in perspective. The editor of the the Gloom, Boom and Doom Report, is always contrarian but always measured in his insightful analysis.


Japan’s foray into QE as a “ponzi scheme” in that “all the government bonds that the Treasury issues are being bought by the Bank of Japan” according to Faber. He said that in the short term Japan may not have to face consequences because “most countries are engaged in a Ponzi scheme.

But he warned that “it will not end well.”


When the interviewer put it to him that various economic indicators such as jobs numbers in the US were positive recently he countered that these statistics” are published by the Obama administration, and therefore I would be very careful to take every figure for granted.”


He pointed to first-time home-buyers in the US, the number of which are at thirty year lows.


“A lot of people are being squeezed very badly because the costs of living are rising more than their salaries and wages.” The low home-buying figures show that people simply cannot afford to buy houses anymore demonstrating that no amount of cherry-picked statistics can gloss over the fact the US economy is not in good shape.


He also mentioned his long maintained view that inflation and deflation are not uniform phenomena but that “in some sectors of the economy you can have inflation and in some sectors deflation.” The implication of this is that, again, government statistics are not necessarily an accurate reflection of the state of the economy.


He does not see long term weakness in the oil market. The current low prices, while they may be advantageous to western consumers are damaging those companies in the U.S. who took on large debts to develop oil drilling projects. And Saudi Arabia cannot run it’s social system, he reckons, if prices go below $70 for an extended period.


The consumption of oil in the developing world is increasing from a very low base in comparison to the West.

“So I think the long-term trend for demand is up, but obviously the decline of oil prices, some people blame it on Saudi Arabia and some other blame it on the US and who knows what, the fact is maybe the decline in oil prices tells you that the global economy is not recovering as all the bullish analysts think, but actually it’s weakening. Yes, weakening.”


To support this contention he argued that European economies are stagnant and China is in a slowdown. The knock on effect of this is that industrial countries are not buying commodities from resource-rich countries who in turn are not buying manufactured products from the West.

This means that “you have the potential of a downside spiral.”


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Singapore Freeport

With regards to gold being at four-year lows he said “it’s been a miserable performance since 2011. However, from the late 1990 lows we’re still up more than four times. So I just looked at performance tables over 10 years and 15 years. Gold hasn’t done that badly, has done actually better than stocks.”


When asked about Goldman Sachs negative outlook on gold, he mischievously said “I would say Goldman Sachs is very good at predicting lower prices when they want to buy something.”


He added, “now I personally, I think that we may still go lower. It’s possible. I’m not a prophet, but I’m telling you I want to own some gold because I don’t trust the financial system anymore. I think the whole thing is going to collapse one day and then I’ll be happy to have some assets. But of course the custody is important. I wouldn’t hold my gold at the Federal Reserve because they will lend it out. I wouldn’t hold my gold in the US at all.”


In terms of custody, Dr. Faber has been a long time advocate of storing gold in Singapore. We concur and believe that along with Hong Kong and Zurich, Singapore is one of the safest places in the world to store bullion.


In terms of government, Singapore is ranked 4th in the world and 1st in Asia for having the least corruption in its economy. Singapore is ranked the most transparent country in the world.


In terms of economic performance, Singapore is ranked No. 2 worldwide as the city with the best investment potential for 15 consecutive years. Singapore is the world leader in foreign trade and investment.


In terms of business competitiveness, legislation and efficiency, Singapore is ranked the most competitive country in the world. Singapore is ranked No. 1 for having the most open economy for international trade and investment.


Singapore is one of the world’s easiest place to do business and may have the best business environment in Asia Pacific and worldwide. Singapore is Asia’s most “network ready” country.


Singapore is first in the world for having the best protection of intellectual property and is the least bureaucratic place for doing business in Asia and possibly the world.

 

Dr. Faber prudently advises clients not only to diversify among asset classes but to also to diversify within asset classes. We share this view. We advise our clients to hold gold in various locations and in various forms but always in secure vaults and safe jurisdictions such as Singapore or Switzerland.


Access Essential Guide to Storing Gold in Singapore here
 




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Russia, China Sign Second “Western Route” Mega-Gas Deal: China Becomes Largest Buyer Of Russian Gas

As we previewed on Friday, when we reported that “Russia Nears Completion Of Second “Holy Grail” Gas Deal With China“, moments ago during the Asia-Pacific Economic Cooperation forum taking place this weekend in Beijing, Russia and China signed 17 documents Sunday, greenlighting a second “mega” Russian natural gas to China via the so-called “western” or “Altay” route, which as previously reported, would supply 30 billion cubic meters (bcm) of gas a year to China.

Among the documents signed between Russian President Vladimir Putin and Chinese leader Xi Jinping were the memorandum on the delivery of Russian natural gas to China via the western route, the framework agreement on gas supplies between Russia’s Gazprom and China’s CNPC and the memorandum of understanding between the Russian energy giant and the Chinese state-owned oil and gas corporation.

