Boom2Bust.com

Nukes: The Perfect Gift For Any Occasion

I’ll be sleeping a little bit easier tonight.

From the New York Times’ William Broad earlier today:

The federal government mistakenly made public a 266-page report, its pages marked “highly confidential,” that gives detailed information about hundreds of the nation’s civilian nuclear sites and programs, including maps showing the precise locations of stockpiles of fuel for nuclear weapons.

The publication of the document was revealed Monday in an online newsletter devoted to issues of federal secrecy. That set off a debate among nuclear experts about what dangers, if any, the disclosures posed. It also prompted a flurry of investigations in Washington into why the document had been made public.

On Tuesday evening, after inquiries from The New York Times, the document was withdrawn from a Government Printing Office Web site.

Several nuclear experts argued that any dangers from the disclosure were minimal, given that the general outlines of the most sensitive information were already known publicly.

“These screw-ups happen,” said John M. Deutch, a former director of central intelligence and deputy secretary of defense who is now a professor at the Massachusetts Institute of Technology. “It’s going further than I would have gone but doesn’t look like a serious breach.”

But David Albright, president of the Institute for Science and International Security, a private group in Washington that tracks nuclear proliferation, said information that shows where nuclear fuels are stored “can provide thieves or terrorists inside information that can help them seize the material, which is why that kind of data is not given out.”

Broad included testimony of the individual who uncovered the mistake. He wrote:

Steven Aftergood, a security expert at the Federation of American Scientists in Washington, revealed the existence of the document on Monday in Secrecy News, an electronic newsletter he publishes on the Web.

Mr. Aftergood expressed bafflement at its disclosure, calling it “a one-stop shop for information on U.S. nuclear programs.”

For me, the most worrisome part of this screw up is that there are serious questions regarding the quality of security surrounding our nuclear stockpile. The Washington Post’s Walter Pincus wrote back on May 31, 2008:

The same Air Force unit at Minot Air Force Base in North Dakota that was responsible for mishandling six nuclear cruise missiles last August failed key parts of a nuclear safety inspection this past weekend, according to a Defense Department report…

Among the problems found during last week’s inspection: Internal security forces did not go to assigned defensive areas during an exercise that involved an attempt to steal a nuclear weapon; security guards failed to search an emergency vehicle that entered and left the nuclear storage area during that exercise; a security guard used his cellphone to play video games while on duty; and guards were unarmed at traffic control points along the route where nuclear weapons were to travel.

Might as well just hand a nuke over to the bad guys if security measures are that lousy…

It’ll save them the trouble of going shopping using their new list.

Sources:

“U.S. Releases Secret List of Nuclear Sites Accidentally”
William J. Broad
New York Times, June 3, 2009

“Air Force Unit’s Nuclear Weapons Security Is ‘Unacceptable’”
Walter Pincus
Washington Post, May 31, 2008

World Trade Center Shouldn’t Be ‘A Hole In The Ground’

This weekend, as we honor Americans who fought and died for our country, I can’t help but think of those who also perished on September 11, 2001. And when it was announced some time ago that the World Trade Center was to be rebuilt, I thought, what a great way to remember the victims of that horrible day and to show the rest of the world our tremendous resilience.

Problem is, as we approach the eighth anniversary of 9/11, there’s nothing there except “a hole in the ground,” to quote New York City’s Mayor Michael Bloomberg.

Click here for a May 2009 photo of the WTC site.

Reuters’ Joan Gralla talked about the never-ending saga to rebuild the former symbol of America’s economic might. Gralla wrote Thursday:

The latest logjam delaying the rebuilding of New York’s World Trade Center might be cleared by June 11, but that will require compromises, including a “realigning of the incentives,” Mayor Michael Bloomberg said on Thursday.

World Trade Center developer Larry Silverstein will probably be pressed to make more concessions to get the Port Authority of New York and New Jersey to guarantee bank loans for two of the three office towers he wants to build where the twin towers stood until the deadly attacks on September 11, 2001.

“Private development should be fundamentally backed by private capital,” Bloomberg told reporters after hosting a meeting at Gracie Mansion for Silverstein, Democratic Assembly Speaker Sheldon Silver, as well as the Port Authority and the Democratic governors of New York and New Jersey who run it.

After years of delays due to battles with insurers and clashes over designs and security, the Port Authority missed a deadline for preparing the site for Silverstein. The recession has curbed banks’ willingness to lend money for new buildings that lack tenants, as Silverstein’s towers largely do.

As a result, the site remains what the mayor, an independent, called “a hole in the ground.”

Back on July 7, 2008, I wrote about the delays at Ground Zero in New York City. In that post, I referenced Nathan Thornburg’s piece that appeared on the TIME magazine website on July 3. Thornburg wrote:

Rebuilding ground zero was going to be a great show of American defiance, a Knute Rockne speech to the nation. Seven years on, though, this grand statement is barely a stammer. In an unsparing new progress report, the site’s landlord admitted that every part of the project is over budget and behind schedule. It will take several months just to map out a new timeline.

The 16-acre site is a tangle of more than 100 contractors and subcontractors answering to 19 public agencies—a sorry pageant of feuding bureaucrats, shady contractors, litigious developers and overzealous regulators. Even 9/11 advocacy groups share the blame, halting work over smallish details about how best to honor the victims. Few are honored by this impasse of competing agendas.

Nobody is arguing that the rebuilding effort–which will add as much Class-A office space as exists in all of downtown Atlanta–is simple. But lower Manhattan is in danger of becoming a metaphor for America’s sluggish response to our most pressing economic challenges. A recent U.S. Chamber of Commerce report shows a litany of problems: an overloaded rail infrastructure that needs new tracks, signals, tunnels and bridges. Most ports need dredging; almost half of all canal locks are obsolete. While China is spending nearly 9% of its gdp on infrastructure, Americans lose $9 billion a year in productivity from flight delays alone.

