INFLATING OUR WAY OUT OF DEBT

President Obama and his financial experts and to a lesser extent the other major economies of the world are playing a very dangerous game trying to spend their way out of a very deep recession. 

While the stimulus package and it's spending on massive infrastructure projects in an attempt to get people to work is admirable and even desirable as it should get projects done at a more favorable cost, it is still spending money we don‘t have. 

The timing will have to be spot on to stop the spending before inflation gets out of control to the point it will be irreversible. With the printing presses going round the clock printing the trillions of dollars required for this massive worldwide spending spree it can do nothing more than cause massive inflation. I suppose that repaying all the accumulated debt with relatively worthless inflated dollars is one way to solve the deficit problem.

Purposely attempting to try and inflate our way out of deficit is courting disaster to the point of irresponsibility. I hope it works but creating such inflation will put so much future pressure on all of us it could easily backfire and end in disaster.

Once inflation starts to rise, the debt holders will start to demand higher interest rates thereby driving inflation even higher. As inflation spirals ever higher and faster some countries will manage to eliminate their debt and others will just continue to borrow at ever higher costs. We will end up with more countries like Zimbabwe who are attempting to deal with 150,000 % inflation.

When the US dropped the gold standard and had nothing to back it’s currency it became an open invitation to print money and it has been doing so at a breakneck pace. So far the American economy, still being the largest in the world has managed to keep it’s dollar as the currency of choice in hard times. Some countries have even used it to back their own currencies and others, such as Zimbabwe, use it as default currency to keep their economy functioning while they try to rebuild their failed economies.

The US public debt of 10.8 Trillion dollars and growing, costs 250 billion dollars per year in interest. As interest rates rise which they surely will, this cost will rise as well. As the US keeps piling on more debt year after year it will at some point  become unsustainable. This is the ultimate danger of not having anything to back the currency, be it gold, oil, rice or whatever.

This leads us to the question of what to do to protect ourselves through this coming inflationary period. Unfortunately there is no textbook answer because Governments have a habit of manipulating values of assets and confiscating properties. Protecting what we have becomes a major study of it’s own and not one that can be quickly covered in one post.

SECURITY COSTS FOR THE OLYMPICS, A NEW BRIDGE?

Talk about creative financing!! 

Wow! The federal government is giving us a good deal on the security costs for the Olympic games. We only have to pay another $165,000,000.  But don’t worry we’ll call it infrastructure spending, that way the true cost of the games will still be on budget and no one will be the wiser.

I was under the, obviously wrong, impression that the Provincial / Federal infrastructure spending was part of the stimulus package to create jobs in B.C.

Now I have been watching the development of the Olympic story since it was announced and soon realized that there would be massive cost overruns in all aspects of the games. It would be amusing, even comical if it weren’t for the fact that it will be us the taxpayers and our children and grandchildren who will being paying for it.

This most recent announcement is I suppose somewhat refreshing in that it is not even attempting to hide the fact that policing the games is not a bridge, even if that is what they call it in their paperwork. In the past the government insisted that Olympic costs were just normal infrastructure spending. I still don’t understand why we can’t call it Policing costs but have to call it a bridge, and where does it go and who’s name do we put on it? Maybe the Gordon Campbell invisible bridge to nowhere? 

Your tax dollars at work. Zero jobs created, on time and on budget total cost $165,000,000.00

Trivia - Until the nineteenth century, solid blocks of tea were used as money in Siberia!

COST OVERRUNS AT OLYMPIC VILLAGE

And now Vancouver city will have to slash the social housing component of the Olympic Village. This is not what was promised when the Olympic proposals were put forward, it is however an economic reality.

Why they ever agreed to give subsidized housing to people in the most desirable and expensive jurisdiction in Canada is beyond me. 99% of us in B.C. cannot afford to live there but those people who are down on their luck get to live there at our expense. Go figure. 

If we are going the social housing route at least build it in a little bit less costly area. I fail to understand why those of us who have worked and slaved to buy a home had to make sure we did so in a place we could afford, not in the most expensive waterfront in the Country.

The cost of these social housing units is well in excess of $500,000. Per unit. Why not build them somewhere where they can be built for $100,000. Or less.

Our grandchildren are going to still be paying for this fiasco long after it has outlived it’s usefulness and fallen down.

Unfortunately this is just one of the many costs that we are going to be paying for for years to come involving the 2010 games.The powers that be are required to put the most positive spin that their high priced spin doctors can come up with on the whole thing.

