Daily Digest

Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket On The World Economy, The Next Oil Shock?

Sunday, October 24, 2010, 9:43 AM
  • FDIC Called On To Put Bank Of America Into Receivership
  • The US Dollar is doomed
  • Germany Calls Out Geithner's Hypocrisy, Says Money Printing Is FX Intervention
  • Coalition claims of 'pulling Britain back from the brink' are nonsense
  • A Wet Blanket On The World Economy
  • Depression Within A Depression
  • Global house prices: Floor to ceiling
  • G-20 Vows To Avoid A Currency War
  • The Next Oil Shock?

Crash Course DVDThe deluxe DVD features a helpful presenter’s pack and live segments by Chris (NTSC or PAL)

Economy

FDIC Called On To Put Bank Of America Into Receivership (SteveW)

Charging that the ongoing foreclosure fraud epidemic is the work of precisely the same unrepentant bank officers whose fraudulent mortgage schemes crashed the financial system in the first place, two leading critics of the financial industry are calling on the FDIC to put some of the nation's biggest banks into receivership -- starting with the Bank of America -- and make them clean house.

U.S. Financial Markets: The Well Has Been Poisoned (Anger of the Honest Part II) (ChrisM)

Without institutional trust and participation, the market then withers on the vine-- exactly what has happened to the U.S. mortgage securities market. The market for mortgage-backed securities has vanished, except for one player: the Federal Reserve, which has bought a staggering $1.2 trillion in the past 18 months to create the facsimile of an active market.

The well has been poisoned. The only mortgages being traded are those 100% guaranteed by the U.S. government: in effect, the risks intrinsic to a corrupted market have been shifted to the taxpayers, while the criminals who profited from the fraud and embezzlement got away scot-free.

The US Dollar is doomed (hucklejohn)

Unfortunately, the Federal Reserve and its allies have not finished inflating and over the following years, they will create even more confetti money. Under this scenario, cash will continue to lose purchasing power and the asset poor middle-class will get even more impoverished. If our assessment is correct, cash will prove to be a disastrous ‘asset’ over the next decade and once the Federal Reserve’s manipulation ends, fixed income securities will also depreciate in value.

Bearing in mind our grave concern about high inflation and the very real possibility of hyperinflation, we continue to favour hard assets such as precious metals and energy. At present, we have allocated roughly half of our clients’ capital to these sectors and it is our belief that this should be an adequate inflation hedge.

Germany Calls Out Geithner's Hypocrisy, Says Money Printing Is FX Intervention (pinecarr)

After months of US [bleep] and moaning about China's so called unfair exchange policies, when it is the US Fed which is the biggest currency manipulator in the world by orders of magnitude, one country finally had the guts to stand up and call out Tim Geithner on his endless [bleep]. At the G-20 meeting, per Bloomberg, German Economic Minister Rainer Bruederle said that the Fed's "push toward easier monetary policy is the “wrong way” to stimulate growth and may amount to a manipulation of the dollar. Excessive, permanent money creation in my opinion is an indirect manipulation of an exchange rate."

    Crash Course DVDThe deluxe DVD features a helpful presenter’s pack and live segments by Chris (NTSC or PAL)

Coalition claims of 'pulling Britain back from the brink' are nonsense (pinecarr)

We live in historic times. This weekend, the G20 nations announced a major reconfiguration of the IMF, conceding significant powers to the emerging giants of the East. This deal goes way beyond ceremony, marking the coming of a more competitive age, where Western hegemonies don't exist and our relative – and even absolute – living standards look set to fall.

As this new era dawns, it is old-world countries with high current debts and huge future liabilities that will suffer the most. Our leaders need to explain these realities and act upon them. Macho headlines are not enough.

A Wet Blanket On The World Economy (Jason G.)

Slowly but surely some economists are beginning to come around to reality and wrap their head around the true problem facing the world economy (especially the OECD countries). It is DEBT. We have reached a mathematical endpoint in which net growth in debt is greater than net growth in world GDP. If there is $188 trillion in global debt with a (optimistic) 3% weighted annual interest rate then we can begin to grasp at the problem.

Depression Within A Depression (JimQ)

Today’s Keynesian economists have convinced boobus Americanus that the Great Depression was caused by the Federal Reserve being too tight with monetary policy and the Hoover administration not providing enough fiscal stimulus. Ben Bernanke and Barack Obama used this line of reasoning to ram through an $850 billion pork-laden stimulus package, as well as the purchase of $1.2 trillion of toxic mortgages by the Federal Reserve.

The only trouble is that this storyline is a complete sham.

