Hard times, Soft hearts
Sept 2, 2005

* Gas prices surge above $3 -CNN
* Experts: $4 a gallon gas coming soon -CNN
* Oil hits record near $71 -CNN
* Dumping US dollar could trigger 'economic September 11' -TA
* Survey: Money Causes a Third to Delay Retiring -Reuters
* Feds seize $10M in coins, owner to sue -CNN
* Hydrocarbon Heresy: Rocks into Gas -Harvard
* Greenspan sees a bad end to low-risk boom -USAT
* Treasury Claims Power to Seize Gold -GATA
* Big debt imperils economy -AP


* $5 gas by 2006, unless... - Craig Smith
* INFLATION JOLT: Twice What "Experts" Expected -CRS
* 5 bucks a gallon for gas? Expert sees it in 2006 -SunTimes
* Equity Altering Spending Habits/View of Debt -LA Times
* If 'Bubble' Bursts, Greenspan Legacy May Deflate -Bill Sing
* Pat Boone: U.S. 'sitting duck' for next 9-11 -WND
* Who Would Jesus Assassinate? -Marvin Olasky
* Oil, Gold and Inflation -Eric Hommelberg
* Is Gold a Better Investment than Oil? -Bud Conrad


"The easiest and surest way to 'play' this bull market is to buy gold coins, and put them away. You don't worry about price, because you view these coins as pure wealth, and you are not holding them for appreciation, you are holding them for posterity."

-Richard Russell, Dow Theory Letter (interview with Marketwatch, 8-16-05)


Gas prices surge above $3 -CNN
Drivers flock to the pumps as outages, bottlenecks fan fears of a gas shortage.
September 1, 2005

NEW YORK (CNN/Money) - Gasoline prices spiked as high as $5 a gallon in some areas Thursday as consumers fearing a gas shortage raced to the pumps.

Drivers in Atlanta said stations were charging well over $3 a gallon for regular unleaded, and at least one station in Stockbridge, Ga., was charging customers $5.87 a gallon.

The price hikes were felt nationwide, with gasoline surging to $3.59 in Boston, $3.58 in Milwaukee and well above $3 in parts of New York. Nationwide, the national self-serve unleaded average was $2.68 a gallon, AAA said on its Web site, increase of 6.1 cents -- and a record high.

The runup in prices prompted President Bush to warn against gouging and to encourage Americans to conserve.

Consumers have been making a run on the pumps in the wake of Hurricane Katrina as refinery shutdowns and power outages fan worries of a looming gas crisis.

"We know there will be some spot shortages (but) there's gasoline in most areas to meet most people's needs," Gregg Laskoski, managing director of AAA in the South, told CNN.

Hurricane Katrina forced several refinery operators in the Gulf Coast, where about 40 percent of the nation's refining capacity is located, to shutdown.


Dumping of US dollar could trigger 'economic September 11' -TA
There is a potentially fatal flaw at the heart of the global economy: the strong possibility of financial meltdown following a collapse of confidence in the greenback, Clyde Prestowitz tells Bruce Stannard
August 29, 2005
The Austrailian

THE nightmare scenario that haunts global strategist Clyde Prestowitz is an economic September 11 -- a worldwide financial panic triggered by a sudden massive sell-off of US dollars that would lead inexorably to the collapse of economies around the world.

If that happens, Prestowitz predicts: "It would make the Great Depression of the 1930s look like a walk in the park."

Australia would be sucked into the vortex of such a recession, which would cause great hardship throughout the world, he warns.

Prestowitz is not a doomsayer, neither is he alone in his views. As president of the Economic Strategy Institute, a Washington think tank, he is in regular contact with the most influential US business leaders, several of whom -- Warren Buffet and George Soros included -- have taken steps to hedge their currency positions against the possibility of a cataclysmic plunge in the greenback.

"Right now," he says, "we have a situation in which the US is running huge trade deficits -- about $US650 billion ($766 billion) in 2004 -- which are financed by borrowings from the central banks of Asia -- mainly the Chinese and the Japanese. All the world's central banks are chock-full of US dollars -- they're holding many more dollars than they really want. They're holding those dollars because at the moment there's no great alternative and also because the global economy depends on US consumption. If they dump the dollar and the dollar collapses, then the whole global economy is in trouble.

"However, some countries have a bigger stake than others in maintaining the status quo. China and Japan have a big stake in maintaining the flow of their exports to the US and keeping the US economy humming. Russia, on the other hand, does not export much to the US. India doesn't export much to the US. Yet Russia and India are also big dollar-holders. They hold many more dollars than they really want or need.

"It doesn't take any great stretch of the imagination to see what could happen if one of these central bank managers decides to dump dollars. We had a situation recently when a mid-level official at the Central Bank of Korea used the word 'diversification'. It was a throwaway remark at some obscure lunch, but there was instantaneous overreaction. The US stock market fell by 100 points in 15 minutes because the implication was that South Korea might be shifting out of US dollars.

"So picture this: you have a quiet day in the market and maybe some smart MBA at the Central Bank of Chile or someplace looks at his portfolio and says, 'I got too many dollars here. I'm gonna dump $10 billion'. So he dumps his dollars and suddenly the market thinks, 'My god, this is it!' Of course, the first guy out is OK, but you sure as hell can't afford to be the last guy out.

"You would then see an immediate cascade effect -- a world financial panic on a scale that would dwarf the Great Depression of the 1930s."

Prestowitz says the panic could be started by something as simple as a hedge-fund miscalculation.

"We had exactly that scenario in the US recently," he points out, "when a big hedge fund called Long Term Capital Management went belly-up. These guys were pros. They had two Nobel prize-winning economists writing their trading algorithms, and their traders were the creme de la creme among New York bond traders.

"They made a big bet -- a trillion dollars leveraged 20 to one, and they blew it. They went belly-up. That threatened to bring down the whole system so US Federal Reserve chairman Alan Greenspan had to organise a bail-out through the Federal Reserve Bank of New York.

"Now consider this: there are currently 8000 hedge funds in the US alone. Every day $6 trillion of derivative instruments trade on international markets. If there are four people in the world who understand those trades, I'd be surprised. So the potential for another disaster is not insignificant. This is why Warren Buffet, chairman of investment giant Berkshire Hathaway, is betting $US21 billion against the dollar. This is why currency speculator and hedge fund manager George Soros has also made a big bet against the dollar.