“We have reached an understanding in principle concerning the opening of the western route,” Putin said. “We have already agreed on many technical and commercial aspects of this project, laying a good basis for reaching final arrangements.”

RIA adds, citing Gazprom CEO Alexei Miller, that the documents signed by Russia and China on Sunday define the western route as a priority project for the gas cooperation between the two countries.

“First of all these documents stipulate that the “western route” is becoming a priority project for our gas cooperation,” Miller said, adding that the documents provide for the export of 30 billion cubic meters of Russian gas to China annually for a 30-year period.

Miller noted that with the increase of deliveries via the western route, the total volume of Russian gas deliveries to China may exceed the current levels of export to Europe in the medium-term perspective. In other words, China has now eclipsed Europe as Russia’s biggest, and most strategic natural gas client. More:

Miller, who heads Russia’s state-run energy giant, told reporters that “taking into account the increase in deliveries via ‘western route,’ the volume of supplied [natural gas] to China could exceed European exports in the mid-term perspective.”

 

This came after Russian and Chinese energy executives signed on Sunday a package of 17 documents, including a framework deal between Gazprom and China’s energy giant CNPC to deliver gas to China via the western route pipeline.

 

Miller said Gazprom and CNPC were in talks on a memorandum of understanding that would see Russia bring gas to China through the western route pipeline, as well as a framework agreement between the two state-owned companies to carry out the deliveries.

The western route will connect fields in western Siberia with northwest China through the Altai Republic. Second and third sections may be added to the pipeline at a later date, bringing its capacity up to 100 billion cubic meters a year.

The facts and figures of the Altay deal are broken down in the following map courtesy of RT:

Also of note, among the business issues discussed by Putin and Xi at their fifth meeting this year was the possibility of payment in Chinese yuan, including for defense deals military, Russian presidential spokesman Dmitry Peskov was cited as saying by RIA Novosti. More from RIA:

Russia’s President Vladimir Putin and China’s President Xi Jinping have discussed the possibility of using the yuan in mutual transactions in different fields of cooperation, Kremlin spokesman Dmitry Peskov said Sunday.

“Much attention has been paid to the topic of mutual payments in diverse fields … in yuans which will help to strengthen the yuan as the region’s reserve currency,” Peskov said commenting on the meeting held between Putin and Xi on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Beijing.

On October 13, Russian Economic Development Minister Alexei Ulyukayev announced that Russia was considering Chinese market to partially substitute access to the financial resources of the European Union and the United States.

The European Union and the United States have imposed several rounds of economic sanctions on Russia over its alleged involvement in the Ukrainian crisis, a claim Moscow has repeatedly denied. The restrictions prohibit major Russian companies from seeking financing on western capital markets.

Meanwhile, as China and Russia keep forging ahead in a world in which the two becomes tied ever closer in a symtiotic, dollar-free relationship, this is how the US is faring at the same meeting: “China, U.S. Parry Over Preferred Trade Pacts at APEC: Little Progress Made on Separate Trade Deals at Asia-Pacific Economic Cooperation Forum.”

The U.S. blocked China’s initiatives because it worried that launching FTAAP talks would impede progress on a separate trade deal, the Trans-Pacific Partnership. The ministers’ statement said that any FTAAP deal would build on “ongoing regional undertakings”—a reference to TPP and other regional trade deals.

 

 

The Chinese got all they could expect—a reaffirmation that we all share in the vision of having a regional integrated model” for trade, said U.S. Chamber of Commerce Executive Vice President Myron Brilliant.

 

U.S. Secretary of State John Kerry said Saturday that negotiating the TPP “is a battle that we absolutely must win.” Ministers from the 12 TPP nations met Saturday afternoon to try to narrow differences, including disputes between the U.S. and Japan over agriculture and auto trade. On Monday, the leaders of the TPP nations are again scheduled to discuss the trade deal, although no breakthrough is expected.

 

The U.S. is trying to tie an ITA deal to progress on other trade deals with China, as a way to increase its leverage with Beijing. “How the ITA negotiations proceed is an important and useful data point” on China’s ability to negotiate an investment treaty with the U.S., Mr. Froman said.

 

Trade analysts say the U.S. also hopes to use China’s desire to have the Beijing conference produce concrete results as leverage. This is the first major international summit held in China since Xi Jinping took over as Communist Party chief in 2012, and the government wants to use the session to affirm China’s greater role in the world.

Good luck trying to “increase US leverage with Beijing” using a trade conference being held in Beijing as the venue.

In other words instead of actual trade agreements, the US merely jawboned and “shared visions.”

Then again, as noted here since 2010, in a world in which one can merely “print one’s way to prosperity”, what is the need for actual trade? Surely, which China and Russia are expanding their commercial ties at the expense of Europe, the US can continue to pretend it is the world’s only superpower and has no need for either Russia or China. After all, Mr. Chairmanwoman can always go back to work and print some more of that “world reserve currency.”




