A Brief Interlude

I would like to pause from my posting on the economy and politics to give voice to a topic that has been taking more of my time in recent days. I trust that you will indulge me in this moment of reflection.

The question I’ve been puzzling over is, “Why do I have the arrogance to believe that we are living in the last days?” It is certainly true that believers throughout the centuries have felt that their circumstances have been so dire that surely the Lord must come. So far, each believer has gone to the dust unsatisfied in that desire. It is also clear from history that whole civilizations have from time to time been subjected to pressures and distresses, from within and without, that have resulted in their reduction, destruction and extinction. It is easy in the midst of our own present difficulties to think that “it has never been this bad before” when in truth it has been very much worse for many people before. We, at least, have roofs over our heads and food to eat, and nobody is pounding on our doors so that they can cut us open and pin our hides to the city wall as a declaration to the world that we have been utterly defeated. The “times that try men’s souls” have come and gone without bringing about the last days.

So these days, while seeming to be bad, are not nearly as bad as they could be and are certainly not unique. What is it about these days that causes me to believe that they are the last days? Here are a few of my reasons for believing this to be true.

1. The western world, the “Christian” world, has become a secular society.
This has all sorts of ramifications, of course, but I’ll focus on those which pertain to my conclusion. First of all, what do I mean by secular. A dictionary definition might simply be “non-religious”. My Webster’s has it as “of or relating to worldly things… temporal”. What do I mean by the “western world”? Generally, I speak of North and South America and Europe. These are the societies that have derived from the Roman empire, which is a key element of the end time prophecies. So why would a secular society be a precursor to the last days? I’ve often pondered over the question of how the world could accept a single ruler, given the prophecies about the Antichrist. Well, if the world was dominated by secular thinking it would be easy to reject the “crackpot” label of Antichrist applied to the “distinguished” world leader.

A secular society also allows an accelerated acceptance of anti-Biblical ethics and morality. Whatever else that may be said of the end times, they will be characterized by a collapse of biblical morality in all areas of society. Therefore, the secularization of our society supports my belief that these are the last days.

2. The “West” is descending and the “East” is ascending.
I’ve already defined the “West”. The “East” is dominated by China and Japan, but also includes Korea, Taiwan, Singapore and Malaysia, among others. There has been much talk of late about the Middle Eastern countries forming an economic bloc similar to the European one. I’ve also seen commentary on a similar move occurring in the Asian zone. In a way it makes sense. The era of the nation-state is passing by. Global economic and resource realities make it far more practical to align along broader cultural and regional lines that transcend arbitrary geo-political boundaries.

As I’ve already mentioned, the end time prophecies have a relationship with the old Roman empire. It is difficult to imagine a scenario where a world ruler could arise from a bankrupt and powerless “West”, yet this is exactly the direction we are headed. Therefore, the descent of the “West” acts as a “timer” in support of my belief that these are the last days.

3. Radical Islam will not go away.
The secular West would like to believe that Islam is a religion of peace. I don’t know how many times I’ve heard our politicians speak those words. Words which are so obviously false. To say, “Not all Muslims are terrorists” may be a true statement, but to say “All terrorists are Muslims” is far closer to being true than false. Radical Islamists are in a holy war against us, whether we care to acknowledge it or not. Additionally, the “moderate” and “peace-loving” Islamic world is effectively silent in their condemnation of their radical brethren. This silent support of the jihad indicates to me that we don’t have time on our side. The Islamisation of Europe is an untold story, but it is very real. The population growth of the Islamic world outstrips the rest of the world, in all regions. Without intervention the world will become Islamic.

I turn again to my expectation that the world ruler to come will arise from the old Roman empire. I do not believe he will be Islamic because he will befriend Israel and it won’t be possible for a Muslim to achieve that goal. I also do not believe he will be Islamic because Israel will have cause to believe in his credentials as a possible Messiah. Therefore, the rise of radical Islam supports my belief that these are the last days.

4. The Nation of Israel exists.
This is a key point, since it was not possible to say for most of the past 2,000 years. In 70 AD the Roman general Titus destroyed Jerusalem, and with that destruction the Nation of Israel effectively ceased to exist on the world stage until it was recreated by United Nations decree in 1948. For most of Church history it was necessary to rationalize the end time prophecies with the absence of Israel by assuming that the Church supplanted Israel in the plan of God. This approach was flawed in a couple of ways in that it presumed that God was caught by surprise by the disappearance of the Nation of Israel (He wouldn’t have said all those things about Israel’s future otherwise) and it forces an uneasy fit of the Church into the space reserved for Israel. Thankfully God was “rescued” from this unfortunate circumstance by the UN vote in 1948. I speak, of course, with tongue in cheek.

The presence of Israel is a catalyst for global events. Daily news headlines tell us of how important this nation has become to the unfolding events of our times. Can anyone honestly believe that Israel will be able to peacefully coexist in the Middle East for an indeterminate amount of time? One has only to consider the threats of Iran (ancient Persia) to know that things are coming to a head. Coupled with the decline of western power and influence in the world and the rise of radical Islam it doesn’t take a prophet to foresee this future. Therefore, the presence of the Nation of Israel supports my belief that these are the last days.

5. Never before have we had the capability to destroy all life on this planet. Therefore, it really has never been this bad before.
This is my final point. With the invention of weapons of mass destruction we are now able to destroy ourselves. And I believe that as our society moves further away from the anchor of biblical morality it becomes more likely that we’d actually pull that trigger, so to speak. When you realize that Iran claims to desire the extermination of Israel (and is working diligently to obtain the means to accomplish this end), and Israel declares that it will do whatever it believes is necessary to defend its existence it becomes easy to believe in the last days. The prophecies of Ezekiel are tantalizing in their applicability to current events.

So there you have it. I realize that I’ve only touched briefly on each of my stated reasons. My hope is that in combination they present a plausible rationale for my belief that these are the last days. A follow-up question would be, “So what?” That will have to be another post.

Poco & Mom's

I had the rare opportunity to visit one of Tucson's gems today, Poco & Moms. At 27 miles from home to the P&M's area, it would have been a travesty to not stop in and indulge in their delicious New Mexican cuisine. I couldn't get anyone to join me so I tackled it solo. For a second I considered ordering the Silver City in honor of Big Thinker, but 2 seconds later that thought went out the window. I went for the chile rellenos breakfast burrito with the sour cream green chile sauce. Oh my was it good. Half way through my delicious meal, my wife texted me with her "to go" order. She's definitely hooked. We'll be back to P&M's over the next three weeks to introduce Kim to a new culinary experience. I hope she likes it.

Unemployment Woes

Here’s a link to a really detailed breakdown of the current unemployment picture, as well as a look at how it works out as we move into the next decade click here. It is not a pretty picture.

The short version is simply that we need to create about 100,000 new jobs a month, just to keep pace with demographics. At the peak of the Internet bubble the US economy was cranking out about 250,000 new jobs a month. However, since the beginning of this current or recently departed recession, depending on your point-of-view, the US economy has lost about 7,300,000 jobs. The unemployment rate at the beginning of the recession was 4.9%, basically full employment. So if we assume a very energetic economy, like we had during the Internet bubble, that can create 250,000 jobs a month, it will take about 49 months to gain back those lost jobs, keeping in mind that 100,000 jobs a month is just to keep up with the population growth.

If you believe that is possible, I also have some excellent swamp land for sale.

Don’t Exhale, It’s Bad for My Health

As if it couldn’t get any crazier, I saw this story today click here. There are several things that alarm me about this article, and I’ll discuss them one by one.

“In the face of GOP opposition…”, the Obama administration and its cronies in Congress are no longer even paying lip service to a bi-partisan approach to governance. They have the upper hand and they intend to use it for all it’s worth. This wouldn’t be such a problem if they were at least within one standard deviation of the political center in this country. But they are not even within three standard deviations, to put the problem into an engineering context.

“The administration also waved off concerns about the controversy…”, as though the blatant distortions and deception made evident by the recently exposed trail of emails is completely unrelated to the “science” behind the global climate “panic”.

“Democrats, though, claimed that the announcement Monday only strengthens the argument for government action.” This is so ridiculous. I can’t believe it was said with a straight face. The government made the announcement. Then the government claims that the announcement strengthens the argument for government action. How circular is that? Senator Boxer said, “the Senate has a duty to act on climate change legislation” and that they have a responsibility “to protect and defend our people from this threat”.

And then the U.S. deputy special envoy for climate change laid it all out in plain sight by saying that although they don’t expect a “legally binding treaty” they will pursue a “political arrangement” that could lead to such a legally binding treaty in the future! This should scare the daylights out of you, dear reader. They aren’t even trying to hide their intent. They are so brazen and confident in the strength of their position and the weakness of our resolve that they no longer feel the need to sneak around.

The Yeast People

(The following essay comes from Whiskey and Gunpowder, a free email from Agora Financial. It was written by James Howard Kunstler.)
The Fate of the Yeast People

Every time I do a Q and A after a college lecture, somebody says (with a fanfare of indignation) — so as to reveal their own brilliance in contrast to my foolishness — “You haven’t said anything about overpopulation!”

