By Moyo Mamora, on March 4th, 2009
In the midst of this economic turmoil that has shaken the world; we have witnessed gold bounce above $1000 and dip as low as $700 in the same period. Concerns have risen and arguments have been increasing as to the effects of this economic turmoil. It is widely believed that the current contraction facing the US and many global economies is a depression, for the mere fact that the billions of dollars being spent is not enough to create the optimism to jumpstart the economy to the upside. Commodities have taken a major hit in this time period, with the CRB index falling more than 40% since its peak in 2007.
Metals have also taken a major hit in this crisis period. The main question at hand is if these prices would rise again? Clearly commodities across board have impaired fundamentals, the current cost of producing most commodities are currently above the prices at which they are sold, and though demand may have slowed, if prices continue to be this low, the world faces a major food crisis within the next 5 years. Another fact at hand is the likely rise of inflation in the world, most especially the US. The US who seems to be taking probably the largest hit from this downturn has gone into a state of frenzy in trying to stop a complete meltdown of the financial sector and the economy as a whole. The Treasury department has not hesitated much in throwing billions of dollars in tax payer’s money to ailing financial companies. Most famous is AIG who is getting a fourth revision of their bailout package from the government, after declaring an astounding loss of $61 billion. There’s also the talk of US government stimulus to the tune of $800 billion for 2009/2010.
So why is the spending of this money of any concern? Given the fact that the US is not making a lot of money currently, the government will have to issue bonds, increase taxes and/or print the money to fund these projects outlined. From the current increase in interest rates of T-bills, we can infer that the demand for government bonds have slowed down, a part of the stimulus plan is to cut taxes, ruling out the second option for raising money, so we’re left with the government having to print this money. If one reviews the Fed’s monetary base, we will see this chart taking the form of a hockey stick, pointing to the fact that a lot of money has been printed so far to loan to foreign governments, fund internal projects, and make purchase. We will see that the Fed’s monetary base has increased more than fivefold in the past one and a half years. Now except one believes that the government will print “just enough money” that’s needed to revive the economy, then we need not have any concern, however from the past behavior and observed prior behavior, this is never the case. The government has clearly displayed its inability to manage cash wisely (just by reviewing the AIG bailout).
With more cash injected in the system than what is needed, the US dollar will lose its value and the US will be faced with the plight of double digit inflation. Deflation/deflationary pressures is probably the main scare now, but if one takes time to review the fundamentals, especially in commodities which are mainly used as raw material input, with increased availability of cash, prices will have to rise swiftly in order for the fundamentals to align.
click to enlarge

Observing the chart of the gold comex futures, we can spot a clear bull market for gold. Like every bull market, there are huge corrections in the price of the commodity; however something that can be clearly seen is a clear uptrend line. Some may argue that with a recovery in the economy, the concern to hold gold as a safe haven will be reduced, this will be true if it is also expected that US GDP will be able to provide an equivalent strength in supporting the US dollar. However careful research and analysis shows that the fundamentals of the US dollar are currently flawed, and the current spending pattern of the government will push the US into inflation, which will in turn make the dollar extremely worthless, at which point demand for gold would rise given that there is less than 3 ounces of supply of gold for everyone currently in the world, fundamentally, the economics supports the price, expected inflation will also act as a buoy.
For as long as we see corrections in the price of gold, we should probably welcome these as opportunities.
By Erica Tesla, on March 3rd, 2009
Digital media lives in a strange place in our lives. While some cling even now to the claim that vinyl holds nuances no mp3 file can match, the fact remains that people are overwhelmingly choosing digital media over more traditional alternatives. This easily opens more than one can of worms, certainly. Apple alone has sold more than 150 million iPods, as of April 2008; that’s about one for every two U.S. citizens. Reasons to go digital abound. Why keep hundreds of CDs when you can carry their contents in your pocket? Books are bulky, expensive, and all too often the wrong one ends up in the overnight bag – why not keep all of your books on the slim, carry-all Kindle?