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Myopic Domestic Delusion or Planned Monetary Demolition?

Courtesy of the StealthFlation Blog

Over the years, much to his credit, David Stockman has consistently been vehemently emphatic when it comes to exposing the abject menace of unfunded fiscal overrun and overt monetary accommodation.  Today, Stockman has become a veritable tour de force wrecking ball, directing his outrage squarely at the entrenched political and monetary establishment that has foolishly and recklessly ignored these undeniable economic malignancies that he has been tirelessly forewarning.

Whether it be via his recent best selling book, The Great Deformation , a seething tome which comprehensively indicts an America that has lost all sense and semblance of the capitalist ideals it was founded upon, or his vibrant blog, DS’s Contra Corner , an oasis for free market advocates who warn against the menacing collusion between the State and private capital, rest assured, Mr. Stockman is being heard.

This eloquent, accomplished and well informed man has not only outlined the grave intractable monetary and fiscal predicament staring down at us like a cocked and loaded double barreled shotgun, but also has identified the obstinate culprits who refuse to face that very real reality.  No matter how delusionally determined a nation is, it simply can not spend and print its way to prosperity, same as it ever was.  Lamentably, for them and for us, the ill-considered course our financial authorities and policy makers have set sail for will inevitably bring us all face to face with a disastrous economic maelstrom of monumental magnitude.   The die is cast, or as my cousins would say; Les jeux sont fait.

As one who relished David’s brilliant book, as well as having been granted the privilege to share my own meager thoughts on his prolific blog, it will come as no surprise that I am in near complete accord with Mr. Stockman’s unambiguous assessment and entirely unassailable point of view.  To quote Bobby Dylan, Stockman is “right on target, so direct”.

Having indicated my tremendous respect for the man, and shared my complete agreement with the great majority of his manifest reckoning, you should also know that I don’t see eye to eye with him on a distinct and crucial matter.  In fact, we have reached a near total impasse on the issue.

Let me elaborate.  In my view, David is far too sanguine in regards to the economic policy racketeers and pompous political hacks.  He sees them simply as an entirely misguided group, primarily made up of hapless deluded academics, feckless financial authorities, imperious self-seeking politicians and openly self-serving connected insiders, whom are all whistling the pied piper tune of unbridled Keynesianism, dining together on the same wantonly perceived free lunch.

In short, Mr. Stockman believes the perpetrators are nothing but imprudent self-seeking lunatics that have unwittingly lost sight of things.  The following passages from his most recent scathing article “Ritual Incantation – The Economic Gibberish Of The Keynesian Apparatchiks”  offers up vintage Stockman:

“Yep, the Keynesian priesthood is operating from sacred texts and magic numbers. One of these revelations says that 2% inflation was decreed by the great god of GDP and that any shortfall will precipitate his wrathful extractions from growth and jobs. But there is not a shed of empirical evidence for 2% versus 1% or 3% annual change in consumer inflation—–even if it were honestly measured. Its just revealed word as transmitted by the Keynesian priesthood…………….

 

But somewhere during the last two decades the Keynesian stimulus project migrated from the fiscal authorities to the central banks. This had far-reaching consequences because it shifted the locus of policy making from the unruly, paralysis prone machinery of legislative budgets and taxes to unelected bureaucrats and academics endowed with virtually plenary powers and 13 year terms.

What is worse, it put them in the full-time business of fiddling with the money and capital markets in the false belief that they could control the evolution of the macro-economy through its financial nerve center and deftly guide GDP back to the ordained path of full employment.

 

Consequently, all hell has broken loose These interventions have not levitated the real economy, nor have they closed the imaginary output gap. Instead, massive central bank stimulus has destroyed honest capital markets and enabled a giant casino of speculators to feast on the free money and market props, puts and bailouts offered by the central banks.”

So where is the impasse I point to?  Well, as stated above, I am not quite so sanguine as Mr. Stockman is regarding the reasons behind our apparent self induced economic undoing.   It is my contention that there exists ample motive behind the apparent policy insanity we are indeed witnessing and actually navigating through.

What is being done is quite simply too plainly preposterous to be so innocently and readily dismissed.  One has to consider what else may be driving the continuous and relentless stoking of a glaring, oncoming, head on collision train wreck dead ahead.  No locomotive engineer can simply be assumed to be this brain dead, so completely out to lunch, it just doesn’t add up.   Something else is at the heart of this mainlined monetary mayhem.

Call me a jaded cynic or even worse, a crackpot conspiracist, but when I see a country as majestic and powerful as the United States which has always stood for liberty and the pursuit of free enterprise, knowingly, willfully and conspicuously being undermined,  as if being herded over a cliff like baffled buffaloe on the great plains , I smell a dubious dirty rat.