"Soros is one of the greatest currency speculators of all time. He was the guy who broke the British pound in the early 1990s by betting $US10 billion it would fall. He made a quick billion when it did. In 2002, he warned that the greenback was in danger of losing a third of its value. Of course, it could be argued that Soros is a professional hedge fund manager whose job is to play the ups and downs of currencies and his remarks could be seen more as manipulation than prophecy. And yet, in conversations with me, Soros has expressed concern about the market fundamentalist view that prevails in Washington and parts of Wall Street.

"This is the belief that markets are self-correcting and best left alone. Soros calls this a dangerous siren song. Far from being self-correcting, he emphasises, markets tend to excess. They over-shoot. Anyone with any experience of markets knows this.

"When markets are going down, all the weaknesses get concentrated, and you need intervention at the right time to stop things from getting out of control. If the dollar started to melt down, the results could be really nasty. A 1930s-style global depression is not out of the question."

To underscore the point that he is not alone in this, Prestowitz cites Paul Volcker, head of the Federal Reserve before Greenspan, who has said publicly there is a 75 per cent chance of a dollar crash in the next five years.

"No wonder people look at this and say, 'Holy cow!'," he says. "No one knows for sure what will happen, but clearly the global markets could implode very quickly. The lack of an alternative to the dollar is the only reason it hasn't taken a big fall already."

Prestowitz, formerly a trade adviser and negotiator for former US president Ronald Reagan, believes the US will continue to be the world's most powerful economy for the foreseeable future. But he foreshadows an inexorable decline, a trend that is likely to continue "depending on the way we play our cards".

"Right now, we're playing them just about as badly as it's possible to play them, and that has geo-political implications." he says. "We've outsourced trying to deal with North Korea to China, we really can't deal with Iran, so we've outsourced that to the EU, which is struggling, and Iran is cozying up to China. Other bad actors like Zimbabwe's Robert Mugabe and Sudan are cozying up to China.

"America's global hegemony is already under challenge, and that challenge is going to become more and more evident as the extent of the relative US economic decline becomes evident. Right now, the US dollar is probably 40 per cent overvalued versus the Japanese yen or the Chinese renminbi. How's the US going to look as a global power when the dollar is at 50 per cent of its current value?"

Three Billion New Capitalists by Clyde Prestowitz is published by Basic Books at $US39.95


Related Story:
One Nation Under Debt - Craig Smith ... This month the U.S. national debt topped $7.8 Trillion, up from $5.8 Trillion in 2001. That's more seconds of time than God has created since Adam and Eve walked the earth! No wonder national savings rates are at ZERO -- the second-lowest since the Great Depression. Small wonder both mom and dad must work -- sometimes two jobs -- to support a family. Any wonder the U.S. middle class is so prone to borrow from the future to maintain a living standard modeled on the past? (You remember, back when "sound as a dollar" still rang true).

Survey: Money Causes a Third to Delay Retiring -Reuters
Aug. 26, 2005

A third of workers in the United States are having to push back retirement because they either did not save enough to live out their golden years or started too late, according to Fidelity Investments.

In a national survey of 1,900 workers ages 25 and older, the No. 1 mutual fund firm and a big player in the retirement industry found that more than half of those workers who have had to postpone retirement have done so because they did not save enough.

Thirty-five percent said they had started saving too late in life, and about the same number had to keep working to hold on to employer-paid health benefits, according to the survey released this week.

About one-quarter said their delayed retirement was caused by poor investment decisions or market fluctuations that caused a shortage of money.

"Too many people are delaying their retirement dreams for lack of planning and adequate savings," said Jeff Carney, president of Fidelity Personal Investments.

Fidelity, like others in the financial service industry, has long said Americans were not putting enough aside for retirement.


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Feds seize $10M in coins, owner to sue -CNN
After a family asks U.S. Mint to authenticate 10 old coins, gov't grabs them. Potential value: $10M.
August 27, 2005

PHILADELPHIA (Reuters) - A Philadelphia antiques dealer plans to sue the U.S. Mint to recover rare gold coins worth millions of dollars that the federal government has seized because it says they were illegally obtained.

Ten "Double Eagle" $20 coins minted in 1933 were discovered in September in a Philadelphia antiques and jewelry store and voluntarily handed by its owners, the Langbord family, to the Mint for authentication.

In June, the Mint confirmed they were the coveted Double Eagles but informed the Langbords that the coins were being sent for safe-keeping to the U.S. Bullion Depository at Fort Knox, Kentucky, because the family had no right to them.

The coins have grail-like status for coin collectors. Only about 25 out of 445,500 are known to have survived destruction after the United States abandoned the gold standard in 1933 and ordered them melted down. Two of the coins were given to the Smithsonian Institution in Washington for display.

A few more survived, and the 10 recently discovered were obtained in 1937 by Israel Switt, an antiques dealer and ancestor of the Langbord family, in whose store the coins were found. Switt died in the 1980s.

Mint officials believe Switt got at least 20 of the coins from a cashier at the Philadelphia Mint who was later convicted of a crime relating to his work there.

One of Switt's coins is believed to have found its way to the former King Farouk of Egypt, and was auctioned to an anonymous buyer in 2002 for $7.59 million, the largest sum ever paid for a coin. In that case, the government retained title to the coin but agreed to split the proceeds because of a dispute over evidence, a Mint official said.

Barry Berke, a New York lawyer for the Langbord family, argues the Mint cannot prove the coins were illegally obtained and should return them to the family.

"We anticipate bringing litigation," he said on Thursday. "We do not think there is any basis in fact or law for the government's conduct." He said he would likely file suit in the next couple of months.

A Mint official, speaking to Reuters on condition of anonymity, said no such proof is needed because the coins were never issued and so always remained government property.

Mint officials say they will fight any lawsuit, and if they succeed the Double Eagles will be shown in museums.

"We believe there is an important principle at stake," the official said. "Someone should not be able to profit from the possession of stolen property."

Beth Deisher, editor of Coin World, estimated the Double Eagle coins could be worth around $1 million each. The coin sold in 2002 fetched a much higher price because of its history and because it was believed to be the only one in circulation.

Although 10 have come to light, "They are very special and in a class by themselves," she said.

Other extremely rare coins include the 1913 Liberty Nickel, one of which sold for $4.15 million last month, and the 1804 dollar, of which only 15 are known to exist.


Related Comment:
Kevin Lipton, owner of the prestigious Beverly Hills, CA Kevin Lipton Rare Coins had this comment, "What we appear to have is yet another example of the U.S. government overstepping it's boundaries, further alienating American citizens from conducting free trade of personal property."

