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Punishing the Prudent

Wednesday, October 15, 2008, 7:29 AM

One of the dominant myths of America is that we practice one of the
freest forms of capitalism on the face of the planet. Hard work and
prudence are rewarded, while Schumpeter's 'creative destruction' quickly cleans out the mistakes.

Unlike most myths, this one apparently lacks a kernel of truth at the core.

As the details emerge over the various bailouts and market distortions,
it is becoming clearer that moral hazard has been increased, not
lessened, and that those who behaved prudently during the credit bubble
insanity are going to be punished.

Some are getting angry:

Quote:
Community banking executives around the country responded
with anger yesterday to the Bush administration's strategy of investing
$250 billion in financial firms, saying they don't need the money,
resent the intrusion and feel it's unfair to rescue companies from
their own mistakes.

And in offices around the country, bankers simmered.

Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, said he was "much
chagrined that we will be punished for behaving prudently by now having
to face reckless competitors who all of a sudden are subsidized by the
federal government.
"

At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady
Adams said he has more than 2,000 loans outstanding and only three
borrowers behind on payments. "We
don't need a bailout, and if other banks had run their banks like we
ran our bank, they wouldn't have needed a bailout, either,
" Adams said.

Link (Washington Post)

Free markets?  Fair competition?  No, not really.  Not at all.

This next article puts that in high relief.  The Fed was going to buy
corporate paper in an attempt to loosen up the flow of money in those
markets, which would have been an admirable goal, in and of itself. 
But the Fed, for some reason I do not yet know, decided to insert a
massive distortion into the market at the same time.

Quote:
Oct. 15 (Bloomberg) -- The Federal Reserve may subsidize
America's companies by purchasing their short-term debt at rates below those demanded by private investors in the $1.6 trillion commercial-paper market.

Fed officials yesterday set the yield they will pay for commercial paper at about 1.6 percentage points less
than the average cost for financial companies, weekly central bank data
show. Policy makers last week announced emergency plans to buy the
securities after the market shrank to a three-year low.

The discount cuts the cost of cash to 2.2 percent from 3.7
percent for General Electric Co. and from 4.7 percent for Citigroup
Inc., data compiled by Bloomberg show. One possible unintended
consequence: private buyers are shut out.

Link (Bloomberg)

Citigroup has a gigantic "Level 3" asset pool of more than a
trillion dollars, and the free market decided that, because of the
additional risk associated with those past decisions, Citigroup should
pay a higher rate of interest on their debt. The Fed has now decided
that Citigroup and GE (a very sound company) should pay the same rate
to borrow.  What's next?  Dictating that everybody should pay the exact
same mortgage rate?  Isn't that exactly what got us into this mess in
the first place, a distortion of the market's ability to properly price
risk?

The Fed may have had good reasons for this, but it is one more very
large intrusion of the government into a formerly free market.  Such
interventions distort true pricing, and it is a virtual certainty that
the Fed will both subsidize this market and end up the owner of a lot
of defaulted debt.  This monetization of bad debts is among the most
inflationary of all possible Fed actions.

And even as real problems mount in the real economy, all of the
Treasury Department's and the Federal Reserve's attention seems to be
focused on the banking system, to the almost complete exclusion of the
needs of regular people.

To put all this in context, I am going to repost a snippet from a comment made yesterday by reader Davec007 (Dave Cohen):

I have not commented up to now, but now that we see the trajectory of the Fed's "intervention", I have a few things to say.

From an energy perspective, it is now clear that any adequate response
to the oil supply/price problems we will have after this U-shaped
recession is over will be impossible. Most of the funds that might have
been put into infrastructure changes (long-haul railroads, light rail,
restructuring the geography of living & work, adding large amounts
of renewables to the grid, etc.) have already been given to the banks.

The "save Wall Street to save Main Street" rhetoric has not only served
to facilitate one of the largest rip-offs in history, but it has doomed
the "real economy" to a state of perpetual recession, or worse. We had
a taste of Things To Come when oil hit $147/barrel, and we had another
in the last few weeks when crude oil production in the United States
fell below 5 million barrels per day for the first time since 1946.
This latter was due to the hurricane disruptions, but such production
numbers will become routine after 2012. You read that correctly --
since 1946.

I only wish and hope that when our true emergencies in energy and
infrastructure are made clear to the DC crowd, they respond with the
same urgency and magnitude as they have in their near-immediate
multi-trillion dollar bailout of the reckless and the imprudent.