Some of us feel the games are worth it at any price and some not so much. I find myself in the not so much category, but not having a say in the whole thing I just wish once it was a done deal they could have told us the truth about what it was to cost. I don’t for a minute believe that the people who devised the Olympic costs actually believed the numbers they put forth.

Trivia - A cockroach can live several weeks with it's head cut off  -  It dies from starvation.

CALIFORNIA IN FINANCIAL DISTRESS

Lawmakers in California are unable to pass a budget and keep the Government operational. Governor Schwarzenegger will start the laying off of government employees immediately. This will be an interesting problem for us to watch and possibly get a lesson in mismanagement from. One wonders if this is another case of the Emperors fiddling while Rome burns.

Trivia - The law states that more than 3000 sheep cannot be herded down Hollywood Blvd at any one time.

THE ECONOMY DOOMSAYERS ARE THE BIGGEST PROBLEM

The recession has caused a lot of pain to a lot of people, in fact pretty much everyone in my part of the world. The headline news focuses mainly on the banking sector which is and will be the sector most watched to lead us out of this downturn. The banks with their greed and vile ways got the world into this mess and will be vilified for years to come for it. If the banks are looking for  sympathy for their predicament they can find it in the dictionary between shit and syphilis. 

The greed of these bankers may have got us into this mess and the governments unwillingness to let them fail will mean that they will have to be relied on to lead us out of it. They don’t deserve the honor. 

The fact is that some CEO’s learned their lessons well, during the last recession, and have managed their finances well and are prospering in these hard times. Unfortunately even as good as their balance sheets are and as good as their company prospects are they couldn’t get financing to expand and create more employment because the banks in their infinite wisdom would not lend to them anyway.

Protectionism will not be the problem prognosticators are expecting it to be. Companies are so globally based that they have manufacturing plants and parts suppliers all over the world making it impossible for protectionism to take hold.

Credit card debt has not gotten out of control the same way that mortgage debt has and is not likely to, given the bank and credit card companies tighter requirements.

The US dollar as diluted as it is, is still the default currency of the world and is still the strongest because other world economies are in dire straits as well. 

India will be the bright spot in all this going forward because they are starting at such a low base that their GDP will still be up by 5 to 6 % simply because of their poverty stricken poor people being able to now afford to buy simple staples such as food and soap.

On the other hand, China has become reliant on world trade for their rise to their present level of prosperity and with the downturn in world economies China’s export based economy has begun to suffer as well. China’s growth rate will drop from 11-12% to, I would expect 3-4% before starting to grow again, which is still growth even if it is slower.

President Obama and his henchmen and allies are talking such disastrous economics in order to get their stimulus package into law. It’s true there are problems and we are in a recession, but we have been here before and it has to run it’s course to allow the economy to grow again. The stimulus will probably get the economy moving again but the way I see it, it will have to be reined in very quickly once the economy is on solid ground or the problems down the road will make today’s problems look like a walk in the park.

Trivia - In Providence, Rhode Island, it is against the law to jump off a bridge.

B.C. BUDGET DEFICIT AND THE OLYMPIC COSTS

Even after offloading the Olympic costs to other levels of government the Provincial government is having to spend millions if not billions on Olympic costs. The problem being that they will not admit to most of the spending being Olympic costs. I fail to understand why they refuse to tell the truth about the true overall costs of the games. It’s not as if there is any viable alternative to them in government making them sure to re-elected in May.

The fact is that projects such as the sea to sky highway improvement project would not have been done if the Olympics were not coming. Meanwhile other badly needed projects throughout the province had to be put on hold or cancelled to put resources to Olympic priority projects. Olympic organizers and government officials chose to ignore the people warning of the inevitable cost overruns and forge ahead, I believe knowing full well they would be over budget. When putting a cost for security of $175,000,000 without any consultation with the RCMP is a ridiculous way to do business. Now they are hoping to provide the required security for one billion, that’s not much over just a whole bunch more zero’s.

Not that I have any interest in going to the games anyway but the tickets have been priced out of ordinary working people’s ability to pay. Even events being held now, a year before the games, at venues paid for by taxpayers they are not allowing the public to attend. So much for all this expense being for the benefit of all citizens. 

Meanwhile Gordon Campbell has repealed the law against running deficits so they can borrow enough to pay for it all. 