It is, at heart, about competitiveness. As the U.S.’s largest construction project limps along, China has built the equivalent of several World Trade Center sites in its furious run-up to the Olympics. While conscript labor and forced relocations aren’t the American way, the U.S. can’t be pleased about being lapped by a developing nation. The global economy rewards countries with the concentration and focus to build quickly and solidly. Bits and bytes are important, but so are steel and mortar. It’s not too late for ground zero to be a showcase for American engineering, efficiency and ingenuity. Anything less risks sending exactly the wrong message.

Too late?

Source:

“NY WTC rebuilders might solve impasse by June 11”
Joan Gralla
Reuters, May 21, 2009

Iranian Nukes: A Real National Security Test

These days I find myself wondering if the “cruise missile diplomacy” of the Clinton years is back again. From the Associated Press’ Jennifer Loven yesterday:

The U.S. economy is showing only glimmers of life and two costly wars remain in the balance, but President Barack Obama’s “no drama” handling of the Indian Ocean hostage crisis proved a big win for his administration in one of its first critical national security tests.

Obama’s two quiet backstage decisions to authorize the Defense Department to take necessary action if Capt. Richard Phillips’ life was in imminent danger gave a Navy commander the go ahead to order snipers to fire on the pirates holding the cargo ship captain at gunpoint.

For Obama, the benefits were instantly clear: an American life saved and a major victory notched against an increasingly worrisome scourge of the seas off the Horn of Africa.

Folks, this…

The brave Captain Jack Sparrow

…is not a “critical national security test.” Scourge of the seas off the Horn of Africa, perhaps, but no “critical” threat to our nation’s security.

On the other hand, this…

Enriched uranium

…could turn a good chunk of American real estate into a radioactive parking lot.

From Ewen MacAskill of the Guardian (UK) today:

The US and Europe are preparing to make a major concession to Iran to end the nuclear stalemate, according to American and European sources today.

In what amounts to a major policy shift, the Obama administration is set to drop a precondition for the start of negotiations on the nuclear issue – that Iran first suspend its uranium enrichment process.

The precondition has been the biggest stumbling block in efforts over the last few years to open talks. The Bush administration insisted upon it but Tehran adamantly refused.

An announcement is imminent of a location and date for the first direct talks between the US – alongside Europe – with Iran on the nuclear issue…

US and European sources said today that dropping the precondition was one of a number of ideas being discussed in private. But they hinted that it was likely to happen…

The concession means Iran would be able to continue with uranium enrichment, an essential part of achieving a weapons capability but which also has a civilian purpose, while talks got underway.

Here’s something our government officials might want to keep in mind. The top nuclear terrorism experts in the world today believe there’s a 30 percent chance of a nuclear detonation in an American city within the next decade. Graham T. Allison, the Director of the Belfer Center for Science and International Affairs at Harvard University and author of Nuclear Terrorism: The Ultimate Preventable Catastrophe, says the probability of a nuclear strike against a U.S. city is closer to 50 percent.

Seeing that Iran is not exactly one of our pals in the Middle East, if it ever becomes capable of producing nuclear weapons, don’t think for a second that the local Uncle Sam-haters won’t be knocking on their door asking if they could spare a nuke. After all, how does that old Arabian proverb go?

The enemy of my enemy is my friend.

Talk about a real national security test.

Sources:

“Analysis: Obama beats first national security test”
Jennifer Loven
Associated Press, April 13, 2009

“Obama to drop uranium precondition for Iran nuclear talks”
Ewen MacAskill
Guardian (UK), April 14, 2009

Americans See First Tax Hike On April Fool’s Day

Kind of ironic that on this April Fool’s Day, Americans are witnessing the first tax increase of the Obama administration. Brad Schiller, an economics professor at the University of Nevada-Reno, wrote in the Wall Street Journal today:

“I can make a firm pledge . . . no family making less than $250,000 a year will see any form of tax increase.” Remember that? It was Barack Obama, campaigning to become president last Sept. 12 in Dover, N.H.

Indeed, he promised repeatedly that 95% of American families would get a tax cut. So it’s especially fitting that he chose April Fools Day to implement his first tax increase — which will fall mostly on individuals and families who do not make anywhere near $250,000 per year.

Early in February, the president signed a law to triple the federal excise tax on cigarettes — which will jump from 39 cents per pack to $1.01 today. His administration projects this tax hike will bring in at least $38 billion over the next five years.

If you don’t smoke, maybe you don’t care. Maybe you even think a higher “sin tax” is a good thing. But health issues aren’t the only concern here. There are also questions of fairness, federalism, macroeconomic impact, and crime.

The fairness issue is particularly troubling. According to the Centers for Disease Control and Prevention, only one in five Americans smokes, so the excise targets a minority — and over half of all smokers are low income, and one of four are officially classified as poor.

Mr. Obama prefers to tout his tax cuts for low-income households. But his “stimulative” Make Work Pay tax cut gets dribbled out at $8-$10 a week. A pack-a-day smoker will pay half of that back in higher cigarette taxes. Smokers getting welfare, unemployment or disability checks instead of paychecks won’t get as much in tax cuts, but they will still pay the whole cigarette tax increase. Anyone concerned about widening income inequality should have second thoughts about this distribution of the tax burden.

We should also note how this tax increase affects state finances. State governments rely on their own cigarette excise taxes for hefty revenue streams. In 2008, according to the National Tax Foundation, state governments took in $15.4 billion in cigarette taxes. Hard-hit Michigan, Pennsylvania, and California each took in over $1 billion; New York and Texas took in $1.5 billion each.

Higher taxes discourage cigarette sales. Nobel economist Gary Becker pegs the long-run price elasticity of demand for cigarettes at 0.8 — i.e., a 10% increase in price causes an 8% decline in unit sales. The Obama tax hike translates into a 13.3% increase in the average pack price. That implies a 10.6% decline in unit sales — which the National Tax Foundation has calculated adds up to a $1 billion overall revenue loss for hard-pressed states.

Because Southern states have low tax rates (most less than 40 cents per pack), the federal tax hike raises their cigarette prices by a larger percentage and thus cuts deeper into their unit sales. New York, by contrast, has the highest state taxes ($2.75 a pack) and prices, so it gets hit less in percentage terms. The Tax Foundation estimates a 12.6% revenue loss for South Carolina this coming fiscal year, and a 6.7% loss for New York.