Regarding the attorney for the Switt's comment that "there is no basis in fact or law for the government's conduct," Real Money Perspectives editor David Bradshaw says, "Section 5(b) of the 1933 Executive Order was used by F.D. Roosevelt to originally confiscate U.S. gold coins. Will the President or Treasury use this law (still on the books) against U.S. citizens again? Don't bet against it!" (Read more .. about your "Right to Own Gold")

Hydrocarbon Heresy: Rocks into Gas -Harvard
March 2005

Geologists have long believed that the world's supply of oil and natural gas came from the decay of primordial plant and animal matter, which, over the course of millions of years, turned into petroleum.

But new research coauthored by Dudley Herschbach, Baird research professor of science and recipient of the 1986 Nobel Prize in chemistry, questions that thinking. Published last fall in the Proceedings of the National Academy of Sciences, the study describes how investigators combined three abiotic (non-living) materials -- water (H2O), limestone (CaCO3), and iron oxide (FeO) -- and crushed the mixture together with the same intense pressure found deep below the earth's surface. This process created methane (CH4), the major component of natural gas. Herschbach says this offers evidence, although as yet far from proof, for a maverick theory that much of the world's supply of so-called fossil fuels may not derive from the decay of dinosaur-era organisms after all.

[Image: Two diamond anvils, each about 3 millimeters high, in a diamond anvil cell. They compress a small metal plate that holds the sample. The device can generate pressures greater than those in the center of the earth (3.6 million atmospheres) The methane generation experiments use pressures in the 50-100,000 atmosphere range, corresponding to the earth's upper mantle. Photograph courtesy of Dudley Herschbach]

Herschbach became interested in the origins of petroleum hydrocarbons while reading A Well-Ordered Thing, a book about the nineteenth-century Russian chemist Dmitri Mendeleev, who developed the periodic table. Written by Michael Gordin '96, Ph.D. '01, a current Junior Fellow, the book mentions a theory long held by Russian and Ukrainian geologists: that petroleum comes from reactions of water with other abiotic materials, and then bubbles up toward the earth's surface. Intrigued, Herschbach read further, including The Deep, Hot Bio-sphere by the late Cornell astrophysicist Thomas Gold. An iconoclast, Gold saw merit in the Russian and Ukrainian view that petroleum has nonliving origins. He theorized that organic materials found in oil -- which most scientists took as a sign that petroleum comes from living things -- may simply be waste matter from microbial organisms that feed on the hydrocarbons generated deep in the earth as these flow upward.

Another of Gold's assertions about methane and oil really caught Herschbach's attention. "He said there wasn't much chance that you could do a laboratory experiment to test this," Herschbach reports. "And I thought, 'Holy smoke! We could do this with the diamond anvil cell.'" Long interested in how molecules behave under high-pressure conditions, he contacted Russell Hemley, Ph.D. '83, a former student now at the Geophysical Laboratory at the Carnegie Institution of Washington, to suggest the methane experiment. Together with Henry Scott of Indiana University and other researchers, Herschbach sought to create the same conditions found 140 miles below the earth's surface, where temperatures are scorching and pressures mount to more than 50,000 times those at sea level. "It's a great pressure cooker," he explains.

The diamond anvil cell, developed at the Carnegie Institution, can create the same pressures found as far as 4,000 miles beneath the earth's surface. The cell employs two diamonds, each about three millimeters (roughly one-eighth-inch) high, which sit with their tips facing each other in hardened precision frames that are forced together, creating intense pressure in the small space between the tips. Diamonds are an ideal material for such experiments, Herschbach explains. As one of the hardest substances on earth, they can withstand the tremendous force, and because they're transparent, scientists can use beams of light and X-rays to identify what's inside the cell without pulling the diamonds apart. He notes that previous experiments by Russian scientists arrived at different conclusions because they used an old-fashioned press that had to be opened before any products inside could be analyzed, potentially changing the results.

"The experiment showed it's easy to make methane," Herschbach says. The new findings may serve to corroborate other evidence, cited by Gold, that some of the earth's reservoirs of oil appear to refill as they're pumped out, suggesting that petroleum may be continually generated. This could have broad implications for petroleum production and consumption, and for our planet's ecology and economy.

But before we begin to think of petroleum as a renewable resource, Herschbach urges caution. "We don't know if a globally significant or commercially significant portion of methane might be formed abiotically from this pressure-cooker business," he says. "Even if we did convince ourselves that a lot of hydrocarbons are formed that way, we don't yet know how long it takes for it to percolate up and refill the reservoirs."

For Herschbach, these exciting research questions have "given me a second scientific childhood." He and his colleagues are eager to return to the lab and find out if even higher pressures will create more complex hydrocarbons, such as butane or propane. The research raises fundamental questions about how scientists determine if a material has living or nonliving origins. It also validates the work of previous scientists. "The fair conclusion," Herschbach says, "is that the views of Thomas Gold and Russian scientists all the way back to Mendeleev need to be taken more seriously than they have been in the Western world."

~Erin O'Donnell

Dudley Herschbach e-mail address: herschbach@chemistry.harvard.edu

Related Story:
$5 gas by 2006, unless...the "running out of oil scare" is debunked fast By Craig R. Smith ... "Peak oil is coming in November, and could bring humankind to the brink." -Kenneth Deffeyes, ex-Princeton professor, "Peak oil' spells cataclysm for US, oil theorist warns" -Oregonian 8/26/05

Greenspan sees a bad end to low-risk boom -USAT
From wire reports
Aug. 26, 2005

JACKSON, Wyo. � Federal Reserve Chairman Alan Greenspan said Friday that the central bank is paying increasing attention to the rising prices of homes and stocks because they are having a growing impact on world economic activity.

He warned also that the buying power fueled by higher prices for such assets could disappear if investors turn cautious.

In remarks prepared for delivery to the annual central bank symposium sponsored by the Kansas City Federal Reserve, the Fed chief said the vast increase in market value of assets stemmed partly from faith that economic risks are low.

"Such an increase in market value is too often viewed by market participants as structural and permanent," said Greenspan, who is due to step down as the U.S. central bank's chairman at the end of January. "To some extent, those higher values may be reflecting the increased flexibility and resilience of our economy."

But he said, that "newly abundant liquidity can readily disappear" if investors grow wary for some reason and demand a higher risk premium for lending.

Greenspan said increased investor caution, by elevating the premiums investors demand to compensate for risk, could lead to a swift reversal in asset values if it forced the liquidation of debts that support them.

