Doug Case Interview, Bank of Japan Balance Sheet Increase, and Mark Perry Busts the Declining Manufacturing Myth

Not too much news today.  First is a great interview with Doug Casey by Karen Roche of the Gold Report.  Here is an excerpt:

TGR: So, you're saying we're confusing the market's performance with the economy's performance?
DC: Yes. The fact is that the economy itself is doing very badly. The numbers are phonied up. I spend a lot of time in Argentina. Anybody with any sense knows you can't believe the numbers coming out of the Argentinean Government Statistical Bureau, nor can you (any longer) believe the numbers that come out of Washington D.C. The inflation numbers consider only the things the government wants to look at and are artificially low. It's the same with the unemployment numbers. None of these things is believable.
TGR: Isn't the unemployment figure a lagging indicator of a rebounding economy?
DC: If you look at the way unemployment was computed until the early 1980s – something that John Williams from ShadowStats does – the numbers would indicate about 20% unemployment today. Besides, even while the population keeps rising, the number of people reported as actually working is level or even lower. Most indicators of the economic establishment, in my view, don't really make any sense. GDP, for instance, includes government spending – much of which amounts to paying some people to dig ditches during the day and other people to fill them in at night. So-called "defense" spending is almost totally wasted capital. The practice of economics today is pathetic and laughable.
TGR: So, the economy is not rebounding?
DC: No. My take on this is that we entered what I call the "Greater Depression" in 2007. And now, because the government has printed up trillions of dollars in the last couple of years, we're in the eye of the hurricane. We've only gone through the leading edge of the storm. People think this will just be another cyclical recovery like all the others since WWII. But it's not. It's going to wind up with the currency being destroyed. It's going to be a disaster… a worldwide catastrophe.

Highly recommended.  Here is just a bit more evidence to prove Casey's point that Japan won't be heavily investing in U.S. treasuries anytime soon:

Zerohedge will have more on the chart tomorrow.  Just wait till that gray line starts increasing.

So you know how America manufacturing has been going down for decades due to those uncaring corporations who outsource making widgets overseas for the sake of cheap labor?  Mark Perry puts that myth to rest in a recent post:

As a share of GDP, manufacturing has declined in most countries since the 1970s.  A few examples: Australia's manufacturing/GDP ratio went from 21.3% in 1970 to  9% in 2009, Brazil's ratio went from 24.6% to 13.3%, Canada's from 21.7% to 11.3%, Germany's from 35% to 19%, and Japan's from 35% to 20% (I'll maybe create a chart with a more complete list). 

Bottom Line: The complaints about the "decline in U.S. manufacturing" are really a somewhat misguided acknowledgment of the global shift in production that has taken place since we entered the Information Age with the commercial introduction of the microchip in 1971 and gradually left the Machine Age behind.  When we complain that "nothing is made here anymore," it's not so much that somebody else is making the stuff we used to make as it is the case that we (and others around the world) just don't need as much "stuff" any more in relation to the size of the economy.   

The standard of living around the world today, along with global wealth and prosperity, are all much, much higher today with manufacturing representing 16-17% of total world output compared to 1970, when it was almost twice as high at 26.7%. And for that progress, we should applaud, not complain.

I am currently reading and almost finished with Paul Krugman's Pop Internationalism where he makes the same point (surprisingly) that manufacturing has decreased in the U.S. due to us adopting a more service sector based economy. We no longer need as much manufacturing so capital is invested in other sectors of the economy like information technology.  The same can be said for the dying newspaper industry.  The Daily Show has an amazingly hilarious take on that:

The Daily Show
Tags: Daily Show Full Episodes,Political Humor & Satire Blog,The Daily Show on Facebook

My Last 2 Slate Articles, Paul Krugman Gives Ron Paul Long Overdue Credit, Soros Embraces Hayek, and 8% Inflation Over the Next 3 Years?

Here are my last two Slate articles:

Making Political Sense: Just a Few Phrase I Hate

By: James Miller

Published 04/19/2011

“Hate” can be a pretty strong word, but there is no other way to describe the kind of feeling I get when people utter the following phrases.

We need a constant increase in the amount of money in society to keep up with the rising population.

This simplistic notion is driven by the idea that money constitutes some type of wealth in our society.

The reality is that money itself (especially paper money) is a facilitator of transactions, not a measure of wealth. It falls under the laws of “supply and demand” like any other commodity.

With a fixed supply, an increase in the demand for money will increase its value. Prices on all goods will lower to correlate with the rise in value. Since population increase coincides with a greater demand on money, money’s value will have to adjust automatically.

The only affect of an increasing money supply is the continual depletion of the value of money and incentive to consume rather than save.

Without government, we would not have rights.

It can never be stressed enough how dangerous this notion actually is. In a society where the government determines our rights, it can easily take them away.

Libertarians such as myself believe in the natural rights doctrine. Natural rights are universal and revolve around the ideas of liberty, private property and not interfering with the property of others.

They are not something the government grants us, rather they are the aspects of society in which government is unable to interfere.

These ideas evolved from society’s initial beginnings which grew from people's mutual gain from living close together and adopting a set standard of rules rather. Government came after.

If government did not provide (insert whatever public service), it would not exist.

Disregard the fact that education, protection and services for the disabled were all provided for by private entities before the government stepped in.

In a true market economy, the demand for such services will be provided by those seeking to provide the best care in order to earn a profit. At the same time, philanthropy and private charity would also fund such services.

