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Economy
by
Adam Taggart
by
Gregor Macdonald
Executive Summary
- Escalating energy costs (direct and indirect) create a vicious cycle in the economy that further hinders growth/recovery
- Overspending and other poor capital allocation decisions by state governments are compounding the problem
- California spends $1 on public transit vs. $10 on automobile-related investment, a gap that energy costs will soon painfully reverse
- Solutions are hard to come by and harder to fund, but without investment, alternative systems won't ever achieve scale
- California's future is increasingly easy to predict; individuals and other state governments better take notes or suffer the same fate
If you have not yet read Part I: Dawn of the Great California Energy Crash, available free to all readers, please click here to read it first.
A key feature in the post-war industrial success of countries like South Korea and Japan, given that they had virtually no domestic energy supplies, was the ability to turn a profit from manufacturing powered by imported energy. This favorable equation relied on three key factors:
- That imported energy remained a cheap input cost compared to the high margin value of exported goods
- That energy producing countries had cheap energy to export
- That purchasers of the exported goods were growing, and were running their own economies on cheap energy
These are the exact same assumptions still being made — and extrapolated into infinity — about California's economy.
Are we really to believe that California's GDP can forever deindustrialize, requiring fewer and fewer energy inputs, while growing in profitability, thus providing the capital to access/import energy — at any price?
California: The Bellwether for the Rest of America
PREVIEW by Gregor MacdonaldExecutive Summary
- Escalating energy costs (direct and indirect) create a vicious cycle in the economy that further hinders growth/recovery
- Overspending and other poor capital allocation decisions by state governments are compounding the problem
- California spends $1 on public transit vs. $10 on automobile-related investment, a gap that energy costs will soon painfully reverse
- Solutions are hard to come by and harder to fund, but without investment, alternative systems won't ever achieve scale
- California's future is increasingly easy to predict; individuals and other state governments better take notes or suffer the same fate
If you have not yet read Part I: Dawn of the Great California Energy Crash, available free to all readers, please click here to read it first.
A key feature in the post-war industrial success of countries like South Korea and Japan, given that they had virtually no domestic energy supplies, was the ability to turn a profit from manufacturing powered by imported energy. This favorable equation relied on three key factors:
- That imported energy remained a cheap input cost compared to the high margin value of exported goods
- That energy producing countries had cheap energy to export
- That purchasers of the exported goods were growing, and were running their own economies on cheap energy
These are the exact same assumptions still being made — and extrapolated into infinity — about California's economy.
Are we really to believe that California's GDP can forever deindustrialize, requiring fewer and fewer energy inputs, while growing in profitability, thus providing the capital to access/import energy — at any price?
by
Adam Taggart
We're very pleased to announce our participation in the Hard Assets Alliance, our newly endorsed solution for purchasing precious metals.
For years, we've received a continuous stream of questions from readers, all essentially asking where's the best place to buy gold and silver?
While we've done our best to review and present an assessed list of the top bullion vendors, the remaining work readers needed to do in comparing each of them was still more challenging and confusing than we were comfortable with. It's been clear that folks are hoping for a single "best of the best" recommendation.
That's why we were so glad when the Hard Assets Alliance was formed, and we had the good fortune to be invited to be a Founding Member. This new platform offers so many clear advantages to customers that we were happy to throw our support behind it.
Our New Endorsed Solution for Purchasing Precious Metals
by Adam TaggartWe're very pleased to announce our participation in the Hard Assets Alliance, our newly endorsed solution for purchasing precious metals.
For years, we've received a continuous stream of questions from readers, all essentially asking where's the best place to buy gold and silver?
While we've done our best to review and present an assessed list of the top bullion vendors, the remaining work readers needed to do in comparing each of them was still more challenging and confusing than we were comfortable with. It's been clear that folks are hoping for a single "best of the best" recommendation.
That's why we were so glad when the Hard Assets Alliance was formed, and we had the good fortune to be invited to be a Founding Member. This new platform offers so many clear advantages to customers that we were happy to throw our support behind it.
by
Alasdair Macleod
There was yet another European Union summit at the end of June, which (like all the others) was little more than bluff. Read the official communiqué and you will discover that there were some fine words and intentions, but not a lot actually happened. However, there are some differences when compared with past meetings that need explaining:
- The European Council is being asked to consider permitting the European Central Bank to have a regulatory role alongside national central banks “as a matter of urgency by the end of 2012.” When this new super-regulator is eventually established, perhaps the ECB might be able to recapitalize banks directly. This was needed three years ago; the Eurozone will be lucky not to have a new banking crisis in the next few months, let alone by the year-end.
- A bail-out for Spain’s banks is agreed in principle, but it is to be funded by the European Financial Stability Facility (EFSF) until the European Stability Mechanism (ESM) is up and running. The EFSF has no money and relies on drawing down funds from all member states including Greece, Spain, Italy, Ireland, and Portugal, and the chances of the ESM being ratified by the individual Eurozone parliaments is very slim. We are told that Spain’s banks need about €100bn, but how much they really need is not known.
