The Daily Reckoning December 3rd
Louis James: Doug, after conversations like the one we had last week, we often get letters from angry readers who accuse you of hating America, disloyalty, and perhaps even treason. These people don’t know or understand what I do about you — that you love the idea that was America. It’s the United State it has become for which you have nothing but contempt. Perhaps we should try to explain this to them?
Doug Casey: I doubt it would work; it’s a tough row to hoe, trying to explain things to people who are so set in their thinking that they truly and literally don’t want to hear anything that might threaten their notions. A person who feels threatened by ideas and who responds with emotion is acting irrationally. How can we have a discussion with someone whose emotion trumps their reason? How do we even begin to untangle the thinking of people who [gathered two weeks ago] to give thanks for the bounty produced by freedom and hard work — the famous puritan work ethic — by eating a turkey bought with food stamps?
But we can outline the ideas, for the record.
Louis: I’ll bring a copy if they ever do put you on trial for thoughtcrime — which is frighteningly close to being real these days and called treason to boot.
Doug: It’s not just close; it’s here. Just try telling an unapproved joke in a security line in an airport these days.
Louis: True enough. Where to begin?
Doug: At the beginning. America was founded as a confederation of independent countries — that’s what a state is. Or was, in our language. The original United States of America was a confederation of countries that banded together for protection against larger and more powerful countries they feared might be hostile. This is not a disputed interpretation of history, but as solid a fact as the study of history produces — and yet a largely neglected one.
Louis: We did cover this ground briefly in our conversations on the Civil War and the Constitution.
Doug: So we did… the short version being that the US Constitution was essentially a coup; the delegates to what we now call the Constitutional Convention were not empowered to replace the existing government — only to improve upon the Articles of Confederation between the then-independent states. The framers of the Constitution drafted it with the notion of a national government already in place, but calmed fears of loss of state sovereignty by calling the new government the “United States of America” — a verbal sleight of hand that worked for over half a century. Then the southern states decided to exercise what these words imply, their right to leave the union. While slavery was and is a wholesale criminal activity I object to in every way possible, the southern states did have the right to secede, both legally and ethically. But the question was settled by force, not reason, and the wrong side won.
Louis: Another coup?
Doug: More like an exposure of the first one for the whole world to see. But by then it was way too late. Despite this, the relative freedom of the US — because it was for many years far freer than other countries — made it possible for artists, engineers, inventors, and businesspeople to flourish and create a society more wealthy and powerful than any the world had ever seen. This is what I call the idea of America — the America That Was.
But the seeds of destruction were already sown at the very beginning — with the Alien and Sedition Acts being perhaps the first highly visible step in the wrong direction. Then came the forceful assertion of one national government, with states reduced to administrative regions via the War of Southern Secession, from 1861-’65. I’m no fan of state governments, incidentally, but at least they’re smaller and closer to their subjects than the federal government. Another major step in the wrong direction occurred with the Spanish-American War of 1898, where the US acquired an overseas empire by force. The next major step downhill was the creation of the Federal Reserve and the income tax, both in 1913, just in time for World War I. It took time for these things to make the system crash, because it was still a fairly free economy.
Louis: But crash it did in 1929…
Doug: Yes. And it led to the Great Depression of 1929-’46, which lasted so long entirely because of the unmitigated disaster of the New Deal (which we discussed recently). The New Deal injected socialist-fascist ideas into mainstream American thought like a poisonous acid, corrupting the heart of the idea of America that once made the place great. The process was completed with Lyndon Johnson’s Great Society, which really established the basis of the welfare-warfare state. It truly set the stage for the total ethical, economic, social, political, and even military disaster now unfolding before our eyes.
Still, the beating heart of the idea of America — which is to say both social and economic freedom — took time to corrupt. Like a strong man who doesn’t know he’s headed for a heart attack, American culture didn’t really peak until the 1950s. The bullet-finned 1959 Cadillac is a symbol of this peak, in my mind.