However, many questions remain about the cost of these conveniences. Digital media can be somewhat ephemeral – just a power outage or change of licensing terms away from disappearing. Particularly interesting is the change in purchasing dynamics caused by this shift. See, physical media – books and CDs, for example – are examples of durable goods. You can use them once or twenty times, and, assuming some baseline level of care, they’ll survive another read or listen. In contrast, a piece of fruit is a nondurable good – once it’s been eaten, you can’t eat it again. Since durable goods are those you can reuse many times, it is only natural that durable goods support resale to secondary, or used, markets. With regard to books, research suggests that used markets benefit rather than detract from sales of new books, and also allow those who would normally not buy books (at full price) to do so. Amazon – creator of the Kindle – embraced the idea of secondary markets for used books when they started allowing people to sell used books alongside new on Amazon.com.
What about digital media? Digital media fits the criteria for a durable good in that mp3 files can be played repeatedly and a book on a Kindle can be read over and over again. This would suggest that digital media could support a secondary market. However, those who sell digital media usually control transfer of that media after first sale. In spite of their previous embrace of used markets, the Kindle terms of service disallow any resale or transfer of Kindle-based books. Similar terms in iTunes limit the number of computers which can access a particular song purchased there.
For now, the fact that consumers can’t ever loan, trade, or sell the music and books they buy in digital formats does not seem to be slowing them down. If secondary markets really do benefit us, though, the paperback is going to be around for a long time.
By Thersites, on March 3rd, 2009
When I started Socialist Watch, I did not anticipate how quickly things would unravel in the US and abroad. Perhaps it is because despite my best judgment, I did not want to believe it. Unfortunately, my worst nightmares are being realized. This time, things are different. When Rahm Emanuel said, “You never want a serious crisis to go to waste,” he meant business, like Ari Gold negotiating on the High Holidays.
Glancing over the headlines of the week, it is clear that a creeping sense of socialism in this country is no longer creeping — it is a very real threat that no future administration may come close to being able to stop. If I am reading this situation correctly, we are at a true turning point in world history. The forces of freedom and liberty are fast being swept aside. We are heading into a Rousseaun era in which the United States and indeed all other states will degenerate in a large collectivist cesspool. Ayn Rand said, “We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.” How right she was.
As I forewarned, other states, besides just New York are beginning to come up with creative ways to tax their citizens. One policy analyst says, “The most common phrase you hear from the states is, everything is on the table.” A California legislator says “We’re all jonesing now for money.” States are throwing out creative “solutions” to their shortfalls like making marijuana legal so as to tax it, or allowing gay civil unions in order to boost tourism.
But think this through for a second. If people are struggling to make ends meet, why should taxation to support government be the number one priority? Why does a state have a right to our property to support itself before we do? Why in the hell do they have these big budgets to support in the first place? If we are having trouble paying our own bills, then forget about the state’s bills. Let it wither away! If I sound angry, it’s because I am.
Meanwhile, on a national scale, things are no better. We continue to throw money down the bottomless pits that are AIG and Citi. If what we are doing is not nationalization, then I don’t know what is. We are nationalizing everything: banks, insurance companies, automobile manufacturers and the housing market. We are burdening future generations with insolvent and bankrupt institutions that should have been allowed to go under months ago. I thought this was America, but alas, we have car czars (call it the Presidential Task Force on Autos, same thing) and urban czars too. Lenin is blushing in his grave right now.
Then we have this whole green issue. I largely ignore reading what environmentalists have to say because it generally enrages me. Being at Columbia, everywhere I go everything is green anyway. It’s not that I have anything against nature…I like clean air and clean parks just like everyone else. But this stuff is not about a clean world. This is about politics. Al Gore has made a fortune selling global warming to idiots across the world. Scientists have made their careers off of pandering about this stuff. But the bottom line is, as I understand it, there is no consensus at all as to whether or not what we do on Earth even makes so much as a dent in the overall climate patterns that occur over thousands of years.
Even if we did, how could anyone honestly feel that their livelihood should be sacrificed to nature. If people want to reduce themselves to foraging for berries then they can go right ahead, but they should bear in mind that they wouldn’t be able to survive without that food taken from nature. I for one will continue eating what I want, driving cars, using my computer, television, lights and paper because I want to live my life. It is not the government’s job to tell me what I can and can’t consume.