Right. I usually don’t bother. Their complaint, of course, implies that we would do something about overpopulation if only we would recognize it. Which is absurd. What might we do about overpopulation here in the USA? Legislate a one-child policy? Set up an onerous set of bureaucratic protocols forcing citizens to apply for permission to reproduce? Direct the police to shoot all female babies? Use stimulus money to build crematoria outside of Nashville?

It’s certainly true that the planet is suffering from human population overshoot. We’re way beyond “carrying capacity.” Only the remaining supplies of fossil fuels allow us to continue this process, and not for long, anyway. In the meantime, human reproduction rates are also greatly increasing the supply of idiots relative to resources, and that is especially problematic in the USA, where idiots rule the culture and polity.

The cocoon of normality prevents us from appreciating how peculiar and special recent times have been in this country. We suppose, tautologically, that because things have always seemed the way they are, that they always have been the way they seem. The collective human imagination is a treacherous place.

I’m fascinated by the dominion of moron culture in the USA, in everything from the way we inhabit the landscape — the fiasco of suburbia — to the way we feed ourselves — an endless megatonnage of microwaved Velveeta and corn byproducts — along with the popular entertainment offerings of Reality TV, the NASCAR ovals, and the gigantic evangelical church shows beloved in the Heartland. To evangelize a bit myself, if such a concept as “an offense in the sight of God” has any meaning, then the way we conduct ourselves in this land is surely the epitome of it — though this is hardly an advertisement for competing religions, who are well-supplied with morons, too.

Moron culture in the USA really got full traction after the Second World War. Our victory over the other industrial powers in that struggle was so total and stupendous that the laboring orders here were raised up to economic levels unknown by any peasantry in human history. People who had been virtual serfs trailing cotton sacks in the sunstroke belt a generation back were suddenly living better than Renaissance dukes, laved in air-conditioning, banqueting on “TV dinners,” motoring on a whim to places that would have taken a three-day mule trek in their granddaddy’s day. Soon, they were buying Buick dealerships and fried chicken franchises and opening banks and building leisure kingdoms of thrill rides and football. It’s hard to overstate the fantastic wealth that a not-very-bright cohort of human beings was able to accumulate in post-war America.

And they were able to express themselves — as the great chronicler of these things, Tom Wolfe, has described so often and well — in exuberant “taste cultures” of material life, of which Las Vegas is probably the final summing-up, and every highway strip, of twenty-thousand strips from Maine to Oregon, is the democratic example. These days, I travel the road up the west shore of Lake George, in Warren County, New York, and see the sad, decomposing relics of that culture and that time in all the “playful” motels and leisure-time attractions, with their cracked plastic signs advertising the very things that they exterminated in the quest for adequate parking — the woodand vistas, the paddling Mohicans, the wolf, the moose, the catamount — and I take a certain serene comfort in the knowledge that it is all over now for this stuff and the class of morons that produced it.

A very close friend of mine calls them “the yeast people.” They were the democratic masses who thrived in the great fermentation vat of the post World War Two economy. They are now meeting the fate that any yeast population faces when the fermentation process is complete. For the moment, they are only ceasing to thrive. They are suffering and worrying horribly from the threat that there might be no further fermentation. The brewers running the vat try to assure them that there’s more sugar left in the mix, and more beer can be made from it, and more yeasts can be brought into this world to enjoy the life of the sweet, moist mash. In fact, one of the brewers did happen to dump about a trillion-and-a-half teaspoons of sugar into the vat during 2009, and that has produced an illusion of further fermentation. But we know all too well that this artificial stimulus has limits.

What will happen to the yeast people of the USA? You can be sure that the outcome will not yield to “policies” and “protocols.” The economy that produced all that amazing wealth is contracting, and pretty rapidly, too, and the numbers among the yeast will naturally follow the downward arc of the story. Entropy is a harsh mistress. In the immediate offing: a contest for the table scraps of the 20th century. We’ve barely seen the beginning of this, just a little peevishness embodied by yeast shaman figures. As hardships mount and hardened emotions rise, we’ll see “the usual suspects” come into play: starvation, disease, violence. We may still be driving around in Ford F-150s, but the Pale Rider is just over the horizon beating a path to our parking-lot-of-the-soul.

It’s a sad and tragic process and, all lame metaphors aside, there are real human feelings at stake in our prospects for loss of every kind, but especially in the fate of people we love. The human race has known catastrophe before and come through it. There’s some credible opinion that “this time it’s different” but who really knows? We have our 2012 apocalypse movies. The people of the 14th century, savaged by the Black Death, had their woodcuts of dancing skeletons. Feudalism was wiped out in that earlier calamity but, whaddaya know, less than a century after that the Renaissance emerged in a wholly new culture of cities. Maybe we will emerge from our culture of free parking to a new society of living, by necessity, much more lightly on the planet and for a long time, perhaps long enough to allow the terrain to recover from all the free parking.
-end of quote from Whiskey and Gunpowder

I couldn’t keep myself from providing you with another dose of Mr. Kunstler. Even if you don’t agree with him, you have to admit that reading him is definitely entertaining.

Another guest opinion

(The following essay comes from Whiskey and Gunpowder, a free email from Agora Financial. It was written by James Howard Kunstler.)

In The Long Emergency (2005, Atlantic Monthly Press), I said that we ought to expect the federal government to become increasingly impotent and ineffectual — that this would be a hallmark of the times. In fact, I said that any enterprise organized at the colossal scale would function poorly in years ahead, whether it was a government, a state university, a national chain retail company, or a giant midwestern farm. It is characteristic of the compressive contraction our society faces that giant hyper-complex systems will wobble and fail. We should expect this.

There are going to be a lot of disappointed people out there who will be suffering terrible losses and real pain in daily life. Societies don’t do well when the public falls into the broad despair that is the opposite of hope. That’s when the long knives and the tribal animosities come out and things get smashed.

Within the context of conventional party politics — the kind that has been baseline “normal” in the USA for a long time — we see this playing out in two factions that are increasingly out-of-touch with reality. The Obama government has made itself hostage to a toxic form of pretense and lying. In order to sustain the wish for “hope” — if not hope itself — the President and his White House advisors along with his cabinet appointments, are pretending that the historical forces of compressive contraction are not underway. They’re flat-out lying about the employment figures issued in the government’s name. They’re willfully ignoring the comprehensive bankruptcy gripping government at all levels. They refuse to bring the law to bear against “the malefactors of great wealth.” They appear to not understand the epochal energy scarcity problem the whole world faces, or its implications for industrial economies. Most of all, they persist in promoting the lie that this economy can return to the prior state of reckless debt accumulation (a.k.a “consumerism”) that has made us so ridiculous and unhealthy.

The trouble with self-delusion, either in a person or a society, is that reality doesn’t care what anybody believes, or what story they put out. Reality doesn’t “spin.” Reality does not have a self-image problem. Reality does not yield its workings to self-esteem management. These days, Americans don’t like reality very much because it won’t let them push it around. Reality is an implacable force and the only question for human beings in the face of it is: what will you do? In other words, it’s not really possible to manage reality, but you can certainly choose to manage your affairs within reality. We won’t do that because it’s too difficult. This harsh situation leaves the public increasingly with little more than bad feelings of discouragement and persecution

Reality unfolds emergently, and this ought to interest us. For instance, I have maintained for many years that we are approaching the twilight of the automobile age — and the implications of this for daily life in the USA are pretty large. For a long time, I had assumed that this change of circumstances would proceed from our problems with the oil supply. But reality is sly. It has thrown two new plot twists into the story lately. America’s romance with cars may not founder just on the fuel supply question. It now appears that our problems with capital are so severe that far fewer people will be able to borrow money from banks to buy cars at the rate, and in the way, that the system has been organized to depend on. Our problems with capital are also depriving us of the ability to pay to fix the hypercomplex system of county roads, interstate highways, and even city streets that make motoring possible. What will we do?

For now, a cashless government gives out cash-for-clunkers, which is basically a self-esteem building program designed to make the government feel better about itself because it is ostensibly taking 11-miles-per-gallon cars off the road and replacing them with 27-miles-per-gallon cars, thus forestalling scary problems with climate change. It’s dumb of course, but the failure of leadership is comprehensive. Even the elite environmentalists at the Aspen Institute are preoccupied with finding new “green” ways to keep all the cars running. They put zero effort into the idea of walkable communities, or restoring the railroad system, which will be the reality-based remedies for the car-dependency problem.