Louis: Then we had Johnson and his “guns and butter” policy — War in Vietnam and War on Poverty at the same time — followed by tricky Dick kicking the last leg out of under the stool by taking the dollar off an even theoretical gold standard.
Doug: Yes. Nixon was arguably even a worse president than Johnson, with the devaluation of the dollar in 1971 and his creation of the War on Drugs. Things have spiraled out of control since then. In The Casey Report, we’ve written reams about these last decades and how they led to and shaped what’s happening now. But I have to say, the focus has been largely financial.
Louis: Which is as it should be, in a publication designed to help investors navigate these turbulent times.
Doug: Yes, but the corruption goes way beyond that, beyond even the senseless wars and idiotic foreign policy we discussed last week. America, once the land of the brave and the home of the free, is well on its way to becoming a police state — worse than any we’ve seen in the past, including the Soviet Union and Nazi Germany.
Louis: How could it get worse than that?
Doug: Because Big Brother has better technology now, allowing possible manipulation and control of the population that Stalin and Hitler never dreamed of. And because the US used to be such a great place, a lot of people have been tricked into believing it’s the same as it was. But there’s no more resemblance between the America of old and the US of today than there was between the Rome of the Republic and the Rome of the later emperors. Furthermore, most Americans have conflated the government with society. They’re not only different things, but often antithetical.
Louis: I thought you said you’re an optimist!
Doug: I am. But that’s for the survivors who make it through the wringer the global economy — and every person on this planet — is about to go through. I keep telling you that the coming Greater Depression is going to be even worse than I think it is. You may think I’m joking, but I’m not. I do think that, primarily for reasons we discussed in our conversation on technology, what comes next will not only be even better than I imagine, it will be better than I can imagine… but first we have to go through the wringer. I see no way around it. I truly don’t.
Louis: Okay, I know you believe that. Can you substantiate the police-state claim?
Doug: Well, rather than give you anecdotal evidence — of which there are masses more each day — let me refer to a rather perceptive blog post by a George Washington law professor named Jonathan Turley, titled 10 Reasons Why the US Is No Longer the Land of the Free. I’m sure I don’t see everything the way the professor does, but the list struck me as quite accurate and very important for people to understand.
Louis: I’m sure I don’t want to hear this, but okay, shoot.
Doug: [Chuckles] Maybe you don’t, but I know you value the truth. These points underline something I’ve said for years: the Bill of Rights is a completely dead letter. It’s essentially meaningless and rarely even gets the benefit of lip service. Quoting it will result in derision, if not arrest as a dangerous radical.
Frankly, I didn’t think the civil liberties situation could get worse than it was under Cheney-Bush, but it has. Obama has repealed none of what they did — and added more…
You keep lying, when you oughta be truthin’
and you keep losin’ when you oughta not bet.
You keep samin’ when you oughta be a changin’.
Now what’s right is right, but you ain’t been right yet.
— “These Boots Were Made For Walkin’”, written by Lee Hazlewood, performed by Nancy Sinatra.
Where did we leave off last week? Oh yes…right where it began. Nothing new. Stocks were virtually flat. Gold hemmed and hawed. And Facebook tore up a contract with a social gaming company called Zynga. We have no idea what that even means…but the papers assure us it’s important. We’ll see…
Meanwhile, the whole world — or at least the portion of it concerned with investing — seems to be on edge. Folks want to know what’s happening with the “fiscal cliff.” You remember that oh-so-fateful precipice, right? Of course you do. How could you forget!
Here, The Washington Post delivers the latest:
As the White House and Republican leaders enter the final month of negotiations to avoid a year-end “fiscal cliff,” both sides struck an uncompromising tone Sunday, as warnings mounted that they will be unable to forge an agreement to stop an automatic series of deep spending cuts and large tax hikes that could push the economy into recession.
You’ve gotta give it to the mainstream media. They know how to make a silk purse from a sow’s ear…a tsunami of a story from a ripple in a millpond…
“Roll up, roll up! The world economy is going to self-destruct in 10…9…8…
“…But wait! Here comes a bipartisan subcommittee! The world is saved!”
