There are lots of embedded links, plus the usual charts, in this article. You would be much better served reading it at its original site.
Yes, it's idealistic. You might not think it very realistic. But consider the alternatives...
dd
=========================
http://www.strike-the-root.com/82/allport/allport1.html
The Paradise Perspective: Commentary from a Free and Compassionate Alternate Reality
2008 Update, Part 2
by Glen Allport
July 8, 2008
Last week we looked at trends for the economy and for government action, and found the situation less than optimal, in much the same way that an outbreak of Ebola in your neighborhood would be less than optimal.
This week we consider the situation for commodities (and in particular oil and metals), food supplies, and the environment.
3) Oil, metals, and other natural resources
The dramatic trend for higher commodity prices which began several years ago is not an artificially inflated bubble about to pop, but instead a very real expression of powerful, fundamental change in the world (which I'll describe shortly). Downticks are inevitable in any bull market, but the commodity uptrend itself isn't going away anytime soon. Unlike in a bubble (e.g., the recent bubble in housing) buyers are snapping up the available supply for current use as it comes to market, not buying and holding actual inventory for expected future gain.
To see how broad and strong this uptrend has been already, click here for a page with charts for many commodities over various periods of time; the example below is for heating oil over the last ten years. Most other natural resource-based commodities, including gasoline and metals, show a similar pattern.
Heating Oil (HO, NYMEX) http://futures.tradingcharts.com/chart/HO/M
As for my prediction that dollar prices for commodities will continue rising for years to come: there are several reasons for such a view, and together, these reasons make Neils Bohr's famous comment "Prediction is very difficult, especially about the future" look like sissy-boy waffling. Bohr was a pretty bright guy, but there are clearly some times when prediction isn't difficult at all. I, personally, have a 100% accuracy rate in predicting certain types of events. For instance, when I drop a raw egg on my kitchen floor, I predict (as I helplessly watch the egg accelerate at 32' per second toward the hardwood) that the eggshell will break and gooey raw egg will splurt out on the floor. I have never been wrong about this, and there are dozens of other things I have been 100% right about, too. So you can take what I have to say here as gospel, at least when I'm talking about eggs.
Returning to the topic at hand (and to a tone more appropriate to the situation):
The first and (for now) most important reason that commodity prices will continue rising: We live in a dying, world-wide empire of fiat currency. This empire is owned by private banks with monopoly charters that are granted by, and operated in league with, coercive governments. The empire itself is sociopathic to the core; it is gimlet-eyed, cunning, and controls most of the major outlets for news and entertainment; it also controls respected universities and influential think tanks and the most powerful organizations among the power elite.
For a century and more, this empire has controlled the money supply of nations and has financed wars and other destructive government make-work projects, growing fat on the profits while millions suffered and died. The empire is highly skilled at promoting such disasters, which are said to be "compassionate" or "necessary" (often to Save Us From an Enemy or some other danger). Regarding war in particular, highly-decorated General Smedley Butler (two Congressional Medals of Honor) put it plainly in the title of his 1935 book: War Is A Racket. Banks and their friends in other industries (including government, the one industry that imposes itself on customers at gunpoint) make the profits; soldiers, their families and friends, and ordinary civilians everywhere pay the price, both financially and in terms of death, maiming, and other horror.
Despite its power, the fiat-currency empire is based on a self-serving lie, and thus the truth has been undermining the empire's foundations since inception. That truth is now poised to bring the whole, rotting, corrupt edifice down in a collapse of epic proportions that will devastate entire societies and echo through time, eventually becoming myth and legend.
The character of the future that emerges from this event will depend on how we respond to the disaster now in progress. In particular, our responses will determine whether our children and their descendents live in a civil society of love and freedom, or in a technologically-enabled police state powerful enough to resist any attempt at overthrow or reform.
Love and freedom, then – or cruelty and tyranny. Make no mistake: that is the choice we face, and not only for ourselves but for many, many millions yet unborn.
- - - - -
The lie at the heart of the fiat currency empire is that a central bank can and should be the sole provider of a nation's money supply, and that said supply should consist of worthless pieces of paper (and now, electronic entries in computers) that can be almost-instantly created in any quantity by the central bank at essentially zero cost. These currency units are tied to, and redeemable in, nothing whatsoever.