The extreme right is, if anything, even more childishly delusional. For them it comes down to “drill, baby, drill.” They know nothing about the geology of oil — they don’t even believe that the earth is more than six-thousand years old, meaning they don’t believe in geology, period — but they are inflamed with the faith of eight-year-old children that we must have a lot more oil in the ground because this is America and God loves us more than people in other parts of the planet so it must be there. As their disappointment mounts, their childish ideas will turn cruel and sadistic. They’ll seek to punish anybody who believes that the earth is more than six thousand years old. The catch is, if they get into power in the election cycles ahead, they’ll be impotent and ineffectual even at persecuting their enemies.
-end of quote from Whiskey and Gunpowder

Although I don’t completely agree with Mr. Kunstler, I do get his point. I probably have the advantage of having read more material from him over time, so I have a framework or context for my understanding. My intention in quoting him in this space was to get across the idea of Reality as the Rock we are being pressed against by the Hard Place of our current circumstances. Reality cares nothing for the political spin that has become a substitute for news of current events. So, dear reader, please take the time to think critically about what you read and hear. Consider what advantage could be gained by the tale teller, if you were to believe the tale as it is told.

Scary Picture

Here’s a scary picture of the job situation. Normalizing to the starting point of each of the most recent recessions you can see that the current recession is dramatically more severe, in terms of job losses on a relative basis, that anything seen in recent times. And we haven’t yet reached a bottom. (The following graph and written commentary come from Casey’s Daily Dispatch, a free email from Casey Research.)

In response, El Presidente told us on Friday that he and his minions are pulling out all the stops to assure that “Americans who want to find work can find work and all Americans can earn enough to raise their families and keep their businesses open.”

Under consideration, we are further told, is a tax break for companies to hire new employees.

While I certainly am in favor of tax breaks of any and all description, I have to wonder just how much of a tax incentive the government would have to offer before businesses would want to run out and hire new employees?

Especially given that virtually every business survey indicates that corporate executives remain concerned about the economic outlook. As such, human nature beckons the executive team to cut all non-essential expenses, shrink inventories, raise cash, and otherwise hunker down. Survival of the fittest pretty well sums it up.

Hiring new employees runs contrary to that mindset. Especially given that, in these United States, hiring an employee requires not just paying the wages but entails a multitude of costs, from those associated with training to a myriad of employment-related payroll taxes, including unemployment taxes, Social Security taxes, Medicare, to sundry benefits, furniture, hand soap and tissue in the corporate facilities, periodic outbreaks of employee litigation, and ongoing compliance training for anyone involved in any work involving regulated activities. Also to be paid, of course, are the HR personnel necessary to keep track of the whole tangled ball. And that’s just for starters.

Soon, costs associated with mandatory health care will be demanded and, most likely, a levy to offset your new worker’s “carbon footprint.”

Speaking broadly, the cost of the average employee in the U.S. private sector comes to $29.31 per hour. Whipping out the calculator, we soon discover that the annual tab for having the next desk occupied comes in at $60,964.80. (The wages and benefits of federal employees tally in at about 50% higher, but in honor of their tireless service to the public, we’ll leave them out of the discussion. They are worth every darn penny in lifetime pension benefits, paid holidays, and free insurance they earn! Right?)

At the moment, using the government’s own, somewhat optimistic calculations, there are on the order of 15.7 million Americans unemployed. Of course, no economy enjoys full employment, so we’ll turn the dial only back to December of 2007, the month that the recession officially began. At the time, the unemployment rate was 4.9%, versus 10.2% today. Since that momentous month, 7.3 million jobs have been lost.

Replacing the calculator with a spreadsheet and plugging in the numbers tells us that giving all those folks a job at average wage levels, either through private employers or government work projects, would amount to $445 billion a year. Which, when considering the planned trillion dollars plus annual deficits contemplated by the administration, seems almost reasonable.

Of course, this overlooks the reality that the money used to pay all those workers would ultimately have to come from taxpayers, including the companies themselves, making it essentially a zero-sum game. Worse, it would be a game played against a backdrop of ballooning government debts.
-end of quote from Casey’s Daily Dispatch

Here’s the thing. This is what isn’t getting broadcast on the evening news. This is what you need to understand. The government is not going to do the smart thing, they are going to do the politically expedient thing. They can be counted on to do exactly what will buy the most votes. So even though we are running a $1.4+ trillion budget deficit they will not shy away from adding more spending. The spending is not going to stop, at least not in the near term. Count on it. Plan for it. Take action accordingly.

Big Brother is watching (click here)

Companies compile tons of personal information on you. Here’s what they have, how they use it, and why you should know.

Big Brother is watching

Ode to Friday Five O’Clock

I’ve never much enjoyed reading poetry, but a nonsensical poem penned by Lewis Carroll over a century ago has been one of the few exceptions. The poem is aptly titled “Jabberwocky,” and the first time I read it as a youth, I was so enthralled with the opening verses that I’ve never forgotten them:

'Twas brillig, and the slithy toves
Did gyre and gimble in the wabe:
All mimsy were the borogoves,
And the mome raths outgrabe.

So, with apologies to Mr. Carroll, I’d like to "honor" his work by using it as the basis for a hack job that epitomizes the end of the workweek for me and many of my peers:

Ode to Friday Five O’Clock

‘Twas Friday and the engineers
Did writhe and wriggle in their cubes:
Consumed with thoughts of frothy beers,
Awaiting them in glassen tubes.

Until that dark and dreadful Monday overtakes our sainted Sunday . . . Cheers!

How We Live Now, by J12H

How We Live Now

by JOHN TWELVE HAWKS

We drink our morning coffee with a drop of fear. The television news alternates between staged media events and new threats to our lives: terrorism and airline crashes, global warming and car-jackings, an epidemic of avian flu. All the threats are different, but they have one common theme: it’s impossible to truly be safe. Somehow all of us have become victims—or potential victims—of a long list of dangers.

With these threats fresh in our mind, we travel to work tracked by pervasive electronic monitoring systems. There’s a Global Positioning device inside our automobile and another within our cell phone; both inform a computer of our exact location. A transponder knows when we approach a toll booth. A transit card records our trip on the subway and stores the information in a central data bank. And everywhere we go, there are surveillance cameras—thousands of them—to photograph and record our image. Some of them are “smart” cameras, linked to computer programs that watch our movements in case we act differently from the rest of the crowd: if we walk too slowly, if we linger outside certain buildings, if we stop to laugh or enjoy the view, our body is highlighted by a red line on a video monitor and a security guard has to decide whether he should call the police.

These two modern conditions—a generalized fear coupled with sophisticated electronic monitoring—shape the world of “The Traveler,” my first novel. Many critics have reviewed the book as science fiction, an idea that amuses me; although “The Traveler” is set toward the end of our decade, all the technical aspects described in the book are either in use at this moment or far along in the development process. I didn’t write the book to predict the future; I wanted to use the power of fiction to describe how we live now.

This new technology of control and the wide-scale manipulation of fear combine to create something I call “The Vast Machine.” Does the Machine really exist? Are we living in such an environment? And, if this fiction turns out to be the truth, what difference does it make to our lives?

The first icon of the 21st century is the closed-circuit surveillance camera, slowly panning back and forth as we move beneath its gaze. A few years ago, it was estimated that the average person in London was photographed at least 300 times by different CCTV cameras on their way to work; the amount of cameras has probably doubled since the terrorist bombings on the London tube.

Chicago gives us a typical example of the rapid spread of surveillance cameras. There are over 2,000 cameras in the city and hundreds more are introduced every month. Mayor Daley stated that “The city owns the sidewalks. We own the streets and we own the alleys.” Then he announced plans to put surveillance cameras in commuter cars, on buses and on the city’s street-sweeping vehicles.

The outline of a Vast Machine becomes apparent when we examine the new “smart” cameras used in Chicago, London, and Las Vegas. The computers attached to these machines contain a template of what should be determined “normal” behavior for a person. If anyone behaves differently, those actions are immediately detected.

During the next few years, surveillance cameras will also feed data into computerized facial recognition systems. There are about 80 “nodal points”—unique features—in every person’s face. Facial recognition systems transform our unique features into complex algorithms that are checked against a database of driver’s licenses and passport photos. The idea that a surveillance camera could identify a stranger in a crowd was thought to be fictional by some of my readers, but first-generation recognition systems have been operational for years. At the January 2000 Super Bowl in Florida, dozens of surveillance cameras automatically scanned every person in the crowd and compared the faces to a database of criminal mug shots.

These days, people are routinely photographed when they pass through airport immigration checkpoints, and that image is compared to the biometric data (fingerprints, iris scan) embedded in the passport. But the new biometric passports to be introduced by the United States reveal another aspect of the Vast Machine. Although the passports are ostensibly being introduced to protect us, they actually make it more dangerous for American tourists in foreign countries.

The passports contain a radio frequency identification chip (RFID) so that all our personal information can be instantly read by a machine at the airport. However, the State Department has refused to encrypt the information embedded in the chip, because it requires more complicated technology that is difficult to coordinate with other countries. This means that our personal information could be read by a machine called a “skimmer” that can be placed in a doorway or a bus stop, perhaps as far as 30 feet away.