The difference between the market economy and our current system is the implementation of forced payment for services through taxation. Just because the government legislates something does not guarantee its existence.

Congress could pass a law tomorrow that declares the U.S. establish a base on Mars, but we do not yet posses the technology to do so. Government can only provide services that are economically feasible, not pipedreams.

Going to the moon was possible only through previous technological gains and the siphoning off of billions of dollars in resources from the private sector.

And where exactly does the Constitution authorize the government to go to the moon anyway?

Critical thinking is one of the most valuable tools you can learn in college. It has no better use than debunk widely believed myths. Learn it now before it is too late.

Making Political Sense: Ron Paul for President

By: James Miller

Published 04/26/2011

One congressman predicted the 2008 financial crisis. He knew the fiscal disaster that low-credit policies of both the Greenspan and Bernanke Federal Reserve would bring.

His career in Congress began after President Richard Nixon’s elimination of the gold standard. He recognized that cutting the gold standard would lead to an explosion in the money supply and subsequent prices.

He has broken with Republican Party leadership on his persistent call to scale down our massive military industrial complex and imperialistic global policy.

He is literally the only Congressman to call out the Federal Reserve System for what it is: a banking system run for elite financial institutions who receive newly printed “wealth” before the rest of the population.

He understands business cycles and the mechanism of human action through which order is achieved in a free society.

And he has never voted once to raise taxes.

Texas Congressman Ron Paul has proven time and time again to be the premier example of what a statesman should be. He does not think in terms of offering immediate favors for the sake of getting votes and campaign contributions.

The majority of his campaign contributions come through grass roots fundraising. Supporters realize that Paul is not beholden to special interests, but to the interests of the whole.

He is despised by those who reside in the highest arches of academia and financial wealth. They know he opposes the policies that subsidize their own well being.

Paul is concerned only with liberty and the long-term prosperity of the country.

Though he is often mocked by major political pundits as being “fringe,” Paul commands a small but dedicated base of supporters.

Pundits who ridicule Paul fail to acknowledge why he garners such enthusiasm. They are locked into the two-party ideology and acceptance of big government.

Why Mitt Romney and Newt Gingrich fail to cultivate such support is dumbfounding.

Paul represents the third way outside of the nanny-state liberals and war-mongering conservatives. The way is toward liberty and Paul is the embodiment of Jeffersonian democracy.

The generation before mine will run the entitlement state into the ground. It is inevitable; there is not enough money to go around.

With the country nearly bankrupt with over $100 trillion in unfunded liabilities, the dollar will continue to lead the race to the bottom for all global currencies.

Paul has fought against this for more than 30 years and the mainstream media is beginning to catch on. “The Ron Paul Revolution” has already begun and it will be televised.

This will be my last column for The Slate. I just want to thank Chelsea Wehking and the rest of the staff for allowing me to write over the past year.

My goal was to bring a different perspective to politics and our government structure. If I changed at least one mind through writing, then all the hours dedicated to my column were worth it.

I thank everyone that has read my column and supported me in the past.

--------------
It's a bit depressing that I won't be writing for The Slate anymore but I am glad I got to get my message out for so long.

Krugman's column today ended on a surprising note:

Lately the inflationistas have seized on rising oil prices as evidence in their favor, even though — as Mr. Bernanke himself pointed out — these prices have nothing to do with Fed policy. The way oil prices are coloring the discussion led the economist Tim Duy to suggest, sarcastically, that basic Fed policy is now to do nothing about unemployment “because some people in the Middle East are seeking democracy.”

But I’d put it differently. I’d say that the Fed’s policy is to do nothing about unemployment because Ron Paul is now the chairman of the House subcommittee on monetary policy.

Ron Paul has been great at shedding light on the Fed, but I think Krugman misstates his overall influence.  You can't turn on the CNBC or pick up a newspaper without reading or hearing about increasing prices and the "i" word.  Just check out the Reuters word bubble Krugman mentions on Bernanke's press conference:

Here is another reaction to Bernanke's press conference by Ron Paul on CNBC.

Check out this eye catching Politico article by George Soros: 

Why I agree with (some of) Friedrich Hayek

So what exactly does Soros agree with?

While I was admiring the elegance of Popper’s theory, I was also studying elementary economics. I was struck by a contradiction between the theory of perfect competition, which postulated perfect knowledge, with Popper’s theory, which asserted that perfect knowledge was unattainable. The contradiction could be resolved by recognizing that economic theory cannot meet the standards of Newtonian physics.

That is why I sided with Hayek — who warned against the slavish imitation of natural science and took issue with Popper — who asserted the doctrine of unity of method.

So Soros kind of agrees with Hayek that perfect knowledge on the market is impossible and attempting to base policy off of such knowledge creates unintended consequences (Hayek's information problem).  Human action is too unpredictable for large governmental economic policy. Yet Soros still opts for regulation of financial markets, but fails to mention what these regulations would be.  And I love how Soros labels Hayek a "Chicago school" economist; further proving his ignorance.

Taylor Cottman is predicting 8% inflation in the U.S. over the next three years in his latest EconomyPolitics post.  Why?

..the real threat of inflation is not the current printing of money which Bernanke et al have been doing.  It is the previous printing of money which has been taken out of circulation.  The threat is as great as its ever been.  The amount of money in foreign reserves is about one third or more of M2, or every dollar which is held by US bank account (business or retail), and all currency combined.There are signs that this dollar regime will be ending.  The cracks have been apparent for some time, but we just blew a big hole in the US Dollar dam.  This week, China has announced that they will reduce their US dollar holdings by more than 1.7 Trillion Dollars.