Global house prices: Floor to ceiling (jdargis)

Asia’s price rises lead the way, as they did when the data were last published in July. Singapore, Hong Kong and Australia boast the gaudiest year-on-year price increases, even if the rate of appreciation is down a bit from the summer. House prices in China rose by 9.1% in the year to September, compared with a 12.4% rise in May.

G-20 Vows To Avoid A Currency War (jdargis)

he finance ministers and central bankers were at a two-day meeting in Gyeongju, South Korea, and their actions represented another step in the effort to bridge the diverging priorities of the leading economies and ease the strain of simmering disputes.

The intense talks — built largely around an agenda the Americans brought to the meeting — yielded more consensus than many officials had expected. In general, the United States refrained from putting more public pressure on China to revalue its currency, preferring instead to emphasize the benefits of reducing trade imbalances.

Energy

The Next Oil Shock? (Woodman)

The world’s oil production capacity may not be sufficient to match growing demand in coming years. The potential for short-falls arises from geological, infrastructure, and political/economic constraints limiting the ability of world oil production capacity to grow while demand continues to rise. If oil supply cannot meet demand a price spike may be triggered, with major detrimental effects on economies, especially those heavily dependent on oil imports like New Zealand.

Article suggestions for the Daily Digest can be sent to [email protected]. All suggestions are filtered by the Daily Digest team and preference is given to those that are in alignment with the message of the Crash Course and the "3 Es."

11 Comments

SPAM_Matthew Blain's picture
SPAM_Matthew Blain
Status: Member (Offline)
Joined: Oct 24 2010
Posts: 14
Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...

Hello to all the wonderful commentators of the DD.

I've been a long-time reader of this site, even down-loaded the first incarnation of the Crash Course to DVD and handed off a couple of dozen copies to family and friends (to be honest, I'm not sure if Chris' message took much of a hold with the recipients; things are still "OK" in Australia). As a Joe Average, most of the detail is lost on me, however I get the general gist of the approaching train-wreck if the powers-that-be-drivers continue along their merry way.

Just a quick question: Is there a general figure for how much a nation's energy use grows along with it's economy? For example, if Chin'a economy grows at 10%, it's energy use will continue to grow at 7% (on average). Or is it all way too dynamic?

I find the basic math of compounding growth the best tool to demonstrate the constraints of our finite world. If anybody asks that is. Wink

Thanks in advance for the reply.

Cheers, Matt Blain

Melbourne, Australia

idoctor's picture
idoctor
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Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...

Nice interview on peak oil & the effect a depression might have on it.  

Peak Oil: An Inflationary & Deflationary Perspective

http://www.financialsense.com/financial-sense-newshour/big-picture/2010/10/23/02/nicole-foss-jeff-rubin/peak-oil-an-inflationary-and-deflationary-perspective

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rjs
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Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...
Matthew Blain wrote:

Just a quick question: Is there a general figure for how much a nation's energy use grows along with it's economy? For example, if Chin'a economy grows at 10%, it's energy use will continue to grow at 7% (on average). Or is it all way too dynamic?

Thanks in advance for the reply.

Cheers, Matt Blain

Melbourne, Australia

my first thought is that if there were a ratio, it would certainly be different for different countries...for instance, a heavily industrial country like china is much more dependent on energy for its growth, whereas in the US we've grown our financial casino to more that 10% of GDP basically by moving electrons around mainframes...nor do i think you can automatically create growth just by using more energy, assuming it was available...thus i dont think there is a direct relationship between energy consumption and growth rate such as you have described, but there is likely a more subtle correlation that i suspect would defy an easily predictable pattern...this is all very offhand, and hopefully someone who's thought about it more in those terms than i have can give you a better answer...

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cmartenson
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Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...
Matthew Blain wrote:

Just a quick question: Is there a general figure for how much a nation's energy use grows along with it's economy? For example, if Chin'a economy grows at 10%, it's energy use will continue to grow at 7% (on average). Or is it all way too dynamic?

Welcome aboard (or at least out of lurking) Matt.

I wish there was an easy answer to your question, but the true answer is "it depends."

First off, 'energy' is not a single thing.  Getting your country electrified is the first order of business and, depending on how we measure that, the benefits per Watt (or BTU or Joule or whatever) are quite extraordinary.

The next order of business is to get your liquid fuels in order and all developed economies have a very significant liquid fuels component as an input to their operations and wealth.

To wit; there are no advanced economies that do not have significant electricity and liquid fuels components as drivers for their economies.  Sorry for the double negative.  

So, given that electricity sources are relatively assured (for a while yet) but peak oil looms,  the question then becomes, "to what extent to modern economies depend upon liquid fuels for their growth and easy functioning?"

The answer there is "a lot."

