Beware the economic tipping point.

 ONCE THE RECKONING BEGINS, IT MAY BE BEYOND CONTROL

OIL, INFLATION, BOND YIELDS SPELL TROUBLE

 

Yesterday we saw bond yields rise to 4.86 % on the ten year and 5.31 on the 30 year, this indicates a reluctance of investors to continue to finance the US debt. 

 

Oil prices are again near $100 and gas was $4.59, diesel well over $6. Heating oil will further reduce the ability of some to keep up. The war in the Gulf is expanding and escalating and the reserve supplies near exhaustion.

 

We can expect inflation to soar, no matter the indications released by the government. 

 

The underlying real problem, as in every economic decline, is massive overwhelming debt. Debt in government, particularly in the western world, corporate debt, private equity debt and household debt is at a level far higher than in 2008. The costs and inflation and proposed government spending and deficits will add to this mixture to create a very possible tipping point that once underway may be impossible to stop.

 

Bond yields are increasing because some believe the government cannot manage the debt and also because the gulf countries and others suffering from the oil crisis need to raise money by selling US debt.  One wonders how this can be reversed? The interest on the debt is going to skyrocket and financial shenanigans will not keep it under control.

 

Rising oil prices, especially diesel, will trigger possibly the biggest rise in inflation yet, especially in basic necessities. This will curtail current spending and inevitably lead to a domestic economic slowdown and possibly an inability to service domestic debt. A massive snowball effect that once started cannot be stopped until it is expended.

 

The US has had a policy of reversing every slowdown with massive injections of money into the system, 2008 almost became out of control but debt was never really liquidated. Can they actually find a way to inject massive amounts of cash into the system again, without exasperating every above problem?

 

Only a quick change of direct could possibly forestall this, and end to war and a resolve to control deficits. It looks like neither will happen. I suspect we are about to go for the ride of our lives. 

 

 

 

 

 

1970's decisions, roots of US decline.

 CLEAN AIR ACT AND OPENING WITH CHINA

DEFICITS, WEAKENED DOLLAR, FOREIGN COMPETITION 

 

I earlier related the 1971 decision to unlink the dollar from gold, https://www.blogger.com/blog/post/edit/219171338015504465/7906932903235858989 , this action coupled with the beginning of constant yearly budget deficits was pivotal in the weakening of the US economic system.

 

In 1970 congress passed the "Clean air act", a measure to end air pollution in the United States, while a worthy objective, the measure set objectives to be reached by 1975 that were almost impossible for most companies to comply with.  Rather than a phase in for expansion or new builds it laid a heavy burden on often small and intermediate sized companies that could not be reached. This coupled with the reemergence of foreign competition which were recovering from WW2.  

 

I worked at the Emmaus foundry in 1972 as the company spend large sums attempting to comply, but it seemed to be perusing a moving target as regulation were demanding declines by dates rather than by possible compliance, the company closed in 1985, as did many thousands of foundries in the nation. As the foundries died so did the machine shops that finished these products. Castings soon were purchased oversees and often came in as finished products. Much of these products were outsourced to Canada and Japan.

 

In 1968 Bethlehem steel, that once had 30,000 employees, upgraded it main furnace in Bethlehem to an oxygen furnace, the build was accomplished by many thousand of construction workers.  In 1970 the company was at its peak of production and also spent millions in upgrading other plants. By 1975 foreign competition, legacy costs and continued regulation caused a decline in production and the blast furnace was shut down in 1995. The company was dissolved in 2003. 

 

This scene was played out all across the country. First Japan and then Chinese plants  unburdened by regulations, decimated the ability of the United States to produce the foundation for a strong manufacturing base. All the supplies and related machine shops disappeared at the same time.  The cost of rebuilding such plants is prohibitive and also the knowledge of production has slowly died and is no longer available. 

 

At the same time Nixon's historic visit to China in 1972 opened the way for China to be assimilated into the world economy. A massive population, much of it in poverty, Chinese history of innovation and now a market for their goods moved China into the modern world.  Nixon hoped to use this China initiative to wean China away from any cooperation with the Soviet Union. China in fact often followed the policies of an earlier time in the US to grow its manufacturing base, food production and now is the number 1 country in manufacturing, ship building and most innovation. It seems the politicians of the 1970's rested on the vast US economy built in former times assuming it would always be the case, no matter the policies pushed by both parties. Many still do not recognize that the US is no longer the economy it once was but has become a country of financial transactions rather than production, fueled not be wealth creation, but deficit spending and a continuing expansion of the money supply. There is little investment left for massive rebuilding as it is tied up in a $40 trillion debt of past spending.

 

The US cannot be restored by force or intimidation or more financial shenanigans, but only a rebuilding of basic industries and a sound financial policy. Sadly the majority of our leaders have no knowledge of making things, no understanding of wealth creation, only spending and money transfers. Our enemies are not in Russia, China or Iran, but right here at home. 