"This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums," he said.

Greenspan said the Fed has to focus on such issues because global economic activity is being influenced by capital gains on various types of assets and on the debt that sustains them.

"Our forecasts and hence policy are becoming increasingly driven by asset price changes," the Fed chief said.

Economists say his remarks indicate the Fed will press on with its steady-as-she-goes rate rise campaign.

"From his comments, it is clear that the Fed will keep raising rates, hoping to bring the housing market to a very soft landing," said Drew Matus, an economist at Lehman Brothers in New York.

In wide-ranging remarks that touched on the changes in policymaking over his 18-year tenure, the Fed chairman said the U.S. central bank has moved toward a risk-management approach as globalization has become more important.

"Forecasts of change in the global economic structure � for that is what we are now required to construct � can usefully be described only in probabilistic terms," he said. "In other words, point forecasts need to be supplemented by a clear understanding of the nature and magnitude of the risks that surround them."


Gold extends rally, up $10 on weak buck -MW
By Leslie Wines, MarketWatch
Sept. 1, 2005

NEW YORK (MarketWatch) - Gold futures rallied Thursday, extending the prior day's sharp advance as it continued to benefit from the dollar's recent weakness, escalating violence in Iraq and higher energy prices.

The December gold contract last was quoted up $10.60 at $448.70 an ounce.

Peter Grandich, editor of the Grandich Letter, said gold futures continue to draw strength from the dollar's weakness. Gold, a traditional safe-haven investment, frequently trades in the opposite direction of the dollar.

The dollar is approaching some key technical levels and could drop considerably further if its breaks those levels, he said.

In addition, he predicted that the aftermath of Hurricane Katrina is likely to pressure the dollar further because the devastation in Gulf Coast states may persuade the Federal Reserve to back away from its current program of small, steady rate increases.

On Thursday dollar softness was linked to rising oil prices stemming from economic uncertainty as investors sorted reports about the severe destruction brought on by Katrina.

James Moore, editor of TheBullionDesk.com, said gold's rise on Wednesday and Thursday reflected "data-related pressure on the dollar, an increase in tension in Iraq, and ongoing price rises in the energy market."

Other metals were driven higher in gold's wake, with September silver futures rising 18.9 cents to $6.97 an ounce and copper futures up 2.05 cents at $1.714 a pound.


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Experts: $4 a gallon gas coming soon -CNN
Pricing analysts say consumers can expect even higher prices at the pump.
August 31, 2005
By Grace Wong, CNN/Money staff writer

NEW YORK (CNN/Money) - Consumers can expect retail gas prices to rise to $4 a gallon soon but whether they stay there depends on the long-term damage to oil facilities from Hurricane Katrina, oil and gas analysts said Wednesday.

"There's no question gas will hit $4 a gallon," Ben Brockwell, director of pricing at the Oil Price Information Service, said. "The question is how high will it go and how long will it last?"

OPIS tracks wholesale and retail oil prices and provides pricing information for AAA's daily reports on fuel prices.

Brockwell said with gasoline prices now exceeding $3 a gallon before even reaching the wholesale level, it "doesn't take a genius" to expect retail prices to hit $4 a gallon soon.

"Consumers haven't seen the worst of it yet," Brockwell said.

He expects consumers in the Southeast and Northeast to be pinched first, following the impact of Hurricane Katrina on the Gulf Coast region.

Katrina forced operators to close more than a tenth of the country's refining capacity and a quarter of its oil production, which sent gasoline prices surging.

"With this kind of hiccup in refinery capacity, in stretched markets like California, you could see over $4 a gallon in gas," Evan Smith, an analyst at U.S. Global Investors, told CNN/Money.


Treasury Claims Power to Seize Gold -GATA
Silver--and Everything Else, GATA Says

MANCHESTER, Conn.--(BUSINESS WIRE)--Aug. 22, 2005--The U.S. Government has the authority to prohibit the private possession of gold and silver coin and bullion by U.S. citizens during wartime, and, during wartime and declared emergencies, to freeze their ownership of shares of mining companies, the Treasury Department has told the Gold Anti-Trust Action Committee.

But gold and silver owners aren't alone in such jeopardy.

For the U.S. Government claims the authority in declared emergencies to seize or freeze just about everything else that might be considered a financial instrument.

The Treasury Department's assertions came in a letter to GATA dated August 12 and written by Sean M. Thornton, chief counsel for the department's Office of Foreign Assets Control, who replied to questions GATA posed to the department in January. It took GATA six months and some prodding to get answers from the Treasury, but the Treasury's reply, when it came, was remarkably comprehensive and candid.

The government's authority to interfere with the ownership of gold, silver, and mining shares arises, Thornton wrote, from the Trading With the Enemy Act, which became law in 1917 during World War I and applies during declared wars, and from 1977's International Emergency Economic Powers Act, which can be applied without declared wars.

When the Trading With the Enemy Act was passed in 1917, gold and silver formed part of the official currency of the United States and were essential to ordinary commerce, so perhaps an argument could be made then against "hoarding," even if "hoarding" could not be well defined. That is no longer the case; the United States has officially disavowed gold and silver as money and they no longer have a meaningful role in commerce. (GATA is working on that.) So gold and silver investors may want to ask their members of Congress to seek repeal of the statutes that give the government the authority to interfere with the private ownership of gold and silver, emergencies or not.

And ordinary citizens with no particular interest in gold and silver may want to ask their members of Congress to reconsider these statutes simply for being wildly tyrannical.

GATA's correspondence with the Treasury Department is posted on the Internet HERE


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Special Report: THE RIGHT TO OWN GOLD Are We About To Lose It ... Again?
...Dr. Franz Pick, the noted currency expert and author of The Triumph Of Gold, feared confiscation. He said: "I am afraid that one day the government will indeed call gold in. Gold bullion will be subject to confiscation. "

Big debt imperils economy -AP
Feds, citizens share a spendthrift attitude
Robert Tanner, Associated Press
Aug. 22, 2005

You owe $145,000, and the bill is rising every day.

That's how much it would cost every American man, woman and child to pay the tab for the long-term promises the U.S. government has made to creditors, retirees, veterans and the poor.

And it's not even taking into account credit-card bills, mortgages, all the debt we've racked up personally. Savings? The average American puts away barely $1 of every $100 earned.

Our profligate ways at home are mirrored in Washington and in the global marketplace, where as a society we spend $1.9 billion more a day on imported clothes and cars and gadgets than the entire rest of the world spends on its goods and services.