The U.S. government isn’t concerned by this, but the contents of Paris Hilton’s cell phone, which uses the same kind of RFID chip, were skimmed and made public last year. It may not seem like a problem when a semi-celebrity’s phone numbers and emails are stolen, but it is quite possible that an American tourist walking down a street in a foreign country will be “skimmed” by a machine that reads the passport in his or her pocket. A terrorist group will be able to decide if the name on the passport indicates a possible target before the tourist reaches the end of the street.

The new RFID passports are a clear indication that protection is not as important to the authorities as the need to acquire easily accessible personal information. The means of acquiring information are expanding every day. Most people realize that the GPS devices in automobiles allow a central computer to determine a car’s precise location. But there are also hidden sensors placed in car tires as well as a “black box” under each hood that records car speed and direction (generally used in the event of an accident).

While our location is being tracked, computer programs automatically read and evaluate emails without our knowledge. Carnivore is one of the programs mentioned in my novel. It’s a “packet sniffer” developed by the Federal Bureau of Investigation along with a variety of other on-line detection programs—like Packeteer and Coolminer—that reassemble message fragments and analyze data. Like the smart surveillance cameras used in Chicago, the Carnivore programs establish a standard for what is normal, and everything else is automatically judged as being suspicious. Gradually, all these evaluation systems are becoming independent of any direct control.

“The Traveler” describes for the first time in any book the secret computational immunology programs being developed in Britain. These programs behave like the leucocytes floating through our bloodstream. The programs wander through the Internet, searching, evaluating, and hiding in a person’s home PC, until they detect a “dangerous” statement or unusual information. After gathering our personal information, they return to the central computer. There is no reason why they can’t easily be programmed to destroy a target computer…such as the one on which you’re reading this essay.

Once you look beyond surveillance cameras, you can find the Vast Machine everywhere. Infrared devices and x-ray machines can “see” through walls of homes and vehicles. New data systems can instantly evaluate ATM and credit card activity, building a computerized image of our personality and buying preferences. Viewed in isolation, each of these technological developments is not a major threat to our privacy. But the growing computational power of computers allows all of these monitoring tools and databases to be combined into one total information system.

In January 2002, former Reagan administration national security advisor John Poindexter was appointed to be the head of the U.S. government’s newly formed Information Awareness Office. Poindexter had been convicted in 1990 of five felony counts of lying to Congress, destroying official documents and obstructing congressional inquires into the Iran-Contra affair, but this didn’t seem to disqualify him from his new position.

Under Poindexter’s leadership, the IAO proposed a “Total Information Awareness” program that would place all personal information about U.S. citizens in one central database. According to New York Times columnist William Safire:

“Every purchase you make with a credit card, every magazine subscription you buy and medical prescription you fill, every Web site your visit and email you send and receive, every academic grade you receive, every bank deposit you make, every trip you book and every event you attend—all these transactions and communications will go into what the Defense Department describes as ‘a virtual centralized database.’”

In his book “No Place to Hide,” Washington Post reporter Robert O’Harrow describes how the controversy over Total Information Awareness resulted in public protests and Poindexter’s resignation. But TIA did not disappear; it was simply renamed the “Terrorist Information Awareness” program, and the technology was passed on to U.S. intelligence agencies. Poindexter may have lost his job, but his vision lives on.

Total information systems are being developed in every industrial country. In Europe, these systems are almost exclusively controlled by the government. In the United States, weak privacy laws have also given private industry almost unlimited power to create dossiers of every American citizen.

I feel strongly about the growing power of computer monitoring systems, and that belief has a great deal to do with my decision to retain a truly private “private life”—even when dealing with my agent and publisher. It seemed hypocritical for an author to attack the loss of privacy in our society and then display his personal life to promote a book. Although I have avoided the media, however, I’ve talked to a wide variety of people about these new forms of surveillance. A few people have been disturbed about the intrusion, but many have given a more typical response:

“They (our leaders) know what’s best.”

“It’s a dangerous world.”

“Honest people have nothing to hide.”

Believing that the government knows what’s best is an argument that barely merits a serious discussion. Any high school history student can come up with hundreds of examples of when a king, dictator, or elected official followed a destructive, foolish policy. Democracy doesn’t protect our leaders from having a limited, parochial vision. Often a politician’s true priority is career self-preservation.

The prompt arrests of the four suspects of the failed July 21 London bombings indicated that surveillance cameras and other elements of our electronic society can help protect our society from terrorists. But in destroying our enemies we run the risk of destroying ourselves—those elements of personal freedom and tolerance that define and sustain our society. We seem to be blindly giving up our rights without asking our elected officials how their actions will truly defeat our enemies.

“And so what if they know all about me?” asks the honest citizen. “I’m good person. I’ve got nothing to hide.” This view assumes that the intimate personal information easily found in our computerized system is accurate, secure, and will only be used for your benefit. What if criminals access your information? What if corporations deny you insurance or employment because the wrong data has ended up in your file? What if you simply want to take control over who knows what about you?

Obviously, our government needs to know certain facts about us so that elected officials can enforce laws and protect our borders. But during the last few years, information gathering has gone far beyond the standard data shown on a driver’s license or income tax form. These days it is easy to target someone and find out his medical condition, the names of his friends, and the titles of the books he’s checked out of the library. This data can be used in sophisticated ways to predict behavior.

In every religion, saints and prophets go off alone when they want to talk to God. We need moments of true privacy to evaluate our thoughts and experiences; to decide what we really believe. There is a reason why a curtain—real or symbolic—is placed around the voting booth in a democratic society. If privacy truly disappears, freedom itself will vanish with it.

It’s clear that the new computerized technology has resulted in the end of our conventional view of privacy. But a true picture of the way we live now involves more than Carnivore programs and radio frequency chips. The Vast Machine monitors our actions, but it also gives us a reason for that intrusion. The reason is always the same: those in power are working to protect us.

Fear is a necessary part of our survival; the response is programmed into our neurological system. But in the 21st century, modern communications make it possible for everyone to know instantly about any possible danger, however remote, however far in the future. The Internet multiplies these sources of information, relaying threats both real and imagined.

In his insightful book “The Culture of Fear,” Barry Glassner shows how many of our specific fears are created and sustained by media manipulation. There can be an enormous discrepancy between what we fear and the reality of what could happen to us. Glassner analyzes several “threats” such as airplane disasters, youth homicide, and road rage, and proves that the chance of any of these dangers harming an individual is virtually nonexistent.

Although Glassner accurately describes the falseness of a variety of threats, he refrains from embracing any wide-reaching explanation. It can be argued that the constant message of impending destruction is simply a way for the media to keep us watching television—“Are cyber predators targeting your children?” is a tagline that is going to get the audience’s attention. What interests me is not the reality of these threats, but the effect they have on our view of the world. Fear encourages intolerance, racism and xenophobia. Fear creates the need for a constant series of symbolic actions manufactured by the authorities to show that—yes, they are protecting us from all possible dangers.

In “The Traveler,” powerful men use fear to keep the population under control. While I don’t believe that a shadowy group of Illuminati are guiding the industrial world, I think it’s clear that a variety of institutions use fear to manipulate public opinion.

Awareness of the past seems ever less important as history is superseded by the present crisis. Most people can still recall the so-called Weapons of Mass Destruction used to justify the war in Iraq, but the fact that the WMD never existed seems to have disappeared from the day-to- day public discourse. We simply moved on—to a new threat.

Many of our leaders have gone past the old-fashioned politics of the democratic era and entered into the politics of fear. People running for national office no longer emphasize their view of economics or social change. The leading political question of our time has become: who can ease our nightmares?

We are being watched and controlled without our knowledge, but the biggest surprise is that there is little broad-based objection to this significant change in our society. Instead of resisting the Vast Machine, many of us have given into cynicism and distraction. Our contemporary culture has become a brilliantly colored surface without a deeper spiritual meaning. We care more about celebrities than our own neighbors. Are Nick and Jessica getting divorced? Is that famous actor secretly gay? Staged media events allow us to think that everything is false. Our sense of powerlessness—the belief that an ordinary person does not matter—has twisted our lips into a sneer.

Although I recognize the growing reality of the Vast Machine, I refuse to accept its authority. Each one of us needs to make a choice about what kind of world we want in the future. The pose of rebellion based on style and attitude is an empty gesture. Political affiliation is not a relevant part of this decision; privacy and personal freedom should be fundamental right for everyone.

The first step is awareness: the realization we are being monitored without our consent. When we use a shopping card, there’s no need to also include accurate data in the application. Why should our desire to get a discount on detergent require us to provide our address, our phone number and other personal data? All of us need to protect our home computers with programs that destroy spyware. We should realize the implications of giving our social security numbers to large corporations. In real life, protecting one’s privacy is never a single dramatic action; it’s based on adopting a new attitude toward the powerful forces that want to reduce our lives to a digital image.

We have the power to resist the constant message of fear.

We have the power to use technology, not as a means of control, but as a tool to improve our own society.