1.7 Trillion dollars  is the amount that we have added to our money supply since August 2007.  If all that money were to come into the current US money supply all at once it would increase money supply by 19%.  That would make US inflation among the highest in the world. 

Source:  SIFMA

If this action were to be followed by other central banks in Japan or Europe, there would be a real danger of hyperinflation to the tune of 50%. 

Now, odds are they won't do this all at once.  That is why we have said that at least the amount of inflation, should it be spread out over 3 years should be 8% or more.

Foreign dollar reserves do pose a threat to entering our money supply, but the same can be said of the $1 trillion in excess reserves that domestic banks have stored at the Fed.  Unless Bernanke can plug the drain if this money is released, it could have a major inflationary impact.

At least consumption and income are up a bit so Bernanke can take credit for something:

March Personal Income comes at 0.5% on expectations of 0.4%, while spending is also 10 bps higher than consensus of 0.5% printing at 0.6%. Sizable prior revisions see February income of 0.3% revised to 0.4%, while spending was revised from 0.7% to 0.9. As a result the February savings rate we revised lower to 5.5%, which is where the March savings rate came as well.

Yet savings remain stagnant, which doesn't bode well for long-term recovery.

Jeff Reeves on 9 Ways Inflation Hurts, New Keynes Vs. Hayek Rap Video, 55% of American Say Economy is Still in a Depression, and Crispin Odey Predicts 11% Inflation

Interesting article on MarketWatch by Jeff Reeves on the 9 ways inflation is hurting us right now.  Here is a snippet:

2. Pork

Don’t think you can just switch from cow to pig to avoid this trend — pork could see retail price increases of as much as 7.5% over 2010 levels according to the USDA.

3. Grains

Even going vegetarian is more expensive than it was a year ago. Corn prices have doubled, from $3.49 a bushel in July to well over $7.70 currently. Wheat prices have rolled back a bit in recent weeks, but topped 2008 highs in February to set a new record and remain very high currently.

4. Gasoline

The average U.S. price of a gallon of gasoline has jumped about 12 cents over the last two weeks to $3.88, with the highest average price for gas tallying $4.27 in Chicago. This is with oil at $112 a barrel — if crude prices reach 2008 peak levels of $145, four bucks for gas may seem cheap.

Why wasn't Reeves in the room asking Bernanke questions yesterday?  So who is being hurt the most by the type of inflation we are experiencing?  Wal-Mart CEO Mike Duke knows:

 "Wal-Mart's core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried. "We're seeing core consumers under a lot of pressure," Duke said at an event in New York. "There's no doubt that rising fuel prices are having an impact."

Good thing McDonald's just hired all those people right? Per Bloomberg:

McDonald’s Corp. (MCD), the world’s biggest restaurant chain, said it hired 24 percent more people than planned during an employment event this month.

McDonald’s and its franchisees hired 62,000 people in the U.S. after receiving more than one million applications, the Oak Brook, Illinois-based company said today in an e-mailed statement. Previously, it said it planned to hire 50,000.

In brilliant fashion, Robert Wenzel uses this news to point out the atrocities of minimum wage laws:

These are minimum wage jobs and it shows that there are plenty of people willing to work, if they could find jobs. But with minimum wage laws, instead of companies having the opportunity to bid for these people at lower wages, the job seekers are shut out of the labor market.

It's simple supply and demand economics. There are x number of jobs available at the minimum wage, if the number of those willing to work at that wage exceeds the number of jobs available at the minimum wage, then some will not be able to find jobs. Market wages, as opposed to government controlled lower bound wages, means more firms will be able to bid for workers, until the market clears.

And of course Wenzel will probably be labeled an elitist or heartless bastard for advocating such nonsense of allowing people to work for whatever wage they like.  I always love to ask minimum wage proponents if they will really be the one to tell someone "nope, sorry you can't work there for that low of an amount of money, I am looking out for you so instead of working, you can remain unemployed till something else comes along.  What's that? You still want to work for $5 an hour? That is no wage fit for a man, go back to the want ads."

And since I am on the topic of government price controls, look at the success in Russia:

MOSCOW—The world's biggest oil producer Russia is facing gasoline shortages in some parts of the country, as prices are kept artificially low, leading producers to cash in on higher fuel prices abroad.

After gasoline prices rose at the end of last year and another 4% in January, Prime Minister Vladimir Putin in February warned the country's top oil executives against price fixing. Putin accused them of trying to "crudely exact maximum gains" and vowed more oversight of the fuel business, effectively capping prices. As a result, prices declined both in February and March, despite the continued surge in global crude prices. 

"The domestic prices are being held artificially low due to pressure from regulatory authorities," TNK-BP's Chief Financial Officer Jonathan Muir said Wednesday...Fuel shortages are particularly acute in Russia's southern Altai region, where about half of the regions 700 fuel stations have closed, but are also emerging in other areas, including St. Petersburg, Russia's second biggest city, Russian Fuel Union said. 

And don't think of selling crude just yet:

(Reuters) - Syria's banned Muslim Brotherhood called on Syrians to take to the streets to demand freedom, a declaration by the movement said on Thursday, ahead of Friday prayers.

Oh boy, here we go again.