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36 Comments

affert's picture
affert
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Re: Punishing the Prudent
It is scary to find myself hoping that all this insanity is due to horrible group think: hoping that they really think that by propping up big banks they can make everything go back to the way it all was.  But I find it harder and harder to actually believe it.  And the other option is truely terrifying...
radiance's picture
radiance
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Re: Punishing the Prudent

The events such as this lead me to conclude that behind the scene is an agenda. The agenda appears to  portend a world where nation states are diminished and a global state is pushed forward. America the super state must diminish for this agenda to move forward. The international banking cartel and her elitists that are behind their administrators are maneuvering for a checkmate.

Ron

DavidLachman's picture
DavidLachman
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Re: Punishing the Prudent

Thanks for the article Chris.  I wonder what if anything can we do about it?  Do we (or DC) really have to wait till things get too bad to fix before action can be taken?  Is seems exceptionally bad that prudence is punished in a time when prudence needs to be encouraged.  The real problems are just starting and the world is putting itself in to a worse position to deal with the coming storm.  I don't hear anyone in Washington speaking to the real issues that confront us.  

By the way, we should probably stop calling ourselves taxpayers when we complain about the money that is being spent.  We aren't paying taxes for these bailouts, we are borrowers, the government is borrowing in our name, and when I see the trillions of dollars we owe and compare that to the size of our economy (even when it was running hot) I don't see how we will ever pay that money back.  The government is making us defaulters, either directly,or with inflation/hyperinflation.  So as a defaulter who's not happy about it, I wonder what I can do.

waterdog's picture
waterdog
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Re: Punishing the Prudent

 "From an energy perspective, it is now clear that any adequate response to the oil supply/price problems we will have after this U-shaped recession is over will be impossible. Most of the funds that might have been put into infrastructure changes .... have already been given to the banks. "

One big question is what will the banks do with the funds (after exorbitant executive pay and bonuses for screwing up)? 

All viable long-term energy solutions include substantial increases in domestic drilling if for nothing more than the transition to alternatives.  History demonstrates that energy transitions take 60 years (Mann, 2000; Bromley, 1994).  The most accelerated program (for which there is no money) might achieve some meaningful energy transistion in a 20-30 year timeframe if the delapidated patchwork electric grid can be overhauled.  Therefore near-term drilling can produce energy we'll need in the (dreaded) twenty-teens.

BUT... Nancy P & Co. have cheerfully identified the oil companies as a source of financial support for their wish-list.  It should be recalled after the apparent successes of the oil companies in 1973-74, an "excess profits" tax was imposed, this during a period of high inflation and rising interest rates.  The oil companies became severely strapped for capital, which limited exploration and development and brought the second oil crisis in the same decade. 

Not that the Imperial Congress knows or pays any attention to history.  

csadvisor's picture
csadvisor
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What are the effects

Chris,

 My question now is how does this change the timeline of events to unfold, especially since the rest of the G7/G20 is following the same trajectory in bailing out the banks/bad behavior.  I would assume this would almost guarantee the hyperinflation here in the US, but does this mean that the currencies of the rest of the world will also suffer same?  Can you extrapolate from what unfolding presently to give us an idea how you see this playing out?

mpelchat's picture
mpelchat
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Re: Punishing the Prudent

Let's inject one other point that we are overlooking. 

The banks we are talking about being prudent are regional banks that did not grow past there ability to manage their own business.  That is intelligent as a business person.  That does not mean they have a lot of power.

The more people you have, the more money on the balance sheet, the more power you wield to hurt the community around you.

If General Motors goes belly up.  10's of thousands of people go out of work nationwide.  The government will step in and help.  If mom and pop's store goes under, not many people will care. 

It is the same here with the banks.  They go down, it effects our national community. 

Should this actually happen in a free market?  Darn right, there is a natural cycle that happens with a lot of pain but all will be better when the system balances and heals. 

HOWEVER, no politician wants to take that much of a hit on there watch, especially to there buddies that give them the big bucks for the next campaign.

Lets look at this a friend of mine found today:

Along these lines, both Senator B. Hussein Obama and el Senador Juan McCain voted for the coup. Why? Here are the top ten corporate PAC contributors to both candidates:

Communist Candidate A                       Communist Candidate B

Goldman Sachs $739,521                      Merrill Lynch $379,170
UBS AG $419,550                                  Citigroup Inc. $287,801
Lehman Brothers $391,774                  Morgan Stanley $249,377
Citigroup Inc $492,548                         Wachovia Corp. $147,456
Morgan Stanley $341,380                    Goldman Sachs $220,045
Latham & Watkins $328,879               Lehman Brothers $115,707
Google Inc $487,355                             Bear Stearns $108,000
JPMorgan Chase & Co $475,112         JPMorgan Chase $206,392
Sidley Austin LLP $370,916                Bank of America $133,975
Skadden, Arps et al $360,409             Credit Suisse $175,503

Well isn't that interesting????????????????????????????????????????