A new Associated Press/Ipsos poll says that barely a third of Americans would cut spending to reduce the federal deficit and that even fewer would raise taxes.

A chorus of economists, government officials and elected leaders both conservative and liberal are warning that non-stop borrowing could bring fiscal disaster, one that could unleash plummeting home values, rocketing interest rates, lost jobs and threats to government services ranging from health care to law enforcement.

David Walker, who audits the federal government's books as the U.S. comptroller general, puts it starkly:

"I believe the country faces a critical crossroad and that the decisions that are made or not made within the next 10 years or so will have a profound effect on the future of our country, our children and our grandchildren. The problem gets bigger every day, and the tidal wave gets closer every day."

An epidemic of American indebtedness runs from home to government to global marketplace.

To examine it, let's start at home.

Americans used to save, but no longer. The savings rate rose and fell in the post-World War II era, up to 11 percent, down to 7 percent.

But in the past few years, savings have plummeted to just 1.8 percent last year, nearly to zero in the past few months.

The lack of savings is mirrored by a rise in debt. In 2000, household debt broke 18 percent of disposable income for the first time in 20 years, meaning debt eats almost $1 in every $5 American families have to spend after they get past the bills that keep them fed and housed.

An Associated Press/Ipsos poll of 1,000 adults taken July 5-7 indicated that a sweeping majority, 70 percent, worried about the size of the federal deficit either "some" or "a lot."

But only about a third, 35 percent, were willing to cut government spending and deal with a drop in services to balance the budget.

Even fewer, 18 percent, were willing to raise taxes to keep current services. Just 1 percent wanted to both raise taxes and cut spending. The poll had a margin of error of 3 percentage points.

A few years ago, government finances were the strongest they had been in a generation. But it didn't last. The budget surplus of $236 billion in 2000 turned into a deficit of $412 billion last year. The government had to borrow that much to cover the hole between what it took in and what it had to spend, a difference that's called the federal deficit.

Blame the bust of the dot-com boom, the ensuing recession, President Bush's federal tax cuts, the Sept. 11 terrorist attacks and the subsequent wars in Afghanistan and Iraq.

But bigger worries lie ahead.

The nation's three biggest entitlement programs - Social Security, Medicare and Medicaid - make promises for retirement and health care that carry a huge price tag that balloons as the population grows and ages.

Add it up: current debt and deficit, promises for those big programs, pensions, veterans health care. The total comes to $43 trillion, says Walker, the nation's comptroller general, who runs the Government Accountability Office. That's where the $145,000 bill for every American comes from.

The overseas equation gives many other economists the biggest scare.

The trade deficit, the difference between what America imports and what it exports, is the highest it has ever been, both in absolute numbers and in comparison to the size the economy.

Economists and business leaders are closely watching China's decision last month to uncouple the value of its currency, the yuan, from the dollar and tie it instead to a basket of different currencies.

The move could make the dollar's position less exposed to a quick shift by international investors, or it could spur investors to look elsewhere and leave the U.S. position even more precarious.

So could any of a number of possible economic shocks, even greater hikes in oil prices, a major terrorist attack, another war.

In the end, some say, disaster is still avoidable, but it's going to require the American people and its leaders to clean financial house, to reduce the federal deficit and the trade deficit.

If not, the future poses some frightening what-ifs:

If the dollar plummets, do stocks follow? What if interest rates soar, what happens to homeowners and home values? How would government keep all its promises?

The pressure is building to straighten out our finances.



FOREWARD -- $5 gas by 2006, unless...
...the "running out of oil scare" is debunked fast.
By Craig R. Smith
Aug. 29, 2005

"Peak oil is coming in November, and could bring humankind to the brink."
-Kenneth Deffeyes, ex-Princeton professor, "Peak oil' spells cataclysm for US, oil theorist warns" -Oregonian 8/26/05-
Peak Oil search

Michael Economides, Professor of Petroleum Engineering at University of Houston was on CNBC last week predicting $100 per barrel oil in 2006. His reasoning was similar to mine regarding supply demand issues and Middle East "wild cards". I recently told CBS Early Show that I think we'll see $80 oil before we see $50 oil again. Goldman Saks now predicts $105 as a "peak oil".

The term "Peak Oil" refers to "Hubbert's Peak", a bell shaped curve which geologist theorize marks the beginning of the end of plentiful oil forever.

But today I want to present some fresh food for thought about our emerging "oil crisis".

According to the mainstream view, peak oil is set to occur around 2006-2008. When peak oil occurs, experts say production will decline approximately 3% per year during a time when global demand is increasing at 3% or more per year. At that point oil could soar to $150-$200 per barrel, say the oil crisis experts.

But what if these experts are all wrong? What if oil is not really as scarce of a resource as we have been led to believe? Keep in mind that ever since automobiles were first invented, we've had predictions that we're going to run out of oil, yet so far, they've all proven to be wrong.

Imagine with me for a moment that the whole story behind the "running out of oil scare" is also based on a faulty theory. That's the premise of my upcoming book, Black Gold Stranglehold: The Myth of Scarcity and the Politics of Oil co-written with Dr. Jerome Corsi for release in October 2005.

The Fossil Fuel Theory

The predominant theory is that oil is a "fossil fuel," produced from decaying pre-historic forests. Since pre-historic forests would be a limited resource, it follows that oil would also be a limited resource. So, the theory goes that eventually we will use up all the oil reserves, especially given the increasing demands of an industrialized world where the US must now compete with countries like China and India for available oil supplies.

Here's the problem: this theory fails to take into account available evidence. Despite increased oil demand, the amount of proven oil reserves in the world has never been larger. There is now credible scientific evidence suggesting that the earth produces oil on an on-going basis and that its origin has nothing to do with fossils or pre-historic forests.

The work of Dr. Thomas Gold has generated an alternative theory, whose premise is that oil is produced by a continuing bio-chemical action below the surface of the earth, and that oil is forced to the surface of the earth by the centrifugal force resulting from the earth's rotation.

In Black Gold Stranglehold, we systematically expose the fraudulent science that has made America so vulnerable to ongoing oil shocks: the belief that oil is a fossil fuel and that it is a finite resource.

The politics of oil

Americans now consume more than 25 percent of the world's oil, but have control over less than 3 percent of its proven oil supply. This unbalanced pattern of consumption makes it possible for foreign governments, corrupt political leaders, terrorist organizations, and oil conglomerates to hold the economy and the citizens of the United States in a virtual stranglehold.