Version 2.0 of the great Keynes Vs. Hayek rap battle just came out today.  It's just as phenomenal as the first  one:

Looks like Keynes' animal spirits are not catching on yet with the public:

PRINCETON, NJ -- More than half of Americans (55%) describe the U.S. economy as being in a recession or depression, even as the Federal Open Market Committee (FOMC) reports that "the economic recovery is proceeding at a moderate pace." Another 16% of Americans say the economy is "slowing down," and 27% believe it is growing.

 So big bank bonuses and a booming stock market aren't exciting Main Street?  Who would have thought?  Oh wait, just watch the above video.  Here is some more less-than-exciting (though expected) news from Crispin Odey's 2011 Q1 conference:

Then the question only is when you get to a position where the West is competitive, we are not going to continue to see wage growth of 1.8% or 1%, because the fact is we are building up this sense in which we are way behind the line in terms of keeping up the cost of living so we anticipate, whether it is 2012 or whether it is 2013, that we will not see a 1% rise, we will see a 8% rise and if we see a 8% rise, 75% of that will come through straight back into inflation. So our forecast is that inflation, far from being 5% at the end of that, it will be at 11%. Which means at that moment interest rates have to rise because that is the moment that the central banks have got that mandate. If interest rates rise from 0% to 7%, you can be sure that at round about 35% to 40% of that rise will make its way again through to inflation.

11% inflation? I don't know if that will pan out, but only time will tell after QE2 ends this June.  I will end with a great list of those countries who are prepared to see such a crisis:

 Go Switzerland!

Gold Hits New High as Bernanke Talks, Mish and Jim Rodgers on Silver, and Japan Outlook to Negative

As Bernanke spoke today (nothing big...just saying he will continue QE2 to the end and inflation is temporary) gold hits a new high:

Why not address this Big Ben?  And yet he still believes that when QE2 ends, we won't see a downturn or large correction.  We will see come July.

Mish had a post today letting everyone know that he sold all his silver (which went up to $48 today during Bernanke's shindig) and bought gold with the profits.  Not a bad idea to trade one precious metal for another in my opinion.  Meanwhile, Jim Rodgers is predicting that the U.S. will lose its AAA credit rating soon.  From Lewrockwell.com: 

Speaking to Investment Week, Rogers said: “Eventually it will happen. Not this month, or this quarter, but it is certainly going to happen”.

“The US is the largest indebted nation in the history of the world and the debt is going higher and higher," Rogers added.
A new report from Deutsche Bank ranks the US government as the world's fourth riskiest sovereign borrower, behind Greece, Ireland and Portugal, and just ahead of Italy.

"I prefer to look at the things that are still depressed. Natural gas is depressed compared to oil, silver is depressed compared to gold. I would rather look at the things within those sectors to see what are the things that are still depressed and see if maybe that is where we should be putting money".
Clarifying his stance on silver and crude oil, he said:  "Silver has certainly gone up a lot in the last 9-10 months. There is no question about that, but remember, silver is still 10% below where it was 31 years ago. I bet you do not know many things that are 10% below where they were 31 years ago".
"Silver has been going up but on a historic basis, it is still very depressed.

Silver may be depressed but some have been weary of its recent and rapid clime.

Speaking of rapid clime, check out this report on Silicon Valley's boom.  Maybe Bernanke's money printing is working out better than he thinks.  If you want to see Ron Paul's response to Bernanke, check it out here.  He obviously wasn't impressed.  For more evidence, Starbucks is recording big profits as commodity prices go up.

S&P's recent trend of being late on their ratings continues today as they have announced their downgrade of Japan.  From Bloomberg:

Japan’s sovereign-rating outlook was cut to “negative” by Standard & Poor’s as the nation’s reconstruction needs following last month’s earthquake will likely add to what’s already the world’s biggest debt load.

Why was this not done a month ago?  Did the idea that Japan would rack up more debt trying to fix things just come up?

I will end with this surprising news (no, not the irrelevant fact that Obama finally released his birth certificate) that U.K. has the third biggest budget deficit in Europe:

Britain’s shortfall in its finances amounted to 10.4pc of gross domestic product (GDP) in 2010, according to data for each of the EU’s 27 member states from the statistics agency Eurostat.

That meant the UK had a bigger deficit, or annual shortfall, than the recently bailed-out Portugal and also Spain, which is viewed as the next euro-using nation to potentially need international aid.

Ron Paul Makes It Official, Inflation in Airlines & Diapers? And Why I Might Be Wrong On Selling Silver

Well Ron Paul made it official on Hanity last night:

Texas Republican Rep. Ron Paul announced on Sean Hannity’s Fox News show Monday that he is creating an exploratory committee for a presidential run, a key step that likely indicates the unpredictable libertarian with diehard followers will run for president against President Obama in 2012.

While his chances of even winning the nomination are slim, I am hopeful an attitude change is coming in the majority of the public.  Caroline Baum lays it out precisely in her Bloomberg column today:

Americans have a fundamental philosophical dilemma over what we want from our government. In good times, we want an arms-length relationship. In bad times, we want a nanny looking out for us. We can’t have it both ways. This mind-set needs to change.

A change in mind-set is precisely what is coming and it can either happen the hard way (dollar crisis) or the easy way (stopping the non-stop spending and continual growth in government).

To push the point home a little more, here are a few more signs of prices rising. First is Delta Airways and U.S. Airways Group announcing higher fares to make up for higher fuel costs:

The two U.S. airlines reported smaller-than-expected losses on Tuesday and their share prices rose, with Delta up 11 percent, even as some analysts questioned how much longer consumers, paying more for gasoline and food, would tolerate higher air fares.
"We must fully recapture our costs on every flight every day to maintain and improve our earnings performance," Delta Chief Executive Richard Anderson told analysts on a conference call, adding that high fuel was "the new norm."

