03/31/09 Pittsburgh, Pennsylvania 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 managing editor of Outstanding Investments and Energy & Scarcity Investor. 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.
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Um, Kunstler only supported Obama after his preffered candidate, John Edwards, self-destructed during the primaries. I read Kunstler every week. Let’s not give him too much credit.
“That’s why you need to buy gold with 5-10% of your portfolio.”
So, what’s the average investor with a small 401K to do when there is no gold or mining option in the employer’s list of investment options? Can this money be protected somehow?
well said…..the moment of dread which i had been fearing for the past 35 years arrived when i saw america elect a community service activist for president….the man in the white house and the boobs in the federal reserve, treasury, and congress are incompetent and crooked beyond belief….
jim willie – yet another financial consultant who seems to be well connected – reports that foreign governments are sooo pissed off at the arrogance and imbecility emanating from washington that they are planning major actions this summer to put america in its place….this is the prerogative of the creditor…..
our lives will change for ever and be much poorer for the socialistic megalomaniac policies we have pursued for the past 100 years…..we were able to defer the day of reckoning for so long because our capital base was so large and we could live like a wanton widow for decades….but the trust fund is empty and the mansion must now be sold for an assisted living condo.
the fruits of radical irresponsible juvenile education have come home to roost. it all reminds me of the captivity of the jews by the babylonians.
Stop with the gold nonsense. Every housewife is throwing gold parties and every other commercial is about gold. Gold is a common metal and nothing of value.
Obama talks realistically his first 3 weeks, you hammer him. He talks positively now, you hammer him.
“So, what’s the average investor with a small 401K to do when there is no gold or mining option in the employer’s list of investment options?”
I agree. I saw the writing on the wall in July 2008 and moved everything in my 401k into the closest thing to cash that the plan offered, so my retirement savings is still mostly intact but I have no idea where to put it, within the limited options allowed by my employer’s plan, once inflation starts to heat up. I’m beginning to think it would be a blessing to get laid off, so I would be able to rollover my 401k to an IRA account of my own with better options.
and another thing. as long as people accept dollars there will be a demand for treasuries. the money to buy them comes from spending, chicken and egg and all that. all government debt does is drain reserves from the system to maintain the target interest rates. trust me they will never spike. ask bill gross.