The Post continues, citing the Republican’s man in the ring, John “The Bruiser” Boehner:
“Right now, I would say we’re nowhere, period. We’re nowhere,” House Speaker John A. Boehner (R-Ohio) said on “Fox News Sunday.” Boehner added that the Republicans have offered a way to break the stalemate — by compromising on an overhaul of the tax code that would limit deductions that disproportionately benefit the rich…
Does this mean that the Republicrats have the Democricans on the ropes? Ah, not so fast. Here comes the Dem’s slugger, “Tiny” Tim Geithner:
…Treasury Secretary Timothy F. Geithner rejected that proposal Sunday, insisting that the wealthy pay higher tax rates and that Republicans come forward with a plan that meets that requirement. “There’s no path to an agreement that does not involve Republicans acknowledging that rates have to go up on the wealthiest Americans,” he said on NBC’s “Meet the Press.”
So, how is this going to end? Jittery investors need not wait any longer for an answer. We’ll tell them exactly what’ll happen. Right here in this space. And for free! Are you ready? Really?
Ok…you asked for it…
That’s right: Nothing. Nothing will happen. Nothing of substance, anyway. Politicians will bloviate…the media will pontificate…and the real, underlying situation will continue to deteriorate.
At this stage, there’s nothing one man…or even one party…can do. The ship isn’t headed for an iceberg (or a fiscal cliff)…it has already hit it. The collision happened in stealth, under cover of Fed-sponsored market meddling, interest rate fiddling, EZ credit…and the usual mix of lying, politicking and electioneering. During the night, while passengers and crew slept, ice struck metal, wrenching huge chunks of iron from the ship’s hull…which now has a $16 trillion, national debt-size hole in it. The vessel is taking on water…fast, at a pace never recorded in its history. Worse than that, the total drag on the ship — when one takes into account unfunded liabilities — comes to five times GDP, or roughly $86 trillion. That’s a lot to tow…especially for a sinking ship.
All this yapping on television and in the papers, the incessant chatter about “eleventh hour saves” and “reaching across the aisle” is really just one big distraction…something to keep the masses well-fed and looking the other way. The Romans called it The Great Circus. They built a Colosseum in which to play out their distractions. And the crowd cheered while Rome burned to the ground.
It’s not only gun sales that spiked after Election Day. So did the sale of Gold Eagles from the U.S. Mint.
While Eagle sales hardly set a “record” last month, as touted at the Drudge Report, they did turn in the best number since July 2010, and the best November since 1998. The final figures out this morning from the Mint indicate 136,500 ounces.
“There is a huge influx of new high-net-worth individuals that are buying a lot of gold, and they are taking physical possession of it,” David Beahm tells Reuters: He ought to know: He’s vice president at bullion retailer Blanchard & Co. “This quarter,” he adds, “is shaping up to be one of the best since the last quarter of 2008.”
Hmmm, we seem to recall something about the world coming to an end back then…
The rolling 30-day average of sales, measured in dollars, does indeed look impressive on a chart going back to February of this year and likely prompted Drudge’s careless headline…
Anonymous “analysts” reaching for explanations are chalking it up to “political uncertainty due to a heated U.S. presidential race and $600 billion automatic cuts in government spending and tax increases early next year,” according to Reuters.
Ah, yes, the fiscal cliff — the handy explanation for everything from growing gold sales to an epidemic of nail fungus…
On the other side of the world, a new catalyst for gold is taking shape in China. Banks there can trade gold among themselves over the counter, starting today.
“From a government perspective, gold is seen as currency, and the government is slowly releasing the controls on currency. We expect the [gold] market will be opened up to more foreign banks,” Standard Chartered global chief of metals trading Jeremy East tells The Wall Street Journal.
Indeed, Mr. East says China aims to build up Shanghai into a competitor with London as a major gold trading center.
Next step: the development of a gold ETF to trade on the Shanghai Stock Exchange.