 

 

 

 

 

Ukraine rejects latest peace plan.

 NO PEACE ANYWHERE ANYTIME SOON

WARS MAY CONTINUE FOR REST OF YEAR

 

The latest peace proposal was rejected by Ukraine. It seems the Russians anticipated that this would be the answer and gave little credence to the plan.

 

The plan was similar to other offers in the past, Ukraine would step back from Donbas, UN peacekeepers would mange the confrontation line. Ukraine would have UN supervised elections and then would agree to a neutral military status with no NATO or other military alliance. That is the basically what has been on the table since Anchorage, but now future Ukraine would be smaller. 

 

We can expect that the EU does not support such a plan. In fact they seem to still be talking about going to war with Russia. The UK, Germany, Norway and Finland have upped their Civil defense ads attempting to prepare their populations for attacks from Russia. This week Finland attempted a civil defense drill by ordering 2000 residents to show up at a mass shelter and it seems 100 actually showed up. it seems the population does not feel as threatened as the politicians. They claim that Russia is at a stalemate in Ukraine. but must prepare for an attempt to invade all of Europe.

 

Finland's ruling class is concerned that since they joined NATO and agreed to US bases in their country, Russia is building bases expected to house 70,000 troops on their border. They are also perplexed that Russia has restricted economic trade and generally ended decades of economic and social interaction. No one seems to understand that military alliances pose a threat to their neighbors.

 

The political landscape of Germany is changing with big loses for the present government, much of it fueled by the present governments talk of war with Russia and major efforts at rearmament. The UK and France are also encouraging Germany to rearms, Dejavu all over again.

 

Iran demonstrated a new anti-ship missile that should be warning concerning escalation.  They have also made it clear that they will step up enforcement of the control of the strait.

 

Cooling temperatures in the gulf may make the possible ground action look more enticing. No sign of peace anywhere, escalation is more likely. 

 

 

 

 

 

 

 

Next step, Ground action?

 INDICATIONS OF GROUND ACTION IN IRAN

HOPING FOR POLITICAL SALVATION? 

 

There are increasing indications that some type of ground action against Iran may be on the horizon. While an all out invasion would require hundreds of thousands of troops and months of logistic support, a targeted or limited attack may be the next escalation option. 

 

There are reports of reserve forces being moved to the middle east and also a redeployment of troops out of Poland to an as yet not disclosed destination. With airborne and marines already in the region and we should expect with a limited time line after already being there for months. It is looking like some type of action may be coming and before the upcoming elections.

 

Netanyahu has been pushing for some type of ground attack for some time and with elections coming in Israel, more war will hope to keep himself in power. 

 

Trump is looking for some type of per-election win and may feel that this is the next roll of the dice to rally support. 

 

Iran may feel that a bait and bleed strategy will keep the population focused and give its military an opportunity to shed US blood. It would not be hard to entice a raid by leaking plans on nuclear implementation or some weak area of opportunity.

 

The recent division in the US military has had to do with proposed ground actions. It seems much of the military opposes this options, as it has for decades. They also opposed the war, but political considerations overrode that advice.  

 

With the political positives possible for all three combatants and time running out on fuel prices for the US, political risks for Netanyahu and a need for Iran's leadership to keep the population engaged, ground action is very possible, very soon.  

 

 

 

A brief history of money.

A BRIEF HISTORY OF MONEY

Money, we are all familiar with it, most want more, some to the point of  excess. It has been described as the, "Root of all Evil".  Realistically, we do need a certain amount, but I would like to talk about a simple brief history of Money.

Originally, most financial transactions were a form of barter,"I'll trade you a goat for that woven shirt that one of your wives made". Or,"I am tired of goats, how about we trade for some of your sheep". This all worked out well and good, but eventually someone got the bright idea of converting wealth to some form of exchange.

There is some record of salt being a form of exchange, or round stones with holes,  but most items were quick to lose their value when someone either found a pit with enough salt to flood the market or a method to mass produce stones with holes.

Eventually they settled on gold and silver as a form of money. Early records show that, as early as 2150 BC, the Shekel and Talent were used in the middle east, These were measures of weight,  A shekel was .36 of a troy weight oz. A Talent was equal to 60 manehs and 3000 shekels. This standard of weight was used by Egypt, Babylon, Phoenicia, Greece, Persia etc.  The ratio was 15 shekel's of silver = 1 shekel of gold.  Everyone had a balance scale to do business.

Finally, as governments grew and became more sophisticated, the minting of money began. This consisted of coins which were of a standardized weight, usually embossed with the image of  the King or individual in power at the time. It made trade much simpler and must have caused a recession in the scale business.