None of this is good for the economy. Consumers and state governments are already having a tough time making ends meet. Burdening them with a new $38 billion tax and a $1 billion cut in revenues isn’t going to help create jobs. Estimates by the National Association of Tobacco Outlets of the job losses in cigarette manufacturing and distribution alone exceed 100,000.

Smugglers and counterfeiters won’t lose their jobs, though. Both the General Accounting Office (GAO) and the Alcohol, Tobacco, and Firearms (ATF) agency have concluded that the multibillion-dollar cigarette-smuggling business grows with every excise tax increase. The ATF and GAO also believe that cigarette-smuggling is a form of cash laundering and profits for both organized crime and terrorist organizations.

Clearly, we were fools to believe that if we weren’t wealthy, Mr. Obama wasn’t going to raise our taxes. We’ll be even bigger fools if we acquiesce to further tax increases of this kind.

Don’t hold your breath, professor. I predict we’ll see a lot more taxes and fees being implemented by all levels of government down the line. And I suspect the powers-that-be aren’t done taxing tobacco yet either.

Smoke one for the Gipper?

Source:

“Obama’s Poor Tax”
Brad Schiller
Wall Street Journal, April 1, 2009

President Bush’s Legacy? Trillions Up In Smoke

Oops. Looks like I missed the inauguration ceremony of President Barack Obama today. I’ve been so busy plugging away at the keyboard that when I finally turned on the TV to see what’s going on— the news coverage showed only an empty stand (I presume this is where the President was sworn in).

Oh well. Time to get down to business, right? Just one more thing though. What’s with all the Obama memorabilia being sold everywhere you look? Can’t complain too much, I guess. By the looks of it, you’d think all that money being generated by Obama-Mania might just pull this country out of the current recession…

“P.K. Winsome- Obama Collectibles”
Video Link
(cannot center- sorry!)

And now that the Bush Administration, Version 2.0, is no more, I wonder how Dubya’s legacy will pan out down the road. If you ask the former President, he’d probably tell you history will be kind to him. From Bloomberg’s Roger Runningen on January 12:

“History will look back and determine that which could have been done better or, you know, mistakes I made,” Bush said, in his first solo press conference since July 15 and the 47th of his tenure. The president defended his decisions “because I think it’s a good, strong record.”

For others, such as myself, there’s one aspect regarding his 8 years in office that is quite disturbing. MSN Money’s John Dyer wrote last week:

George W. Bush’s presidency cost the country about $11.5 trillion, if we estimate liberally.

Of course, it’s debatable how much blame the president should bear.

Over the past eight years, we’ve suffered calamities that were bound to damage the nation deeply: two recessions, the most lethal terrorist attacks ever on U.S. soil, the invasion of Iraq on dubious grounds, the near destruction of one of our most storied cities, and finally, the Wall Street meltdown.

Dyer broke down just how much the former President spent:

Where has all the money gone? Here are five areas where Bush has approved massive outlays of taxpayer money.

Wall Street bailouts: $6 trillion…

Iraq and Afghanistan: $3 trillion…

Tax cuts and deficit spending: $2 trillion…

Hurricanes Katrina and Rita: $270 billion…

9/11: $260 billion

When you add up all the damage the amount actually comes out to $11.53 trillion. I know— $300 billion is chump-change when you consider the amounts being talked about.

Did I just call $300 billion chump-change?

Apparently, Dyer is not too optimistic that the new President will be able to halt the spending-spree— even if he wanted to. From the piece:

And the spending won’t stop after Bush leaves office Jan. 20.

In hopes of “breaking the momentum” of the current recession, President-elect Barack Obama is reportedly drafting a stimulus package that would cost the government as much $850 billion. If past is precedent, it’s unlikely Obama will stop there.

The new administration is already expected to inherit a $1.2 trillion deficit from Bush. The stimulus package would add to that record-breaking number.

So long, President Bush. And good luck, President Obama. You’re sure going to need it.

Sources:

“Bush Cites Few Regrets Defending White House Record (Update1)”
Roger Runningen
Bloomberg, January 12, 2009

“Cost of the Bush era: $11.5 trillion”
John Dyer
MSN Money, January 14, 2009

‘War On Terror’ Affected By Global Financial Crisis

The “War On Terror” looks like it’s about to take one step backward due to the ongoing financial crisis. Lara Jakes from the Associated Press wrote today:

NATO’s top commander says the global financial crisis could force U.S. allies to scale back their efforts in Afghanistan, or possibly even pull out.

Supreme Allied Commander Gen. John Craddock said Friday that at least two nations — Canada and the Netherlands — already have signaled they will leave by 2011.

That means the U.S. and other allies will have to cover the costs of securing Afghanistan, which the incoming Obama administration has called a top priority.

General Craddock noted that NATO countries were already stretched thin prior to the recent financial developments.

Metric, “Combat Baby” (2004)
YouTube Video Link

Source:

“NATO chief says financial crisis poses risk”
Lara Jakes
Associated Press, January 9, 2009

U.S. To Suffer Biological, Nuclear Terrorist Attack Before 2013

Seeing that we’re so loved by the rest of the world, the following isn’t too surprising. From FOX News earlier today:

Terrorists are likely to attack the United States using nuclear or more likely biological weapons before 2013, reports a bipartisan commission in a study being briefed Tuesday to Vice President-elect Joe Biden.

It suggests the Obama administration bolster efforts to counter and prepare for germ warfare by terrorists…

The commission believes biological weapons are more likely to be obtained and used before nuclear or radioactive weapons because nuclear facilities are more carefully guarded. Civilian laboratories with potentially dangerous pathogens abound, however, and could easily be compromised.

“The biological threat is greater than the nuclear; the acquisition of deadly pathogens, and their weaponization and dissemination in aerosol form, would entail fewer technical hurdles than the theft or production of weapons-grade uranium or plutonium and its assembly into an improvised nuclear device,” states the report.