The preceding article was excerpted from Agora Finacial’s 5 Min. Forecast. To read the entire episode, please feel free to do so here.
Obama has been too quiet lately. And when he does speak, he says little of substance. For example, on the looming fiscal cliff that has America panicked, he held a press conference on Nov. 28 to urge people to tweet Congress.
The only hard policy statement included was a reiteration of his well-worn proposal to not to raise taxes on families earning less than $250,000 a year.
Tweets? Really? Why not have a bake sale?
In Everybody’s Autobiography (1937), the American expat Gertrude Stein expressed the futility of returning to her childhood home in Oakland, Calif., by writing, “There is no there there.” The phrase has come to indicate something that is empty of meaning or substance.
People who make the mistake of listening to Obama’s rhetoric often conclude there is no there there. His plans usually consist of sermons in which his voice rises and falls to emphasize phrases like “American exceptionalism” and “social justice.” They are packed with promises, but lack substance as to how anything will be accomplished. People should stop listening; they should start watching, instead, because the substance of Obama is not at the podium, but in the regulatory and other agencies he is creating to enforce de facto law without going through Congress.
OBAMA’S POLITICAL METHODOLOGY
In his crusade for a second crack at the presidency, Obama made many promises. He pledged to create “1 million manufacturing jobs by 2016″, to cut “oil imports in half by 2020,” and “cutting in half the growth in college tuition over the next 10 years. The means to accomplish these goals consisted of vague references to reforming tax codes and establishing “a new network of 15-20 manufacturing innovation institutes,” etc.
During his Sept. 6 speech to the Democratic National Convention, however, Obama gave particular emotional stress to one passage. “It will take more than a few years for us to solve challenges that have built up over decades. It will require common effort, shared responsibility, and the kind of bold, persistent experimentation that Franklin Roosevelt pursued during the only crisis worse than this one.”
Obama has long prided himself on being a political reincarnation of FDR. For years, talking heads in the media have piled on to debate the similarities and differences between specific policies of the two presidents. This approach misses the point. Of course, their specific policies differ. The circumstances of their presidencies differ. For example, the outright confiscation of gold executed by FDR in 1933 is not likely to occur under Obama, because gold no longer serves the same political and economic purpose as it did in the 1930s; the U.S. is no longer on a gold standard.
The essential similarity lies in the political methodology of both presidents. The surface of the methodology is the application of charisma backed up by vague promises that bulge with noble phrases. The depth is the imposition of measures through backdoor means that bypass Congress and receive little to no public attention.
For example, during his presidency (1933-1945), FDR issued well over 3,000 executive orders. (The number varies depending on the type of order included.)
Generally speaking, an executive order is a presidential directive that implements policy, often by reinterpreting the Constitution or existing federal statutes. The order does not require participation by Congress and avoids public debate. Yet these orders are powerful political devices. For example, Executive Order 9066 authorized the internment of tens of thousands of Japanese-American citizens during World War II.
To date, the strongest methodology parallel has been the creation and expansion of regulatory agencies. A regulatory agency is defined as “a public authority or government agency responsible for exercising autonomous authority over some area of human activity in a regulatory or supervisory capacity”. In short, the agency dictates how life must be conducted in a sprawling range of areas from agriculture to human organ transplants, from airline travel to cutting hair.
The structures created under FDR were called alphabet agencies. Some were established by executive order, others by acts of Congress. More than a hundred government bodies dictated a New Deal for Americans that intruded government into virtually every corner of daily life. The alphabet agencies included: the Housing Authority, the Tennessee Valley Authority (TVA), the National Labor Relations Board (NLRB), the Farm Security Administration (FSA), and what later became the Federal Aviation Administration (FAA). The power vested in them was immense. For instance, the director of the Office of Censorship could censor international communications at “his absolute discretion.” Many, like the Social Security Administration, had a profound impact on the basics and organization of American life that lasts to this day.