If we followed this kind of philosophy from the start, we would still be cavemen. There would have been no Industrial Revolution. A million of the things that we take for granted today would have never come to be. If we didn’t use the fruits of nature, we would not be able to live. But I suppose the Democrats might prefer this.
Their cap-and-trade bill looks to me like Smoot-Hawley’s little grandson in terms of its disastrous implications and terrible timing. For a little taste of what we might be looking at, listen to what Obama himself had to say about it:
“You know, when I was asked earlier about the issue of coal, uh, you know — Under my plan of a cap and trade system, electricity rates would necessarily skyrocket. Even regardless of what I say about whether coal is good or bad. Because I’m capping greenhouse gases, coal power plants, you know, natural gas, you name it — whatever the plants were, whatever the industry was, uh, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers.”
But forget about specifics. What this represents is a commitment to the environment over the people. It seems like a great idea to me to raise the price of all types of energies, while putting hundreds of people out of business by imposing these costs on our economy in the midst of a depression.
There is also talk of funding roads with a tax based on how many miles we drive. The government would be able to implant some kind of chip in our cars to keep tabs on us. I mean is there any way possible that this could be considered Constitutional? What justification is there for this based upon the limited powers we are supposed to grant our government? This stuff is sickening. They are literally looking to make robbery legal.
More sickening are Gordon Brown’s a musings on a “global New Deal,” led largely by President Obama and himself. This sounds like another brilliant idea — what better way to shepherd in socialism then to subject everyone in the civilized world to it. What is so ironic about it all is that Brown calls for a world “where we defeat not only global terrorism but global poverty, hunger and disease.” Yet socializing one’s nation creates these very things. It brings civil unrest and leads to poverty, hunger and disease for the masses. This also factors into the discussion of having a world government. We see the problems that have befallen the EU now that some states aren’t quite carrying their weight, yet with the world putting their blind faith in Barack Obama, there is more and more talk of global solutions to problems, and perhaps even a global regime. When all the paper currencies collapse, I won’t be to surprised if at the least we move to a global currency, so we can all enjoy the hyperinflation together.
It is dizzying how fast this is all unfolding before us. Dizzying and also sobering. I for one do not want live in a world in which I have to pay for someone else’s mistakes. I don’t want to live in a world in which the government has a claim on my property before I do. I don’t want to live in a world in which the government determines that the environment takes precedence over my life. I don’t want to live in a world in which free speech is protected, yet I have to be afraid that everything I say is “politically correct.” Most of all, I don’t want to live in a world in which the rights of the smallest and most important minority, THE INDIVIDUAL, are sacrificed to the mob for the public good.
One of the reasons I look to Rousseau in all of this is that his love of the state of nature is reflected in the socialism of the day. Rousseau said of leaving the state of nature that “most of our ills are of our own making…we could have avoided nearly all of them by preserving the simple, regular and solitary lifestyle prescribed to us by nature.” Of imagination he says, “Imagination, which wreaks so much havoc among us, does not speak to savage hearts.” Rousseau marvels at the barbarian whose, “desires do not go beyond his physical needs. The only goods he knows in the universe are nourishment, a woman and rest; the only evils he fears are pain and hunger.” Of private property he said, “The first man who, having fenced in a piece of land, said “This is mine,” and found people naive enough to believe him, that man was the true founder of civil society. From how many crimes, wars, and murders, from how many horrors and misfortunes might not any one have saved mankind, by pulling up the stakes, or filling up the ditch, and crying to his fellows: Beware of listening to this impostor; you are undone if you once forget that the fruits of the earth belong to us all, and the earth itself to nobody.” Clearly ’tis better to be a savage than a civilized human being.
This is the philosophy that is waging its war on whatever shreds of Lockeanism are left in this once great place. We need to fight this. People should be in the streets rioting over the ridiculous usurpations of power that the state is making right now, yet most seem to go on with their lives in many ways completely unaffected and ignorant of the terrors surrounding them.br /br /But these ignorantly blissful folk are getting the government they deserve to be sure. This is the ultimate result of a democracy in which every man seeks to gain at the sake of every other man through the instrument of legal plunder that is the state.