In other words, the fiat currency empire is based entirely on what might be called counterfeiting, and on coercively enforcing monopoly privileges for the counterfeiters. Not only do the central banks have a monopoly on the "right" to counterfeit, but competitors offering honest money (gold or silver, which cannot be inflated into nothingness) are attacked as criminals (video, 1 min 10 sec; mostly scrolling text describing the victim's point of view; see also this Washington Post story on the event).
Actually, central banks are doing something worse than counterfeiting. A true counterfeiter creates a phony copy of something real (for instance, when a twenty-dollar bill was redeemable by law for roughly an ounce of gold, the counterfeiter who created a fake $20 bill was essentially making a phony copy of one ounce of gold), but the Federal Reserve and other central banks have, in collusion with the governments that charter them, eliminated the "real thing" entirely: even "real" dollars now have no intrinsic value at all. This is a scam of far grander dimensions than the mere counterfeiting of genuine currency.
This corrupt and parasitic system has infected nearly every nation around the world (the U.S. succumbed in 1913, with creation of the Federal Reserve), and now, after decades of hidden wealth transfer from the masses to central banks, governments, and the power elite (including corporations feeding at the government trough), the resulting economic damage is nearing a tipping point (see last week's column). Artificially-created boom/bust episodes are coming more frequently and (because the fundamentals grow ever-weaker) are becoming more severe. Central banks thwart the necessary corrections with the only tool they have: more inflation. Creation of ever-more fiat money (much of it in the form of debt) is the only thing keeping the game going, and the result is an entire planet headed toward economic collapse; see Zimbabwe for a preview. Money supply growth, worldwide, is heading into the vertical part of the parabolic curve. The egg, as it were, is about to hit the floor:
From "Global Inflation: The next major obstacle" http://www.321gold.com/editorials/aden/aden070308.html
Another look at the data, using the Consumer Price Index for U.S. prices:
From http://mwhodges.home.att.net/inflation.htm
As rivers of new dollars (and pesos and yuan and pounds and euros and other currency units) join the ocean of pseudo-money already drowning every nation, an ever-increasing number of those currency units will be required to pay for real goods that cannot be counterfeited (and which have not already been bid-up into speculative bubbles, such as housing). This is Reason Number One that you will be paying more for nearly every consumable item in the future, from gasoline to milk: the amount of fiat money in the system keeps increasing.
The system and its apologists are desperate to keep this obvious truth hidden from the public, or at least to keep the public confused about it. For example, last week, U.S. Treasury Secretary Henry Paulson said that "a weaker dollar cannot be blamed for soaring oil prices." This is on par with saying that "heavy rain cannot be blamed for flooding in the Midwest ."
Proof – and this is where that pesky "reality" thing really gets in the way of a good lie – is that gasoline prices have hardly changed in terms of real money. A gallon of gasoline today costs about $4.10 in American fiat money, but can still be had for less than a quarter-ounce of silver (silver is $18.12 per ounce as I write; check the Kitco graphic at the top of 321gold.com for the current price). A silver quarter from 1964 or earlier contains nearly a quarter-ounce of silver, and, despite fluctuations in the price of the two commodities, will usually buy roughly a gallon of gas. This situation has changed little in decades. In Texas during the late 1960s (yes, even a few years after the removal of silver from new coinage), a gallon of gasoline sold for between 20.9 cents and 24.9 cents – I know because I was there, filling the tank of my rattle-trap 1960 Ford Falcon for about $2.00 total. For a short video pointing out that 23 cents would buy a gallon of gas in 1947, click here. The video ignores that a silver quarter is only 90% silver and also pooh-poohs the increasing supply/demand mismatch (i.e., peak oil versus higher global demand, which is starting to impact prices), but it nonetheless makes an easily-understood case for the basic reality that erosion of dollar value is by far the biggest reason for higher gas prices today.