In my novel, people are waiting for a Traveler, a visionary, to emerge from the darkness and change their lives. The Travelers are almost extinct, and the last few are defended by a small group of fighters called Harlequins. A great battle has started that will be described in the next two books of the trilogy.

In the real world, our battle will be made of small gestures—small decisions—to protect our private selves from the intrusions of the Vast Machine. No outside force will save us. We must look into our own hearts to find the Travelers and Harlequins—the prophets and warriors—who will keep us free.

A Brief Diversion

I’ve written extensively on topics concerning the US economy over the past several weeks. Today I’d like to step off of that path for a little side trip. If we stipulate, for the sake of this argument, that the US economy is going to suffer an irreversible decline, then what would be the potential effects in the world? For a moment I’m going to think some great thoughts.

First of all, as I believe I’ve shown already, the US dollar would cease to be the global reserve currency. That means that the nations of the world will do business with each other by exchanging some currency other than the US dollar. That is easy to say, but what exactly would that mean to the average American? Initially the US economy would follow a path that could be described as “inertial”. That is, what is in motion will try to stay in motion. So we’d continue to consume, as individuals, and we’d continue to spend, as a nation, as though we had all the money we wanted. But eventually we’d come to recognize that the US dollar wasn’t getting the proper respect we think it deserves. Oil from the Middle East will cost more than it used to. Trinkets from China will cost more than they used to. Cars from Japan will cost more than they used to. The world will be less and less eager to accept US dollars in exchange for the tangible goods and services that it has to offer. Of course, this leads to price inflation in the US. It leads to higher interest rates on US government debt. The US economy, 70% dependent upon consumerism, will slow down even further. Tax revenues will drop. The deficit will grow. It is a vicious cycle that reinforces itself. There will be tremendous political pressure on the US government to mitigate the impact of these negative forces. Not only that, the current administration has the mindset that it can, and should, try to mitigate these “bad things”. So things will continue to get worse, for awhile. Nevertheless, reality will set in.

At some point, however, the US government will be forced to acknowledge that they must reign in spending. More accurately, they will discover that they must reduce the magnitude of the deficit spending. The first step will be to increase taxes, because they are ideologically unable to reduce spending. But higher taxes, along with the global economic changes that are outside of their control will eventually force them to abandon massive social spending, and we’ll eventually see a federal budget that is lower, year-over-year. By the time we get to that point it will be far too late.

One of the areas of the federal budget that I expect will see the most active trimming will be in defense. In fact, I believe we’ll see real defense budget declines from the start. It won’t have to wait until the crisis hits. But I don’t see the defense budget going to zero. I do see the budget shifting away from deployment, away from production, away from an active military. I expect that we’ll continue to spend on R & D. Think about it (that is what this is all about, after all). Congress will resist any decrease in spending that will impact their district. At the same time, the administration will recognize that defense dollars are just about the last federal spending category that creates high-value US jobs (you know, the ones that result in tax payers). There are literally millions of tax-paying workers that are supported by the US defense budget. So I do not expect the defense spending to go to zero. I do expect to see fewer and fewer programs transition into production (production is threatening, R & D isn’t). I do expect to see less and less US troop deployments around the world. I do expect to see more and more US troops pulled back from foreign stations.

These things will happen because of economic necessity and because they are in perfect alignment with the ideological leanings of the current administration. This is the closest we’ll come to a sure thing. But what will it mean, globally? That answer will have to wait until my next posting.

"One Mark to Rule Them All"

Nowadays I see many people of all stripes sporting tattoos—on their ankles, on their backs, arms, legs, faces, and I'm certain, on unmentionable parts. I see tattoos on young goths and punks, and I see them on apparently average young mothers pushing baby carriages. Even middle-aged men and women are beginning to visit the parlors—now becoming ubiquitous due to demand—to permanently scar their bodies with oftentimes strange and occultish symbols.

From whence originates this relatively recent rise in the popularity of bizarre images indelibly etched on such a diverse cross section of the American populace? Has the Maori culture of New Zealand somehow infiltrated our liberal and susceptible pop culture? Are we witnessing an inexplicable resurgence of centuries-old western seafaring traditions?

No, I propose that the rise in popularity of tattoos does not lie with man and his mores. Certain groups of people are, in fact, being attracted to the notion and acceptance of tattoos in preparation for the ultimate reception of the "mark." We are witnessing the willing softening of resistance to a special tattoo that will someday be mandated by governing authorities and uncritically accepted en masse by the fallen, most of whom will already bear the semblance of such a mark on their bodies.

I'm not suggesting that every mommy in the grocery store wearing a colorful butterfly on her ankle will someday be unyieldingly coerced into receiving the mark. Nevertheless, if you're already accustomed to permanently wearing strange symbols on your body, what's one more?

"Put on the full armor of God so that you can take your stand against the devil's schemes. For our struggle is not against flesh and blood, but against the rulers, against the authorities, against the powers of this dark world and against the spiritual forces of evil in the heavenly realms." Ephesians 6:11-12

Real Data, Not Spin

Here is a link to some disturbing info on the future mortgage reset possibilities.


http://www.businessinsider.com/henry-blodget-coming-soon-the-alt-a-mortgage-reset-bomb-2009-8

I think it is essential that we look at the hard facts rather than the hopeful pronouncements that come from Washington or the various talking heads on TV. Home sales may have increased month-to-month over the last few months, but they are still dramatically lower than they were a year ago, which was already seriously depressed from levels a year before that. So we aren't really in a good place. And "cash for clunkers" may have made car dealers busier than one-armed paper hangers over the past few weeks, but the sales they made have come at the expense of potential sales in the near future. This did not have a lasting good effect on the economy. The list goes on. So I urge you to look at the data and draw your own conclusions.

McClintocks - Is It Worth It?

Well, I'm now officially on board and ready to share my thoughts. It was quite the process - it actually has taken months! (of course I wasn't working it very hard ... O.K. not at all). Sooo, my first comment will be something easy - a restaurant review! I made reservations at McClintocks in Saguaro Ranch for my Mother-in-Laws 77th Birthday. My daughter-in-law and my grandson also attended. We all crammed into one vehicle and headed up Thornydale. I had never been north of Moore road. Upon entering the Saguaro Ranch community (over 1100 acres) we went throught the tunnel... magnificent! Upon exiting we entered an very green and uninhabited area filled with saguaro's - thus the name. We came upon the security gate and they were very nice. They checked their board and saw that we did actually have reservations at 5:30pm and another gentlemen (mexican cowboy) offered to be our guide up the winding road to the end of the street, where McClintocks is located. The drive was beautiful .. probably 1.5 mi drive or so. We saw a few built homes and a couple under construction. We later found out that there are only 11 home sites in Saguaro Ranch that have actually been built (or are in the process of being built) and of these there are only two permanent residents - the rest just come and go since it's the second, third, or "pick a number" home. One of the eleven homes has been there for ages...probably the original squatters.

We were met at the restaurant by a number of waiters/waitresses who eagerly greeted us as we approached the front porch. Upon entering the atmosphere was expectantly western and rustic. We were the first guests of the night. We were sitted at one of the front tables with a direct view to the South peering through the hills of the Tortillito mountains. It was an extradinary vantage point that grew even more exceptional as the sun began to set and the Tucson valley darkened, except for the millions of twinkling city lights and the lights from above. We observed some protesters during the early part of the experience. It appears there is still some quarreling over the land by certain environmentalists. They were promptly escorted off the grounds.

Our waiter was exceptional. We later found out that he has spend many years in the restaurant business and had prior work experience at Flemings, McMann's, and some other reputable and more high end establishments. We also learned he was a mortgage loan officer and working at Saguaro's was just a side job. He took great care of us throughout the night...we had his undivided attention. The menu was typical and presented the normal steak and seafood varieties. My Mother-in-law ordered an onion appetizer...not sure of the actual name, but she loved it. She devoured it all by herself...but then she loves onions (and garlic)! We all ordered and ultimately split between steak and seafood (salmon) dishes. The food was good... receiving a 7 out of 10. The prices were expectedly high, which after finishing dinner I surmised was mostly due to the atmosphere rather than the menu selection/creativity/taste.

After finishing dinner we took the elevator up to the top floor (2nd floor) and walked out on the upstairs open dining area. It was not is service this night, but mirrors the size of the first floor, which provides them great overflow capacity, but is mostly used for special occassions (i.e. weddings, ...). Our waiter followed us up and answered all our questions and enjoyed the calm of the desert night with us. Often people just come to the restuarant and get something simple w/ some coffee (or a drink) and sit on the 2nd floor and stare at the Tucson valley.

Overall, we had a great time! In the end, Saquaro's were very hospitable and extended us a very warm and personable experience. We had a respectable dinner w/ exceptional care and attention. We spent some quality time w/ our loved ones and took in the beautiful desert surroundings and viewed the awesome night lights of the city and the heavens. I'd recommend Saquaro's anytime for that special occassion.