Under Obama, a similar proliferation of regulatory agencies and “czars” has occurred. “Czar” is the unofficial and popular label given to a high-level official appointed by the executive branch to oversee a policy or agency. For example, Obama’s intellectual property enforcement coordinator is usually referred to as the copyright czar. (The term came into popular usage during FDR’s tenure.) The number and faces of Obama czars vary widely over time, but as of May 23, there were 57 of them.
On Nov. 14, The New York Times reported of Obama’s second term, “Already, the Obama administration has been moving to install tougher regulators than it had in the early part of its tenure.” The new regulators “are likely to be less intimidated by the specter of being hauled in front of Congress and yelled at, especially by House Republicans.” Regulatory agencies and czars — the enforcement arms of the executive — will be paying no heed to Congress. And as long as they fly under the radar, they need not worry about public opinion. The agencies will be free to impose Obama’s sweeping New Deal on America.
WHERE THE REAL POLITICS ARE HAPPENING
To understand the political street fight that is American society, you need to turn away from Obama’s distracting sleight-of-hand speeches. You need to watch the regulatory agencies. Congress may be in gridlock, but the agencies are implementing presidential policy at a gallop.
Consider just one example: the Environmental Protection Agency (EPA).
A Nov. 19 article in the National Review opened, “On Friday, the Environmental Protection Agency rejected petitions from the governors of Georgia, Texas, Arkansas, Delaware, Maryland, New Mexico, and North Carolina to suspend the biofuel-blending requirements established by the federal Renewable Fuel Standard (RFS) program.”
The petition asked for relief from the program’s requirement to convert corn crops into ethanol. National Review explained, “The 2012 target is to blend 13.2 billion gallons of biofuel into our gasoline, a quantity that ratchets up to 13.8 billion gallons in 2013. This year, about 4.7 billion bushels, or 40% of the nation’s corn crop, will be consumed by ethanol manufacturing.” The petitioning states are economically reeling from “the worst drought in 50 years,” and the EPA czar has the power to waive the program’s requirement. She chose not to.
So some food will become significantly more expensive in 2013. Those who follow the EPA know to stock up right now on specific goods that are dependent on corn.
Politics are being played out on the street level of regulation, not on the theater level of White House press conferences. The words coming out of Obama’s lips are distractions. Regulation is where you find the there.
Original article posted on Laissez-Faire Today
Over the last three years the oil and gas industry has been churning out millionaires.
No. I’m not talking about company CEOs or Saudi oil sheiks. Instead I’m referring to everyday Americans that found themselves in the right place at the right time.
Today I want to show you a few of those “right places” – where surprisingly there’s still time for you to join in on the money-making action. With volatility set to hit the market, there couldn’t be a better time to rundown a few of our favorite ideas and cover the best ways to protect your wealth…
Let’s get back to those new-money millionaires. The folks I’m talking about are getting paid royalties to lease their land to oil and gas producers.
We’ve covered this topic before, but now more than ever the millionaires are coming out of the woodwork.
You see, the average shale oil well costs anywhere from $5-10 million to drill, complete and put into production. Once put in to production, though, the estimated ultimate recovery (EUR) for a productive well could payout to the tune of $30-40 million (hence the reason producers are scrambling to drill!) These are ballpark figures, but you get the idea – there’s a lot of money to be made here.
An average land-leaser could expect to get anywhere from 10-25% of the payout on oil production. With a little back of the envelope math, it’s not out of the question to think that some of these local farmers and land-owners are cashing in 6-digit checks every quarter. If they have multiple wells on their property the payout could grow even higher.
Makes you want to be a land-owner right? Sadly, it’s too late to make the easy money in land-ownership. But there are still ways to play this trend for some reliable cash. Which brings us to the topic for today…
The Five Best Long-Term Ways To Protect And Grow Your Wealth
Much of this millionaire money is coming from two locations in the U.S.
Take a look:
Over the past few years these two states have bucked the long-term downtrend for U.S. oil production. And we’re not talking a small blip on the radar either. As you can see from the chart above, production gains from these states have added more than 1.5 million barrels of oil per day.