Blaming higher fuel costs should come as no surprise, but now Huggies?  From Yahoo! Finance:

DALLAS (AP) -- Kimberly-Clark Corp., the maker of Huggies and Kleenex, said Monday that it plans to raise prices, its third such announcement since the middle of March.
The company said it's merely passing along the higher prices that it has to pay for raw materials like oil and wood pulp. It also more than doubled its predictions for how much the prices for such commodities will increase.

Even if you claim inflation is not here, inflationary expectations surely are.

So yesterday, I made the claim to not begin selling silver with such high demand.  I also pointed out how the high demand has created a short-term shortage.  Well, a few articles may have proven me wrong today.  First is Simon Black over at Sovereign Man:

Silver’s rise (in US$ terms, at least) over the past several weeks has been nothing short of phenomenal. The chart has effectively “gone parabolic,” and people I’ve never met have started to e-mail me (in my capacity as a registered investment advisor) for advice on silver.

It doesn’t matter whether it’s silver, tech stocks, emerging markets currencies, or pork belly futures… any time these two events coincide (a parabolic chart pattern, and strangers asking me for advice), it sets off ALARM BELLS in my head.

Yes, silver's rise in recent weeks has been nothing short of daunting.  But the question is, are we due to see a correction?  Perhaps, more from Black on what investors do :

So, what do most of them do? They sell out for a small profit. That’s why it is said that bull markets are constantly climbing a “wall of worry.” And that’s why ALL markets have corrections. Corrections happen when enough people are FEARFUL of losing the gains they’ve made so far, and start to sell out in large enough numbers to temporarily reverse the trend.

So what to buy then if you fear losing your profits?

Long-term ETF positions are risky, but you may consider a short-term position in the ProShares UltraShort Silver ETF (ZSL on the New York Stock Exchange). This instrument is designed to move TWICE as much as silver bullion, but in the OPPOSITE direction.
For example, if silver falls 5% in a day, this security should GAIN 10%. Of course, it works both ways. If silver keeps on rising, then the price of ZSL will lose twice the amount silver rises by.
During this bull market, silver has already seen one “correction,” during the financial crisis, of more than 60%. That was an anomaly. But, a typical 10% or 20% correction would not be surprising to see at some stage — quite possibly soon.

Perhaps if I had more skin in the game, I would follow his advice.  On the thoughts of a silver in shortage, Bob Moriarty sets it straight:

There is no shortage of silver. There never has been a shortage of silver. Until the laws of supply and demand are repealed, there never will be a shortage of silver.

My question is, "If you were smart enough to buy 100 ounces of silver at $4 an ounce, a 5000-year low in real terms, how much profit have you made if silver goes to $50 or $100 or $300 and you never, never, ever sell? The answer, of course, and ignored by all the silver "GURUS" is that if you buy low and don't sell ever, you don't make any profit. That may be the dumbest investment advice I have ever heard.
Silver is a commodity like any other. If you are smart enough to buy it cheap and you are smart enough to sell it when it gets expensive, you will profit. If you want to buy at all time highs, good luck with that.

Despite APMEX being out of silver eagles till May 13th, if you really want silver, you should be able to find it.  There are a lot of rumors out there about silver, and some have merit.  I may be wrong on whether you should sell silver right now, but I won't be as wrong as this David Lereah. Here is just one pic:

Check out the post on The Big Picture to see some hilarious Amazon.com comments on the books.

Ron Paul on The View, Silver Crisis, Tamny on Deflation, and China Overtaking the U.S.?

Here is Ron Paul from The View today:

Not too bad, he holds his own next to Whoopi.  More good news as it has almost been confirmed that Paul will announce a presidential exploratory committee tomorrow.  From National Journal:

Rep. Ron Paul, R-Texas, whose outspoken libertarian views and folksy style made him a cult hero during two previous presidential campaigns, will announce on Tuesday that he's going to try a third time.
Sources close to Paul, who is in his 12th term in the House, said he will unveil an exploratory presidential committee, a key step in gearing up for a White House race. He will also unveil the campaign’s leadership team in Iowa, where the first votes of the presidential election will be cast in caucuses next year.

Just for kicks, here is Paul on Hardball with Chris Matthews:

And Russ Roberts just been announced that the second version of the infamous Keynes vs. Hayek rap video will be released this Thursday.

Now for the bad news on the announcement front, APMEX is out of silver eagles until May 13, 2011.  Here comes a bubble?

And now they are offering to buy anyone's silver for $3 over spot:

And now CME has hiked silver margins by 9%.  With such demand, you would be an idiot to sell silver right now.  It's tough to see it going anywhere but up for now.  Check out this article from Lewrockwell.com which warns of placing your faith in physical storage. Check out Bill Cramer's story:

I have been pondering why deflation is so bad for the government over the past few days.  John Tamny answered my prayers in his Forbes column on Japan's mythical "lost decade" today:

Much as a weak currency pushes up the broad price level, deflation pushes it down. It wreaks havoc on commerce simply because nominal prices must eventually account for the rising currency, but if debts were taken on when the currency was weaker, the falling prices make debt service more difficult.
To put it more simply, imagine taking out a $1 million loan to buy barrels of oil at $100 in order to sell them at oil’s current price of $112/barrel. If the price stays the same there’s a nice return, but if the dollar’s value strengthens such that the price of oil falls below $100, the near-term deflation wipes out any nominal profits on the investment, and if it strengthens substantially, the investor is out a lot of money.
Japan suffered a real deflation whereby a rising yen forced down all prices. For those not in debt this was a Godsend, but for those heavy on debt the deflation not only erased profits, but it effectively made Japanese companies insolvent.