((Look up http://www.newswithviews.com/Stang/alan167.htm for full artical. WARNING, artical has some objectionable language and some views that, in my opinion, are hateful, but I can understand the "general" emotion due to the situation we find ourselves))

 

 

Davos's picture
Davos
Status: Diamond Member (Offline)
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Posts: 3620
Can we help:

Hello All:

Can we do something positive to help? 

 Clearly we see that the crew of this jumbo jet called the economy is fixated on bad instruments and is not looking outside the cockput window at the mountain they are about to run us all into.

Can we:

 

  1.  Write a letter explaining to everyone in Congress and everyone in the Senate our situation and the real problem?
  2. Can we tell them how we got here (Fiat currecny and cooked indicators (GDP and Inflation and Debt)?
  3. Can we use email and the internet to get this thing signed and mailed into our lawmakers so they can fix the problem not the symptom?

 

Maybe I'm a Polyanna but seems to me we are a great nation of smart, resourceful and creative people and if we could get 7 trillion bucks put into alternate energy it would allow us to:

 

  1.  Keep 7 trillion bucks here as opposed to sending it to more radical areas of the globe
  2. Let us EXPORT more than we Import so we could pay down debt instead of incuring debt by spending more than we make
  3. Stimulate what is left of the economy (if it isn't too late)
  4. Protect our democracy since it relies on a good economy
  5. Help our enviornment 

 

Seems like this site knows the problem and the answer and for whatever reason the few people in the cockpit are clueless. I really doubt they want to auger in, they are on our economy flight and have kids on it.

Just a suggestion. It seems we (myself included) are convinced that hope and optimism have been sucked out of our cabin? 

Take care,

 

Dave 

mpelchat's picture
mpelchat
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Re: Can we help:

Dave,

You are thinking way too intelligently.  Good Job!!!!!!!!!!!!!

Mike

l_metalbone's picture
l_metalbone
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Re: Punishing the Prudent
More like "Stealing from the Prudent!"
ashtonw's picture
ashtonw
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Re: Can we help:
where do you intend that 7 trillion dollars to come from? the printing press?   You thought inflation was gonna be bad...    just throw 7T in there and you really have a party.  May as well move to zimbabwe
Davos's picture
Davos
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Re: Punishing the Prudent
7 trillion is I believe what we pay every five years for oil....
gregroberts's picture
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Re: Punishing the Prudent

 The whole speech here...

http://usabig.com/autonomist/moneyspeech.html

 This is an excerpt from Atlas Shrugged written by Ayn Rand, seemed appropriate in our present situation,

"When force is the standard, the murderer wins over the pickpocket. And then that society vanishes, in a spread of ruins and slaughter."

"Do you wish to know whether that day is coming? Watch money. Money is the barometer of a society's virtue. When you see that trading is done, not by consent, but by compulsion--when you see that in order to produce, you need to obtain permission from men who produce nothing--when you see that money is flowing to those who deal, not in goods, but in favors--when you see that men get richer by graft and by pull than by work, and your laws don't protect you against them, but protect them against you--when you see corruption being rewarded and honesty becoming a self-sacrifice--you may know that your society is doomed."

gregroberts's picture
gregroberts
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Re: Punishing the Prudent

 

 http://www.iht.com/articles/2008/10/15/business/15bailout.php

"The chief executives of the nine largest banks in the United States trooped into a gilded conference room at the Treasury Department at 3 p.m. Monday. To their astonishment, they were each handed a one-page document that said they agreed to sell shares to the government, then Treasury Secretary Henry Paulson Jr. said they must sign it before they left."

Wow! I think we have had a soft coup, Hail Paulson.

switters's picture
switters
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Re: Punishing the Prudent
[quote=mellison]

All viable long-term energy solutions include substantial increases in domestic drilling if for nothing more than the transition to alternatives.  

[/quote]

Can you tell me what evidence you base the statement above on?  Everything I've seen suggests that offshore and ANWAR drilling will not ever have a significant impact on oil supply, and will have no discernible effect whatsoever in the next ten years.  Below is a quote excerpted from an EIA analysis of what effect lifting the ban in 2012 for the Lower 48 OCS would have on U.S. oil production.  For the full article follow the link below.

