Byron King

I try to avoid getting too “political” in the Outstanding Investments pages, aside from my rants about issues affecting energy policy, resource policy and the like. So today I’m just going to quote my friend James Kunstler, a longtime Democrat and supporter of Barack Obama in the recent election.

Kunstler recently published comments on Obama’s March 22 appearance on 60 Minutes. According to Kunstler, Obama “may perfectly represent the majority who elected him…because he also appears to be in full-commanding denial of the realities overtaking our American experience. Those realities include the fact that we can’t possibly return to the easy-credit and no-money-down ‘consumer’ economy, no matter how many nominal dollars get shoveled into the fiery furnaces of banks too big to fail.”

After describing the economic policies coming out of Congress and the new presidential administration, Kunstler continues: “Lending on the scale that became normal over the last decade is, for sure, the one thing that we will not recover. We turn around in 2009 to find ourselves a much poorer nation than we thought we were a year ago, especially among that broad range of formerly middle-class wage-earners who lived so luxuriously until yesterday. The public can’t process this reality, and the president, for all his relaxed charm, is either not ready to articulate it, or can’t process it himself.”

Kunstler describes the process of the Fed releasing new currency – created out of thin air – to buy up Treasury debt. He comments: “It would be sententious to explain how this destroys currencies, but wherever ‘monetizing debt’ has been tried before in history, that is the outcome. The result would be ruinous at every level and would lead straight to the second terrible force: social upheaval brought on by the conversion of economic problems into political turbulence.”

In my view, Jim Kunstler is exactly on target with his comments. I’m watching the shenanigans in Washington with something approaching utter fear. It’s why I’m recommending investments in gold and energy plays.

I’m truly worried about our future. The things that are going on in the U.S. economy are not sustainable, and I don’t just mean “happy motoring” into the Peak Oil future. The whole economy is on the edge. I don’t see anything on the political or policy horizon that offers any semblance of hope. Nothing. It’s just spend, spend, spend. Borrow, borrow, borrow. And tax, tax, tax.

What’s in all of this for you? What’s in it for me? A lot of inflation, most likely. That’s why you need to buy gold with 5-10% of your portfolio. And have more of your portfolio in good, solid mining firms.

Building on Kunstler’s comments just a bit more, the Obama economic policy assumes that someone out there will still buy U.S. Treasury paper. But will that happen? The best customers for U.S. debt are distinctly unenthusiastic about adding to their holdings.

The Chinese already own a trillion dollars or so in Treasury bills that are depreciating in value. Besides, China needs a continent full of new infrastructure, plus social spending for 1.3 billion people. And don’t forget the new navy China is planning, with which to police its interests from Africa to the central Pacific Ocean and onto South America. All of this will sop up funds China once used to buy U.S. securities.

Another large traditional customer for U.S. debt is Japan. But Japan is running a current account deficit. It lacks the large numbers of dollars to recycle.

In the Middle East, the petro-states are no longer receiving a flood of dollars from high-priced oil ($147 per barrel last July). Don’t count on them to buy up U.S. Treasuries.

The bottom line is I don’t know – and I don’t know anyone else who knows – where the buyers will come from to absorb all the new debt that the Obama and congressional spending plans are going to generate. Something has to give. It’s going to be the long-term value of the dollar. I expect to see a lot of fuel poured onto the fires of inflation.

Until next we meet,

Byron W. King
for The Daily Reckoning

Byron King

Byron King is the editor of Outstanding Investments, Byron King's Military-Tech Alert, and Real Wealth Trader. He is a Harvard-trained geologist who has traveled to every U.S. state and territory and six of the seven continents. He has conducted site visits to mineral deposits in 26 countries and deep-water oil fields in five oceans. This provides him with a unique perspective on the myriad of investment opportunities in energy and mineral exploration. He has been interviewed by dozens of major print and broadcast media outlets including The Financial Times, The Guardian, The Washington Post, MSN Money, MarketWatch, Fox Business News, and PBS Newshour.

Recent Articles

Not Yours To Give

David Crockett

One day in the House of Representatives a bill was taken up appropriating money for the benefit of a widow of a distinguished naval officer. Several beautiful speeches had been made in its support. Then Col. David Crockett arose, and spoke on the both nobility of charity and why it has absolutely no place within the government. Read on...


How the American Dream Can Make You 14-Times Your Money

Chris Mayer

Most U.S. citizens subscribe to an idea called the American dream - working hard on a level playing field so you can "get ahead" in life. But that's not what the original "American dream" was all about. As Chris Mayer explains, that term originally referred to a completely different, yet equally important goal. Read on...


The Idea of America

Bill Bonner

America is a country like no other. Comprised of people from all corners of the globe, America exists solely because people chose to become Americans. But what does that mean? And how does it influence the concepts of liberty and freedom Americans feel so entitled to? Bill Bonner explains...


The Rights Trap: Constricted By a Sense of Entitlement

Harry Browne

People tend to believe they are endowed with a few specific "rights" - property, liberty, happiness, etc. Unfortunately, as Harry Browne explains, rights only exist in theory. In practice they don’t accomplish much - no matter how much people may discuss them. Read on...


Tricked on the Fourth of July

Gary North

British North America was likely the freest society ever seen on earth, as long as you were not a slave of African descent. The Fourth of July isn't worth celebrating unless one wants to cheer an unnecessary revolution that ushered in more tyranny and taxation than existed before that revolution's "success".


Demographic Dilemma

Genevieve Lefranc

Our economy, consumer society, and retirement programs are all in jeopardy in the face of a looming demographic dilemma. Read on to learn about the dire situation with pensions and social security, and what you can do to protect yourself...