So I ask you again Sir David:  Myopic Madness or Planned Demolition?

Let us bear in mind, that the IMF Multinational Central Bankers are waiting in the wings to pick up the pieces of the train wreckage, with their deliberate SDR regime preparations.  They are qualifying themselves to take on the existing immense capital account imbalances between the debtor and creditor nations.  That will  be a critical aspect of the developing picture.

As a new global monetary order begins to emerge and impose itself, the SDR composite will be expanded so as to address these utterly unsustainable trade imbalance.  The envisaged multilateral SDR monetary instrument will be positioned to buy out the existing unserviceable sovereign debt loads, whereby the massively indebted nations of the developed world will cede a measure of influence to the creditor nations of the emerging world.

Ultimately this multinationalist central banking coup d’etat will further centralize the global monetary regime’s imposition and dominance of the new international economic order.  Afterall, they are the ultimate central planners, as the entire globe is their Keynesian domain.  Is the Stockman’s wrecking ball off the mark?  Could there be something quite viable here……….

The G20, taking place in Brisbane over the weekend, will address the key question of IMF global convergence which was formally initiated earlier this year.

“(Reuters) – Finance chiefs from around the globe on Friday gave the United States until year-end to ratify long-delayed reforms to the International Monetary Fund and threatened to move forward without it if it fails to do so.

 

The inability to proceed with giving emerging markets a more powerful voice at the IMF and shoring up the lender’s resources appeared the most contentious issue for officials from the Group of 20 leading economies and the representatives for all IMF member nations who met with them.

 

In a final communiqué, G20 finance ministers and central bankers said they were “deeply disappointed” with the delay.

“I take this opportunity to urge the United States to implement these reforms as a matter of urgency,” Australian Treasurer Joe Hockey told reporters on the sidelines of the IMF-World Bank spring meetings.

 

The reforms would double the Fund’s resources and hand more IMF voting power to countries like the so-called BRICS – Brazil, Russia, India, China and South Africa.

 

The U.S. Congress has refused to sign off on the overhaul, which was agreed to in 2010, and the failure overshadowed even the crisis in Ukraine and the spillover effects of ultra easy monetary policies in advanced economies in the discussions.

 

Some Republicans have complained the changes would cost too much at a time Washington was running big budget deficits. The reforms also ran afoul of a growing isolationist trend among the party’s influential Tea Party wing.

 

If Washington does not ratify the reforms this year, the G20 advanced and emerging economies said they would ask the IMF to develop possible next steps.”

The Lowy Institute for International Policy, an independent think tank advising the G20 this weekend in Brisbane, offered this notable alert:

“The delay in advancing the IMF reforms is unfortunate and frustrating, damaging the credibility of the IMF and G20. This frustration has, in part, contributed to the move by Brazil, Russia, China and South Africa to establish a New Development Bank — often simply referred to as the ‘BRICS’ Bank’— that combines features of the World Bank and the IMF.  The G20 has to be more responsive in accommodating the concerns of emerging markets. While the G20 should continue to press the United States to pass the governance reforms, the G20 should not become ‘stuck’ if there are ongoing delays by the United States. It should rather be proactive and ensure that the failure to advance the governance reforms is in no way impacting the operations of the IMF and, in particular, ensure that the Fund’s surveillance (along with access to resources) is even-handed and is not biased towards any group of countries.”

Moreover, this traumatic monetary transition will not go uncontested, there will most certainly be substantial tension between the Nation States involved in the pivotal negotiations, as well as with the disparate multinational interests which are at stake.  Nevertheless, there are two key developments that you can absolutely count on through this transformative period.

The first is that the international central bankers will undoubtedly position themselves to extract a choice meaty pound of flesh.  The second is that during the intense transitional deliberations determining the parameters of the new agreed upon international means of exchange, as per usual, Gold, which Greenspan just dubbed the “premiere currency” at a recent CFR event he attended, will play a vital role to establish and maintain the trust between the arbitrating parties.

Got Gold?




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VID: How One New York Educator Beat the Teachers Union

“How Eva Moskowitz Outmuscled the Teachers Union,” interview by
Nick Gillespie and produced by Jim Epstein. About 17 minutes.
Original release date was November 7, 2014 and original writeup is
below.

 

In November 2003, Eva Moskowitz, then a freshman member of
the New York City Council, held explosive public hearings about how
union contracts imposed inane work rules on public schools. The
city’s political establishment was astonished.

Mosowitz—a former history professor, public school teacher, and
self-proclaimed liberal, whose politics up until that point seemed
to resemble those of every other Democratic politician in New
York—was sacrificing her political career to take on organized
labor. Exposing the consequences of teacher union contracts was a
direct affront to the United Federation of Teachers (UFT), which
wields enormous influence in New York City elections.