Turning back to Rand, she said that, “It only stands to reason that where there’s sacrifice, there’s someone collecting the sacrificial offerings. Where there’s service, there is someone being served. The man who speaks to you of sacrifice is speaking of slaves and masters, and intends to be the master.” Barack Obama is the man collecting the sacrificial offerings and being served. But I don’t want to sacrifice my life to him. Deep down, I don’t think most Americans desire to either. But if the people do not awake shortly, they may find that one day soon they may not recognize the land they once called home, nor will they much appreciate the masters of the house.
By Stephan Zimmermann, on March 2nd, 2009
At OPEC’s most recent meeting held in December, the thirteen-member cartel agreed to reduce crude oil outputs by 2.46 million barrels per day, a record production cut for the group. As world crude prices dropped below $38/barrel, the cut is designed to stabilize prices to meet OPEC’s forecast of $75/barrel as “fair.”
Market analysts believe that the OPEC production cut is likely to fall short of the intended spur to $75/barrel. Among others, Morgan Stanley joined those whose world forecasts predict significantly lower prices in the $25 – $30 per barrel range.
Producers such as Saudi Arabia and the United Arab Emirates could maintain budget equilibrium or surpluses at the $25 price level. Less stable political bodies, such as Iran, however, could easily foresee increased borrowing requirements in light of continuous dropping world demand and a shortfall of oil revenues.
Russia, a non-OPEC member, hinted that it might support cuts of its significant domestic production if the worldwide economy does not recover to increase oil demand.
China cut prices on refined product, such as gasoline by 13.8% and diesel 18%, to stimulate its domestic economic demand.
India, with its large subsidized oil sector, nearly 70% import-dependent, cut its retail fuel prices. It continues with its political objectives of conservation, alternative energy, and strategic domestic reserves.
The recent economic roller-coast activity in the gyrating world-wide demand for oil points out one of the fundamental “truths” of economics.
When finite supplies of a product in world-wide high demand and only limited substitutability exist, cartels are a natural phenomenon. That is as true for sugar, coffee and many others as it is for oil … or drugs..
If cartel members agree on pricing policies and various political issues, cartels can remain effective for decades and longer.
That is certainly true on the supply side of the equation.
Less effective is potential manipulation of demand.
There is little OPEC can effectively do to stimulate economic demand that the market itself cannot.
Further, as actual substitutability for oil is demonstrated through the application of alternative energy sources, demand for oil is likely to decrease further.
The leadership of OPEC is economically savvy and understands the economics. It also understands the ills of short-term gratification at the expense of long-term satisfaction.
Whether the current financial worldwide crisis equally enlightens the American consumer remains to be seen.
The potential collapse of the automotive industry (as we know it) should give rise to a new, fossil-fuel-free base of employment.
It automatically generates expanded opportunities for research and development of existing and new technologies in every conceivable field of scientific and commercial application.
Will the average American consider the high levels of crude oil earlier this year and its subsequent fall as a xenophobic and conspiratorial plot?
Perhaps the public will finally understand the machinations of supply, demand and the effect of cartels?
Supply shocks and price increases occasioned by cartels are likely to recur in the near future if the world’s dependence on oil is not carefully checked. Most of that stems from the demand side of the formula!
OPEC’s next regular meeting is scheduled for March 15, 2009, in Vienna, Austria. It will precede the OPEC International Seminar on March 18-19.
By Emmanuel Tabones, on March 2nd, 2009
On February 25, 2009, Henry Seggerman-who manages the successful Korean International Investment Fund, was the guest speaker at a Korea Society (based in New York City) symposium entitled The Perils of Protectionism: Korea’s Investment Challenge. He is also a noted columnist for the Korea Times and a contributor to other noteworthy publications such as the Wall Street Journal and the Far East Economic Review.