As is usually the case, it did allow for some skullduggery, clipping and shaving of coins was known to happen. Then Kings sometimes made the coins smaller with the same designation. This may have been the first form of Government endorsed inflation.  "Honey, were did we put that old scale?"

Interestingly, the size and weight of coins varied over the years, but the ratio of gold to silver was fairly constant from 500 BC up to the 20th Century.

Biblical  times-  12-1             Rome          12-1         Europe     0-1492        10-1

Early Greece      13-1             Early Japan  8-1                          1492-1834   15-1

Alexander          10-1             Early China  12-1        England                       16-1

The United States settled on the ratio of 15-1  The Constitution stated that all money was to be gold or silver coin.

O course, we have been talking about gold and silver coins. What about paper money?

In medieval Europe, gold and silver was the medium of exchange. When someone had a little more than needed for survival, they often placed it with a Goldsmith, who had a natural need for security in his business.  He would account for their items and give them a receipt.  The Rothschild's started out this way.  Humans sometimes being a little lazy, and not too careful about things, began to exchange the receipts for other goods and services and leave the gold with the goldsmith.  Goldsmiths, who were a little sharper than the average person of the day, soon realized that his receipts were as good as gold, and no one knew how much gold he really had stored for people. He was able to purchase Real-Estate, finance explorers to the new world and many other endeavors with his own receipts that did not represent gold in his possession. I could expound forever about how they used this power, but I will resist.

There were many known instances were these early bankers got a little too greedy, rumors circulated that there was more receipts than gold, and a run for their gold started.  When they could not produce the gold,  he might have been found hanging somewhere.

Remember, Politicians and Governments always take note of a good idea to increase their power and wealth.

Early paper money was a receipt for a weight of gold or silver, In the USA. a silver dollar was .7734 troy oz. of silver.  20 silver dollars could be exchanged for 1 Oz. troy of gold, a $20 gold piece. This was a ratio of 15-1. I personally remember silver certificates, which were supposed to be redeemable for 1 silver dollar. Up to 1934 you could exchange a $20 bill for a $20 gold coin. The US dollar had the reputation of being, "as good as gold". The gold-silver ratio today is 72-1.

In 1914, with passage of the Federal Reserve Act,  money no longer represented an asset, but would now represent Government debt. A promise to repay by the government.

In 1934, President Franklin Roosevelt, by executive order, ordered all citizens to turn in their Gold Coins in exchange for paper $20.00 bills. Private possession, or exchange of gold was outlawed. When the government decided they had confiscated all the gold they were going to get, they raised the price of gold to $35.00 oz., this was used for trade between countries. Those wonderful paper dollars they exchanged with the citizenry just became worth 43% less than the gold coins they exchanged.  Citizens were threatened with $10,000 fines and 10 years in jail for not cooperating.  Gold ownership was again legalized in December of 1974.

Silver still circulated as coins till 1964,  when they were replaced by alloys with no intrinsic value.

So now all money that exists, has  no intrinsic value, but only the confidence that someone else will exchange goods and services for it. While there are many instances in modern history where that confidence evaporated, so far most people are still willing to accept modern currency.

Currency itself is now in the process of being replaced with electronic currency, Bitcoin, Debit and Credit cards etc.. Endless possibilities, that will make the ancient clippers, shavers and dishonest goldsmiths envious.

originally published Oct. 12, 2015

It appears we are now coming to the end of fiat currency era, that is currency without any real built in value. What will replace it is yet to be seen. Big government would of course love to have currency that is just a digital entry, that they could manipulate, block, or devalue with a click of a computer. It seems some of the world is exploring another option that would be some form of real money. There is one of those age old truths that good money will always drive out bad money. That is true as long as there is an option of good money available. I expect we will seeing the new options in the near future. 
5/8/23

We now see the plan to introduce a central bank digital currency. Indeed, a monetary unit without any intrinsic value, unable to be held personally. It will allow governments to view every transaction, determine what transactions should be allowed, confiscate all wealth with the click of a computer key and in effect give government ultimate power over the people. It will be the end of all freedom of choice in a free market. It will give government the ability to tax, inflate, confiscate and dictate what can and cannot be traded. It will create all kinds of methods to avoid this trap and will be accompanied with the penalties to enforce that this is the only alternative money.

8/24/23

We can expect the unsustainable debt and deficits of the United States, accompanied by the desire of other countries to flee the use of the dollar, to reach a crisis in the near future. It is very likely that it will soon be clear that this debt will no longer find those willing to risk this haven for their real money. We can expect schemes to rescue this situation with possibly forced investment by IRA and 401's into U.S. debt or a sudden crisis followed by the end of this current fiat money system. We expect the cure to be total control of all assets.

5/3/2024

The EU is pushing to get its CBDC launched this year. As the debt situation in most of the western world is escalating many predict some sort of reset of the financial system. It will most likely be preceded by a debt crisis and then the roll out of the promised solution.