The Last Resort

Some other things I want to touch on with regard to precious metals and inflation. First of all, precious metals are not the only way to hedge against price inflation. Any useful commodity that isn’t perishable could serve the same purpose. For example, you could buy a barrel of crude oil, or a ton of copper. Both of these would provide the same kind of hedge against inflation that gold or silver would. The problem becomes one of storage and exchangeability. You can usually go down to a local coin shop and sell your bullion bars or coins at any time, for the going rate (remember, you’ll always be stuck buying your coins at retail and selling them at wholesale). But where are you going to keep an economically significant amount of crude oil? And who will you sell it to when you need to raise some cash? And how will you transport it to the buyer? Gold doesn’t have these problems. And although it takes a whole lot more silver to equal the price of an ounce of gold, it is still a relatively compact way to store wealth. A barrel of crude oil for $60 can be equaled by 4 silver 1oz. coins or a 1/20oz. gold piece. A ton of copper will be good for $6000 (at $3/lb), and that can be matched by 400 silver coins (25 pounds) or 7 ounces of gold.

The other point I want to make clear is that gold or silver is useful as an inflation hedge, but only to the extent that we continue to live in a relatively stable environment that allows for the disciplined exchange of goods (at whatever price). If blood starts to run in the streets, if disruption of commerce and civil disorder becomes the environment, then you’re better off with a gun and plenty of ammunition than a bag full of gold coins. Of course, you have to face the question of whether you’d be willing to use that gun to take by force the things you need (which you might be able to otherwise purchase with a gold coin). Many people would be willing to use the gun to defend against aggressors, but are you just as willing to become the aggressor? So even in the worst imaginable circumstances it might be advantageous to have some precious metal coins on hand, along with the gun and ammo.

I need to say one more thing about precious metals. You have to think of them as a long-term core holding. You don’t want to buy a gold coin now, at $950/oz, with the thought in mind that you’d sell it for $2000/oz. That is not the point. Frankly, if the dollar tanks to the point that gold goes for $2000/oz, then the last thing you should want to do is settle for just $2000. So when/if you think about purchasing precious metals you really need to be in the mindset that this is a forever purchase. This is a lasting legacy you intend to pass along to your children.

Think about it.

This Just In!

I pulled this data today from the Treasury Direct website. This shows the interest rates for various maturities of the securities that have been auctioned this year. As they say, a picture is worth a thousand words. The Orange Line (10 Year Notes) is the rate used to set most mortgage loans (and mortgage rate resets, too). Maybe I’m missing something, but the trends in evidence here are not particularly encouraging.

Deflation vs Inflation

I recently read an analysis that made the argument for deflation rather than inflation. The analyst’s point was that the recently deflated credit bubble has resulted in over-capacity in all sectors of the economy. And this is a global phenomenon, not just a US problem. There are now too many factories, too many ships, too many trains, too many trucks, too many malls and retail shops of all varieties. Over the past few years it was just too easy to get the credit (debt) to build more and more. So if we go back to the economic basics of supply and demand, when there is too much supply something has to happen to either decrease the supply or increase the demand. This analyst makes the argument that prices will decline in order to stimulate demand, hence price deflation. And quite honestly, we are seeing this in many areas. Real estate and stock prices have been in decline, as we all know. There are lots of sales going on in the retail sector, airline ticket prices and hotel room prices are also in decline. The soft demand for these items has resulted in lower prices. The question to ask, however, is how far can this go? How long can it last? Is it of a magnitude that could possibly offset the government’s massive borrowing and spending?

Here’s the thing, this price deflation doesn’t happen by itself, without any corresponding effects that can be felt elsewhere in the overall economy. Sadly, a large percentage of the goods and services that the US economy is made up of have their origins overseas. Whether we are talking about Middle East oil or trinkets from China, so much of our economy results in US dollars going overseas. And, as I’ve already explained, many of those dollars end up coming back to purchase US Treasuries to keep the government running. So, let’s stipulate that the deflationary effects do happen. That will mean that fewer dollars go overseas. That will mean that fewer dollars are available to fund the activities of the US government. As we’ve seen, this will put upward pressure on interest rates. The Federal Reserve will be tempted to buy up the excess Treasuries in order to keep interest rates down, but that will be a big red flag to the foreign holders of US debt that the dollar is being debased. So in spite of what the Fed desires, interest rates will have to go up to attract buyers for the Treasuries that go up to auction. Higher interest rates will put even more downward pressure on the economy, resulting in less economic activity. The cycle will reinforce itself. So in this scenario we see price deflation, higher interest rates and higher unemployment. But does this lead to inflation?

The believers in big government, which essentially are the members of both political parties (Republicans and Democrats both believe that government action is called for to solve our economic ills, they differ only in the magnitude of the action they propose) will naturally turn to more and more government intrusion into our lives. These government handouts will have to be funded by debt and that will increasingly be supported by the creation of dollars by the Federal Reserve. The dollar will become less and less desirable to foreign companies and governments, which means that more and more of them will be required in order to purchase goods and services from those foreign companies and governments. That, my friends, will be inflationary. And by the time we reach that point in the drama that is unfolding before us there will be no stopping it.

So I’ve made the argument for both deflation and inflation. The big question is which force will win the tug-of-war? I’m betting on inflation. Why? For a couple of reasons. One, the loss of US dollar purchasing power is a nearly uninterrupted trend since the creation of the Federal Reserve in 1913 (see the chart from a couple of posts ago). This is the natural trend for fiat currencies (currency that only has value because a government says it has value – fiat is Latin for “let it be done”). They seek their intrinsic value, which is zero. What complicates the situation today is the fact that every currency in the world is a fiat currency. So we are privileged to watch this global race to the bottom, which I believe the US will win because we have the political will to achieve this goal (sadly, this is not a good thing). Two, inflation will win because the US Government has only two options with respect to the massive debt it is raising. They can either default or they can inflate.

Default would be quick, enormously painful and globally disruptive. But it would also be effective, in two ways. The criminals responsible for the pain will be evident to all (I’m talking about the US politicians who trigger the default). They’ll never hold another public office, they’ll go down in history as the criminals they are and they might very likely suffer prosecution from several plaintiffs, if not actually be in physical danger. And, after the mess of default is cleaned up the US dollar will be out of the position of being the world’s reserve currency. That will result in a complete inability of the follow-on government to pursue similarly destructive public policies. We’ll be forced to live within our means, which will be much smaller than we’re used to, by the way.

On the other hand, inflation will allow the current political criminals to continue living in their imagined splendor. As long as inflation doesn’t get too far out of control everything will appear to be “fine” and “normal”. Since inflation preserves the political status quo it is the option to bet on. Quite frankly, I am hoping for mild inflation instead of Zimbabwe style inflation. If inflation were to get out of hand the end result for the US will look very much like the default option. But in either case hard currencies will do well, i.e., a store of physical commodities. I urge you to re-read these past several posts. Think about everything I’ve said. Consider what a proper response to current events should be, particularly as it relates to your savings. Do you really want your savings to be in a stack of pathetic, worthless slips of paper? Shouldn’t you consider putting at least a small portion in something tangible?

A Quick Look at Deflation

This table shows the annual increase (or decrease) in the value of consumer credit and real estate loans in the US since 2005, in billions of dollars.

2005 +$613B
2006 +$452B
2007 +$743B
2008 –$1168B
2009Q1 –$532B

So you can see that over the past 5 quarters nearly all the credit that had been given out in the preceding 3 years has been obliterated. Now I must remind you that this is credit and until it is spent it isn’t debt. So it represents only the potential for dollars in circulation. I don’t know how much of this credit has been turned into debt, but I suspect that the majority of it has indeed been spent (otherwise why are so many people paying monthly minimum payments on their credit cards?). Nevertheless, given that 70% our economy is driven by consumption, when you take $1.7T out of potential circulation that is going to have an effect.

And deflation is simply the result of fewer dollars in circulation to chase the amount of goods and services that are available. Those dollars can disappear from circulation for two reasons. First of all, they can disappear like the table above shows. Banks can eliminate lines of credit, etc. Second, people can voluntarily take them out of circulation by saving instead of spending. This concept is important to understand for the next post I will be writing.

Inflation, then, is just more dollars in circulation to chase after a fixed amount of goods and services. Where do those dollars come from? Well, they can come from credit that is turned into debt when consumers spend it. This has been the major driver of our economy in the recent past. Secondly, the dollars can come into circulation when they are pulled from savings.

Strictly speaking, when the Federal Reserve puts dollars into the economy they do it by depositing it into Banks to then be offered as credit for businesses and consumers to then turn it into debt when it gets spent on goods and services. Right now we are seeing large sums of money going to the Banks, but they aren’t yet offering credit. This is one reason why the federal stimulus efforts aren’t currently yielding results. At some point, though, that pressure will build to the point of rupturing the dam and the money will flood the system.

Bond Auction Update

Here is a short summary I found on the progress to date on the massive bond auction that has been going on for the past few days.