The Energy Information Administration (EIA) of the U.S. Department of Energy used the MMS data to assess what impact a lifting of the ban in 2012 for the Lower 48 OCS would have on U.S. oil production. Basically, the EIA estimated what fraction of the technically recoverable oil would be economical to recover, and how fast it could be produced after 2012. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017. The EIA found that access to the Pacific, Atlantic, and eastern Gulf of Mexico regions would not have a significant impact on domestic crude oil production or prices before 2030. Total domestic production of crude oil from 2012 through 2030 is projected to be 1.6 percent higher than in EIA's "no access" reference case.

The effect of that quantity of oil on the price of oil would be indiscernible. Oil prices are determined on the international market, and the addition of about 0.16 million barrels per day from the OCS in 2030 to total world oil production would have no significant impact on oil market fundamentals. The world consumed about 86 million barrels per day in 2007, and will consume about 112 million barrels per day in 2030, according to EIA forecasts.

http://www.theoildrum.com/node/4621

rlee's picture
rlee
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the big picture

There has been some talk in this thread regarding not only the money issue as it relates to all countries, but it has spoken to the issue of energy's role in the situation as well.  Consider that while we are discussing the economy, the money supply, debt, and energy - both current and future alternatives - that we may be missing a much grander scheme at work here.

Has it occurred to anyone that perhaps ALL these things are the same thing?  We may be making a huge mistake by assuming that the issues at hand are somehow separated from one another?  Let's look at this thing from a giant step backward and change the perspective a bit.  All of the worlds great banking institutions are suffering so in a way that requires all of the international governing bodies to meet together and formulate the "Saviour" of the world's economy.  This big world-wide save is at the ultimate detriment to these governments.  That in doing so the funding for all significant research and development as it relates to the infrastructure is transferred to a unified cartel at a global scale.  That once complete, the world governing bodies become themselves enslaved as a group, required to rely on 'private' development of future technology without oversight or controls.  The fact that small (er) developers and entrepreneurs will be unable to heed off the pressures of buy-outs and market crushing tactics of the largest R&D groups.  And, most importantly, that those largest R&D groups will be the oil companies themselves, funded and supported by the central money controllers, to create not an oil industry as we have all so narrowly known, but a global ENERGY INDUSTRY.  Be it oil, NG, hydrogen, solar, wind, bio-fuel, whatever.  Rest assured, you will purchase your future ENERGY from the same people you purchase it from now.  The petroleum industry is as tied to this mess as anybody else is, and the money they are amassing is staggering.  Where do you think all this money is going?  How about to ensure that they have the purchasing leverage to monopolize whatever ENERGY is used - ever!  When the oil runs out, they will still have jobs.

   "From an energy perspective, it is now clear that any adequate response to the oil supply/price problems we will have after this U-shaped recession is over will be impossible. Most of the funds that might have been put into infrastructure changes ... have already been given to the banks. "

Control of the money may be power, but turn off all the lights, and take away the cars and you've really got something.  Keep in mind that oil is the reason we go to war, and the benefactors are the banks - they're the same!

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joe2baba
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Re: Punishing the Prudent

THIS JUST IN FROM NPR ( national propaganda radio) sponsored by citibank etal.

"this plan is well thought out, it is necessary and in the long run i believe this economy will come back"

g.w. bush

oct 15 2008 

well this is what i heard " the money masters are in complete control this is not an accident. we have been planning this for hundreds of years. the way this works is we flood an economy with cheap capital and easy credit then we pull the rug out. we tighten credit and withdraw money from the system. at which time we can then consolidate banking instititons ie. eliminate competition.(competition is sin...jd rockefeller) once we have destroyed perfectly sound companies we can then buy them at pennies on the dollar. we will reward those who have aided us in this well thought out plan. those that have aided us most are congress people who were so kind to provide their services at bargain basement prices this is all necessary so that we can create a new world order as declared by my daddy and his friend david rockefeller whose grandaddy was funded by the rothschilds. we will continue to incite wars around the world as this gives us maximum profits because we fund both sides of every conflict. i believe this economy will come back but will be totally unrecognizable to anyone familiar with the american economy pre 1913"

so radiance ron there you have it . dave okst in answer ot your question "what can we do ?"

ah well the vast majority of the american public did not want this sellout. our representatives ignored us (no taxation without representation). the ayn rand quote provided by greg roberts is a pretty good indicator that the system is broke beyond repair for us anyway. when confronted with the same set of circumstances guys like washington, jefferson , franklin, paine, henry, adams came to the conclusion that there was only one answer. just history.

so i guess from where i look at it we can either be willing or unwilling serfs. no one on this site has yet answered my question " is it rape first then pillage or pillage first then rape?" i have an idea

may god have mercy on us

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Re: Punishing the Prudent

The problems all stem from the same root: you can't have infinite growth on a finite planet. Yet our entire economy is predicated on the notion of infinite growth. Clearly, TMU (The Master of the Universe) know this, and no doubt also knew that eventually it would all come tumbling down. So they have taken steps to protect themselves. A massive redistribution of wealth started 28 years ago, but it's been redistributing the wrong way, trickling up instead of down as we were promised. A final massive looting in the form of "bailouts" that is just another way of taking money from people who haven't got enough and giving it to people who have too much. Meanwhile stupifying the common person by making him feel "wealthy" by extending apparent infinite amounts of easy credit for the purchase of flat–screen TVs, iPods and salad shooters.