It notes that the U.S. government’s counterproliferation activities have been geared toward preventing nuclear terrorism. The commission recommends the prevention of biological terrorism be made a higher priority.

FOX News staff added that terrorists still don’t have the technical prowess to make WMDs. From the piece:

The report of the Commission on the Prevention of WMD Proliferation and Terrorism, led by former Sens. Bob Graham of Florida and Jim Talent of Missouri, acknowledges that terrorist groups still lack the needed scientific and technical ability to make weapons out of pathogens or nuclear bombs.

“Still lack the needed scientific and technical ability.” Rubbish. Folks, telling that to the American people is like telling American soldiers in Word War 2 that their Japanese counterparts couldn’t shoot straight because of the shape of their eyes. Ever heard of the “Nth Country Experiment”? According to Graham T. Allison, Director of the Belfer Center for Science and International Affairs at Harvard University, in his book Nuclear Terrorism: The Ultimate Preventable Catastrophe, in 1964 U.S. government scientists at the Lawrence Livermore National Laboratory, one of the nation’s premier nuclear weapons design labs, wanted to see if a nuclear weapon could be designed by a few individuals without access to classified information. In the ensuing experiment, two recent Ph.D. students were chosen, precisely for their lack of knowledge of nuclear physics. One of the students even admitted to having only a high-school level understanding of nuclear fission. Using the scientific literature available during that time, the two young men researched nuclear fission, the shaping of conventional explosives, and even dug up charts and data from the first Los Alamos experiments. The resulting document, which included details on what materials were required and how to build the bomb, was turned over to nuclear weapons experts at Livermore. Their conclusion? If built, the proposed device, which was small enough to be transported in a cargo container or van, would not only work, but would explode with a force equal to the bomb dropped on Hiroshima during World War Two…

A copy of the report (in .pdf format) of the Commission on the Prevention of WMD Proliferation and Terrorism can be accessed on the FOX News website here.

Sources:

“Nuclear or Bioterror Attack on U.S. Likely by 2013, Panel Warns”
FOX News, December 2, 2008

Nuclear Terrorism: The Ultimate Preventable Catastrophe
Graham T. Allison, 2004

Great Depression 2 Right Around The Corner?

Scary stuff from MarketWatch columnist Paul Farrell the other day. On Monday, Farrell wrote:

Now it’s time for my 2008 update, a look into the future where things will get far worse during the next presidential term. And given human behavior, especially in the deep recesses of Wall Street’s “greed is good” DNA, it seems inevitable that no matter how well-intentioned the new president may be Wall Street and Washington’s 41,000 special-interest lobbyists will drive America into the Great Depression 2.

Farrell then goes and rattles off 30 ‘leading edge’ indicators of the next Great Depression. From the piece:

Every day there is more breaking news, proof Wall Street’s greed is already back to “business as usual” and in denial, grabbing more and more from the new “Bailouts-R-Us” bonanza of free taxpayer cash and credits, like two-year-olds in a toy store at Christmas — anything to boost earnings, profits and stock prices, and keep those bonuses and salaries flowing, anything to blow a new bubble.

Scan these 30 “leading indicators.” Each problem has one or more possible solutions, but lacks unified political support. Time’s running out. We’re already at the edge. Add up the trillions in debt: Any collective solution will only compound our problems, because the cumulative debt will overwhelm us, make matters worse:

1. America’s credit rating may soon be downgraded below AAA
2. Fed refusal to disclose $2 trillion loans, now the new “shadow banking system”
3. Congress has no oversight of $700 billion, and Paulson’s Wall Street Trojan Horse
4. King Henry Paulson flip-flops on plan to buy toxic bank assets, confusing markets
5. Goldman, Morgan lost tens of billions, but planning over $13 billion in bonuses this year
6. AIG bails big banks out of $150 billion in credit swaps, protects shareholders before taxpayers
7. American Express joins Goldman, Morgan as bank holding firms, looking for Fed money
8. Treasury sneaks corporate tax credits into bailout giveaway, shifts costs to states
9. State revenues down, taxes and debt up; hiring, spending, borrowing add even more debt
10. State, municipal, corporate pensions lost hundreds of billions on derivative swaps
11. Hedge funds: 610 in 1990, almost 10,000 now. Returns down 15%, liquidations up
12. Consumer debt way up, now at $2.5 trillion; next area for credit meltdowns
13. Fed also plans to provide billions to $3.6 trillion money-market fund industry
14. Freddie Mac and Fannie Mae are bleeding cash, want to tap taxpayer dollars
15. Washington manipulating data: War not $600 billion but estimates actually $3 trillion
16. Hidden costs of $700 billion bailout are likely $5 trillion; plus $1 trillion Street write-offs
17. Commodities down, resource exporters and currencies dropping, triggering a global meltdown
18. Big three automakers near bankruptcy; unions, workers, retirees will suffer
19. Corporate bond market, both junk and top-rated, slumps more than 25%
20. Retailers bankrupt: Circuit City, Sharper Image, Mervyns; mall sales in free fall
21. Unemployment heading toward 8% plus; more 1930’s photos of soup lines
22. Government policy is dictated by 42,000 myopic, highly paid, greedy lobbyists
23. China’s sees GDP growth drop, crates $586 billion stimulus; deflation is now global, hitting even Dubai
24. Despite global recession, U.S. trade deficit continues, now at $650 billion
25. The 800-pound gorillas: Social Security, Medicare with $60 trillion in unfunded liabilities
26. Now 46 million uninsured as medical, drug costs explode
27. New-New Deal: U.S. planning billions for infrastructure, adding to unsustainable debt
28. Outgoing leaders handicapping new administration with huge liabilities
29. The “antitaxes” message is a new bubble, a new version of the American dream offering a free lunch, no sacrifices, exposing us to more false promises

And “leading indicator” number 30? Farrell wrote:

At a recent Reuters Global Finance Summit former Goldman Sachs chairman John Whitehead was interviewed. He was also Ronald Reagan’s Deputy Secretary of State and a former chairman of the N.Y. Fed. He says America’s problems will take years and will burn trillions.