The government managed to auction $39 billion worth of 5-year debt yesterday (7/29)… barely. Wednesday’s debt sale drew a bid-to-cover ratio of 1.92, the lowest investor demand since September 2008. Low demand forced Uncle Sam to jack up interest rates at the last minute in two separate bond auctions this week -- yesterday’s sale and Tuesday’s $42 billion auction of 2-year notes.

So what’s an indebted government to do? Manipulate the market, of course. Bond yields have given back yesterday’s spike partly thanks to the Federal Reserve, which bought $3 billion in U.S. bonds yesterday. They’ve announced their intention to buy again today (7/30), which will bump its total purchases of U.S. Treasuries to over $222 billion since March 25.

The U.S. government has already shoved more than $1 trillion in bonds down the market’s throat this year. They’ll likely issue another trillion before 2010. Another $28 billion in 7-year notes will be pawned off today (7/30)… might be worth keeping an eye on.

Keep an eye on this ball, folks. This is real stuff here, not imagination, not interpretation, not opinion. I have offered my opinion on the consequences of these actions by our Government. But the actions are now a matter of history. As I say, let’s see what happens.

Almost a Quarter Trillion Dollars!

Starting on Friday, July 24th, the US Treasury is auctioning the following:

70-day CMBs, $30 billion (July 24th)
13-week Bills, $32 billion (July 27th)
26-week Bills, $31 billion (July 27th)
52-week Bills, $27 billion (July 28th)
2-year Notes, $42 billion (July 28th)
5-year Notes, $39 billion (July 29th)
7-year Notes, $28 billion (July 30th)
19-year, 6-month TIPS (reopened), $6 billion (July 27th)

Add it all up and you get $235 billion over the next week. This is an unprecedented amount in such a short time period. Who is going to step up to the window and purchase these? I suggest we all pay attention to the news this week and see how this turns out. It will be a very, very big signal about the timing of the coming inflation. If the Federal Reserve has to step up to cover these debts I would say that the coming inflation is very near. Protect yourself.

More on Inflation

One last thought about the expansion of the US money supply, and this has to do with interest rates. The Fed has announced that they intend to employ quantitative easing as one of their tools to alleviate the current economic crisis. As I’ve explained, this is basically the creation of money out of thin air. Recently the US Treasury Secretary was in China, and he was laughed at by students there when he tried to explain that the US was committed to following a responsible fiscal policy. Can you believe this? We all know how important it is in Oriental culture to show respect. There can be only two explanations for this apparent breach of etiquette. Either the students thought the Secretary was making a joke, therefore they laughed, or the statement was so preposterous and unbelievable that Mr. Geithner lost their respect immediately and there was no longer any social restraint to prevent them from laughing in the face of a fool.

The Fed has to walk a very fine line with their purchases of US Treasuries at auction. If they purchase too much, too often, then the world will see it as an unrestrained effort to debase the value of the dollar (by inflating the supply of money). To protect themselves they will probably begin to unload some of the trillions of dollars they hold in US Treasuries, causing the price of those bonds to drop (due to the expanding supply), which results in an increase in interest rates. Higher interest rates will destroy an already weak economy and inflation will begin to rise to very unpleasant levels. Does anyone remember the late 70’s or early 80’s? I do. I do not know whether this particular risk will materialize. If it does, then lots of other countries will suffer from this run on the bank, so to speak. So there is some pressure on the international community to avoid this situation. By the way, this is the “nuclear option” that the Chinese have hinted at in trade discussions with the US. It will be interesting to see how this unfolds. But it can very easily happen.

I urge you in the most strenuous way to make provision for the coming inflation. The usual path taken in anticipation of inflation is to purchase precious metals, such as gold or silver. Historically these metals have provided a good hedge against inflation, though for different reasons. Yes, both metals have in the past been used as money. I’ll have to admit that I don’t believe this is likely to be the case in the future. (This is only a realistic option for gold, and given the amount of metal available the price of an ounce would have to multiply several times over in order to supply the kind of liquidity that would be necessary.) Nevertheless, each metal has something to recommend it as an inflation hedge.

Let’s start with silver. This metal is primarily an industrial metal. It has some significant use in coinage and jewelry and investment. But the largest usage is for industrial purposes. Silver is practically unique in its physical properties and it is used in literally hundreds of industrial applications. Its relatively low cost, coupled with its unique properties, has made it a material of choice in all aspects of modern life. The driver for silver in the current environment will be its relative rarity. Not many people are aware of the fact that there is essentially no inventory of above ground silver. The governments of the world still hold inventories of gold, but nobody today is holding silver. And as we use silver in various industrial applications it essentially gets used up. Not that it disappears, but it gets rendered into a concentration that isn’t economically recoverable. At least, not at current prices.

The other feature of silver is that a large percentage of its mining is done as a consequence of going after some other metal, such as copper or zinc. There are few purely silver mines in the world. The recent economic slowdown has curtailed the mining of most base metals, since their prices have dropped. This has impacted the supply of silver, as well. So far we haven’t seen a supply issue because the industrial demand for silver has dropped along with everything else. At some point, however, the lack of silver supply from the mines will create a silver shortage that cannot be mitigated by an inventory of above ground silver, because there isn’t any. The nominal price of silver will take off to the moon. Silver is a very good hedge for the coming months.

Then there is gold. Gold is primarily an investment metal. It also has a significant usage in coins and jewelry. It has some industrial applications, but this is a minor part of the gold story. Virtually all the gold that has ever been mined over the course of human history is still above ground and recoverable. Gold has a long history of use as money. Governments around the world still hold sizeable amounts of gold in reserve. China has lately been adding significantly to their gold holdings. Let’s face it, gold is unique in its ability to attract the attention of men. They have always desired it and they will continue to desire it. It is pretty. It can be easily manipulated into all kinds of pretty and decorative and desirable forms and shapes. I don’t believe gold will ever lose its appeal. I can confidently state that because of this feature, gold will always have some intrinsic value. Men will always desire it and will be willing to trade goods and services for it. This is the very definition of money. When the inflationary tide finally hits, the price of gold will also fly. It might not fly as high, relatively speaking, as silver. But if you are holding any amount of gold you will not be disappointed. I urge you to consider holding some gold.

In the current environment I think it is a very low risk to purchase gold or silver. Yes, the price will fluctuate daily as a consequence of any number of things that hit the news. Forget about that high-frequency noise. Look at the longer term. If you buy an ounce of gold or silver for $X today it will very likely be worth about $X a year from now, assuming we don’t enter into the inevitable inflationary spiral by then. But the whole point of buying that ounce isn’t to sell it in a year. You must think instead that when you buy that ounce you do not intend to EVER sell it. Ownership of gold and silver is all about wealth preservation, not about short-term trading profits. Get that whole concept out of your brain. When you put your money down on the counter to purchase that quantity of metal you are going to take your metal and go home and bury it in the back yard (figuratively speaking). You will only take it out in the most dire of situations. But if you find yourself in that kind of dire situation you can believe me that you will be very, very glad that you have some precious metals to fall back to.

Think very hard about this.

By the way, this graph says volumes. I should just shut up and show you pictures in order to make my point. It is particularly interesting if you look at how things have gone since the creation of the Federal Reserve in 1913. Hmmm.

More on the economy

Okay. So the US Treasury is holding its auction and everyone who wants to buy US debt is finished bidding. But there's lots more debt sitting on the table to be sold. So what do we do? Here comes the Federal Reserve to the rescue! In order to obscure the real nature of what they are doing they've come up with a clever term that means nothing. Quantitative easing. Sounds so scientific. But it isn't scientific, it is diabolical. The Fed shows up to the auction window and says, "I'll buy up all the debt you have left." In order to accomplish this they have to literally create money out of thin air. The bank balance of the US Treasury goes up after the sale, the investment portfolio of the Fed goes up by the amount of money they just printed (magically) and everyone is happy. This is an incredible event. I cannot imagine that the Japanese or the Chinese or the oil sheiks are happy about it, at all. One branch of the US government just bought billions of dollars of US debt from another branch of the US government, and everyone pretends that this is a legitimate business transaction. The result is that there are billions of dollars in the money supply that never existed before, until the transaction. This reduces the purchasing power of each of the original dollars, and these foreign countries hold billions of them. I can’t imagine they are okay with this.

Let's pause for a moment to talk about inflation. Let's limit ourselves to ideal systems for the moment. In an ideal economic system with a fixed amount of money and a fixed amount of goods and services, an equilibrium will be reached. The "price" of any good or service in this system will remain stable, because there will always be the same number of dollars to apply to a given amount of goods or service. If the amount of money in the system is increased, but the economic output remains fixed, then the larger number of dollars chasing after the fixed amount of goods/services will ultimately equilibrate at a point where a given amount of goods will require a higher amount of dollars, which we call price inflation. The opposite effect works, as well. In our situation, with the Fed creating extra dollars out of thin air we should expect this to ultimately result in price inflation. Those extra dollars are running around in our economic system and they will demand a price increase so that the extra dollars get "used up". The only other thing to mention here is that this outcome takes a little time to become evident. But it is inevitable. So, here are some facts. The Fed has engaged in quantitative easing, or creating money out of thin air. They will most likely have to continue this because we need to sell $2 trillion dollars of US debt, and there just aren’t that many buyers out there right now. The end result of this activity is that there will be inflation.