It's over, and my guess is that it ain't coming back. On reflection, I'm not so sure that's a bad thing. Maybe it's time to reclaim some of the simple values that made America what it was and should be, a place for independent thought, outspoken, involved citizenry living simple lives as part of a larger, mutually supportive community that values strength of character, honor and the consitution.

Or am I just hopelessly old–fashioned?

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Re: Can we help:

 Keep 7 trillion bucks here as opposed to sending it to more radical areas of the globe

having been to other areas of the globe it would be hard to imagine a more radical part of the globe than right here. most of the rest of the world think we are maniacs and i happen to agree with them. we have over 800 military installations in 130 countries we have overthrown governments everywhere. U.S hegemony is the most radical force in the world today.

yes we should keep the money here but please leave out the jingoism

 

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Davos
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Re: Can we help:

Joe:

Point well taken, I didn't mean to offend anyone please dismiss my classifying them as "the more radical parts of the world."

Dave 

mc's picture
mc
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Re: Punishing the Prudent
Since this current system of govt. is now broken, there is no point in attempting to influence those in government positions through phone calls, letters, emails, faxes, etc. The outcry against the bailout and the response by reps is proof that we do not have a representative govt. They planned many moons ago to nationalize private debt and drain the nation's coffers and that plan is now being implemented. They knew after 9/11 that they would get away with it. We will have to overthrow and reestablish a decent system of government. But first the people must realize they have much more to lose than gain by continuing with the current system. I do not think that tipping point has been reached. Lying to oneself that these people mean well is just pretense based on fear of facing the truth. The crime syndicate cares for no one, just their power base and that should be clear to all - but it isn't...not yet. We can call this syndicate the MIC or G8 - but it is the same thing. The America we thought existed - if it ever did - is over. First awareness of what is  - sort of like those 12 step programs "Hi my name is_____ and I live under a crime syndicate."
switters's picture
switters
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Re: Punishing the Prudent
[quote=Arthur VIbert]

The problems all stem from the same root: you can't have infinite growth on a finite planet. Yet our entire economy is predicated on the notion of infinite growth. Clearly, TMU (The Master of the Universe) know this, and no doubt also knew that eventually it would all come tumbling down. So they have taken steps to protect themselves. A massive redistribution of wealth started 28 years ago, but it's been redistributing the wrong way, trickling up instead of down as we were promised. A final massive looting in the form of "bailouts" that is just another way of taking money from people who haven't got enough and giving it to people who have too much. Meanwhile stupifying the common person by making him feel "wealthy" by extending apparent infinite amounts of easy credit for the purchase of flat–screen TVs, iPods and salad shooters.

It's over, and my guess is that it ain't coming back. On reflection, I'm not so sure that's a bad thing. Maybe it's time to reclaim some of the simple values that made America what it was and should be, a place for independent thought, outspoken, involved citizenry living simple lives as part of a larger, mutually supportive community that values strength of character, honor and the consitution.

Or am I just hopelessly old–fashioned?

[/quote]

 

Bravo.  I agree with you 100%

Welcome to the site! 

Davos's picture
Davos
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Re: Punishing the Prudent

MC:

 I think it is worth a try. I have seen some pretty dumb questions asked by Congress to Bernanke. I don't think a lot of them have a clue.

 Besides, how many brokers, politicians, and economists have you heard quote GDP, GDP growth, GDP as compared to debt? They think GDP is a real figure, they haven't a clue it is cooked.

Really, isn't this akin to investing in Enron.

Even I.O.U.S.A. quotes GDP to debt. That was an insightful book, I don't think even they know that GDP is cooked. Chris bought that to light and I think this one topic is really important. I think, (to paraphrase) like he said, it has been messed with for so long that no one gets it.

I'm not for giving up. If Congress could get a clue the laws can be changed. That is democracy. To not try, wouldn't that be like promoting something other than democracy?

GDP is the most quoted figure when it comes to judging our economies health. Screwing with that number, was, in my humble opinion, as dangerous as letting private banks issue money out of thin air.