He sees “nothing but large increases in the deficit … I think it would be worse than the depression. … Before I go to sleep at night, I wonder if tomorrow is the day Moody’s and S&P will announce a downgrade of U.S. government bonds.” It’ll get worse because “the public is not prepared to increase taxes. Both parties were for reducing taxes, reducing income to government, and both parties favored a number of new programs, all very costly and all done by the government.”

Reuters concludes: “Whitehead said he is speaking out on this topic because he is concerned no lawmakers are against these new spending programs and none will stand up and call for higher taxes. ‘I just want to get people thinking about this, and to realize this is a road to disaster,’ said Whitehead. ‘I’ve always been a positive person and optimistic, but I don’t see a solution here.’”

Farrell’s conclusion?:

We see the Great Depression 2. Why? Wall Street’s self-interested greed. They are their own worst enemy … and America’s too.

Geez. Looks like I picked the wrong week to quit smoking…

Scenes from Airplane! (1980)
YouTube Video Link

Source:

“30 reasons for Great Depression 2 by 2011”
Paul B. Farrell
MarketWatch, November 17, 2008

Hope For A Third Political Party In U.S. Politics, Part 2

In the first part of this two-part series, I wrote about how U.S. politics has been dominated over time by the two major political parties, the Democrats and Republicans. As such, the idea of a third major national party has been laughable, at best.

Maybe not for much longer.

Back in January I wrote about Robert R. Prechter, Jr., and a book I read of his called Conquer The Crash. The author is a stock market analyst who is best known for his financial forecasts using the Elliott wave principle, which is based on mass psychology and the belief that the fluctuation from pessimism to optimism and back creates measurable specific patterns and probabilities of outcome. Currently, Prechter is president of Elliott Wave International, which publishes analyses of global stock, bond, currency, metals, and energy markets. I bring up Prechter because he’s studied U.S. electoral history and its relationship to the larger economy. And his findings may give us some insight into how the American political landscape might look like four years from now.

To begin, consider what President-elect Obama will be inheriting come January. Liz Sidoti of the Associated Press wrote this morning:

He will chart the country’s course against this dreary backdrop: Unemployment is at 6.1 percent and predicted to rise as high as 7.5 percent next year; pessimistic consumers have curtailed borrowing and spending; home foreclosures are rampant; Medicare, Medicaid and Social Security face huge financial problems; and, 152,000 U.S. troops are in Iraq more than five years after the initial invasion, while 32,000 are in Afghanistan in the sixth year of the war against terrorism.

Add to this the financial woes I pointed out yesterday, and our economic outlook gets real ugly. While others are optimistic that such hurdles can and will be overcome with limited pain, I belong to the camp, as long-time readers know, that suspects we’ll experience a major financial crash before this country gets back on track. And it will come sooner than later. Say, in the next four years?

Which brings us back to Prechter and the shape of things to come in American politics. He wrote in his book:

Leaders in power during financial collapses are rarely directly at fault. Usually years of mismanagement by others set the stage. The leaders in power at the time, though, always appear inept, because they take actions designed to “help the economy.” Which fail, or they decline to take actions and blamed for fiddling while Rome burns. Regardless of what they do or don’t do, the public blames them and their party and kicks them out.

This last point isn’t lost on Sidoti, who noted:

Yet, Obama may be blamed for recession woes despite the fact that he inherited the mess from Bush. The troubles are on Obama’s watch now even if there’s little he can do about them. The president in power always suffers when the economy tanks. Just ask the first President Bush in 1992.

Goodbye Obama, goodbye Democrats in 2012, if the U.S. economy tanks and Prechter is correct.

Hello third party?

Prechter suggests there may be hope for that elusive third political party should the economy hit a brick wall. He wrote:

If there is a major stock market crash, you want to run for office near the bottom. You will be revered by the public and historians if you win. George Washington, Abraham Lincoln, Franklin Roosevelt and Ronald Reagan were all elected at or near the bottom of severe downtrends, and all have an exalted place in American history.

Third parties do well in tough times; so do outsiders and radicals; incumbents do poorly. So if you are a non-incumbent political animal, you can plan now to take advantage of the situation. If you want to be a politician, plan to run for office on any party ticket but that of the leader(s) in your country who rode the trend down.

And now, there’s even talk of a possible coalition among the “other” political parties. From Stephen Dohnberg of the website Digital Journal back on October 4:

Anti War activist and challenger for House Speaker Nancy Pelosi’s Congressional Seat (CD 8, California), Cindy Sheehan has indicated her intention to launch a National political party after the U.S. Election of Nov. 4…

Sheehan revealed that name of the new party would be The First Party. She reasoned “We don’t want to do third-party politics which has a stigma in the United States” The First Party, with a populist-progressive agenda, will be the first party that “cares about the people, will work for the people, and will actually be a viable party.”

“I have spoken to Green Party Presidential Candidate Cynthia McKinney and the Nader Campaign” and as disillusionment with the two party system increases, “this is the time to build on that energy.”

Like I said earlier. Choice is a good thing.

DEVO, “Freedom Of Choice” (1980)
YouTube Video Link

Sources:

“Analysis: Next up after Obama win, governing”
Liz Sidoti
Associated Press, November 5, 2008

Conquer The Crash
Robert R. Prechter, Jr.
2002

“Cindy Sheehan Reveals Plan for New National Party, Reflects on Race Against Pelosi”
Stephen Dohnberg
Digital Journal, October 4, 2008

Weekend Videos

Just got back to blogging late Friday evening. Had to entertain my relatives from Canada who are in. Like the Irish a couple of weeks ago, they shopped liked it was Christmas in July to take advantage of the weaker dollar. I know one thing for sure. Foreigners sure love our “strong dollar” policy…

“Oil Crisis”
Becky Quick
CNBC, July 18, 2008

From the CNBC website:

The House may vote on releasing oil from the strategic petroleum reserve, with Senate Majority Leader Harry Reid and CNBC’s Becky Quick.