Oil producing countries and oil companies have worked hard to perpetuate the myth of oil as a scarce resource in order to keep the price of oil high. There is no greater proof of this than the direct relationship between skyrocketing gas prices and the explosion of wealth among those who control the world's supply of oil.

Liberal politicians buying into the idea that oil must be conserved have demanded that billions be spent on energy conservation, and have resisted our using proven oil resources such as those discovered in Alaska. [See "'Godforsaken' ANWR: To drill or not to drill?].

Today there are 100 years of proven reserves fully discovered. We should use that oil now, making sure enough is constantly on the market to maintain reasonable prices.

One hundred years ago, our primary method of transportation depended upon utilizing horses and burning coal. One hundred years from now will be sufficient time to develop safe alternatives, including solar and nuclear power, as well as alternative liquid fuels.

With oil now cresting $70 a barrel, unless the U.S. makes some serious moves to obtain and develop significant oil assets, we will see economies like China and India continue to grow while we shrink.

Will we hit $5 per gallon gas? Unless we begin more exploration for deep-earth oil, I fear the answer is yes. Keep in mind that gas is already over $4-$5 per gallon in the top 10 most expensive cities in the world including Hong Kong, London, Paris, Amsterdam, and Seoul. More on what can be done to offset rising gas prices next week.

Related Special Report
... Each 1-cent rise in gas prices sucks $1.3 billion a year from consumer spending, and each $10/gal rise in oil cuts GDP .4%! It's a simple supply-demand issue: China and India are sucking up the world supply...which drives prices up... fueling runaway inflation... which threatens to crush your investment strategy, unless action is taken now! Here's what to do NOW...

INFLATION JOLT: Twice What "Experts" Expected
The true rate, cause, and cure for the rising cost of living
By Craig R. Smith
Aug. 22, 2005

"We've had a taste of inflation today...Dollars are worth less and less, and ultimately less, bringing the ruination of nations. When Germans needed a wheel barrel of currency to buy a loaf of bread, their frustration paved the way for Hitler."
-PAUL HARVEY, 5-17-05 Afternoon broadcast

When a highly respected radio commentator like Paul Harvey equates the social, political and economic threat posed by higher inflation to the rise of Hitler's Third Reich, it's time we understand what's really going on and what, if anything, can be done to overcome it.


For years we've been told "Inflation is NO problem!" But let's apply some plain old common sense to discern the true rate of inflation. Just over the past year... (Compare to chart of 2004 increases)

* Energy is up 45%
* Health Care is up 22%,
* College Tuition is up 18-30%
* Commodities are up 16%
* Housing is up 12%

Common sense tell us the true rate of inflation should be much higher than 2-3% -- which is what government stats and most economic experts still maintain today. (What planet do these guys live on anyway?)

The "official" government wholesale inflation indicator (PPI) for July jolted the market last week, showing inflation at twice the rate expected by economists -- a startling 12% annualized. Media pundits were quick to blame it all on the temporary oil price spike.

But using common sense, I calculate the true rate of inflation at between 6-7% -- about double the "official" rate -- which does not reflect real world cost of living increases. (See In whose numbers do you trust?).


"There is no surer way of overturning a society, than to debauch the currency.' The process engages all the hidden forces of economic law on the side of destruction, and does so in such a manner than only one man in a million is able to diagnose it.� Lenin was certainly right". -John Maynard Keynes, The Economic Consequences of Peace

Inflation is officially defined as a "sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase." But is that the whole story?

Is inflation just caused by greedy businessmen wanting more profit? Or, could it be The Federal Reserve, in concert with the U.S. government, actually promotes the real engine of inflation -- printing too much paper money?

The true source of inflation is the FEDERAL RESERVE, which creates more and more paper "dollars" to stimulate the economy, yet are simultaneously reducing the value of every dollar that every American has saved or invested. This monetary inflation begets asset inflation, which can be seen clearly in the "extremely overvalued" real estate market.

A deceptively low "official" inflation number hurts everyone, but especially those who rely on SSI and fixed retirement incomes. Cost-of-living income adjustments based on artificially low government CPI and PPI figures will never be able to keep pace with higher "real world" prices. No wonder our national saving rates recently hit zero again.

Inflation is the number one enemy of your financial plans for the future and of the generations to come. My rule of thumb is; take the official inflation rate and double it.


"Inflation is like sin; every government denounces it and every government practices it."

Monetary theft is not limited to governments; the stealing of money can be seen in such ancient practices as the clipping of coins and the abasing of metals. That is why coins with a milled rim became popular starting in 1685. These early types of inflation have been succeeded by "fiat" (false) money inflation.

Finding financial numbers you can trust can be as much of a struggle as finding a financial advisor you can trust. Discovering "real world" statistics involves stripping out the political-financial spin by crosschecking the numbers with multiple sources. This takes time and energy, but the alternative is to passively take a loss year after year.

My fear is when U.S. consumers finally wake up to the realities of inflation, they will suddenly find themselves too far behind the curve to do anything about it.

I suggest keeping an eye on gold prices, as another trustworthy indicator of real world inflation. Gold is up about 6% so far this year, so it's safe to say inflation is at least 6%. Gold prices are now up 60% since 2001 -- I consider that as inflation "proof". Alan Greenspan says, "If you want to know where interest rates are going, watch gold."

As an interesting side note, the word "gold" in the Bible is often preceded by the word "pure." Yet gold is not found in a state of purity, instead, it must be refined before it's fit for use. No wonder gold (and silver) coins have faithfully served as the world's only inflation-proof money for over 6,000 years that can't be printed by any government!

For more tips on overcoming inflation, read my newest 10-page Special Report: Real World Inflation Solutions.

5 bucks a gallon for gas? Expert sees it in 2006 -SunTimes
Aug 17, 2005
BY MARK J. KONKOL, Transportation Reporter

If you think all this flirting with $3-a-gallon gas is already a pain in the pocketbook, brace yourself.

Oil expert Craig Smith predicts gas prices will skyrocket next year, jumping to five bucks a gallon.

And if terrorists successfully strike a major Middle East oil field, Americans might end up paying $10 a gallon -- about $110 to fill a Ford Focus' 11-gallon tank.

Smith, a self-proclaimed geopolitical know-it-all hawking his new book "Black Gold Stranglehold," says Americans -- tree-hugging politicians and car-addicted commuters alike -- should blame themselves for the coming spike in prices.