Take care,

 Dave 

 PS Right now our hope is 1 out of 435 http://www.youtube.com/watch?v=rCiTykzX3ek&eurl=http://www.ronpaul.com/2008-10-14/ron-paul-you-cant-save-free-markets-by-socialism/

I can't believe this was on Fox

 

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Re: Punishing the Prudent

dave i admire your convictions.

i agree with mc and jefferson and the boys. we wrote we called, i spoke to them in person.

they went ahead with the sellout anyway. the media is in the club ron paul is a voice in the wlderness.

the boys in 1776 did do something positive. after they emailed the king for years,

you know ralph nader is runninng again this year . i am voting for him for the third time.

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Davos
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Re: Punishing the Prudent

Joe:

I'd vote for my late dog before I voted for a guy who crashed 5 planes and who is running with someone who has the IQ of, well Oliver Stone said it best, she makes W look smart. With him we don't need any enemy, just give him the briefcase and or the combo to the economy. When he was captured the military saved a lot of money in balled up figther jets, we don't need him balling up anything else, we have had over 8 years of that.

And as much as I like the other guys energy plan, the company he keeps scares me, his WM board wife included, any company who encourages employees to use government hand outs to feed their kids is a disappointment, anyone on their board is an even greater dissapointment. 

I'm still going to write. Maybe they just don't get it. A lot of them were threatened with martial law being imposed as the result of an imploding economy. If they get it and allow it then that is very, very sad. But I honestly think about 1% of this country realizes the problem is money and solvency and not credit. And I honestly believe that about 1/4 of that 1% realizes that the gauges economists use are cooked. 

I look at the news and I say where is Chris, or the guy from shadowstats or anyone from financial sense. All we see is Ben and Paul and GDP to debt is okay. Or this went that way because of this (cooked) figure.

Pathetic. 

Take care,

Dave 

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Re: Crooked measurements

[quote]And I honestly believe that about 1/4 of that 1% realizes that the gauges economists use are cooked. [/quote]

And about 1/4th of those realize that GDP never was, and never will be, a measure of economic growth. It is at best, loosely correlated to real economic growth.   And that is well before fuzzy numbers enter the picture.

--

Steve

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Davos
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Re: Punishing the Prudent

Okay, maybe I submit:

A Nebraska district court judge has dismissed state Sen. Ernie Chambers' lawsuit against God, finding that "there can never be service effectuated on the named defendant." Chambers sued God in 2007, seeking an injunction against acts of violence such as earthquakes and tornados. He's considering an appeal.

http://www.omaha.com/index.php?u_page=2798&u_sid=10460511

I guess if we have senators wasting their time suing God then they will never figure this out.

 

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Re: Punishing the Prudent

Your last words of your article held the most interest for me, namely that "you wish when our true emergencies in energy and infrastructure are made clear, they will respond with the same urgency and magnitude..."

I have every confidence that they will.  Let's imagine for a moment what those measures might look like.

We have an energy issue.  Say, we have a major shortfall of oil, brought on by peak oil and our decades of buying SUVs and generally ignoring the issue, but the actual tipping event is some international problem that causes the world to suddenly go into a multi-million bpd shortfall, where the SPR can't make up the difference.

Let's draw a parallel from the response we've seen so far.  What would they do?  It has to be big, expensive, the people who have largely caused or ignored the problem have to distract attention from their failures (and ours), and ultimately it must result in maximum control residing with the government.

Ok, here goes: 

Instead of noting a complete lack of energy policy as the root cause, instead blame the oil companies for "price gouging".  Response?  Nationalize all domestic oil production (our mineral wealth belongs to all americans, not just the "oil pirates").  Also, punitively tax or regulate prices for all companies associated with the oil industry - drillers, oil services, etc.  Cap wages and salaries of oil workers.  Use the taxes for giveaways for our favorite programs.

Blame the speculators for causing the price of oil to climb during the shortage.  Response?   Eliminate the oil futures trade entirely, as well as all mechanisms for speculating (price discovery) on related commodities. The government can efficiently fix the price of oil and gasoline

Of course there would not be enough supply.  But instead of using prices as a way to destroy demand, instead ration gasoline.  Perhaps everyone would get a debit card that contained a fixed number of gas dollars they could spend each week, which would gradually get smaller and smaller as our resources went away.  I'm guessing the well-connected would receive nicer debit cards.  Mandated demand destruction.

Spend that tax money to dramatically ramp up corn based ethanol production (great for the farm states), as well as coal to liquids facility construction (great for the coal miners).

Spend also on subsidized conversion of cars to use natural gas, in addition to construction of natgas filling stations.   This shocking instance of good judgement would be strictly accidental, and we would find that we'd reached peak natural gas even with the new horizontal drilling techniques.  Response?  Ration natgas as well.  Oh and nationalize natgas production too.