You can view the 3 minute 18 second video here.

Note to Congress- there is no quick-fix for the energy crisis. I’m starting to consider donating funds to Jim Puplava’s proposed program, “No Congressman Left Behind.”

Apparently, it’s a non-issue now anyway, seeing that after oil prices suffered their biggest weekly drop ever, Yahoo! Finance asks tonight, “So is it time to declare the energy bubble popped?” By the way, the Associated Press is reporting that terrorists are trying to enter the United States with European Union passports. Good thing Congress wants to deplete oil stockpiles meant for a national emergency. Like a major terrorist attack, for example. If you think 9/11 was a one-off event, I have a bridge that spans the East River out in NYC that I can sell you for a really good price…

“Is government clueless about economy”
Jim Jubak
MSN Money, July 18, 2008

From the MSN Money website:

Washington is talking us into a deeper crisis. Neither the President nor Congress gets it: When you owe as much as the US does, keeping your overseas creditors happy is the most important thing, says Jim Jubak.

You can view the 4 minute 7 second video here.

Jubak said in the segment:

The Saudi government has gone into serious discussions about taking its currency off the dollar peg.

“Christmas In July”
The Dandy Warhols, “Little Drummer Boy” (1995)
YouTube Video Link

Congress Approves National Colosseum

Not really. But Capitol Hill politicians might as well allocate funds to build one, complete with chariot races and gladiators to keep us happy, considering the way they’re pandering to the masses these days. When Congress only has a 20% approval rating (Gallup), what else would you expect? Something like what happened today. Hoping to sooth the economic pain (and gain the electoral support) of Joe Six-Pack and Suzy Soccer Mom, both the U.S. Senate and House of Representatives, in a direct challenge to President Bush, voted to temporarily halt the shipment of thousands of barrels of oil a day into the government’s emergency reserve. The Strategic Petroleum Reserve, a system of underground salt domes on the Gulf Coast, was created by the U.S. government in the seventies as a precaution against major interruptions of oil supplies. With 701 million barrels in storage, it is currently 97% full, yet the equivalent of only two months of oil imports.

The Senate voted 97 to 1 in favor of suspending the shipments, which average about 70,000 barrels a day, until the end of the 2008. Only Senator Wayne Allard of Colorado voted against the measure. Presidential hopefuls Barack Obama and Hillary Rodham Clinton also voted to halt the shipments as well. John McCain was not present for the vote. Mirroring the same bipartisan support as in the Senate, the House voted 385 to 25 in favor of halting the program.

For some time now, Congress has wanted to tinker with the SPR, jawboning on and on about how curbing deliveries to and/or drawing from the emergency reserve (by the way, what part of “emergency” don’t you get?) can ease tight oil supplies, curb market speculation, and possibly lower crude oil prices. Case in point. MSNBC’s John Schoen wrote back on May 19, 2004 (that’s right, 4 years ago):

With oil prices stuck above $40 a barrel, attention has turned to the U.S. Strategic Petroleum Reserve, a vast stockpile of oil stored underground that the U.S. continues to add to. While Democrats call for releasing some of those reserves to help ease oil prices, President Bush Wednesday repeated his long-standing position that the stockpile should only be used in the event of a critical cutoff of fuel needed to maintain the country’s national defense…

“Since the price of oil is so closely tied to inventory levels, filling the SPR under these market conditions both depletes private sector inventories and pushes up prices for America’s consumers,” said Sen. Carl Levin, D-Mich., in a floor speech in April defending an amendment to defer SPR purchases.

More recently, New York Democratic Sen. Charles Schumer has introduced an amendment to draw 1 million barrels a day from the reserve for the next 30 days.

“Joey, do you like movies about gladiators?”

And Congress’ assertions that curbing shipments to and/or drawing from the SPR could help with our supply problems, dampen speculation, and lower oil prices? Wrong, wrong, and wrong, according to the experts (or, at least, people who know what they’re talking about). Regarding the supply problem, the 70,000 barrels that are being sent to the reserve on a daily basis represents only 0.3% of the 20 million barrels consumed by Americans each and every day. 0.3%? Can anyone tell me how this could possibly help alleviate tight supplies? Regarding the perception that high oil prices are caused by speculators, legendary energy investor T. Boone Pickens told attendees at the Oklahoma State University’s Energy Conference on April 23:

Only 5 percent of oil is in the commodity pool. If you did run it up, it would be briefly. Speculators cannot move it that much.

He would know. Finally, a number of politicians believe (or want us to believe) that halting shipments and even drawing from the SPR will somehow lower oil prices. CNN Money’s Steve Hargreaves wrote today:

A statement from Speaker of the House Nancy Pelosi, D-Calif., said it could bring down gas prices by as much as 24 cents a gallon.

Or so she claims. The CNN Money staff writer also wrote:

The U.S. Energy Information Administration predicts oil prices would fall by only about $2 a barrel – or shave 4 to 5 cents a gallon off the price of gas – if the president suspended deliveries to the SPR.

“It’s a very small amount” of oil going into the reserve, said EIA oil market analyst Doug MacIntyre. “And it’s very transparent to the market.”

Should I believe House Speaker Pelosi or the EIA? Tough call, right?

Here’s something to think about. A possible explanation for the high price of crude oil is that global demand is running at 87 million barrels per day, while the global oil supply is at 85 million barrels per day. Furthermore, while older oil fields are starting to go dry, no suitable replacements are being found. Finally, even though the U.S. economy is slowing, for every 1 barrel of reduced American demand there are 14 barrels of increased demand from developing countries like China, India, and Brazil.

Oh, but this just in…

“Middle East Oil Cut Off By Coordinated Attacks Throughout Region” and “Gulf Oil Infrastructure Destroyed By Category 5 Hurricane”

Well done. Thanks for saving me that nickel.