Moskowitz didn’t pussyfoot. At one point in the hearings, she
even played audio testimony from a whistleblower with a disguised
voice. She said that many of her sources declined to appear because
they feared union retribution. She also went toe-to-toe with Randi
Weingarten, the UFT’s confrontational leader.

Two years later, when Moskowitz ran for Manhattan Borough
President, Weingarten and the UFT mobilized against her and sunk
her candidacy. So Moskowitz left politics for the time being; if
she couldn’t transform the system from within, she would build an
alternative to the public schools.

Today, Moskowitz is the founder and CEO of Success Academy, which is the
city’s largest and most successful charter school network. With 32
schools around New York City—staffed by a non-union teaching
force—Success Academy
posted test results last year
that astounded
education policy experts.

Meanwhile, Moskowitz and her charter school allies started
building a powerful coalition to counter the outsized
political influence of organized labor. In March, when New York
City Mayor Bill de Blasio (D) tried to squash Success Academy’s
expansion plans,Moskowitz
bused 11,000 charter school parents and kids
up to the state
capital in Albany to protest—and New York State Governor Andrew
Cuomo came out in support. De Blasio retreated. Success Academy
could move forward with its expansion plans after all, and state
lawmakers quickly passed a bill to protect charter schools from
future interference by the mayor.

Reason TV’s Nick Gillespie sat down with Eva Moskowitz to talk
about why her schools are so successful, whether her model is
scalable, how labor contracts hurt  schools, and what moved
her to sacrifice her political career to bring attention to the
corrosive influence of unions on public education.

About 17 minutes.

Written, shot, and edited by Jim Epstein; interview by Nick
Gillespie; additional camera Anthony L. Fisher.

Scroll down for downloadable versions and subscribe to Reason TV’s YouTube
Channel
to receive automatic updates when new material goes
live.

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The US Government Doesn’t Want You To Know There’s A Run On Silver Bullion

Silver Eagle

It looks like the entire world is spitting out gold and silver as an investment or hedge, as the prices of both precious metals were tumbling in the past few weeks. Well, at least the demand for gold and silver ‘paper’ isn’t anymore what it used to be, but the demand for physical silver is really booming.

Reports have reached us from Germany that the demand for silver is really surging, and this is an interesting sentiment meter because Germany usually acts as one of the main distribution centers for the European Union. Several large bullion dealers have seen the demand for silver increase, and in just the next few days after last week’s crash, almost all dealers sold as many silver coins in just three days as they usually do in an entire month.

Now you can try to dismiss this easily by saying that the Germans and the rest of the European Union are simply preparing for an upcoming implosion of the Eurozone, but that couldn’t be further from the truth. The US Mint recently had to announce that there were no more silver Eagles in inventory, and that it would have to suspend deliveries for new orders. This announcement hasn’t been made public (why not, US Mint? Are you trying to keep the people dumb?) but was only sent to larger bullion dealers in the USA.

US Mint Silver Sales

Source: US Mint

So did the US Mint miscalculate its production rate or was there effectively a surge in demand? Well, the previous image proves it’s the latter. The sales number of Silver Eagles in October almost TRIPLED from the August level and in just the first few days of November (there were only 3 trading days before the US Mint ran out of coins), another 1.26 million ounces were sold, and this brings the total year to date at 39.3M (and it’s quite certain last year’s sale number of 42.675M will be surpassed). We see the same demand increase in gold (see the next image), as the Mint sold more gold in October alone than in July and August combined. And here again, in just the first few days in November, the Mint already sold more gold than in several previous months and it looks like November will end on the second place in terms of demand per month.

Gold Coin Demand US Mint

Source: US Mint

A cheap argument would be that it’s the Europeans who are accelerating their purchases of Silver Eagles. That’s incorrect, as people usually buy silver Maple Leafs and Australian coins and not as much Silver Eagles which have a higher premium over the pure silver value. So this demand for the Silver Eagles (and renewed demand for the Gold Eagle coins) is coming from the USA itself and NOT from foreign demand.

All signs are indicating that both in Europe as in the USA (not so much in Australia, which – despite the big mining sector- isn’t in a bad shape from an economic point of view) the demand for precious metals coins is surging. It’s not surprising the US Mint has ran out of inventory, but instead of announcing it in a press release, it sent a secret note to the bullion dealers. As the US Mint is a government institution, it should really be no surprise the government doesn’t want you to know there a rush to get your hands on gold and silver.

>>> PROTECT YOUR WEALTH: Get Our Latest Gold Report… For FREE!

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Sheldon Richman on Jon Stewart’s Sterile Satire

Political satire has a long and honorable
history: Aristophanes, William Shakespeare, Jonathan Swift; W.S.
Gilbert; George Orwell; Lenny Bruce; Dick Gregory; Tom Lehrer,
 David Frost, and That Was the Week That Was;
George Carlin; Spitting ImageYes,
Minister
; the Smothers Brothers; the early Saturday
Night Live
, Dave Barry, The
Onion
South ParkFamily
Guy, 
and so many more. And then, writes Sheldon Richman,
there’s Jon Stewart, who is probably regarded as America’s premier
political satirist but felt it necessary to recant after
making a weak joke about not voting, an indication, perhaps, that
Americans just don’t get satire.