Send hundreds of billions to the automakers to construct hydrogen as well as lithium ion battery cars as our "ultimate solution for energy independence."  The research would be a success, only to find out we have reached peak lithium - and that we do not have enough power plants to charge our cars or generate our hydrogen.  Lithium production would also be nationalized - to prevent price gouging again.

By this time, inflation will be a serious problem, since we would be running $400 billion deficits every year, and the Chinese would have long ago wisely ceased buying treasuries.  Naturally that debt would be monetized by the Fed.  The resulting inflation would be blamed on Saudi Arabia and the Arab world in general for causing all of the trouble.  Perhaps we would start a war as a result.

Measures to "control inflation" and reduce our balance of payments problems might include making ownership of gold and silver (above $10,000) illegal, restricting the flow of capital from the US  overseas to corporations, eliminating the ability of Americans (or American residents) to own bank accounts in foreign countries, or ownership of foreign instruments or currency (or interest in any fund that has such ownership) in excess of $10,000.  Your patriotic duty as Americans during this crisis is to invest in America!

Am I crazy?  Based on what I've seen in the past two months, I don't think I am.  I am certain the government will respond to the problem with dramatic action.  I'm just not sure I'm going to enjoy the drama.

 

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Capitalism and Fiat Currency: Mutually Exclusive

Under a fiat-currency standard, the purchasing power of the unit of exchange is politically determined by central planners. As Hayek observed decades ago, forecasting and investment are impossible when the unit of exchange is ever mutating at the whims of a group of "wise men."

We need new nomenclature. "Capitalism" is as antique as the gold standard -- something your grandparents may have briefly glimpsed as children. "Socialism" and "fascism" carry left-wing and right-wing connotations, respectively, which are irrelevant to their functional meaning: a government-dominated economy with a vestigial private sector which serves as an agent for adminstrating and enforcing government policies.

Unlike communism, nominal private ownership remains. But with regulation, taxation and now even investment under government discretion, the scope of individual autonomy is severely circumscribed.

'Kleptofeudalism' comes close to getting at the essence. A plutocratic looter class has rendered 99% of humanity serfs. Implication: no more bourgeois middle class. You must be a master, a slave ... or a fugitive from "justice." Run, Joe Citizen, run!

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Re: Punishing the Prudent

There is good reason for drilling, both in ANWAR and offshore. In the above commentary it has been mentioned that we spend 1.5 trillion every five years for oil overseas. That comes out a very conservative 300B per year. It is actually more like 600 billion for 15 million barrels of oil a day or about 5.5 billion barrels a year. That is about 109 billion dollars for each billion barrels of oil or 109 million for each million barrels. If we could increase US production by a million barrels a day, we could send 109 million less dollars overseas every day. That money could be used here for jobs, alternative fuel research, and to help keep our oil supply from declining as rapidly as it would otherwise due to overseas competition for a dwindling supply. If we could get domestic production up by 3 million barrels a day we could keep 327 million a day onshore. It is believed by many oil people that this is a realistic goal.

As an aside, have you considered that when government taxes business, then business passes the taxes along to the consumer if it can still sell product at the increased price (otherwise the business goes overseas). The process of having business profits taxed turns the corporation into a tax collector for the government, taxing the very lowest 95% of the population that Sen. Obama says he wants to cut taxes on. Taxes on corporate income have always been congress' stealth taxes on the poor and middle class. The rich can afford it. It also keeps the lower 95% from knowing exactly how large their tax burden really is, which of course, is the point.

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Re: Punishing the Prudent

yep good reason to drill in anwar. we can move up from being the 17th largest EXPORTER  of oil to maybe 10th.

more profits for patriotic big oil, oil from the u.s. going elswhere and higher gas prices for joe the plumber. 

yep great energy policy. can i get any good buys on oil stocks xflies .

i suggest we start paying attention to AMORY LOVINS not newt and sarah.

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Re: Punishing the Prudent

Oh, and one more thing. From what I have been seeing, ANWAR could be online within 3 years. The technology is there, the people and rigs are available, and the oil is not that deep. With only 70 miles of pipeline to build to the existing pipeline, it is possible that it could be online even sooner if the government gets the hell out of the way. Offshore will take longer if it has to drill out over 50 miles where there is likely to be the least oil. Also there are no rigs available right now, but once available, it have heard it said that offshore could be up in 5-7 years, not 10-30. We need to insist that drilling be permitted up to the 12 mile limit.