The homeless are still homeless and I’m curious as to where and how the government plans to hide them from the world.

The drug lords are still doing business freely and openly on every downtown street corner. 

The gangs are still having their gang wars with daily shootouts in mall parking lots and street corners, putting the general public at some considerable risk. I’m sure these gangs have all registered their weapons just like the rest of us have been forced to do.

Hiding all this from the world for two weeks, a year from now will be very expensive but of course will not be considered an Olympic expense, if it can even be done at all.

Trivia - In Washington state, you can’t carry a concealed weapon that is over 6’ in length.

A CASE FOR OIL INVESTMENT

This ongoing recession has caused a decrease in the demand and therefore a crash in the price of oil. With the drop in price, oil companies have curtailed exploration and production of oil which will cause a corresponding spike down the road. While continuing to draw down known reserves without replacing them is foolhardy.

This downturn has quietly masked the arrival of peak oil, without replacing reserves the world will no longer be able to keep up with consumption. Peak oil being the point at which 50% of global oil has been used. With world populations growing and industrializing, the oil we have left will get used a lot faster than the first half did.

As the economy starts to recover and even a modest increase in demand for oil ensues the price of oil will increase as fast as it dropped. The lack of exploration will mean there will be no way to simply turn on a valve and increase production. Cheap oil is and was a thing of the past going into this recession. Future oil production is going to get more expensive and this present temporary drop in demand and consequent drop in exploration will only make the price more volatile going forward. 

I don’t relate to the doomsday theorists that predict anarchy and chaos as the oil depletes. The warnings are out there and civilization is and will continue to pursue alternative solutions such as wind and solar. As the scarcity of oil drives the price up it will drive even more investment into new and innovative forms of energy. Even with millions of dollars being invested in alternatives we will be dependant on oil for years to come.

It looks to me like big oil companies are so acutely aware of the difficulty in finding more large pools of oil that they are entertaining the invitation to go back to a jurisdiction like Venezuela after being evicted from there only two years ago.

Now, while the oil price is depressed, seems to me to be a prudent time to make investments in oil companies with large oil reserves and clean balance sheets. If the world economy sinks further it may delay the whole process but I can’t see how it can stop it. 

This is of course just my view, for what it’s worth.

Trivia - A car uses 1.6 ounces of gas idling for one minute. Half an ounce is used to start the average automobile.

ZIMBABWE HUMANITARIAN DISASTER IN THE MAKING

Zimbabwe has more than 60,000 cases of Cholera reported to date, health care workers are not reporting for work because they are not getting paid, thereby exacerbating the situating. The country’s financial and social system is in a state of collapse with inflation spiraling out of control, making their money worthless. The UN’s appeal for $567 million in humanitarian aid has received little response.

The best the World Health Organization can do is to set up some medical clinics in border areas to try and limit the spread of Cholera to other African countries.

The political situation in Zimbabwe is intolerable, President Mugabe has control of the army and steals whatever aid makes it into that country. Inflation has turned to Hyperinflation bringing the financial system to a complete standstill.

As far as I can understand in this situation there is little that the world communities can do but monitor the happenings and wait until the political situation stabilizes to help these poor souls.

trivia - About 3000 years ago, most Egyptians died by the age of 30.

SEC - CORRUPT OR JUST INCOMPETENT?

The Securities Exchange Commission, set up to protect investors from unscrupulous crooks and con artists oversaw the implementation of the largest ponzi scheme the world has so far ever seen. In my view the SEC having been informed of the fraud and ignoring the allegations for more than a decade must be itself corrupt or at the very least criminally incompetent.

http://beltwayblips.dailyradar.com/video/rep_ackerman_on_madoff_fraud/#links

It seems to me that a fraud of this magnitude to be perpetrated by one man able to carry it on for decades is not possible without help from regulators at the very least turning a blind eye to the allegations registered against him.

If it were not for this ponzi scheme doing what all ponzi schemes have to eventually do, run out  of more victims and implode, it would still not have been discovered. It took Madoff himself coming forward and confessing to it for the fraud to finally come to light.

The SEC is of course scandalized and embarrassed by this. The credibility of this organization is now totally trashed and they will have to put most of their resources into trying to rebuild their credibility. Making weak excuses why it didn’t investigate and how it’s not their fault will not be helpful in rebuilding their credibility.  

Trivia - In Virginia, the Code of 1930 has a statute which prohibits corrupt practices or bribery by any person other than political candidates.