View this article.

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Protests Heat Up in Mexico Over Murdered Missing Students, Idiot Politicians, and the Narco-State Their Drug War is Facilitating

Kermit meme from MexicoIn late September police in Iguala, Mexico,
apparently abducted 43 college students, now believed to have been
handed over to a drug cartel and murdered. The mayor of Iguala and
his wife are among those arrested in relation to the mass
murder—the mayor ordered police to attack the students, who were
raising money in the area, because he thought they would disrupt a
speech his wife was making.

The horrifying incident, another signpost on Mexico’s road to
narco state status, also galvanized much of the Mexican population,
leading to weeks of protests against corrupt politicians and their
links to drug cartels.  Earlier today demonstrators set fire
to several vehicles outside the office of the governor of Guerrero
state, which includes Iguala.

The renewed protests were fueled in part by a comment made by
Mexico’s attorney general, Jesus Murillo Karam, at the end of a
press conference about the missing students.  CBS News

reports
:

After an hour of speaking, Murillo Karam abruptly signaled for
an end to questions by turning away from reporters and saying, “Ya
me canse” — a phrase meaning “Enough, I’m tired.”

Mexico mayor, wife detained in case of 43 missing students

Mexico police searching for missing students make discovery

Cartels, corruption, and the case of 43 missing Mexican
students

Within hours, the phrase became a hashtag linking messages on
Twitter and other social networks. It continued to trend globally
Saturday and began to emerge in graffiti, in political cartoons and
in video messages posted to YouTube.

Many turned the phrase on the attorney general: “Enough, I’m
tired of Murillo Karam,” says one. Another asks: “If you’re tired,
why don’t you resign?”

Other people used it to vent their frustrations with messages
such as “Enough, I’m tired of living in a narco state” or “Enough,
I’m tired of corrupt politicians.”

As U.S. drug policies continue to destabilize Mexico even while
multiple U.S. states move toward legalizing marijuana, the
posturing of American drug warriors from the safety of their homes
and offices will look increasingly idiotic, dangerous, and
unsustainable.

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Gold & Economic Freedom

…by Alan Greenspan

Published in Ayn Rand’s “Objectivist” newsletter in 1966, and reprinted in her book, Capitalism: The Unknown Ideal, in 1967.

An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense — perhaps more clearly and subtly than many consistent defenders of laissez-faire — that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.

Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

The existence of such a commodity is a precondition of a division of labor economy. If men did not have some commodity of objective value which was generally acceptable as money, they would have to resort to primitive barter or be forced to live on self-sufficient farms and forgo the inestimable advantages of specialization. If men had no means to store value, i.e., to save, neither long-range planning nor exchange would be possible.

What medium of exchange will be acceptable to all participants in an economy is not determined arbitrarily. First, the medium of exchange should be durable. In a primitive society of meager wealth, wheat might be sufficiently durable to serve as a medium, since all exchanges would occur only during and immediately after the harvest, leaving no value-surplus to store. But where store-of-value considerations are important, as they are in richer, more civilized societies, the medium of exchange must be a durable commodity, usually a metal. A metal is generally chosen because it is homogeneous and divisible: every unit is the same as every other and it can be blended or formed in any quantity. Precious jewels, for example, are neither homogeneous nor divisible. More important, the commodity chosen as a medium must be a luxury. Human desires for luxuries are unlimited and, therefore, luxury goods are always in demand and will always be acceptable. Wheat is a luxury in underfed civilizations, but not in a prosperous society. Cigarettes ordinarily would not serve as money, but they did in post-World War II Europe where they were considered a luxury. The term “luxury good” implies scarcity and high unit value. Having a high unit value, such a good is easily portable; for instance, an ounce of gold is worth a half-ton of pig iron.

In the early stages of a developing money economy, several media of exchange might be used, since a wide variety of commodities would fulfill the foregoing conditions. However, one of the commodities will gradually displace all others, by being more widely acceptable. Preferences on what to hold as a store of value will shift to the most widely acceptable commodity, which, in turn, will make it still more acceptable. The shift is progressive until that commodity becomes the sole medium of exchange. The use of a single medium is highly advantageous for the same reasons that a money economy is superior to a barter economy: it makes exchanges possible on an incalculably wider scale.