 

Also, Gov. Palin has more executive experience than Obama, has dealt with more people, and made more decisions. Obama has not introduced a single bill while in congress. In my view he is even scarier than Sen Palin. I would rather have experience on the top of the ticket, not on the bottom. Having a do-nothing as president might be an advantage, but can we trust his judgement when this financial situation gets even worse? Both choices are terrible, but having different parties in the executive and legislative branches sure looks attractive to me since, hopefully, they will never agree on anything.

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Re: Punishing the Prudent

Well today should be a great day for Wall Street Cry

Eclipsed by who beat who in the debate, Madonna and Richie's divorce, Palin buying diapers at Wal-Mart, and the FBI starting an investigation on a Democratic Congressman was the fact that the overseas markets tumbled last night with double digit losses.

Not one mention of the fact that our GDP, if calculated without Enron math, would indicate and has indicated for some time we are in a severe recession - or worse.

 This is like not reporting that Katrina is barreling down on us.

Surprise! Look whats here! The big D.

 

 

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Re: Punishing the Prudent
mellison wrote:

All viable long-term energy solutions include substantial increases in domestic drilling if for nothing more than the transition to alternatives.  

switters asked:

Can you tell me what evidence you base the statement above on?  

 

I don't want to argue the preeminence of one govt agency over another, so will preface my reply with the following caveat: 

ALL GOVERNMENT AGENCIES RELATED TO ENERGY AND THE ENVIRONMENT ARE HIGHLY POLITICIZED AND ANYTHING THEY DO OR SAY SHOULD BE APPROACHED WITH A HEALTHY SKEPTICISM.

Therefore, to respond to your question on evidence, it depends on what the meaning of  “evidence” is.  Much of what I believe is based on a career as an environmental consultant, including a lot of work for energy and mining clients.   But for something more reputable see the Minerals Management Service’s 2006 assessment of technically recoverable oil and gas resources of the Outer Continental Shelf:  

·         total technically recoverable resources of the U.S. OCS are 85.88 billion barrels of oil (bbo) and 418.88 trillion cubic feet (tcf) of gas (not including resources in areas already under lease).

·         73.4 Bbo and 330.54 Tcf considered economically recoverable with prices at $80/barrel and $12.10/Mcf.  

Granted, a lot of that energy is in Alaska and off the Atlantic where the lack of infrastructure would delay production by at least 10 years (the time estimate for the new Alaska pipeline).  However, there’re about 14 bbo off CA and in the eastern Gulf of Mexico that are a lot closer to existing pipelines.  Plus we’ve got on-shore resources that are slow to tap due to the gov’t and enviro-litigators.   All those shales you hear about (Floyd, Barnett, Marcellus, Haynesville) are loaded with gas but they also have a lot of oil, all in close proximity to existing infrastructure.   One of the factors EIA considers in estimating future production is the number of idle drilling rigs, which has decreased as the price of oil made it profitable to drill domestically again.  EIA does not adequately consider the possibility that new rigs could be produced to meet increased demand.  They also look at the historic timelines to establish new fields, but that history does not accurately account for technical and knowledge advances, nor the substantial efficiencies that could be realized if procedural impediments were reduced.The two biggest impediments to domestic energy production are the government and the environmentalists.  If the Feds decided to expedite the lease process then tens of billions would start flowing into the treasury.  Plus, there would have to be some means of limiting the litigation that delays every single energy opportunity in this country.  I do not suggest abandonment of environmental regulations (that would put me out of work) but there need to be boundaries on the process.

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Re: Punishing the Prudent

AP
Stocks fluctuate following tame inflation report
Thursday October 16, 10:19 am ET 
By Tim Paradis, AP Business Writer

Another financial genious of an article/headline...

Another oxymoron, tame inflation.

No wonder....

 As an ex-airline captain I would equate this with dissabeling every warning light in the cockpit AND not looking outside.

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Re: Punishing the Prudent

Hi Dave,

Yes well the last few weeks have been memorable both in Aus and the world markets.

I am probably living in the safest economy on the planet due to our natural resources but a major risk still exists.

Glad I am not Chris, needing to finish the last article of his Crash Course.

Have followed it colsely and agree with most of his thinking but must wonder where he can go from here.

Am prepared to patiently wait until he can come up with the answer.

Really, what else is there to do?

Happy investing,

Joe. 

 

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Re: Punishing the Prudent

Thanks Chris - you are one "for such a time as this". 

I think you're on to something Ron (comment #2). This is definitely a "roll-out" of a plan that's been baking for a while. I suspect we shouldn't be too surprised to see the unveiling of the "Amero" and a "Yuan/Yen/Won" alongside the Euro as an interim step to a single global currency. What say you, Chris?

Paul 

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