Awww, not it makes sense why the government pursues inflation.  After all, why should a system built on debt not fix itself?
So the IMF has caused a stir today in predicting that China would overtake the U.S. economically by 2016.  Thankfully, that prediction has be refuted by the International Business Times which points out China's huge property bubble and coming hard landing:

Here is how they do it:

1) Average the annual growth rate over some past period

2) Adjust that rate up or down a few percentage points based on contemporary biases

2) Extrapolate the adjusted growth rate over the desired period

These “adjusted extrapolations” are virtually worthless because the “adjustments” are guesses derived from plugging past data into models. Moreover, they’re often wrong because reality doesn’t simply extrapolate from historic data.

These economists are notorious for missing "big picture" events and shifts. They largely missed the 2008 global financial crisis and China’s astronomical ascent in the 2000s.

And of course news like this doesn't help China's prospects, from Xinhua:

China's consumer prices may increase about 4.5 percent this year, exceeding the government's full-year target of 4 percent, an official said Monday.

I will end by mentioning a great article in the Washington Examiner on Boeing's close relationship with the Obama administration.  After mentioning the NLRB's recent decision to not allow Boeing to set up shop in South Carolina:

This extraordinary abridgement of economic freedom might suggest an anti-Boeing vendetta from President Obama, except that this administration's Export-Import Bank has subsidized Boeing with nearly $15 billion in loan guarantees in the past two years -- roughly three-quarters of all of Ex-Im's guarantees during that time.Boeing and Obama, both based in Chicago, have a real political friendship. In 2008, Obama was by far the biggest recipient of campaign contributions from Boeing employees and executives, hauling in $197,000 -- five times as much as John McCain, and more than the top eight Republicans combined.

And check out this great, but also sad, series of e-mails on Mish from a surgeon who has officially "shrugged." (left the medical field because of abundant government regulation)

Update- USDA reporting higher prices of meat by 6% to 7% up this year, 12% higher than they were last year.

Here is Ron Paul on the Colbert Report:

And check out this great article from Business Insider by Joe Weisenthal on why Ron Paul's presidential run will matter so much more this time.

Don Boudreaux Provides the Pefect Analogy to Rationalize Market-Based Education

Bourdeaux's recent CafeHayek post deserves a post in itself.  I cannot stress how great it is in advocating for a market-based education system over a government dominated one.  Highly recommended! I would provide an excerpt, but the whole post needs to be read in order to have the best effect.

NYT Reports On Increase in Clothing Prices, Wages Up for Class of 2011, Current Average Price of Gasoline in All 50 States, and China Cutting Holdings of USDs

It's Easter and I have a lot of work to do, so today is a quick post.
New York Times reported on increase in clothing prices Friday:

As retailers have been warning, their costs are rising as cotton and other materials get more expensive, laborers in China demand higher wages and fuel prices go up.

No mention of Bernanke and Fed money printing in the article, big surprise.  Mark J. Perry has a graph and post on rising wages of new college graduates:

2. NACE -- "The good news continues to roll in for the Class of 2011 as results from NACE’s Spring 2011 Salary Survey show that the average salary offer to all Class of 2011 graduates now stands at $50,462, which is up 5.9 percent over the overall average of $47,673 to Class of 2010 graduates."

Inflationary expectations?
Here is a great chart on average gas prices in all 50 states from AAA

And now China Central Bank Governor Zhou Xiaochuan is announcing that he is looking to drop 2/3 of the $3 trillion in U.S. dollar reserves the Central Bank currently has. From Xinhua:

China's foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.

Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

The problem is, where are they going to be invested into?  Who is going to want to buy dollar reserves?


I will end with this idiocy you have probably heard of by now:

In what may be the strongest signal yet of the new pro-labor orientation of the National Labor Relations Board under President Obama, the agency filed a complaint Wednesday seeking to force Boeing to bring an airplane production line back to its unionized facilities in Washington State instead of moving the work to a nonunion plant in South Carolina.

Unbelievable, nothing like the government telling a business where they can set up shop.  Mish nails it:

The National Labor Relations Board is not acting like a group of thugs. Rather, the NLRB instead acting like a group of slave-masters attempting to put balls-and-chains on Boeing.

Even if Boeing benefits greatly from the military industrial complex, this still isn't right.

Wage Rates Rising-Another Sign of Inflation? Mises on Why the Stock Market Rises First with Fed Money Printing And a Video Both Paul Ryan and President Obama Must Watch

There was a post on Robert P. Murphy's blog a few days ago that generated quite a lot of conversation.  Some of the more Keynesian leaning commentators kept asserting that without a subsequent rise in wages, major price inflation cannot occur.

Well, EPJ has this report:

Well, the wage surge is starting. Late last year, Google gave all its employees a 10% pay increase.  Now Microsoft is giving a pay raise to all its employees. FT reports:

Microsoft’s 90,000 employees are to receive a company-wide pay increase, in the latest escalation of the war for talent among technology companies.

The pay increases, announced on Thursday in an internal e-mail by Steve Ballmer, chief executive, are aimed particularly at software engineers at the early stage of their careers and mid-level employees with expertise that is in short supply.

