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Life After the Oil Crash
Deal With Reality or Reality Will Deal With You
Editor's Note: Ellen Brown's book "Web of Debt: The Truth About Our Money" is available at a deep discount by way Amazon.
There is, however, something else going on today disturbingly similar towhat triggered the 1923 hyperinflation. As in Weimar Germany, moneycreation in the U.S. is now being undertaken by a privately-owned centralbank, the Federal Reserve; and it is largely being done to settle speculativebets on the books of private banks, without producing anything of value tothe economy. As gold investor James Sinclair warned nearly two years ago:"[T]he real problem is a trembling $20 trillion mountain of over the countercredit and default derivatives. Think deeply about the Weimar Republic casestudy because every day it looks more and more like a repeat in cause andeffect" The $12.9 billion in bailout funds funneled through AIG to pay for Goldman Sachs' credit default swaps is just one egregious example. To theextent that the money generated by "quantitative easing" is being suckedinto the black hole of paying off these speculative derivative bets, we couldindeed be on the Weimar road and there is real cause for alarm . . .Gorbachev helped destroy the Soviet Union by borrowing abroad andprinting money to paper over the need for fundamental reform. Howfamiliar does that sound? Simon Johnson has an interesting piece todayabout how to make it sound less familiar. His three-point plan is: Raise interest rates, begin to wean ourselves off Saudi oil, and bring the deficitdown to about 5% GDP by next year. Hold it, 5% by 2010? You've got to bejoking. In 2010, the CBO projects a budget deficit that appears to be 10%of our GDP. Simon Johnson wants to cut that in half. That's a great idea.It's also a $700 billion idea. Where are we going to find that kind of money?State budgets look bad now, but they are set to get worse. The bulk offunds from the federal government's stimulus package will be allocated by2011, but tax collections aren't likely to be enough to take their place --even if the economy is recovering. The drop in tax revenue is set to bedeeper and last longer as collections have become more sensitive to business cycles. At the same time, states face growing health-care costsand need to replenish pension program funded by decimated investments. The recession and gas-price increases over the past two years havecaused many consumers to drive less and switch to more fuel-efficientcars. The result has been a fall in revenue from taxes on gasoline andvehicle purchases, which are used to fund state and local transportationprojects. The highway trust fund will need an injection of as much as $7billion by September or states would not receive all the money they arecounting on to finance construction projects later this year . . .Losses at the police and firefighters' pension fund have thrown this Ozarkcity into its worst budget crisis in decades. One of the pension fund'sproblems: It's an investor in a $1.1 billion speculative skyscraper rising inNew York's Times Square in the middle of a commercial-property bust.U.S. private employers chopped more than half a million jobs in May,signaling job conditions remain tough and dashing some hopes the economywas not deteriorating as rapidly as thought . . . U.S. companies axed532,000 jobs last month, though this was fewer than the revised 545,000jobs lost in April, according to the ADP National Employment Report.The recession is driving the safety net of government benefits to a historichigh, as one of every six dollars of Americans' income is now coming in theform of federal or state check or voucher. Benefits such as Social Security,food stamps, unemployment insurance and health care, accounted for16.2% of personal income in the first quarter of 2009. That's the highestpercentage since the government began compiling records in 1929. In all,government spending on benefits will top $2 trillion in 2009 — an average of$17,000 provided to each U.S. household, federal data shows . . .Editor's Note: relink from yesterday's news update as I think this article nails it:
. . . the purpose cannot be to create a new, lean, debt-free company thatmight one day turn a profit. That is what the private sector is supposed toachieve on its own . . . The only practical purpose I can imagine for thebail-out is to slow the decline of GM to create enough time for its workers,suppliers, dealers and communities to adjust to its eventual demise. Yet ifthis is the goal, surely there are better ways to allocate $60bn than to buyGM? The funds would be better spent helping the Midwest diversify awayfrom cars. Cash could be used to retrain workers, giving them extendedunemployment insurance. But US politicians dare not talk openly aboutindustrial adjustment because the public does not want to hear about it. The filings lodged at 8am with a court in Manhattan were testimony to thesize and complexity of the 101-year-old company and to the scale of theproblems that finally overwhelmed it. Until 2008, when it was overtaken byToyota, GM was the world’s biggest carmaker, producing well over 9m carsand trucks a year in 34 different countries. It has 463 subsidiaries andemploys 234,500 people, 91,000 of them in America, where it also provideshealth-care and pension benefits for 493,000 retired workers. In Americaalone, it spends $50 billion a year buying parts and services from a networkof 11,500 vendors and pays $476m in salaries each month . . .Sports franchises could alsoi feel the sting, with analysts expecting the automaker to continue cutting back its multimillion-dollar sponsorships ofprofessional teams. A company trying to emerge from Chapter 11 can'tspend billions on advertising, though. The Obama administration askedChrysler, the other member of Detroit's Big Three automakers currently inBankruptcy Court, to halve its proposed marketing budget, which indicatesadvertising could be one of the many things reduced as GM restructures.GM’s architect, Alfred Sloan, never had Henry Ford’s entrepreneurial ortechnical genius, but he had organisation. He designed his company aroundthe needs of his customers ("a car for every purse and purpose”). Thedivisional structure he created in the 1920s, with professional managers reporting to a head office through strict financial monitoring, was adoptedby other titans of American business, such as GE, Dupont and IBM beforethe model spread across the rich world. Although this model was brilliantlydesigned for domination, [ultimately] it proved disastrously inflexible. German Chancellor Angela Merkel, in a rare public rebuke of central banks,suggested the European Central Bank and its counterparts in the U.S. andBritain have gone too far in fighting the financial crisis and may be layingthe groundwork for another financial blowup. "I view with great skepticismthe powers of the Fed, for example, and also how, within Europe, the Bankof England has carved out its own small line," Ms. Merkel said in a speech.Editor's Note: Jeff Rubin's new book "Why Your World is About to Get Much Smaller" is availble at Amazon for as much as 65% off if you buy it used.
With global oil supply dwindling and demand rising, you can expect scarcity.And scarcity means high prices. You can expect triple-digit oil prices in thenear future. Yes, the price at the pump is going to go up. Count on it. Inthe United States, that should translate into as much as $7 per gallon ofgasoline, and about $2 per litre in Canada. Europe is of course alreadypaying those prices, so they should get ready for the equivalent of doubledigit gas prices. But it will also hurt in ways you may not be thinking about.
Now is the time to invest in micro-solar equipment:
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