But is that the end of the story? Not really. In a beautiful example of positive feedback, higher inflation will result in investors (China, Japan, etc.) who demand a higher return on their investments. That means that interest rates on US debt will have to rise. Which will mean that the US government will have to actually borrow more in order to pay for the borrowing they are already doing (this is not a good trend), and the higher level of borrowing will feedback into higher interest rates and higher borrowing etc., ad infinitum. Making things even worse, at some point the foreign investors will begin to wonder whether the US government is really going to be good for its debts. That loss of confidence in the US government will be a bad thing.

In order to give you the whole picture I must talk a bit about deflation. There are many economists today who are primarily concerned about deflation, rather than inflation. And the fact is that we have been in a largely deflationary environment for the past year, which explains why we haven’t yet seen the runaway inflation that would normally be expected with the introduction of so many new dollars into the economy. Deflation is basically the inverse of inflation, and can be simply defined as the decrease in the available dollars in an economic system to cover a fixed amount of goods and services. In this scenario each dollar becomes more valuable, so the price of goods and services goes down. As we all know, there has been an enormous amount of value destruction in the past year. Housing prices and stock prices have decreased markedly. These price decreases have resulted in the virtual evaporation of large quantities of dollars. To the extent that these realized losses have made their way into the money supply we have experienced deflation. The actions of the US government have been patently inflationary. When combined with the current deflationary environment the observed effect is that things have basically stayed the same as usual.

In theory, and the Federal Reserve is betting everything on this theory, once the deflationary pressure is lifted from the economy the Fed can simultaneously lift the inflationary pressure and we are back to normal and everyone is happy. The fly in this particular ointment is that there is virtually no way that the Fed will be able to stop their inflationary activities. The US government will not suddenly stop spending money like there is no tomorrow. From a political perspective, they cannot suddenly start taxing everyone in sight. They have to maintain the fiction that they won’t raise taxes on the regular Joe. And they cannot entertain a reduction in the services that the nanny state provides to boobus americanus. So when deflationary value destruction ceases to be a predominant force in the economy all we’ll be left with is the inflationary activity of the US government. And we are talking about an inflationary flood that will dwarf anything we have ever seen before in this country. So, inflation is inevitable although it may not be imminent.

What a mess! There are so many things going on right now that affect so many different areas of interest. We have domestic and internation political issues. We have domestic and international economic issues. We have social issues. We have religious issues. Everywhere I look, I see issues. Recently I have begun to wonder whether or not these individual issues can be pulled together to create a bigger picture. Is there something more going on around us, or are these just interesting times, as they say? It is hard to know where to start, and right now I frankly don't know where my musings and cogitations are going to take me. But I feel compelled to try to make sense of everything I see happening. In the interests of full disclosure I must tell you that I believe that there is a "grand plan", that events aren't happening as a series of cosmic accidents. Rather, it is God who "works out everything in conformity with the purpose of his
will" (Eph 1:11 NIV). So for me the real question is whether these days are close to the time when he starts wrapping it all up. Let's see what I come up with.

In light of recent events I think I'd like to start with the economy. That is a pretty big topic, so it will take a few paragraphs to get through it. If I start to bore you with details that you're already comfortable with, then please feel free to skip ahead. As we all know, the economy is in the midst of a recession. What isn't talked about to broadly here in the US is that this recession is being felt around the world. Global trade has been hit hard. Banks around the world are failing and those who are still in business are not eagerly lending money right now. So business, in a global sense, is have a really tough time. Adding to the mix, central banks are pretty much
all spending money like drunken sailors. And given the fact that there is not a single nation anywhere which has a currency tied to a hard commodity (such as gold or silver), we are looking at a global situation that has no historical parallel. The entire world is ripe for a cataclysmic financial disaster where confidence in paper money is lost universally, causing widespread disruption of trade and commerce. I don't think many Americans think about this very much, but the fact is that most of us, a huge majority of us, live far from the land, so to speak. I'm not so much thinking about distance in miles traveled as I am thinking distance in economic terms. Do you know how dependent you are on global and local commerce to make sure that there is bread and milk and eggs and vegetables at your local supermarket? Next time you're in the produce section take a close look at the labels on the goods. Lots and lots of fresh food comes to us from far, far away. Think about the consequences of global economic disruption on an historic scale.

Moving on, I'd like to explore a little more deeply the impact of current US economic policies on our currency, world trade and our way of life. The US government is spending money at a staggering rate. It is spending money that it has not collected in taxes. How is this possible? Well, they borrow it. The most obvious question to ask, then, is "Who has that kind of money?" Because we are talking about trillions of dollars, with a T. I'm about to explain, in simplistic terms, how the US government gets the money that they then go out and spend. You might recall hearing on the news about something called a Treasury Auction. That is something held on a regular basis where the US Treasury sells bonds, of varying lengths of maturity, to whoever wishes to buy them. Some times there is a high demand for these bonds, some times there isn't such a high demand. When the demand is high, the bonds will sell for a higher price, following the law of supply and demand quite faithfully. When the demand is low, the bond price goes lower in order to elicit enough demand to get all the bonds sold. The interest rate that the bonds pay is inversely related to price. So higher bond prices (caused by higher demand for those
bonds) bring about lower interest rates and vice versa. In order to make up the gap between the money the US government takes in through taxes and the money the US government spends on various programs the US Treasury sells bonds. This gap is what is called the deficit. In the current fiscal year the deficit will likely come out to be close to $2 trillion dollars (if not more, as some believe). That is more than 3 times greater than any previous deficit in US history.

So how on earth will the US government be able to sell that many bonds? In all likelihood they won't be able to, at least not to anyone else. But I'll get to that later. First of all I want to talk about foreign reserves, balance of trade and the world's reserve currency. Maybe you've heard that the US dollar is the world's reserve currency. What does that mean? Simply, it means that international trade is settled in terms of US dollars. When a farmer in Argentina sells a boatload of wheat to China, someone in China deposits US dollars into the farmer's Argentinean bank account. In the simplest of terms that is what it means to be the world's reserve currency. So for the last several decades it has been advantageous for foreign countries to hold some US dollars, because this made it possible for them to conduct international trade more easily. The US dollars that are held by these countries are what is referred to as foreign reserves. Some
countries have lots of foreign reserves (Japan, China, the Arab oil countries). These reserves have built up over time because they have enjoyed a positive balance of trade with the US. In other words, we bought more from them than they bought from us. So they ended up with
excess dollars. Their problem then becomes one of where to put those dollars? Along comes the US Treasury with such a deal!

For the last several years these countries with excess foreign reserves (excess over what they need to support their level of international trade) have showed up at the US Treasury Auction to buy some good ol' US Treasury bonds. Why not? The US is a stable country, they pay their debts, essentially it has been considered to be an investment of zero risk. Well, not so much anymore. Lately two things have been happening. These foreign buyers of US debt have been buying less and they have been buying more on the short end of the maturity curve. Let's look at the maturity issue first. What is the long term consequence to the US if more and more of it's outstanding debt is of short maturity? Well, when the bond matures in 1 or 2 years it is usually rolled over into another bond. When this happens the new bond may carry a different interest rate, which might be higher or it might be lower. In case you haven't been paying attention to these things, the current interest rates for US government debt are about as low as they have ever been in history. They are about as close to zero as they will ever come. So which direction do you think is the most likely one for those rates to go in the future? If you said, "higher", then pat yourself on the back. You've obviously been paying attention. So this interest rate risk presents a future problem for the US. If rates rise, which will likely happen because of poor economic conditions, this will be a double whammy that will only serve to make the bad situation even worse.

But the other thing that is happening right now is that the foreign countries with money to spend are actually spending less at the US Treasury Auction. There are a couple of reasons for this, but the reasons are less important than the consequence that results. Let me just touch on the reasons. First of all, because of the current global economic slowdown, these foreign countries have fewer US dollars to spend at the auction. They already hold billions of dollars of US bonds, but their current income of US dollars has dropped because of the global recession, so obviously they are spending less at the auction. The second cause is more troubling. These countries are now beginning to wonder if it is such a good thing for them to be buying US debt. They are wondering if it really is such a zero-risk investment. In fact, some of these countries are beginning to divert some of their excess US dollars into a stockpile of hard commodities, such as copper or iron or gold. This is really happening, right now. I believe that the trend will increase, rather than decrease or stay the same. It doesn't work out well for the US.

It is time for a recap. The US is spending more money than it has. It is borrowing the excess from foreign countries who have extra dollars to lend back to us. The amount of money that the US needs to borrow in the future is huge, compared to what we've borrowed in the past. The amount of money that foreign countries have to loan us (or are willing to loan us) appears to be decreasing, rather than increasing. This is not good.