Sources:

“Senate votes to halt oil reserve shipments”
H. Josef Hebert
Associated Press, May 13, 2008

“House votes to stop adding to oil stockpile”
Tom Doggett
Reuters (UK), May 13, 2008

“Debate flares over strategic oil stockpiles”
John W. Schoen
MSNBC, May 19, 2004

“Oil stockpile a drop in the bucket”
Steve Hargreaves
CNN Money, May 13, 2008

“Pickens: Oil to go to $150 a barrel”
Jerry Shottenkirk
Journal Record, April 24, 2008

Why Americans Should Worry

Let me tell it to you straight. The. Math. Politicians. Sell. Does. Not. Work. And if we don’t start dealing with the truth soon, this country could face dire consequences.

-David L. Walker, Comptroller General of the United States, October 2007

On February 15, David M. Walker, Comptroller General of the United States, announced his resignation as head of the U.S. Government Accountability Office (GAO). Since November 9, 1998, Walker has served as the nation’s chief accountability officer, leading the GAO in its mission to help improve the performance and accountability of the federal government for the benefit of the American people. Back on February 15, Richard Cowan wrote in Reuters that:

Walker repeatedly urged Congress to waste no time in reforming massive government programs, such as health care for the elderly, which will grow significantly as the U.S. population ages.

“The picture I will lay out for you… is not a pretty one and it’s getting worse with the passage of time,” the blunt-talking Walker told Congress more than once.

Despite those warnings, Congress and the White House have yet to begin cooperating on how to tackle the huge growth in health care and retirement benefit costs.

Back on December 18, 2007, I wrote:

On Monday, the Bush administration released its Financial Report of the United States Government for the 2007 budget year. And guess what? The U.S. government is promising $45 trillion more than it can deliver on Social Security, Medicare, and other benefit programs, according to the Associated Press yesterday…

Even worse, when the gap in funding social insurance programs (Social Security, Medicare, Railroad Retirement, and Black Lung Program) is added to other government commitments, the total shortfall as of September 30 increases to $53 trillion, up more than $2 trillion in just a year, according to the report. Comptroller General David M. Walker, who serves as the head of the Government Accountability Office (GAO), said Monday that, “Our government has made a whole lot of promises in the long-term that it cannot possibly keep.”

Yesterday, Bill Donoghue from MarketWatch had this to say about Walker’s departure:

Facing indifference on the Hill and unrealistic spending promises, Walker is resigning with five years still remaining in his term to head the newly formed Peter G. Peterson Foundation. Peterson, senior chairman of The Blackstone Group and Commerce secretary in the Nixon administration, has pledged an astounding startup budget for the foundation of $1 billion.

That money will attack what the foundation considers “the most substantial economic, fiscal and other sustainability challenges of our current age” — including federal entitlement programs, health care, unprecedented trade and budget deficits, low savings rates, mounting foreign debt, soaring energy consumption, an uncompetitive educational system, and the proliferation of nuclear warfare materials. Maybe Congress will listen this time.

The departing Comptroller General told Reuters:

As Comptroller General of the United States and head of the GAO, there are real limitations on what I can do and say in connection with key public policy issues, especially issues that directly relate to GAO’s client — the Congress.

My new position will provide me with the ability and resources to more aggressively address a range of current and emerging challenges facing our country.

MarketWatch’s Donoghue lamented:

This sounds to me like the ultimate sell signal on America…

When the nation’s best-informed watchdog resigns and few are acting on his recommendations on his “Fiscal Wake-Up Tour,” it’s time to reconsider over-optimistic domestic stock investments and look elsewhere, or bet against the U.S. market.

Source: stock.xchng

The “Fiscal Wake-Up Tour” is a joint public engagement initiative by the Concord Coalition, the Budgeting for National Priorities Project at the Brookings Institution, and the Heritage Foundation, created for the purpose of explaining in plain terms why budget analysts of diverse perspectives are increasingly alarmed by the nation’s long-term fiscal outlook.

(Note: The author disclaims any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)

Gold: Barbarous Relic Or Investment Superstar? Part 2

In part one of a three-part series on gold, I noted that the price of the metal has risen significantly in the past year, despite all the arguments leveled against gold by its detractors. Meanwhile, the metal looks to be headed for its seventh straight annual gain. Gold bulls point to the following as having a significant impact on its price in 2007:

U.S. Dollar Weakness- The U.S. currency is down four out of the last five years, and has dropped almost 11% so far this year based on the Federal Reserve’s U.S. Trade-Weighted Major Currency Index. This autumn it’s been at its weakest against the euro since the European currency started trading in 1999, the lowest against the Canadian dollar since it was floated in 1950, and at a 26-year low versus the British pound. The end of the U.S. housing boom, the subprime mortgage crisis, and a credit crunch, in conjunction with forecasts for a slowing U.S. economy, have weighed down the U.S. currency. The increased threats from dollar diversification by countries holding large numbers of greenbacks in their foreign currency reserves, sovereign wealth funds looking to exchange their dollars for other assets, and more nations looking to decouple their currencies from the U.S. dollar have only made matters worse for the world’s reserve currency. Assuming the existence of a strategic inverse relationship between gold and the greenback, investors have poured money into the precious metal and related investment vehicles. Validating such actions have been forecasts by legendary investors such as Warren Buffett, Jim Rogers, and George Soros, who all predict that the U.S. dollar is going lower. Back on October 25, Buffett was quoted by CNBC as saying, “We are still negative on the dollar. We bought stocks in companies that are earning their money in other currencies.” On November 15, Rogers told Bloomberg that, “If you have dollars, I urge you to get out. That’s not a currency to own.” Finally, on June 2, AME Info reported that Soros said, “A slowdown in the United States will be transmitted to the rest of the world via a weaker dollar.”

Geopolitical Risk- The continuing stalemate between the West and Iran over its nuclear program, political instability in Pakistan, and Turkey’s spat with Iraq are just some of the more recent geopolitical risks that have driven the price of gold higher. The ever-present danger from Al-Qaeda should not be forgotten either. Consider the following warning from Michael Scheuer, a 22-year veteran of the Central Intelligence Agency (CIA), where for 6 years he was in charge of the search for Al-Qaeda leader Osama bin Laden. When asked by Radio Free Europe/Radio Liberty earlier this year if he expected more attacks on the United States or in the West on the scale of September 11, 2001, Scheuer’s response was:

Oh, I think greater than 9/11. I don’t think it will happen in Europe, but I do think it will happen in the United States. Bin Laden has been very clear that each of Al-Qaeda’s attacks on America will be greater than the last, and I think the only reason we haven’t seen an attack so far is that he doesn’t have that attack prepared. But when he does, he will use it. And try to get us out of the way, which of course is his main goal.