"Why are they charging higher prices for gas? Because people will pay it. Apparently, we're not changing our driving habits much," he said. "Blame this on ourselves. This country has not built a new refinery in 30 years, we stopped new oil exploration . . . and put a moratorium on offshore drilling."

Smith -- who last year predicted $3-a-gallon gas and $65-a-barrel crude oil prices this year -- says oil prices will jump to $80 a gallon by the end of 2006.

On Tuesday, the national average was $2.52 a gallon, according to AAA. And the price of gas topped $3 here last week.

If you don't believe the average cost of gas will double in 12 months, Smith points to places such as Hong Kong, Korea and France, where gas prices regularly top the $5 mark.

The solution here for high oil prices: "find it, drill it, refine it and burn it" domestically, Smith said, pointing to untapped crude reserves in Alaska, Colorado, Utah, off the California coast and in the Gulf of Mexico.


Related Stories:
"THE PRICE OF GAS" -CBS Early Show with Craig Smith (Watch 3 min. video segment)from 8-20-05. Craig discusses why we are on a trajectory toward $5 gas. Also mentioned is his upcoming book "Black Gold Stranglehold" in October 2005.

8-23-05 -- Some oil money is up to no good - David J. Lynch, USA TODAY ... In case $3-per-gallon gas isn't depressing enough, consider what your gas money pays for: A bull market in Saudi stocks. Handouts for Fidel Castro. And weapons for anti-American terrorists. Oil-producing states haven't seen a windfall like this since the twin price shocks of the 1970s.

Equity Is Altering Spending Habits and View of Debt -LA Times
Mortgages used to be something people strove to pay off. Now they've become income tools, but risky ones, some financial analysts say.
By David Streitfeld, Times Staff Writer
Aug. 28, 2005

As they happily watch their houses swell in value, Americans are changing their attitudes toward mortgage debt. Increasingly, a home is no longer a nest egg whose equity should never be touched, but a seemingly magical ATM enabling the owner to live it up or just live.

Homeowners took $59 billion in cash out of their houses in the second quarter, double the amount in the 2004 quarter and 16 times the average rate of the mid-1990s, according to data released this month by mortgage giant Freddie Mac.

People are cashing out so quickly that the term "homeowner" may soon be inaccurate. Fifty years ago, Americans owned, on average, three-quarters of their house and the lender owned the rest. These days, it's approaching an even split.

This spend-now-rather-than-save-for-later phenomenon has produced undeniable benefits. Experts attribute much of the nation's economic growth to cash-out refinancings, home equity loans and other methods of tapping rising home values. And additional real estate investments financed by home equity have contributed to the rising home prices that bring owners such pleasure.

But the spending spree has a price. With the savings rate at zero, consumers' eagerness to tap home equity is only worsening their retirement outlook, financial advisors say.

If mortgage rates rise sharply or home prices fall, many homeowners could be in financial turmoil. They may be unable to service their loans, or could even find that their homes are worth less than their mortgages.

Such a prospect seems unimaginably distant to Doug Levy, a university administrator in San Francisco.

When his two-bedroom condominium rose in value by 10%, which took nine months in the hot Bay Area real estate market, Levy refinanced. That increased the size of his mortgage but gave him $25,000 to pay bills and take a modest skiing vacation in British Columbia. He's considering tapping his equity again if his condo continues to appreciate.

"It's like I'm sleeping in my piggy bank," said Levy, 44. "In this market, real estate is a liquid asset."

Bill and Barbara Brockmann have a different view of their house. The retired Huntington Beach couple is sitting on half a million dollars of equity, but they're ignoring it. They aren't drawing on it to buy a new car or invest in a condo in Miami.

"I don't like debt," said Bill Brockmann, 79. "I don't buy anything I can't pay for."

Such thriftiness has gone out of fashion. What was once considered undesirable (taking on large debt) is now seen as smart. And what used to be smart (becoming debt-free) is described as imprudent.

"If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years," said David Lereah, chief economist of the National Association of Realtors and author of "Are You Missing the Real Estate Boom?" "It's as if you had 500,000 dollar bills stuffed in your mattress."

He called it "very unsophisticated."

Anthony Hsieh, chief executive of LendingTree Loans, an Internet-based mortgage company, used a more disparaging term. "If you own your own home free and clear, people will often refer to you as a fool. All that money sitting there, doing nothing."


Related Story:
ONE NATION UNDER DEBT, Introduction -Craig R. Smith, SATC ... As of August 2005, in addition to your mortgage, auto, credit card and other personal debt, YOU OWE $26,598! It's true! That's your portion of the nearly $8 Trillion U.S. debt, shared equally by 300 million other Americans. And, if you're the breadwinner of a family of four, that amounts to a whooping $106,393 per household!

If 'Bubble' Bursts, Greenspan Legacy May Deflate -Bill Sing, LA Times
Aug. 26, 2005

As central bankers and prominent economists gather today in Wyoming to assess Alan Greenspan's 18-year stewardship of the U.S. economy, the Federal Reserve chairman is expected to win widespread plaudits for fostering solid economic growth while deftly managing several financial crises.

But the final chapter of Greenspan's legacy might be based on how well the central bank manages what many experts say is a crisis looming on the horizon: a housing bubble.

Many experts say the nation's real estate market draws disturbing similarities to stocks in the late 1990s, a market driven to unsustainable price levels by what Greenspan famously called "irrational exuberance." They fear a similar ending: a sharp fall in prices that could bite the net worth of many Americans and trigger a recession.

And some experts say Greenspan deserves at least some of the blame for fostering housing market conditions that the Fed chairman himself has called "frothy." The Fed, they say, hasn't done enough to damp real estate speculation, while maintaining cheap credit for too long.

Although Greenspan has warned of the pitfalls of "interest only" loans and other riskier mortgages, the central bank should be doing more to tighten lending standards and discourage their use, these experts say.

"The Fed deserves some criticism for its handling of the stock bubble and now the housing bubble," says Mark Zandi, chief economist for Economy.com, a research firm in West Chester, Pa. Among other things, Zandi says, Greenspan should be "talking more forcefully" about housing conditions while tightening lending standards.

"The more he waits, the more the bubble inflates, the more risk" of a blowup, Zandi says.

The issue of how the central bank handles any housing bubble is expected to be discussed at the 29th annual Fed conference in Jackson Hole, Wyo. It will be the 79-year-old chairman's last official appearance at the prestigious two-day gathering before his retirement in January.

The conference, hosted by the Federal Reserve Bank of Kansas City, has become one of the most important forums to discuss key economic issues. And this year's theme, "The Greenspan Era: Lessons for the Future," is expected to fuel speculation about who will succeed the second-longest-serving Fed chairman.