By my calculations there have been two periods with different dependencies of economic growth upon liquid fuels (across the globe...local mileage will vary); in one period every 1% of GDP growth was associated with 0.3% growth in petroleum consumption (that's from 1985 to 2003) and then there's the period from 2003 to 2007 where debt-fueled GDP exploded across the globe such that each 1% of GDP only required 0.14% more petroleum use.

Some say this demonstrates how GDP has become increasingly uncoupled form energy (due to efficiency improvements and the like) but, while I agree that's certainly true to some extent, in my view the larger factor, by far, has been the illusory impact of debt on GDP growth.  One of these views will be proven correct soon enough.  

debu's picture
debu
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Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...

Is there a general figure for how much a nation's energy use grows along with it's economy?

This issue strikes me as being a key determinant of the rate of contraction of various economies as global oil/liquids production begins to decline.

If I understand correctly, some analysts like Robert Hirsch and André Angelantoni use an energy consumption/economic growth ratio of 1:1 as opposed to CM's 1:0.30 or 1: 0.14.  Elsewhere I have read figures in the 1:0.70 vicinity.  Given the variables involved this number is necessarily a slippery one.  It also a crucial one.

A post-peak global economy, not to mention financial markets, will look very different in the dire 1:1 scenario whereas a 1:014 scenario, assuming aggressive efficiency and conservation measures are adopted,  could be a relatively benign descent. 

Without further clarity on this issue planning, financial and otherwise, is tricky.  I'm stumped

SPAM_Matthew Blain's picture
SPAM_Matthew Blain
Status: Member (Offline)
Joined: Oct 24 2010
Posts: 14
Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...

Thanks all for your replies,

As far as the economy goes, trying to explain to loved ones the likelihood of another downturn is impossible for me; heck, I'm constantly looking for ways to expand my OWN business (video production). In the back of my mind, where the "river Nile" resides, I figure the powers-that-be will finally get together at some point and tear up a few IOUs (or something like that). For me the global economy is like climate change, I just don't know enough to get off the fence. Yes, I have watched the CC a dozen times and appreciate the ridiculous levels of debt that continue to rise and rise and what we may face in "the next twenty years". But still...

I guess my only REAL understanding of the "big picture" - again, as an Average Joe (average IQ, father of three, mortgage, all that) - stops at resource depletion and the basic math of compounding. I get there are limits to physical growth, only so many cookies in the cookie jar (peak oil's a biggie), having to reach down further for them, more and more quickly, etc. These are the issues folk spend little time thinking about, which frustrates me no end.

I'm still not sure whether to thank Chris (and Al Bartlett, Peter Schiff, etc) for all their efforts or not, because getting loved ones on-board is pretty tough. But thanks anyway Smile... A lonely place indeed, the world of the "hand raiser".

Though still very much a novice, I'm certainly glad to be able to finally join the conversation.

Cheers, Matt

SPAM_Matthew Blain's picture
SPAM_Matthew Blain
Status: Member (Offline)
Joined: Oct 24 2010
Posts: 14
Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...

PS. 

Chris, have you been out to Australia yet?

Cheers

land2341's picture
land2341
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Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...

BTW,  to tag onto Matt's question does anyone have reliable numbers for what percentage of the US's oil is used in non-energy production manufacturing?  Peak oil doesn't just mean loss of energy it means the loss of plastic  and a dozen other vitals....

 

Have heard that China s doing a good job cornering the markets globally on rare earth metals.  Any confirmation on that??

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Quadium
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Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...

land -

I have heard they are cutting back on exports, but haven't heard they are running around the world buying up reserves.

I'm not too concerned as we have large, rich deposits of rare earths AND enough Thorium to "power the country for 1000 years" located on the Idaho/Montana border, owned by Thorium Energy Inc., a privately held company. (Of course we aren't building any Thorium-powered reactors, so that's not much help ... for now.)  As I understand it, these deposits haven't been developed because China has been offering rare earths so cheaply. Maybe this will change.

http://www.thoriumenergy.com/index.php?option=com_content&task=view&id=19&Itemid=37

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Doug
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Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...

land,

Another part of this puzzle is that much of the stuff we buy that requires rare earths comes from China anyway.

Doug

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sofistek
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Re: Daily Digest 10/24 - US Dollar Is Doomed, A Wet Blanket ...

I suppose that one could determine a figure for energy intensity by comparing the rise in primary energy use (perhaps using BP's Statistical Review) with the rise in GDP. However, I'm not sure that it's possible to get an accurate figure for either, particularly GDP, which is calculated differently for different nations.

Chris's estimate for energy intensity is pretty scary because it would mean that a slight fall in energy use would result in a large drop in economic activity.

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