The Fed Chairman just blinked in the bright light of the freight train coming at the economy in the form of the Budget Deficit. Medicare, Social Security, the Military Budget and now the cost of oil in an overleveraged fractional reserve banking system of which housing is THE symptom but only PART of the disease... this is truly spiraling out of control.
- If the price of oil does not turn around - NOW - the U.S. economy will certainly experience a SEVERE recession starting sometime in Q2 or Q3, if you believe the Government's economic B.S. (and I do not), and may well have begun in earnest.
- If the price of oil should rise to the $200 range (I am talking averages here, not peaks), it is light's OUT for the industrial economies and doomsday for the U.S. This would not mean a "severe recession", but an unprecedented period of economic contraction that historians would have to come up with a new name for - "Depression" would not do it justice.
- Irrespective of Oil prices in the short run, Medicare and Social Security are long term commitments and the Oil crisis is NOT GOING AWAY - EVER. So no matter what, the intersection of those 2 lines is going to leave a burn hole in your graph notebook.
- If Oil prices do fall much below $100, it will most likely be as a result of an energy caused economic dislocation.
I keep going over and over this (I manage peoples money for a living)... just what could fix, or should I say "extend", this mother of all ponzi schemes? So far, nothing comes to mind.
Yours for a better world,
Mentatt (at) yahoo (d0t) com
5 comments:
Hi Greg,
I'm a big fan of your blog, and want to thank you for your wit and wisdom.
After learning about peak oil back in 2005 I moved to four acres in south-western, OH which my wife and I are developing into a permaculture garden.
I now also work for a local peak-oil education non-profit called Community Solutions (communitysolution.org). We put on an annual conferences, made a movie about how Cuba managed its oil cut-off, and have a book called "Plan C: Community Survival Strategies for Peak Oil and Climate Change" coming out later this month.
As we think towards our 2008conference (probably to be scheduled on a November weekend here in Yellow Springs), we think we'd be interested in including a financial advisor/investment specialist among our speakers. The candidates I've come up with are: yourself, Richard Vodra (whom I met at ASPO-USA in Boston in 2006), and Jason Pliml (who spoke at the recent "Paths to Sustianability" conference in Grand Rapids,MI).
Would you possibly be interested, and do you know Dick and/or Jason? Please let me know if you'd be willing to speak by phone with us sometime, and if so I will set up a time that works for you.
Thanks,
Rob Content
937 767 2161
rob@communitysolution.org
Hi Greg,
the Ponzi scheme can continue forever. Some of the solutions the government could implement are:
1) increase the retirement age to 70. This will take care of the Social Security problem.
2) To take care of Medicare/Medicaid, invite Cuban doctors to practice in the US. The cost of health care could be slashed by 50% overnight. The Cuban health care system is much more efficient than the US system. The problem is that here in the US we have a monopoly pricing in healthcare. Bring in true market competition!
3) To jump start the economy, lower interest rates to 1%. In order to avoid hyperinflation, tighten at the same time lending standards. Example: A standard mortgage at 1% would be approved only if a 50% downpayment in real savings is made. That policy will increase the savings rate. We desperately need low interest rates in order to finance investment into a new economy based on renewable resources. We are doomed if we insist on an economic model based on consumption of finite nonrenewable resources. We need to invest into electric public transportation (trains), solar and wind energy. We need more investment into our failing infrastructure (water + sewage).
4) We need to drift away from a market based economy to a partly state planned economy. For instance, we can not allow blind market forces to deplete invaluable resources (oil and metals) at the greatest possible speed. We need to introduce some form of rationing which slows down consumption and encourages drastic recycling.
5) We need to introduce much higher taxes for high net worth individuals. The idea that a tiny minority of the population commands most of the capital in society is extremely dangerous in the long term. Gradual taxation could reestablish some healthy balance again. I am not in favor of taxing capital in order allow greater consumption. We need capital investment for a sustainable future of society. Pickens is a goood example by investing billions into wind power. I think he is ahead most investment professional and politicians regarding energy policies.
I could continue but I think the main point is clear. There are many things an enlightened government could and should do. We desperately need true leadership!
Robert Sczech
Social Security is not that bad off and Medicare needs to be expanded to a single payer national health care system like the rest of the sane industrialized world. And like them there can still be private insurance if someone wants to pay the price.
If there are funding issues, how about removing the cap on the labor tax. And if more is needed how about a 1% sales tax on all equity and commodity sales. We pay sales taxes on lots of things...why not Wall Street sales. That's where the money is. And it might tamp down a little irrational exuberance .
Dear Rob:
I just want you to know that you are doing great work! We love your movie "Power of the Community". We just showed it at our first Transition Nelson (New Zealand) meeting and had 180 people attend. Keep up the great work.
Chuck H.
Thank you for your comments, Robert.
1. Why not raise the retirement age for Social Security to 75, 80, or even 85? I guess you can fix a thing by eliminating it partially or altogether. Thing is, I think that was MY point: The U.S. cannot run Social Security as presently constituted. When I say it blows up, I mean to say that the political ramifications of confiscating peoples money and then stiffing them might have an outcome of some import.
2. I am sure you are kidding about the Cuban Doctors... but just in case you are not kidding.... Upon arriving in the U.S. said Cuban Doctors would not only force American Doctors to compete with them in medicine practicing but in gold memberships, trophy wives, malpractice insurance, and all of the other things that successful physicians enjoy. Ever see a Cuban baseball player's defection here lead to lower baseball salaries?
3: The fact that we are doomed does not for a SECOND suggest that your recommendations make any sense. I won't even bother to debate this with you. Ever hear of the multiplier effect?
4: ???? Centrally planned economy?? Didn't somebody already try that? And while what you are suggesting does slow down the depletion process, it does not do a bit of good about what underlies it - population growth. Perhaps you think that that might be centrally planned as well. Maybe at the point of a gun.
5: I could not agree more that our current CORPORATE system unfairly concentrates wealth in the executive ranks at the expense of the rank and file. I don't think we need to tax the execs more, them the money goes to a government that will waste most of it. Does a CEO really need $10 million to be motivated? Really? I think not. Any corporation using the PUBLIC markets should cap executive pay, with a corresponding increase in compensation for performance in the rank and file.
BTW, this is moot, too. In a decade or 2 my bet is that the corporations won't look quite the same.
I could ALSO continue, but I think the point is clear: Beware folks with simple solutions to complex problems. Is it worth any further erosion in our civil rights to have centrally planned everything?
FT - Greg
Post a Comment