Whether the single medium is gold, silver, seashells, cattle, or tobacco is optional, depending on the context and development of a given economy. In fact, all have been employed, at various times, as media of exchange. Even in the present century, two major commodities, gold and silver, have been used as international media of exchange, with gold becoming the predominant one. Gold, having both artistic and functional uses and being relatively scarce, has significant advantages over all other media of exchange. Since the beginning of World War I, it has been virtually the sole international standard of exchange. If all goods and services were to be paid for in gold, large payments would be difficult to execute and this would tend to limit the extent of a society’s divisions of labor and specialization. Thus a logical extension of the creation of a medium of exchange is the development of a banking system and credit instruments (bank notes and deposits) which act as a substitute for, but are convertible into, gold.

A free banking system based on gold is able to extend credit and thus to create bank notes (currency) and deposits, according to the production requirements of the economy. Individual owners of gold are induced, by payments of interest, to deposit their gold in a bank (against which they can draw checks). But since it is rarely the case that all depositors want to withdraw all their gold at the same time, the banker need keep only a fraction of his total deposits in gold as reserves. This enables the banker to loan out more than the amount of his gold deposits (which means that he holds claims to gold rather than gold as security of his deposits). But the amount of loans which he can afford to make is not arbitrary: he has to gauge it in relation to his reserves and to the status of his investments.

When banks loan money to finance productive and profitable endeavors, the loans are paid off rapidly and bank credit continues to be generally available. But when the business ventures financed by bank credit are less profitable and slow to pay off, bankers soon find that their loans outstanding are excessive relative to their gold reserves, and they begin to curtail new lending, usually by charging higher interest rates. This tends to restrict the financing of new ventures and requires the existing borrowers to improve their profitability before they can obtain credit for further expansion. Thus, under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth. When gold is accepted as the medium of exchange by most or all nations, an unhampered free international gold standard serves to foster a world-wide division of labor and the broadest international trade. Even though the units of exchange (the dollar, the pound, the franc, etc.) differ from country to country, when all are defined in terms of gold the economies of the different countries act as one — so long as there are no restraints on trade or on the movement of capital. Credit, interest rates, and prices tend to follow similar patterns in all countries. For example, if banks in one country extend credit too liberally, interest rates in that country will tend to fall, inducing depositors to shift their gold to higher-interest paying banks in other countries. This will immediately cause a shortage of bank reserves in the “easy money” country, inducing tighter credit standards and a return to competitively higher interest rates again.

A fully free banking system and fully consistent gold standard have not as yet been achieved. But prior to World War I, the banking system in the United States (and in most of the world) was based on gold and even though governments intervened occasionally, banking was more free than controlled. Periodically, as a result of overly rapid credit expansion, banks became loaned up to the limit of their gold reserves, interest rates rose sharply, new credit was cut off, and the economy went into a sharp, but short-lived recession. (Compared with the depressions of 1920 and 1932, the pre-World War I business declines were mild indeed.) It was limited gold reserves that stopped the unbalanced expansions of business activity, before they could develop into the post-World War I type of disaster. The readjustment periods were short and the economies quickly reestablished a sound basis to resume expansion.

But the process of cure was misdiagnosed as the disease: if shortage of bank reserves was causing a business decline — argued economic interventionists — why not find a way of supplying increased reserves to the banks so they never need be short! If banks can continue to loan money indefinitely — it was claimed — there need never be any slumps in business. And so the Federal Reserve System was organized in 1913. It consisted of twelve regional Federal Reserve banks nominally owned by private bankers, but in fact government sponsored, controlled, and supported. Credit extended by these banks is in practice (though not legally) backed by the taxing power of the federal government. Technically, we remained on the gold standard; individuals were still free to own gold, and gold continued to be used as bank reserves. But now, in addition to gold, credit extended by the Federal Reserve banks (“paper reserves”) could serve as legal tender to pay depositors.

When business in the United States underwent a mild contraction in 1927, the Federal Reserve created more paper reserves in the hope of forestalling any possible bank reserve shortage. More disastrous, however, was the Federal Reserve’s attempt to assist Great Britain who had been losing gold to us because the Bank of England refused to allow interest rates to rise when market forces dictated (it was politically unpalatable). The reasoning of the authorities involved was as follows: if the Federal Reserve pumped excessive paper reserves into American banks, interest rates in the United States would fall to a level comparable with those in Great Britain; this would act to stop Britain’s gold loss and avoid the political embarrassment of having to raise interest rates. The “Fed” succeeded; it stopped the gold loss, but it nearly destroyed the economies of the world, in the process. The excess credit which the Fed pumped into the economy spilled over into the stock market, triggering a fantastic speculative boom. Belatedly, Federal Reserve officials attempted to sop up the excess reserves and finally succeeded in braking the boom. But it was too late: by 1929 the speculative imbalances had become so overwhelming that the attempt precipitated a sharp retrenching and a consequent demoralizing of business confidence. As a result, the American economy collapsed. Great Britain fared even worse, and rather than absorb the full consequences of her previous folly, she abandoned the gold standard completely in 1931, tearing asunder what remained of the fabric of confidence and inducing a world-wide series of bank failures. The world economies plunged into the Great Depression of the 1930’s.