At some point, after the system has largely collapsed and much of the pseudo-money has vanished (in bankruptcies, stock market crashes and other asset deflation, and in a hundred other ways) you will STILL be paying more for consumables and for most other goods – if not as measured in currency units, then as measured in hours worked or as a percentage of your monthly income. (Here's an argument for deflation coming sooner rather than later, for those interested). Why? Reason Number Two for higher prices is supply versus demand, that most basic of economic realities. Supply of most commodities is either diminishing or growing more slowly than demand, and the cost of bringing that supply to market is increasing dramatically; the high-quality and easy-to-harvest deposits of oil and metals and coal, for example, have for the most part already been harvested. Yet world population continues growing and billions of people who now live in abject poverty are clawing their way into the middle class, or at least in that direction. The result is ever-more people wanting (and buying) air-conditioners and automobiles and every other material good you can name, bidding up prices on the diminishing supply of commodities required to make and transport those material goods.
In short, Peak Oil and Peak Metal will increasingly drive oil and metal prices higher, independent of and in addition to monetary inflation.
As an example, here is a look at the United Kingdom 's oil production, including the huge North Sea oil fields (which, like most large oil fields around the world, have already peaked):
http://www.energyfiles.com/eurfsu/uk.html
EnergyFiles.com provides such charts for pretty much every oil-producing nation on Earth, and nearly all look similar to the chart above. Don't take my word for it: start clicking that mouse and see for yourself. Many observers report that world oil output has already peaked; for example, the German-based Energy Watch Group says the world peak occurred in 2006. Furthermore, the oil that IS being harvested today is increasingly difficult to obtain and is expensive (in terms of energy as well as money) to refine, making the situation far worse than the raw numbers suggest.
Once again, this same basic problem is being experienced in the mining industry. Current data suggest that the supply of several metals (including indium, needed in LCD panels) will be exhausted in only a few decades – for indium, perhaps in 13 years. Naturally, this has an effect in the market: "In January 2003 [indium] sold for around $60 per kilogram, by August 2006, the price had shot up to over $1,000 per kilogram" says Brian Durrant in Commodity Predictions: The Future Is Uncertain. Durrant includes a chart with "Years to exhaustion" for over a dozen metals.
If all that sounds like a recipe for lower prices to you, then congratulations! You may have what it takes to become U.S. Secretary of the Treasury.
You might think things couldn't get any worse for energy and other commodity prices, but in fact several other, short-term problems (including a possible attack on Iran and predictions for above-average hurricane activity this year in the oil-producing Gulf of Mexico region; see also here) could spike the price of oil and natural gas dramatically, all on their own, which would naturally raise the market price of metals and anything else that must be transported to market. Some believe an attack on Iran could double or triple oil prices; imagine $450/barrel! For the mining industry, problems include political instability, electricity shortages, and the threat of nationalization.
A note on conservation and other voluntary reductions of usage: yes, higher prices – even for crude oil and gasoline – tend to reduce demand, as consumers change their habits in response. It may happen that the economic downturn now in progress will reduce demand enough to lower prices temporarily. But take a good look at the down-slope of the graph above before telling yourself that voluntarily lower usage will lead to an ongoing match with available supply anytime soon. Once again, other nations, and almost certainly the world as a whole, have or will have very similar down-slopes for crude oil supply. Unlike the OPEC oil embargo of the 1970s, the escalating oil shock of today and tomorrow will increasingly be based on actual, systemic, unfixable (at least in the near term) shortages – as well as on Reasons Number One and Three.
Speaking of Reason Number Three: commodity prices will also reliably increase in the years ahead because government is keen to help solve the problem. That is another way of saying that the free market will not be allowed to solve the problem, or at least will be severely hamstrung in its efforts. See the ethanol debacle now unfolding, or our efforts in the War on Drugs, or the disaster of government "help" in healthcare, or the destructive effect of our aid to Africa, or the U.S. government response to the 9/11 attacks, or, well, almost any other example of government help: government is indeed The Worst Way to Do Anything. Government solutions not only fail reliably; they get in the way of genuine solutions.
It is worth noting that one "government solution" is for a government to either nationalize a resource or to increase the government's percentage of the profits. This is happening around the world – and is being suggested by some in the United States , including a few in Congress.
In sum, none of these three reasons for expecting higher commodity prices has moderated since the first of the year; all three continue to worsen – more inflation in America and around the world, more evidence that we are near (or even slightly past) the Peak Oil point and the Peak extraction point for several metals as well, and more government intrusion.