- The ESM will not rank as a prior creditor to the disadvantage of bond holders. This is a positive step, but makes it more difficult for national parliaments to authorize the ESM.
The big news in this is the implication the ECB will, in time, be able to stand behind the Eurozone banks because it will accept responsibility for them. This is probably why the markets rallied on the announcement, but it turned out to be another dead cat lacking the elastic potential energy necessary to bounce.
e another dead cat lacking the elastic potential energy necessary to bounce.
The Growing Pressures Likely to Blow the Eurozone Apart
by Alasdair MacleodThere was yet another European Union summit at the end of June, which (like all the others) was little more than bluff. Read the official communiqué and you will discover that there were some fine words and intentions, but not a lot actually happened. However, there are some differences when compared with past meetings that need explaining:
- The European Council is being asked to consider permitting the European Central Bank to have a regulatory role alongside national central banks “as a matter of urgency by the end of 2012.” When this new super-regulator is eventually established, perhaps the ECB might be able to recapitalize banks directly. This was needed three years ago; the Eurozone will be lucky not to have a new banking crisis in the next few months, let alone by the year-end.
- A bail-out for Spain’s banks is agreed in principle, but it is to be funded by the European Financial Stability Facility (EFSF) until the European Stability Mechanism (ESM) is up and running. The EFSF has no money and relies on drawing down funds from all member states including Greece, Spain, Italy, Ireland, and Portugal, and the chances of the ESM being ratified by the individual Eurozone parliaments is very slim. We are told that Spain’s banks need about €100bn, but how much they really need is not known.
- The ESM will not rank as a prior creditor to the disadvantage of bond holders. This is a positive step, but makes it more difficult for national parliaments to authorize the ESM.
The big news in this is the implication the ECB will, in time, be able to stand behind the Eurozone banks because it will accept responsibility for them. This is probably why the markets rallied on the announcement, but it turned out to be another dead cat lacking the elastic potential energy necessary to bounce.
e another dead cat lacking the elastic potential energy necessary to bounce.
by
Alasdair Macleod
Executive Summary
- European banks have shifted their priority from supporting national governments to combating captial flight
- Hollande's policies are accelerating France's path to insolvency, thus advancing the date of the Eurozone collapse
- The euro can fall MUCH farther from here
- We are currently at a stalemate being forced by Germany, but it will soon end and downward momentum will quickly build
If you have not yet read Part I, available free to all readers, please click here to read it first.
In Part I, we examined the economic pressures likely to blow the Eurozone apart and concluded that there is increasing disquiet in Germany over the cost of supporting stricken economies and her increasing reluctance to write open-ended cheques. The first creditor country to leave will probably be Finland, or perhaps one of the other smaller members less committed to the Eurozone project. Let's now explore how this might come about, along with the consequences for the rest of the world.
Sovereign Debt Markets
It is obviously not possible to anticipate tomorrow’s events with any certainly, but we can lay down some pointers, the most obvious of which is changing yield levels in sovereign debt markets. Let's focus on Spain because she currently causes the most concern.
Before mid-November last year, Spain’s ten-year bond yield had run up to 6.58%, up from the 4% level that prevailed before her debt crisis became an issue (see chart below). At end-November, the yield fell in anticipation of the ECB’s first long-term refinancing operation (LTRO), because Eurozone banks used some of the money to arbitrage between Spanish bond yields and the considerably lower cost of funding from the ECB. This way of making money is encouraged by Basel 3 rules, which define short-term sovereign debt as being the highest quality, so no haircut is applied. This regulatory quirk has been conspiratorially used by the ECB, commercial banks, and governments themselves to ignore fundamental lending realities…
The Consequences of a Eurozone Breakup
PREVIEW by Alasdair MacleodExecutive Summary
- European banks have shifted their priority from supporting national governments to combating captial flight
- Hollande's policies are accelerating France's path to insolvency, thus advancing the date of the Eurozone collapse
- The euro can fall MUCH farther from here
- We are currently at a stalemate being forced by Germany, but it will soon end and downward momentum will quickly build
If you have not yet read Part I, available free to all readers, please click here to read it first.
In Part I, we examined the economic pressures likely to blow the Eurozone apart and concluded that there is increasing disquiet in Germany over the cost of supporting stricken economies and her increasing reluctance to write open-ended cheques. The first creditor country to leave will probably be Finland, or perhaps one of the other smaller members less committed to the Eurozone project. Let's now explore how this might come about, along with the consequences for the rest of the world.
Sovereign Debt Markets
It is obviously not possible to anticipate tomorrow’s events with any certainly, but we can lay down some pointers, the most obvious of which is changing yield levels in sovereign debt markets. Let's focus on Spain because she currently causes the most concern.