The discussion went off to a promising start. Seggerman began with a brief historical review of the infamous Smoot-Hawley tariff bill which U.S. President Herbert Hoover signed into law over the objections of over a thousand economists nationwide. It dramatically raised tariffs above what already existed-on thousands of imported goods and is often blamed for igniting the trade war that subsequently caused the collapse of world trade, further exacerbating the Great Depression. At this point, I thought he should have continued by indicating that the law was later in repealed in 1934-and followed it up with an expanded discussion on the need to maintain access to worldwide markets and the efforts being made to prevent trade wars from recurring-especially through channels such as the G.A.T.T. (General Agreement on Tariffs and Trade), bilateral trade negotiations, and the World Trade Organization.
Instead, Seggerman quickly turned to more recent events such as the 2008 controversy over the sale of American beef in South Korea and the mass protests over false allegations in the Korean media that these imports put citizens at greater risk for Mad Cow disease. He made an excellent point by linking this nationwide hysteria to Korea’s beef producers who have a virtual monopoly on the market and thus could charge five times the world market price for their products. Seggerman took note of how these attitudes and policies have led to a decline in foreign investment in Korea-which is sorely needed at a time when the country is struggling to maintain its economic status. He also touched on the current state of “free trade” treaties and correctly pointed out that certain products are often excluded to protect politically-favored industries-such as beef, in Korea.
On the other hand, I thought his comments about the American auto industry were just a little too harsh, even though I agree that the Detroit automakers and their unions are largely responsible for their problems and I am generally opposed to billion-dollar bailouts of the magnitude that they are seeking.
Seggerman should have stayed an course by perhaps examining the historical background of economic development of South Korea with a critical look at the popular view that protectionism was largely responsible for its success, especially with the rise and domination of the Chaebols-or large corporate conglomerates. Instead, I thought he went in the wrong direction by delving into the politically contentious and sensitive topic of U.S. immigration policy-taking a one-sided position that appeared to favor an “open borders” viewpoint while demonizing opponents in the media such as Pat Buchanan and Bill O’Reilly-by highlighting controversial statements or by showing emotionally-charged incidents such as the recent report of a racially-motivated murder of an Ecuadorian immigrant. Seggerman’s premise was to somehow equate those two issues together: in other words, to favor immigration restriction can be just as bad as supporting trade protectionism.
However, I believe that to be a simplistic and misleading notion that ignores the complex factors that separate these two issues. Seggerman appeared to have basically ignored the fact that there are legitimate concerns and arguments against the immigration policy that he advocates; he is in favor of legalizing the status of what could be perhaps as many as twenty million undocumented aliens living in this country, for instance. One could argue that these people help the economy by working at menial jobs that so many U.S. citizens often reject, but that flies in the face of current economic reality with millions of Americans out of work and desperately seeking whatever employment is available. Others have pointed out that undocumented aliens also avail themselves of certain free, taxpayer-funded services (e.g. including some that are related to healthcare, free primary and secondary public education for their children, and whatever else they can obtain) -which may offset whatever economic benefit they provide the country. In accordance with current rules and guidelines for federal and state assistance, legalizing their immigration status means that the government must provide access to a host of government-subsidized social programs since most of these people-particularly those with low-income status, would undoubtedly qualify on the basis of need. That would require increased funding and the likelihood of higher taxes to pay for them. Given these and similar concerns, it is not surprising that many Americans have reservations about liberalizing immigration policy as proposed by Seggerman.
All in all, there were substantive points made during this symposium, but I thought that injecting the subject of immigration into a time-constrained, limited discussion on trade protectionism, was not appropriate. Although I do not believe that any reasonable person would support extreme measures such as blanket restrictions on immigration, neither do I think that the alternative has to be an “open borders” policy, either. At any rate, this was not the proper forum for such a discussion.
If Seggerman had stayed on topic and just emphasized the U.S.Korean trade relationship, global trade in general, the consequences of protectionism, along with perhaps a look the historical background and recent U.S. trade policy with Asia (which he neglected to mention), I think the symposium would have been much more effective and informative. Seggerman could have made a much better case against protectionism and promoted the cause of free trade by limiting discussion to just those issues.
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