Yes, it's idealistic. You might not think it very realistic. But consider the alternatives...
dd
=========================
http://www.strike-the-root.com/82/allport/allport1.html
The Paradise Perspective: Commentary from a Free and Compassionate Alternate Reality
2008 Update, Part 2
by Glen Allport
July 8, 2008
Last week we looked at trends for the economy and for government action, and found the situation less than optimal, in much the same way that an outbreak of Ebola in your neighborhood would be less than optimal.
This week we consider the situation for commodities (and in particular oil and metals), food supplies, and the environment.
3) Oil, metals, and other natural resources
The dramatic trend for higher commodity prices which began several years ago is not an artificially inflated bubble about to pop, but instead a very real expression of powerful, fundamental change in the world (which I'll describe shortly). Downticks are inevitable in any bull market, but the commodity uptrend itself isn't going away anytime soon. Unlike in a bubble (e.g., the recent bubble in housing) buyers are snapping up the available supply for current use as it comes to market, not buying and holding actual inventory for expected future gain.
To see how broad and strong this uptrend has been already, click here for a page with charts for many commodities over various periods of time; the example below is for heating oil over the last ten years. Most other natural resource-based commodities, including gasoline and metals, show a similar pattern.
Heating Oil (HO, NYMEX) http://futures.tradingcharts.com/chart/HO/M
As for my prediction that dollar prices for commodities will continue rising for years to come: there are several reasons for such a view, and together, these reasons make Neils Bohr's famous comment "Prediction is very difficult, especially about the future" look like sissy-boy waffling. Bohr was a pretty bright guy, but there are clearly some times when prediction isn't difficult at all. I, personally, have a 100% accuracy rate in predicting certain types of events. For instance, when I drop a raw egg on my kitchen floor, I predict (as I helplessly watch the egg accelerate at 32' per second toward the hardwood) that the eggshell will break and gooey raw egg will splurt out on the floor. I have never been wrong about this, and there are dozens of other things I have been 100% right about, too. So you can take what I have to say here as gospel, at least when I'm talking about eggs.
Returning to the topic at hand (and to a tone more appropriate to the situation):
The first and (for now) most important reason that commodity prices will continue rising: We live in a dying, world-wide empire of fiat currency. This empire is owned by private banks with monopoly charters that are granted by, and operated in league with, coercive governments. The empire itself is sociopathic to the core; it is gimlet-eyed, cunning, and controls most of the major outlets for news and entertainment; it also controls respected universities and influential think tanks and the most powerful organizations among the power elite.
For a century and more, this empire has controlled the money supply of nations and has financed wars and other destructive government make-work projects, growing fat on the profits while millions suffered and died. The empire is highly skilled at promoting such disasters, which are said to be "compassionate" or "necessary" (often to Save Us From an Enemy or some other danger). Regarding war in particular, highly-decorated General Smedley Butler (two Congressional Medals of Honor) put it plainly in the title of his 1935 book: War Is A Racket. Banks and their friends in other industries (including government, the one industry that imposes itself on customers at gunpoint) make the profits; soldiers, their families and friends, and ordinary civilians everywhere pay the price, both financially and in terms of death, maiming, and other horror.
Despite its power, the fiat-currency empire is based on a self-serving lie, and thus the truth has been undermining the empire's foundations since inception. That truth is now poised to bring the whole, rotting, corrupt edifice down in a collapse of epic proportions that will devastate entire societies and echo through time, eventually becoming myth and legend.
The character of the future that emerges from this event will depend on how we respond to the disaster now in progress. In particular, our responses will determine whether our children and their descendents live in a civil society of love and freedom, or in a technologically-enabled police state powerful enough to resist any attempt at overthrow or reform.
Love and freedom, then – or cruelty and tyranny. Make no mistake: that is the choice we face, and not only for ourselves but for many, many millions yet unborn.
- - - - -
The lie at the heart of the fiat currency empire is that a central bank can and should be the sole provider of a nation's money supply, and that said supply should consist of worthless pieces of paper (and now, electronic entries in computers) that can be almost-instantly created in any quantity by the central bank at essentially zero cost. These currency units are tied to, and redeemable in, nothing whatsoever.