Before mid-November last year, Spain’s ten-year bond yield had run up to 6.58%, up from the 4% level that prevailed before her debt crisis became an issue (see chart below). At end-November, the yield fell in anticipation of the ECB’s first long-term refinancing operation (LTRO), because Eurozone banks used some of the money to arbitrage between Spanish bond yields and the considerably lower cost of funding from the ECB. This way of making money is encouraged by Basel 3 rules, which define short-term sovereign debt as being the highest quality, so no haircut is applied. This regulatory quirk has been conspiratorially used by the ECB, commercial banks, and governments themselves to ignore fundamental lending realities…
by
charleshughsmith
Executive Summary
- Recognize the signs of serfdom
- Calculate your income's vulnerability to the system
- Don't count on high inflation to inflate away your debt obligations
- 10 strategies you can start implementing right now to defend against the forces trying to sap your quality of life
If you have not yet read Part I: Middle Class? Here's What's Destroying Your Future, available free to all readers, please click here to read it first.
In Part I, we surveyed the key dynamics that have eroded middle-class wealth and income over the past 30 years. Some of these were conventional (higher energy costs) and some were unconventional/politically unacceptable (financialization; neofeudalism).
Regardless of what you identify as the primary cause, that the middle class (and labor in general) has lost ground since the early 1980s is undeniable, as is the ultimate failure of debt-dependent “growth.”
What can we do about it? It seems to me there are two responses:
- Avoid becoming a serf in the new financialized feudalism
- Avoid becoming dependent on the Status Quo and avoid collaborating/supporting those elements of the Status Quo that subsidize and protect the parasitic, inefficient, and unproductive sectors of the economy.
Getting Real About Serfdom
I am going to cut to the chase here, and I expect many of you to disagree. Debt is serfdom, period.
I often illustrate this point by asking two simple questions…
The Middle-Class Survival Guide
PREVIEW by charleshughsmithExecutive Summary
- Recognize the signs of serfdom
- Calculate your income's vulnerability to the system
- Don't count on high inflation to inflate away your debt obligations
- 10 strategies you can start implementing right now to defend against the forces trying to sap your quality of life
If you have not yet read Part I: Middle Class? Here's What's Destroying Your Future, available free to all readers, please click here to read it first.
In Part I, we surveyed the key dynamics that have eroded middle-class wealth and income over the past 30 years. Some of these were conventional (higher energy costs) and some were unconventional/politically unacceptable (financialization; neofeudalism).
Regardless of what you identify as the primary cause, that the middle class (and labor in general) has lost ground since the early 1980s is undeniable, as is the ultimate failure of debt-dependent “growth.”
What can we do about it? It seems to me there are two responses:
- Avoid becoming a serf in the new financialized feudalism
- Avoid becoming dependent on the Status Quo and avoid collaborating/supporting those elements of the Status Quo that subsidize and protect the parasitic, inefficient, and unproductive sectors of the economy.
Getting Real About Serfdom
I am going to cut to the chase here, and I expect many of you to disagree. Debt is serfdom, period.
I often illustrate this point by asking two simple questions…
by
Chris Martenson
Executive Summary
- Sustaining through a prolonged currency decline is challenging. How to best invest your capital through the speculative whipsaws that will buffet asset prices.
- Why important-dependent countries (like the US) are particularly vulnerable.
- What the stages of a US currency crisis will be.
- What the lessons from the currency destruction in the Weimar Republic and modern Iran have to teach us about wealth preservation.
If you have not yet read Part I: Our Money Is Dying, available free to all readers, please click here to read it first.
A Process, Not an Event
An important observation is that even the most destructive of these episodes are multi-year processes and are not events that transpire over a matter of days. This means that you will most likely have to plan on navigating the waters for at least several years, possibly as many as ten, which raises issues around the depth of your mental and emotional resilience, and the durability of your physical and financial preparations.
Sure, nearly everybody can coast through the first few weeks and months of a monetary crisis. But very few will truly thrive through the entire process until a final capitulation is reached from which a new beginning can emerge.
Is such resilience even a reasonable goal, or something that can be consciously manifested?
Yes, of course it is. That's why we at Peak Prosperity are here doing what we do…
Positioning Yourself for When Our Money Dies
PREVIEW by Chris MartensonExecutive Summary
- Sustaining through a prolonged currency decline is challenging. How to best invest your capital through the speculative whipsaws that will buffet asset prices.
- Why important-dependent countries (like the US) are particularly vulnerable.
- What the stages of a US currency crisis will be.
- What the lessons from the currency destruction in the Weimar Republic and modern Iran have to teach us about wealth preservation.
If you have not yet read Part I: Our Money Is Dying, available free to all readers, please click here to read it first.
A Process, Not an Event
An important observation is that even the most destructive of these episodes are multi-year processes and are not events that transpire over a matter of days. This means that you will most likely have to plan on navigating the waters for at least several years, possibly as many as ten, which raises issues around the depth of your mental and emotional resilience, and the durability of your physical and financial preparations.
Sure, nearly everybody can coast through the first few weeks and months of a monetary crisis. But very few will truly thrive through the entire process until a final capitulation is reached from which a new beginning can emerge.
Is such resilience even a reasonable goal, or something that can be consciously manifested?
Yes, of course it is. That's why we at Peak Prosperity are here doing what we do…
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