From Japan: An Interesting Comment On US Economic Planning, the Dollar, and Peak Cheap Oil

I shared a copy of this video with a friend in Japan earlier today.

Prof. Jeffrey Sachs of Columbia University on the Obama Budget

I received his reply, and it was much more interesting and insightful than I had hoped it would be.  Certainly a perspective that I have heard in none of the US based commentary today, a much longer term and more strategic view. 

I am sure there are plenty of problems which Japan faces that we could discuss.  It has an aging population, very low birth rates, heavy dependence on imports, and a weak military capability.  Its ability to attract and successfully assimilate immigrants is a challenge.  Every country has problems.

I am not quite sure I know the answers about peak cheap oil. But what I think I know is that the challenge to the US is an inability or an unwillingness to think and execute strategically, ie. long term, in non-military matters.  I believe this is a result of its system which is heavily oriented towards short term economic incentives, regional military conflicts, and financial speculation. 

The idea that you would allow what are essentially short term financial speculators to make important public policy decisions with far-reaching, long term consequences seems unusual or even lunatic in most parts of the world, and is certainly not a trend in historically successful organizations.

Within the metrics of energy and infrastructure, the US government is playing checkers in a game of Go.   Its greatest leverage now appears to be an ability to kick over the global economic playing table in an act of self-destruction.  And that threat is wearing thin.


A Japanese perspective on the US budget:

"Unfortunately, the risk of the whole ponzi scheme crashing sooner rather than later is going way up, rapidly.

They want the dollar to go down by 40%, but I think they are going to lose control, and they might wind up with a 90% panic drop in a few months.

As I said, Japan, around 1995, went into a full peak cheap oil panic. A lot of the government borrowing went to what is characterized as "building bridges to nowhere", but I would characterize it as building some bridges to nowhere, building some airports in nowhere, and fixing the entire rail and road infrastructure of the country.

All the bridges and tunnels have been steel plated reinforced, all the bridges are in perfect repair, and the Shinkansen system will next month be extended all the way from Aomori to Kagoshima.

In other words, I think they knew this 15 years ago and did everything that requires a lot of energy, such as steel, asphalt, cement, and completely the public transit infrastructure. The per capital floor space in Tokyo was doubled.

So, if we really do have a decade of serious energy problems coming, Japan has become about as energy efficient as it can be, with further improvements coming as appliances are replaced, etc.

The US has done nearly nothing, although I did note that the gasoline use declined by 7% in one year. There really is a lot of squandering going on. Now, however, the US needs to completely reconstruct its infrastructure, and it doesn't have the money or energy to do it.

This is why I have thought for more than a decade that the trigger for a really nasty collapse of the dollar would be peak cheap oil.

Do they realize that if the dollar drops by half that oil becomes $200 a barrel? Gasoline would be over $5, and the country would be paralyzed. If the dollar drops more than that, the existing infrastructure would become nearly useless and worthless.

I am afraid that the US has already passed the point of no return.  Had the cheap oil continued, the ponzi could have continued for a good while longer.

I think the realization that the cheap oil is gone is the primary motivation for the smash-and-grab behavior we are seeing in the US."

Perhaps, and it might also be the rationale for the increased military presence surrounding the largest known cheap oil reserves in the world.

Gold Daily and Silver Weekly Charts

As suggested it would, silver led gold higher today. The tension in the physical market is evident in soaring lease rates. At some point silver is going to break and run higher, but it may take some patience. But when it runs it could turn out to be a Nantucket sleigh ride.

As a reminder this is option expiration week for US equities, so there may be some gaming in the mining stocks that are favorites amongst the punters.

Blythe Masters and the JP Morgan Silver Shorts --- Club Américain ReMix



In the Comex pits no one can hear you screaming...

SP 500 and NDX March Futures Daily Charts: Option Expiration and Brave New Bubble

More melt-up trade on thin volumes, not indicative of confidence, but mere momentum trading by gambling hands holding hot money courtesy of the Fed.

The market is now entering bubble territory, being artificially driven too far and too fast. Once again the Fed and Treasury are trying to use Wall Street to create a recovery in the real economy rather than reflect or even anticipate it. This sort of trickle down economic quackery has failed twice so far at least, generating bubbles that are followed by even more severe declines.

The US is caught in a credibility trap. They cannot perform effective change without admitting the corruption and placing the powerful status quo at risk. So this will continue until there is an unavoidable crisis.

Well as should be clear from the last few days of monetary mumbo jumbo, to the modern economic mind perception is everything and the truth is what we say it is. It does not matter if you feel good and are healthy, as long as you look good. And the pervasive accounting frauds have made the US economy look better than it is.

After the bell FedEx lowered its forecast based on the rising cost of fuel.

JP Morgan placed a downgrade on Wal mart.

I cannot help but wonder what games will be played on this option expiration in such a thinly traded, over inflated market.

The way I would tend to play this market is hedged or flat, or very cynically short term if I had a mind to that sort of thing.  

Wait for three down days to play for the short side or a break of key support, or some unavoidable trigger event that reveals the hollow nature of the recovery.

As a reminder this is option expiration week in the US equity markets, so expect a lot of short term 'technical trade.'

Jeff Sachs of Columbia University Just Made My Day

And here is the video clip:

Jeff Sachs Comments on the Obama Budget

Bloomberg Television has been airing corporate talking points (euphemism for propaganda) on the proposed US Federal budget all day.

Around 3 PM New York time today Professor Jeffrey Sachs of the Earth Institute at Columbia University came on Bloomberg live to purportedly talk about food costs.

He just left the anchorman Matt Miller yammering and speechless when he was asked about the budgeting process. He did not reach Jon Stewart stature, but as academics go he was quietly and remarkably blunt.

"Laffer Curve is nonsense."

I am looking for a transcript or a video clip of this. It was classic. I doubt he will be invited back. Ever.

OMG I am still laughing at the look on the anchors' faces. Carol Massar was stammering but pink shirted Matt Miller, spokesmodel for the pampered princes of Manhattan, looked like some Bowery bum had just urinated on his motorscooter.

Priceless!