In other words, the fiat currency empire is based entirely on what might be called counterfeiting, and on coercively enforcing monopoly privileges for the counterfeiters. Not only do the central banks have a monopoly on the "right" to counterfeit, but competitors offering honest money (gold or silver, which cannot be inflated into nothingness) are attacked as criminals (video, 1 min 10 sec; mostly scrolling text describing the victim's point of view; see also this Washington Post story on the event).
Actually, central banks are doing something worse than counterfeiting. A true counterfeiter creates a phony copy of something real (for instance, when a twenty-dollar bill was redeemable by law for roughly an ounce of gold, the counterfeiter who created a fake $20 bill was essentially making a phony copy of one ounce of gold), but the Federal Reserve and other central banks have, in collusion with the governments that charter them, eliminated the "real thing" entirely: even "real" dollars now have no intrinsic value at all. This is a scam of far grander dimensions than the mere counterfeiting of genuine currency.
This corrupt and parasitic system has infected nearly every nation around the world (the U.S. succumbed in 1913, with creation of the Federal Reserve), and now, after decades of hidden wealth transfer from the masses to central banks, governments, and the power elite (including corporations feeding at the government trough), the resulting economic damage is nearing a tipping point (see last week's column). Artificially-created boom/bust episodes are coming more frequently and (because the fundamentals grow ever-weaker) are becoming more severe. Central banks thwart the necessary corrections with the only tool they have: more inflation. Creation of ever-more fiat money (much of it in the form of debt) is the only thing keeping the game going, and the result is an entire planet headed toward economic collapse; see Zimbabwe for a preview. Money supply growth, worldwide, is heading into the vertical part of the parabolic curve. The egg, as it were, is about to hit the floor:
From "Global Inflation: The next major obstacle" http://www.321gold.com/editorials/aden/aden070308.html
Another look at the data, using the Consumer Price Index for U.S. prices:
From http://mwhodges.home.att.net/inflation.htm
As rivers of new dollars (and pesos and yuan and pounds and euros and other currency units) join the ocean of pseudo-money already drowning every nation, an ever-increasing number of those currency units will be required to pay for real goods that cannot be counterfeited (and which have not already been bid-up into speculative bubbles, such as housing). This is Reason Number One that you will be paying more for nearly every consumable item in the future, from gasoline to milk: the amount of fiat money in the system keeps increasing.
The system and its apologists are desperate to keep this obvious truth hidden from the public, or at least to keep the public confused about it. For example, last week, U.S. Treasury Secretary Henry Paulson said that "a weaker dollar cannot be blamed for soaring oil prices." This is on par with saying that "heavy rain cannot be blamed for flooding in the Midwest ."
Proof – and this is where that pesky "reality" thing really gets in the way of a good lie – is that gasoline prices have hardly changed in terms of real money. A gallon of gasoline today costs about $4.10 in American fiat money, but can still be had for less than a quarter-ounce of silver (silver is $18.12 per ounce as I write; check the Kitco graphic at the top of 321gold.com for the current price). A silver quarter from 1964 or earlier contains nearly a quarter-ounce of silver, and, despite fluctuations in the price of the two commodities, will usually buy roughly a gallon of gas. This situation has changed little in decades. In Texas during the late 1960s (yes, even a few years after the removal of silver from new coinage), a gallon of gasoline sold for between 20.9 cents and 24.9 cents – I know because I was there, filling the tank of my rattle-trap 1960 Ford Falcon for about $2.00 total. For a short video pointing out that 23 cents would buy a gallon of gas in 1947, click here. The video ignores that a silver quarter is only 90% silver and also pooh-poohs the increasing supply/demand mismatch (i.e., peak oil versus higher global demand, which is starting to impact prices), but it nonetheless makes an easily-understood case for the basic reality that erosion of dollar value is by far the biggest reason for higher gas prices today.
