Gary North On What Makes An Economy Grow, The Real Rise in American Debt, and the Where Oil is Headed

Gary North is out this weekend with another great article entitled Enemies of the Middle Class.  He provides links to a number of surprising things such as a new Quinnipac University Poll which shows that 46% of Americans think a federal government shutdown would be a good thing while 44% think it would be a bad thing.  Strange how I have never seen this statistic anywhere in the mainstream.  North also provides a link to the Federal Reserve Board's ratios on household debt dating back to 1980 which basically disproves all the talk of American's debt accumulation increasing an exorbitant amount within the past three decades.

Elizabeth Warren has no clue as to how the labor market works. She also has no clue about how the debt markets work. She blames the bankers for the extension of credit to consumers. Oh, woe! The poor, exploited consumers!


What these people never refer to is the Federal Reserve's published statistics on the household debt burden. It is titled, "Household Debt Service and Financial Obligations Ratios." This information is updated every quarter. What it shows is this: since 1980, there have been only marginal shifts in the percentage of monthly after-tax income allocated to debt repayment. Let the Federal Reserve describe the statistic.

The household debt service ratio (DSR) is an estimate of the ratio of debt payments to disposable personal income. Debt payments consist of the estimated required payments on outstanding mortgage and consumer debt.

Let us look at the numbers. In the first quarter of 1980, a recession year, the DSR for a home owner was 16.04%. For a renter, it was 24.74%. In the third quarter of 2010, the respective figures were 16.78% and 23.99%. So, for home owners, it was up by a fraction of a percentage point, and for renters, it was down a fraction of a percentage point. Big deal.

Did You Know what actually makes an economy grow?  Gary North explains:

What makes economies grow is this: (1) private ownership, (2) future-orientation, (3) capital formation through thrift, (4) technological innovation, (5) a system of profits and losses, (6) low taxation, (7) free trade at every level, (8) the enforcement of contracts, (9) honest money, (10) the reduction of envy. This list can be boiled down into three phrases, all of which have been dominant in the history of the United States.

1. Live and let live.
2. Let's make a deal.
3. Mind your own business.

The American middle class has seen its progress blunted ever since 1973. There are reasons for this. (1) present-orientation, (2) capital consumption through reduced thrift, (3) government-capped profits and government-subsidized losses, (4) rising taxation (Social Security), and (5) dishonest money (no gold exchange standard after 1971).

Now with Bloomberg reporting Libyan rebels have taken control of the town that contains the country's largest oil refinery, the price of near term oil futures and mass speculation will surely push gas prices even higher.  Bloomberg's report:

State television reports that Qaddafi’s troops had recaptured Ras Lanuf overnight were false and designed to “bring down the morale of the youths,” el-Sayeh said. The rebels today remained in control of the port, which regime forces shelled with rockets and artillery, the AP reported.

Rebels yesterday took control of Ras Lanuf, 400 miles east of Tripoli, where they shot down two helicopters and a fighter jet. The town has a tanker terminal that exports about 200,000 barrels of oil a day. It also contains Libya’s biggest refinery, with a capacity of 220,000 barrels a day, more than half the country’s total output, according to the International Energy Agency.

 Zerohedge provides these great charts to show crude's progress:

Not to worry though, our saviors in the federal government will come to the rescue:

"White House Chief of Staff Bill Daley said on Sunday the Obama administration is considering tapping into the U.S. strategic oil reserve as one way to help ease soaring oil prices." Speaking on NBC television's "Meet the Press," Daley said: "We are looking at the options. The issue of the reserves is one we are considering. ... All matters have to be on the table." There has been support among Senate Democrats for tapping the reserves. Senator Jay Rockefeller on Thursday became the third Democrat to ask President Barack Obama to tap America's emergency oil supply to cool prices that have risen past $100 a barrel on the strife in Libya."

Zerohedge once again pops the optimistic bubble:

But the biggest issue that nobody is considering, is that the maximum total withdrawal capacity is physically limited to just 4.4 million barrels per day. In other words, should the MENA escalation flare up, there is no way to physically replace all the lost output.

And now China's buildup of crude reserves is starting mass speculation as well:

When China finishes filling its reserve, which it is expected to do by 2020, it will hold about 500m barrels, equal to roughly three months of imports and the second-largest stockpile in the world.

China’s strategic stockpiling “is likely to be a feature of the global oil market not only this year but this decade”, says Soozhana Choi, head of Asia commodities research at Deutsche Bank in Singapore.

Although purchases are kept secret, analysts and oil traders believe that events in Libya and the prospect of further supply disruptions in the Middle East could boost strategic buying of crude. 

"With the expectation that prices are going to rise, they will accelerate the pace of tank-filling,” says K.F. Yan, director at energy consultants CERA in Beijing.

Looks like we didn't need a carbon tax to drive up the cost of gas and spur green technology creation after all.