The added oil flowing from those two states alone, today, accounts for 23% of U.S. oil production (add in the legacy production and TX along with ND account for 42% of U.S. crude production.)
That’s huge! It’s great news for America. Plus, it’s also an unstoppable, home-grown trend that you can count on to help protect and grow your wealth.
Sure, you can’t be a landowner cashing in 6-figure checks, but you surely can invest in the efficient companies that are optimizing and harvesting this oil bounty.
Natural Gas Is Booming Too!
Much like the shale oil boom that’s creating millionaires in Texas and North Dakota, there’s still plenty of wealth coming from the natural gas shale plays too. Think: Marcellus, Utica, Barnett, and even the dry-gas section of the Eagle Ford.
For starters, don’t forget that the U.S. is now producing more natural gas than it ever has…ever. And we haven’t even begun to scratch the surface. Heck, Pennsylvania, home of the Marcellus, wasn’t even in the nat gas discussion five years ago. Today it’s close to being a top-5 producing state.
This bountiful natural gas trend has several long-lasting impacts. First is the cheap energy that you’ve likely been seeing on your home energy bill.
As power plants switch to cheap, efficient natural gas, the price across the board has dropped. Add in residential use for heating and cooking and you’ll likely notice your bill year over year (even with the same amount of energy use) is down a solid 10%, maybe more.
Cheap energy is the same as an unsolicited stimulus plan. When consumers like you and me save money on our energy bill we’ve got more money to save or spend – both of which can help the U.S. economy thrive.
And cheap residential energy is just the tip of the iceberg. The gas boom is also making a positive impact on the U.S. trade balance.
Take our exchange with Canada for example. Over the past 10 years, imports from Canada have dropped nearly 2 billion cubic feet per day (Bcfd) – plus, at the same time exports to Canada have increased nearly the same amount. Add it all up and “net” imports from Canada have dropped significantly.
“Net imports of natural gas from Canada have been falling for years” reports the U.S. Energy information Administration (EIA), “Rising shale gas production in the United States, especially in the Northeast, is key among several factors affecting this trend. For the first eight months in 2012, net imports from Canada fell by about 7%, to 5.7 billion cubic feet per day (Bcfd), from the same period in 2011.”
Over the past decade, net imports have dropped nearly 40% — that’s huge. Add in the potential for even more exports with liquefied natural gas (LNG) shipments to Asia and Europe and you’ll see the trade balance for the U.S. is set to drastically improve.
Inside America’s borders there’s even more opportunity from moving and processing this natural gas (and oil.) Processing factories are under construction. Build outs of pipe, rail, and trucking are also underway – creating a boom in the transportation sector.
So you see, this shale trend is just getting underway. Gas, combined with oil shale, is set to create a “new world” of energy realities here in the U.S. – it should be an exciting decade for investors, too. Even in the wake of the fiscal crisis looming for the U.S. government. Heck, maybe this long-term energy boom can pull our nation’s proverbial ass from the burner. We’ll see!
And remember, the above-listed oil and gas trends aren’t happening world over. For a solid reminder, we can look at the front page of today’s Wall Street Journal – a subhead reads: “Firms Hit Hurdles Trying to Replicate U.S. Success Abroad.”
According to the WSJ article, “Exporting the U.S. shale energy revolution overseas turns out to be far tougher than anyone expected – giving the U.S. a significant competitive advantage.”
So if there’s ever been a time to re-emphasize our theme for U.S. investment – it’s right now.
Here’s the caveat. Although I like American energy plays, and the dividends that we could reap for the years to come, right now I’m more inclined to keep some powder dry and wait for a good buying opportunity. As the volatility of the next month (or two) plays out, I’m sure we’ll see a good spot to buy in to our favorites.
There’s more to this wealth-preserving discussion, but we’ll cut it off here for today. Tune in tomorrow for a few more budding opportunities, wealth-preserving insight and more!
Keep your boots muddy,
Original article posted on Daily Resource Hunter