At some point, after the system has largely collapsed and much of the pseudo-money has vanished (in bankruptcies, stock market crashes and other asset deflation, and in a hundred other ways) you will STILL be paying more for consumables and for most other goods – if not as measured in currency units, then as measured in hours worked or as a percentage of your monthly income. (Here's an argument for deflation coming sooner rather than later, for those interested). Why? Reason Number Two for higher prices is supply versus demand, that most basic of economic realities. Supply of most commodities is either diminishing or growing more slowly than demand, and the cost of bringing that supply to market is increasing dramatically; the high-quality and easy-to-harvest deposits of oil and metals and coal, for example, have for the most part already been harvested. Yet world population continues growing and billions of people who now live in abject poverty are clawing their way into the middle class, or at least in that direction. The result is ever-more people wanting (and buying) air-conditioners and automobiles and every other material good you can name, bidding up prices on the diminishing supply of commodities required to make and transport those material goods.
In short, Peak Oil and Peak Metal will increasingly drive oil and metal prices higher, independent of and in addition to monetary inflation.
As an example, here is a look at the United Kingdom 's oil production, including the huge North Sea oil fields (which, like most large oil fields around the world, have already peaked):
http://www.energyfiles.com/eurfsu/uk.html
EnergyFiles.com provides such charts for pretty much every oil-producing nation on Earth, and nearly all look similar to the chart above. Don't take my word for it: start clicking that mouse and see for yourself. Many observers report that world oil output has already peaked; for example, the German-based Energy Watch Group says the world peak occurred in 2006. Furthermore, the oil that IS being harvested today is increasingly difficult to obtain and is expensive (in terms of energy as well as money) to refine, making the situation far worse than the raw numbers suggest.
Once again, this same basic problem is being experienced in the mining industry. Current data suggest that the supply of several metals (including indium, needed in LCD panels) will be exhausted in only a few decades – for indium, perhaps in 13 years. Naturally, this has an effect in the market: "In January 2003 [indium] sold for around $60 per kilogram, by August 2006, the price had shot up to over $1,000 per kilogram" says Brian Durrant in Commodity Predictions: The Future Is Uncertain. Durrant includes a chart with "Years to exhaustion" for over a dozen metals.
If all that sounds like a recipe for lower prices to you, then congratulations! You may have what it takes to become U.S. Secretary of the Treasury.
You might think things couldn't get any worse for energy and other commodity prices, but in fact several other, short-term problems (including a possible attack on Iran and predictions for above-average hurricane activity this year in the oil-producing Gulf of Mexico region; see also here) could spike the price of oil and natural gas dramatically, all on their own, which would naturally raise the market price of metals and anything else that must be transported to market. Some believe an attack on Iran could double or triple oil prices; imagine $450/barrel! For the mining industry, problems include political instability, electricity shortages, and the threat of nationalization.
A note on conservation and other voluntary reductions of usage: yes, higher prices – even for crude oil and gasoline – tend to reduce demand, as consumers change their habits in response. It may happen that the economic downturn now in progress will reduce demand enough to lower prices temporarily. But take a good look at the down-slope of the graph above before telling yourself that voluntarily lower usage will lead to an ongoing match with available supply anytime soon. Once again, other nations, and almost certainly the world as a whole, have or will have very similar down-slopes for crude oil supply. Unlike the OPEC oil embargo of the 1970s, the escalating oil shock of today and tomorrow will increasingly be based on actual, systemic, unfixable (at least in the near term) shortages – as well as on Reasons Number One and Three.
Speaking of Reason Number Three: commodity prices will also reliably increase in the years ahead because government is keen to help solve the problem. That is another way of saying that the free market will not be allowed to solve the problem, or at least will be severely hamstrung in its efforts. See the ethanol debacle now unfolding, or our efforts in the War on Drugs, or the disaster of government "help" in healthcare, or the destructive effect of our aid to Africa, or the U.S. government response to the 9/11 attacks, or, well, almost any other example of government help: government is indeed The Worst Way to Do Anything. Government solutions not only fail reliably; they get in the way of genuine solutions.
It is worth noting that one "government solution" is for a government to either nationalize a resource or to increase the government's percentage of the profits. This is happening around the world – and is being suggested by some in the United States , including a few in Congress.
In sum, none of these three reasons for expecting higher commodity prices has moderated since the first of the year; all three continue to worsen – more inflation in America and around the world, more evidence that we are near (or even slightly past) the Peak Oil point and the Peak extraction point for several metals as well, and more government intrusion.