Wenzel explains:

It makes sense that the pay raises are coming first in the high tech sector. In the high tech sector, you have competition for techies to design consumer software and business (i.e. capital goods) software. The high tech industry is in some sense the equivalent of oil in the natural resource sector. Because it faces demand from across the structure of production, it experiences increasing demand at almost all times, but especially during a period of serious central bank money printing. Since during those periods the capital goods sector will have the money to bid away software engineers from consumer businesses.

Awww, computer software is the equivalent of a capital good since so many businesses rely on software for operations (payroll, inventory, etc.).  Like the stock market, computer software acts a capital good and begins to rise when Central Banks engineer an inflation fueled boom.  Mises explains:

the moderated interest rate is intended to stimulate production and not to cause a stock market boom. However, stock prices increase first of all. At the outset, commodity prices are not caught up in the boom. There are stock exchange booms and stock exchange profits. Yet, the “producer” is dissatisfied. He envies the “speculator” his “easy profit.” Those in power are not willing to accept this situation. They believe that production is being deprived of money which is flowing into the stock market. Besides, it is precisely in the stock market boom that the serious threat of a crisis lies hidden.

Not sure where that quote is from, read it somewhere on the web.  I believe it is from Mises' The Causes of Economic Crisis.

Here is a video both Paul Ryan and Pres. Obama need to watch for their horrid budget proposals which fail to take into account rising interest rate payments.

Update- Another sign of wage hikes?  From EPJ:

Paul Kedrosky says the demand for engineers is super hot right now in Silicon Valley--as hot as 1998-99.

For some reason, I am unable to get upload the youtube video, but Kedrosky basically lays out (unknowingly?) a simple structure of production in asserting that once the software is designed and built, it must be shipped out and sold.  Hence, the increase in hiring of salespeople.  They will be the next line of workers to receive Bernanke's newly printed "wealth."

Update 2- Portugal revised its deficit upwards to 9.1% of GDP for 2010 (up from 8.6%) and Greek 2-year hits 23%:

Krugman Ignores Economic Reality in Health Care, McDonalds' Inflation, and Silver Up to $47

Paul Krugman's New York Times column is extra infuriating today.  How in the hell does a Nobel Prize winning economist not apply economic principles to an industry such as health care?

Here’s my question: How did it become normal, or for that matter even acceptable, to refer to medical patients as “consumers”? The relationship between patient and doctor used to be considered something special, almost sacred. Now politicians and supposed reformers talk about the act of receiving care as if it were no different from a commercial transaction, like buying a car — and their only complaint is that it isn’t commercial enough.

Hate to break it to you Krugman, health care is not a right, it is a commodity like anything else.  It is unbelievable how he thinks that health care does not fall under the constraints of the law of scarcity, the law of diminishing marginal utility, or the law of the subjective theory of value.  Krugman is infuriating, but I am not as pissed as this guy:

Sorry to bring this picture up again, but these kids are gonna be pissed to:

From EPJ:

McDonald's now expects food costs to rise between 4 percent and 4.5 percent in the United States this year. That is up from its prior call for a rise of 2 percent to 2.5 percent.

Chief Financial Officer Pete Bensen said McDonald's in March put through a 1 percent menu price rise in the United States, and that it plans additional increases.

At least silver got another bump:

Here are a few more tidbits, former Prime Minister Gordon Brown wants to head the IMF.  I guess he thought he did such a good job with the U.K., he needs to take his policies to a global scale.  Think he can solve Greece's coming default?  From the Guardian:

Greece is considering ways to restructure its debt – such as by extending the life of its loans – two national newspapers claimed on Friday, joining a flurry of recent reports on the prospect that Athens might be forced to default.
Greek and EU officials have steadfastly denied a debt restructuring is planned in the face of mounting evidence that markets are factoring one in.

And the revolving door continues:

Stephen M. Hoffman  has let his position as a Federal Reserve regulator to join  Promontory Financial Group, a Washington D.C. financial services consulting firm.

The founder of Promontory is  Eugene A. Ludwig, former U.S. Comptroller of the Currency and former Vice Chairman of Bankers Trust/Deutsche Bank.

Update- Mark J. Perry provides a nice graph and explanation to refute much of what Krugman stipulates in his column: 

But Krugman seems to be arguing that regardless of who is paying for health care, "there’s something terribly wrong with the whole notion of patients as “consumers” and health care as simply a financial transaction." Krugman's further claims that “'Consumer-based' medicine has been a bust everywhere it has been tried."

Well, what about LASIK surgery, retail health clinics, concierge medicine, medical tourism and cosmetic surgery, to name just some of the successful "consumer-based" medical services?

When we think about soaring health care costs in the United States, isn't one of the main reasons precisely because patients have NOT been treated as consumers spending their own money?  In that case, I think Krugman has it backwards.  If the goal is to control health care costs, that will never happen until patients are treated like consumers. 

Bernanke Set to Take Questions, Ron Paul Esquire Profile, Trouble in China, and Obama Investigates Oil Speculators

Bernanke fielding questions from the media next week?  This will be good.  From the Wall Street Journal:

Next Wednesday, Federal Reserve Chairman Ben Bernanke will do something no Fed chief has done before: Stand before a room full of journalists after officials conclude a policy meeting and answer questions about the central bank's decisions.

So what would I ask the Ber-nank?  For starters, how plausible is this picture?

                                              (inflation will solve childhood obesity)
Clearly Bernanke is taking a queue from Michele Obama.  Maybe he could explain why silver hit $46 today?