9/27/2024

We now see flight from U.S. bonds from countries around the world. It seems that interest rates are now possibly needed to rise to sell this debt. Those liquidating U.S. debt seem to be buying Monetary metal. The answer to shoring up the U.S. dollar and debt market is a balanced budget. With a $2 trillion deficit either raising taxes or cutting spending will cause a economic recession at best.

1/14/25

The purpose of this article is to hope to make people aware of what money is supposed to be. A store of value, an asset, not an instrument of manipulation by governments. 

3/17/2025

Gold is now $5200 an oz. silver $89.00 an oz. 57-1 ratio. No balanced budget in sight by any pollical party. The debt and deficits are unsustainable. The flight from fake paper money around the word continues.

2/27/2026

Debt continues to rise, gold and silver rise has paused during this Iran war, but the western banking and currency system is unsustainable. I reprint this with the hope that more will understand that money should be an asset under your own control.

6/1/2026

Bond yields approaching crisis levels, accelerating trade war all indicate some sort of changes to money in the future. Only sound real money can insure steady predictable prosperity and security. At present there is no real government issued money in existence.

9/3,2003 

Are energy prices and inflation about to escalate?

 NARRATIVE WILL NO LONGER CONTAIN ENERGY PRICES

WE SHOULD EXPECT MANY NEW RECORD HIGH PRICES 

 

The latest escalation of the conflict in Iran, coupled with the energy wars in the Russia/Ukraine conflict are now about to move costs to the next level and possibly actual shortages. The biggest increase are in diesel and heating oil. Today diesel is over $6.00 gallon and heating oil is at $5.20 a gallon. This is a result of the continued conflict with Iran and the damage being inflicted on western Russia's refining capacity.

 

Much of this has to do with refined products, especially diesel and aviation fuel. Much of these products are refined outside the United States and Russia has discontinued the export of Diesel fuel. Russia, even today, was still a producer of Diesel fuel for the United States.  The rise in diesel fuel prices will result in higher prices for everything, from food, every product that is transported, it will increase inflation and probably interest rates.

 

Bond yields exploded with the 2yr now yielding $4.40 %, ten year 4.81 % and 30 yr, 5.28%, this will dramatically add to the US deficit just in servicing its debt that is rising by the day. We may be on the precipice of a debt spiral that will bring down the world economy. Speeches, and optimistic narratives may no longer be effective. The realities of basic math will always overcome empty words.

 

While the G20 was an exercise in political gamesmanship the other meeting in Kyrgyzstan of the Shanghai cooperation Organization, SCO, was optimistic that their members will prosper with mutual cooperation. The presidents of the biggest members, Russia, China, India and Iran  with 8 other members and 15 associate members represent 40% of the worlds population and 25% of the worlds GDP. Their agenda was a multi polar economic alliance that is independent of the western economic system.

 

This meeting precedes the bigger more diverse BRICS meeting coming up Sept 12-13 in New Delhi. It will have a similar goal of cooperation and a multi polar economic system. All these nations have refused to cooperate with sanctions and other economic warfare. The sad reality is that endless war and economic sanctions have increased cooperation and which is in effect isolating those who have engaged in those practices.  

 

Hopefully the west will realize that it cannot control the world by force and intimidation and it is possible for coexistence and mutual prosperity. 

 

 

 

 

 

 

Venezuela oil, A deal they could not refuse.

 THE OIL WARS CONTINUE

"THOU SHALL NOT STEAL", STILL RELEVANT TODAY 

 

It seems there is much celebration about the US just increasing IT'S oil reserves by 65 billion barrels. A so called "historic deal" that transfers the ownership of Venezuela's oil to the United states or to whoever it will designate. This contract is for 25 years. 

 

The acting president, Delcy Rodriquez has signed the deal without any vote by the population. She is an acting president and one wonders if she would be considered authorized by international law to even make such an agreement. It is very likely she was given the choice of taking the gold or getting the lead. I recall that she was publicly told that if she did not cooperate, she would face a fate worse than Maduro, who is in jail in New York.   

 

I suspect the other nations in South America took notice, maybe that is the point. I also suspect that while all seems quiet in Venezuela and the southern region, history has proven that such abuses have consequences that may be beyond estimation. While Maduro was a controversial president, as was Chavez, they were both elected by the people of Venezuela, democracy in action. Of course, election irregularities were claimed, and maybe true, but the reality is both were very popular, with near half the population. We can assume many of those are not happy at the moment, and when the time comes to actually put feet on ground to start pumping oil we may very well see a new insurgency from within and maybe from without to show the displeasure of people of the south.

 

We will have to see, but it is doubtful that this taking will not have repercussions, The commandment, "Thou shall not steal" applies to nations and not only individuals and the punishment usually come in this lifetime rather than later.