With a logic reminiscent of a generation earlier, statists argued that the gold standard was largely to blame for the credit debacle which led to the Great Depression. If the gold standard had not existed, they argued, Britain’s abandonment of gold payments in 1931 would not have caused the failure of banks all over the world. (The irony was that since 1913, we had been, not on a gold standard, but on what may be termed “a mixed gold standard”; yet it is gold that took the blame.) But the opposition to the gold standard in any form — from a growing number of welfare-state advocates — was prompted by a much subtler insight: the realization that the gold standard is incompatible with chronic deficit spending (the hallmark of the welfare state). Stripped of its academic jargon, the welfare state is nothing more than a mechanism by which governments confiscate the wealth of the productive members of a society to support a wide variety of welfare schemes. A substantial part of the confiscation is effected by taxation. But the welfare statists were quick to recognize that if they wished to retain political power, the amount of taxation had to be limited and they had to resort to programs of massive deficit spending, i.e., they had to borrow money, by issuing government bonds, to finance welfare expenditures on a large scale.

Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

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Somewhat explains his recent commentary…

 

Source: Jim Quinn's Burning Platform blog




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The Detailed US Shale Oil Cost Curve: Where Is The Line In The Sand?

On an almost daily basis, investors are reassured that a falling oil price is "unequivocally good" for the US economy. The "It's like a tax cut for the consumer"-meme dominates financial media while the impact on the Shale (or tight) oil industry is shrugged off blindly with "well breakevens are low, right?" As Barclays shows in the chart below, the breakeven price for oil to shut-in tight-oil supply varies by region (and corporation) adding that at $80/b WTI, most producers will sweat it out. But, they warn, if prices remain at these levels through 2015, it could compromise the significant potential new volumes that are needed to offset declines from existing wells. This new, higher-breakeven volume is small in 2015, but becomes much larger in 2016 (with a 17-25% plunge in earnings which would drastically reduce capex… and thus The US Economy).

 

As Barclays notes,

As oil prices continue to fall, we review the likely supply response of tight oil supplies. Admittedly, cost of supply curves do not tell the whole story about where prices might bottom. At $80/b WTI, we think most producers will sweat it out and achieve their stated production objectives in 2015. But if prices remain at these levelsthrough 2015, it could compromise the significant potential new volumes that are needed to offset declines from existing wells. This new, higher-breakeven volume is small in 2015, but becomes much larger in 2016.

 

As we stated in the most recent Blue Drum, we expect a rebound in prices in 2H15. But, if prices do remain lower and fall to $70 for all of 2015, half of proven and probable (2P) remaining US tight oil reserves would be challenged. The near-term (6-month) effect would be marginal, but fewer new volumes would be added in 2H15 and in 2016. On a net basis, that implies a reduction to growth of about 100 kb/d for 2015 as a whole. A growth impact of 100 kb/d is a drop in the bucket in the context of total non-OPEC growth of around 1.5 mb/d. Thus, we expect downward price pressure to mount unless OPEC supplies less or demand rebounds.

At $70/bbl, 80% of the 2.8 mb/d of new tight oil volumes by 2017 (not including declines) would be produced (meaning 800 kb/d from new drilling, a reduction of 200 kb/d over the next three years), according to WoodMackenzie.

There are three reasons to be cautious with how cost curves are used.

First, WoodMac’s ‘half-cycle’ cost curve (above) represents new production only at a well, rather than at a project, level. Companies use ‘full-cycle’ economics (which include other expenses) to assess the economic viability of new drilling projects.

 

Second, cost curves do not address how existing production might react. For this, we turn to EIA’s Annual Energy Outlook. EIA scenarios which imply that if prices reach and stay at $70/bbl, annual growth of 630 kb/d by 2017 would be cut by 180 kb/d each year, net of declines.

 

Third, expected improvement in service costs will be another important determinant for the breakeven price of tight oil supplies. Oilfield services sector cost inflation has plateaued and stands to improve further in the coming years. This means that the cost curve in a year is likely to be up to $5/b lower on average. Permian D&C costs have declined from $9-10mn in 2012 to $5-7mn today.

OPEC producers have low production costs (in Saudi Arabia, even as low as $4/bbl), but will feel the heat fiscally. Still, tight oil producers are likely to be first affected in a low price environment.

 

 

Companies are likely to react very differently regarding their market capitalization, hedge ratio, and ‘oiliness’ of output. We estimate that small and mid-cap E&Ps(accounting for 880 kb/d oil and NGLs) would see earnings cut by 17% in 2015 at $80 and by 25% at $70/b, which would likely lead to a cut to capex and drilling plans in 2015. Adding production from infill drilling, drilling in new areas, and enhancing recovery rates from existing wells would add output but require different levels of capex. Wells already online would not be affected, in our view.

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Be careful whatr you wish for…




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