Stephen Walker, director of global mining research at RBC Capital Markets, said last week that increasing geopolitical risk, combined with combined with rising economic uncertainty, “should continue to provide incentives for investors to increase their exposure to gold as a safe haven.”

Supply and Demand- Last Friday, the Telegraph (UK) announced:

The era of ‘peak gold’ has arrived. Try as they might, miners cannot find enough ore at viable costs to replace their fast-depleting reserves, even if they dig miles into the centre of the earth.

The global mine supply of gold peaked in 2002, and has fallen every year since. Last year alone, the mine supply of gold fell 15%. Also in 2006, South Africa, the world’s single-largest gold producer, produced its lowest amount of gold since 1922 with overall output down 72% since its 1970 peak. It should be noted that no major new mine production is expected in the near-term either.

On the demand side, RBC Capital Markets noted last Wednesday that demand is rising as consumption increases in China, India, and the Middle East. On Thursday, a study by precious metals consultant GFMS Ltd. showed that global gold demand in the third quarter rose 19% year-on-year on the back of robust inflows into bullion investment funds and improved jewelry consumption. The report revealed that the increase in investment demand replaced jewelry buying as the major source of growth for the third quarter. Demand grew sharply in India, China, Turkey, and the Middle East, while it slowed in the United States.

Outside of U.S. dollar weakness, geopolitical risk, and supply/demand factors, gold bulls say that some of the drawbacks which Bloomberg’s Michael Sesit spelled out in part one are actually advantages to owning the precious metal. Critics of gold like to point out that it “doesn’t earn a return.” Michael J. Kosares, President and Founder of Centennial Precious Metals, Inc., argued in his book The ABCs of Gold Investing, that:

Those who criticize gold because it fails to offer a return do not really understand gold’s position as the fixed North Star of asset value around which all other assets rotate. Gold is a stand-alone asset. It relies on no individual or institution for value. Gold investors prefer it this way. In the ultimate sense, this is what money is and what money should be.

Another criticism directed at gold, said Sesit, is “the world’s biggest holders of gold, major central banks, aren’t overly eager to keep owning it.” If so, gold bulls ask why central banks hesitate to unload the metal. In 2006, net central bank sales amounted to just 319 tons, less than half of the 659 tons recorded in the previous year.

Love it or hate it, bulls and bears, gold is here to stay. In the final part of this series, I will talk about where this precious metal may go from here.

(Part 3 will be posted on Wednesday)

Sunday Edition: September 9, 2007

Lest We Forget
Ahead of the sixth anniversary of 9-11, Osama bin Laden appeared on video to ridicule President Bush about the war in Iraq and to remind the world of his escape from capture. The leader of al-Qaeda also told Americans they should convert to Islam if they want the war to end. Bush’s homeland security advisor, Frances Fragos Townsend, appeared on two Sunday talk shows and played down the capabilities of bin Laden and al-Qaeda. Townsend, who was appointed Homeland Security Advisor by the President in May 2004 and has a legal background, told viewers of “Fox News Sunday” and CNN’s “Late Edition”:

This is about the best he can do… This is a man on a run, from a cave, who’s virtually impotent other than these tapes… We know that al-Qaida is still determined to attack, and we take it seriously… But this tape appears to be nothing more than threats. It’s propaganda on their part… There’s nothing overtly obvious in the tape that would suggest this is a trigger for an attack.

I wish I shared the same view of al-Qaeda as Ms. Townsend, as the majority of U.S. intelligence analysts feel that al-Qaeda are anything but impotent. According to the Associated Press today:

Terrorism experts say the network is regrouping in the lawless Pakistan-Afghanistan border region. The latest National Intelligence Estimate says al-Qaida is growing in strength, intensifying its efforts to put operatives in the United States and plotting against U.S. targets that will cause massive casualties. The U.S. is in a “heightened threat environment” and al-Qaida is the most serious threat, the analysts found.

Enter Michael Scheuer, CBS News consultant, former CIA analyst, and author of Imperial Hubris: Why the West Is Losing the War on Terror and Through Our Enemies’ Eyes: Osama bin Laden, Radical Islam, and the Future of America. Scheuer, a 22-year CIA veteran, was the head of “Alec Station,” the CIA’s unit responsible for tracking al-Qaeda, from 1996-1999. Ironically, Scheuer was mentioned in bin Laden’s latest video. “If you would like to get to know what some of the reasons for your losing your war against us, then read the book by Michael Scheuer,” said bin Laden. White House aide Frances Fragos Townsend said the video was nothing else but propaganda. CBS News said on Saturday that the Intel Center, an independent analysis group which had studied the tape, along with Homeland Security Director Michael Chertoff, believe the tape is not an indication of an impending attack on American interests. But Scheuer disagrees. He told CBS:

The Intel Center is almost always right. I think there’s an overwhelming threat in it. Bin laden, again, offered us a chance to convert to Islam, which is required in their religion before they attack us. So to say there’s no threat in this message is just 180 degrees incorrect.

Earlier today Frances Townsend said that, “We ought to remember, six years since the tragedy of September 11th, we haven’t seen another attack.” I understand her logic, and I fear it may be tragically flawed considering who it’s being applied to.  One defining characteristic of Osama bin Laden is patience. His favorite Islamic verse is, “I will be patient until Patience is outworn by patience.” Remember this: In 1993, bin Laden started plotting the 1998 bombings of the U.S. embassies in Kenya and Tanzania; it took two years to coordinate the attack on the USS Cole; eight years passed between the two attacks on the World Trade Center.

Lest we forget.

Christopher E. Hill
Editor
editor@boom2bust.com