Perhaps he could explain this hilarious picture:

Free helicopter inside!? I bet it is filled with loads of greenbacks!
More importantly, he could explain why the Fed is paying 8 times the market rate for banks to keep their excess reserves stocked away with him.

Seriously though, I doubt the media will push him too much.  They will ask about inflation, he will say some b/s about emerging markets and Middle East turmoil and assure everyone he has everything under control. *Yawn*

Maybe he should read his arch-nemesis' bio in Esquire today:

See, it's not about him. Ron Paul doesn't think that way. It's about this neat idea, principles versus incrementalism. That's why he's taken more lonely stands than any other politician in American history: against the Iraq war even though he's a Republican, against the Defense of Marriage Act even though he's a conservative Christian, against farm subsidies even though he represents a rural district, against the Texas Medical Center even though he's from Texas — the list goes on and on. He refused to award congressional medals to Rosa Parks, Ronald Reagan, the Pope, and Mother Teresa. After Hurricane Katrina, he voted against sending federal help to Louisiana.

The bio is great with the exception of this line:

If we had stuck to what Congressman Paul views as our founding principles, we would have undoubtedly been a smaller and poorer and less consequential country, but also purer and freer and more peaceful.

Undoubtedly? Really? I would love to see proof of that.  John H. Richardson needs to stick to writing, not economics.  I believe it was America's semi-adherence to a free market that lead to our explosive growth in productivity and wealth accumulation.  To think we would be poorer with a free market lacks any basis.  I agree on one thing though, the U.S. probably wouldn't be as big of a country.  But we also wouldn't have the blood of a thousand native Americans and Mexicans on our hands either.

Going back to Bernanke, I would love to know what he thinks of this:

Chinese oil giant Sinopec has stopped exporting oil products to maintain domestic supplies amid disruption concerns caused by Middle Eastunrest and Japan's earthquake, a report said Wednesday.

The state-run Xinhua news agency did not say how long the suspension would last but it reported that the firm had said it also would take steps to step up output "to maintain domestic market supplies of refined oil products".

Get ready for another rise in gas prices.  No doubt Big Ben is looking at events like these as the race to the global currency bottom is being printed in front of our very eyes:

"A two-day strike over rising fuel prices turned violent in Shanghai on Thursday as thousands of truck drivers clashed with police, drivers said, in the latest example of simmering discontent over inflation. About 2,000 truck drivers battled baton-wielding police at an intersection near Waigaoqiao port, Shanghai's biggest, two drivers who were at the protest told Reuters. The drivers, who blocked roads with their trucks, had stopped work on Wednesday demanding the government do something about rising fuel costs, workers said."

So what are the chances of QE3?  Jim Grant explains:

Bernanke was hard put to explain why he chose to let Lehman go while acting to save Bear Stearns. He would be harder put to explain why he chose to implement QE1 and QE2 but, in another hour of need, refused to launch QE3." And "Sooner or later, gravity turns speculative markets into investment markets. When this transformation occurs, the Fed will confront the need to bail out the innocents it had previously bailed in. Hence, QE3."

To make matters worse, Obama is now trying to cover for Bernanke:

 RENO (Reuters) – President Barack Obama said on Thursday the U.S. attorney general was assembling a team to root out any fraud and manipulation in the oil markets that might be contributing to higher U.S. gasoline prices.

"The truth is, there's no silver bullet that can bring down gas prices right away," Obama said in prepared remarks for his opening statement at a townhall-style meeting in Nevada.

"The Attorney General's putting together a team whose job it will be to root out any cases of fraud or manipulation in the oil markets that might affect gas prices - and that includes the role of traders and speculators. We are going to make sure that no one is taking advantage of the American people for their own short-term gain," Obama said.

That's right, refuse to open up more federal land for oil drilling and invade an oil producing country which has the opposite effect of soothing turmoil.  Right, the speculators who are predicting a supply gut and bidding up prices are the ones who are screwing over the American people.

I will end with a few more tidbits of news.  First is Jim Rogers who announced he may be shorting U.S. Treasuries bonds if the price goes up anymore:

 "If the bond goes up another 3 or 4 points, I for one am going to sell it short," he told Reuters Insider in an interview from Singapore, where he is based.

Rogers was not specific about which duration bonds he was referring to, beyond mentioning 30-year paper in a comment about what he sees as a coming sell off.

Seems too late to me.  Next is Gary Johnson who has announced (to little fanfare) he is running for president officially today.  Check out this cheesy campaign video:

Also check out this video of Sandy Springs, Georgia (the town that outsourced everything) from Reason TV:

Greece's growing insolvency poses a huge threat to France and Switzerland according to The Guardian:

France and Switzerland have more exposure to Greek debt than any other countries in the world, and more than twice as much as Germany – perhaps adding fuel to the hesitance of the Germans to help bail out the troubled country.

And apparently Sen. Rand Paul challenged Rep. Paul Ryan's budget project before it was revealed behind closed doors.  From the HuffingtonPost:

WASHINGTON -- Before releasing his budget publicly, Rep. Paul Ryan (R-Wis.) gave Senate Republicans a private briefing about the plan in early April. During that meeting, Sen. Rand Paul, a Tea Party-backed freshman from Kentucky, challenged Ryan in front of the rest of their party, according to two GOP aides briefed on the meeting.

Sen. Paul said Rep. Ryan's plan did not do enough to cut spending and relied on too much deficit spending for too long, according to the aides.

See my post yesterday for an interactive chart comparing Obama's budget to Ryan's.