Three prominent economists often cited as among the leading contenders are expected to attend the gathering. They are Martin Feldstein, a former Reagan administration economic advisor and now a Harvard University economist; Ben Bernanke, a former Fed official and now chairman of President Bush's Council of Economic Advisors; and Glenn Hubbard, Bush's top economic advisor during his first term and now dean of Columbia University's business school.

Many economists who praise Greenspan's overall record nonetheless are critical of his handling of the housing market.


Pat Boone: U.S. 'sitting duck' for next 9-11 -WND
August 25, 2005

Music legend Pat Boone is blasting the peace message of Cindy Sheehan and other anti-war activists, claiming their rhetoric is making the U.S. more vulnerable to future terrorist attacks.

"This lady and the groups that have been demonstrating in front of the president's ranch in Crawford and following him around are the very same people that were the dropout, turn-on, anti-war peace activists back [in the Vietnam War era]," Boone said. "They still have this crazy notion that by just being peaceful and maybe toking up or something like that it's like an ostrich with its head in the sand, maybe the danger and the bad guys will go away and leave you alone, which is not gonna happen."

The original "American Idol," who sold more records than any other pop artist in the 1950s except Elvis Presley, said no one likes war, and he wishes it were not the answer.

"But, look," he said, "when [terrorists] destroy the World Trade Center right in front of your eyes in Manhattan and you know they're going to do the same and worse things, to just sit back and say 'Oh, let's try not to make 'em mad at us, let's don't rock the boat, let's just say peace is the answer, we love you, we love you' ... we're just sitting ducks. More World Trade Centers, more 9-11s are gonna happen unless we try to take the battle to them on their turf instead of letting 'em bring it to us on ours."

Boone, a descendant of American frontier hero Daniel Boone and father of pop star Debby Boone, made the remarks yesterday on "Farah Live," the nationally broadcast radio show hosted by WND founder Joseph Farah, while Cindy Sheehan was returning to Crawford, Texas, to continue her quest for a second meeting with President Bush.

During the program, Boone, a well-known Christian, took a strong stand against evolution, mocking the notion the U.S. would become some kind of repressive society if the theory of evolution were not taught in schools, and he supported the teaching of "intelligent design."

"The idea that all of this could have happened mindlessly with no blueprint is sheer stupidity and very unscientific."

He cited America's founding documents, quoting the Declaration of Independence as he stressed, "We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator ... ."

"That's how opposed to God Thomas Jefferson, who wrote that, was. Yet he is credited with trying to keep all mention of God out of public life. I wish Jefferson could be back here today just for 30 minutes to set things straight."

Now at age 71, Boone has become politically active with a group called the "60 Plus Association," a non-partisan seniors advocacy group which supports an abolition of the death tax.

"Taking people's hard-earned savings from them when they have the poor judgment to die," lamented Boone, "the government steps in and takes half of everything they had already paid tax on and saved."

Over his career, Boone has appeared in over a dozen films including the 1959 science-fiction classic "Journey to the Center of the Earth."

Pat Boone featured on cover of Rolling Stone, Jan. 29, 1976

With 38 Top-40 hits on the music charts and selling over 45 million units, Boone is ranked the No. 10 rock artist in history, higher than Madonna and Billy Joel, and is looking to mark his 50th year in the entertainment industry in a special way.

"My main goal is to hit the charts with five albums in one year, and that's something nobody's ever even thought about, much less done."

To that end, he's releasing "American Glory," a collection of patriotic songs, with one titled "Under God," a response to California atheist Michael Newdow who has tried to remove the phrase from the Pledge of Allegiance.

The other four include a NASCAR-themed rock album, a gospel collection, love songs and Rhythm & Blues classics where Boone is joined by stars such as Smokey Robinson and James Brown.

Despite his recording success, Boone has not been inducted into the Rock and Roll Hall of Fame, though there is an online effort pushing for his inclusion.


Oil, Gold and Inflation -Eric Hommelberg
Aug. 19, 2005

Well, let's start off by examining the correlation between gold and oil itself. In order to do so I've charted gold against oil in 2005 dollars. Please take peek at the Gold vs Oil chart below and see how stunning the correlation really is.

No matter how you look at this chart, you simply can't deny a very strong correlation between gold and oil. A strong correlation means a constant ratio which happens to be 16:1 over the last 35 years.

Now at the end of this chart you'll notice that gold is lagging the price of oil. According to this chart a price of gold exceeding $800 dollars shouldn't be categorized as abnormal. This becomes more evident when looking at the Gold/Oil ratio chart.

Now that we've seen how important oil is for our entire society and what rising oil prices could do to the economy and what consequences that could have on gold let's try to focus more on the immediate consequences of rising oil prices.

Again, let me state that things are far more complicated than a simple commodity rising in price due to its own scarcity. We're living in an oil based society, almost everything you see around has its roots in oil. More than 80% of all manufactured goods are indirectly oil-related. The cost of food-production is oil related (pesticides, fertilizers, transport), the list goes on and on so it ain't hard to understand that rising oil prices will cause a general price increases for tonnes of stuff thereby fueling inflation.

In fact the latest PPI report confirms that inflation is picking up steam due to higher energy prices.

So if higher energy costs do cause inflation we should expect a strong correlation between historic oil and inflation numbers right? Well, I've charted the oil price vs the inflation rate since 1970 and judge yourself, see chart below:

This chart shows a strong correlation between oil and inflation, the only anomaly we see is during the last couple of years where inflation didn't catch up with sharp rising oil prices. Inflation will catch up sooner or later since oil prices aren't likely to come down. The funny thing is however that inflation is picking up steam already but it just isn't being reported by government.

The government insists that there is NO INFLATION. They (government) even manage to come up with declining gasoline prices in their CPI statistics month after month in the face of sky-rocketing oil prices. Needless to say this is raising many eyebrows among respected market observers (eg PIMCO's Bill Gross), see also Chapter III GOLD & INFLATION).

Now that we've seen a strong correlation between rising oil prices and inflation let's have look at the correlation between inflation and gold. Is gold the ultimate hedge against inflation? Is there a strong correlation indeed? Well, just take peek at the chart below and judge yourself:

This chart proves beyond any doubt that there's a strong correlation indeed between gold and inflation.

Highlights :

* Oil prices do have a strong correlation with gold since oil prices do have a tremendous impact on the world economy and so on financial markets. Since gold is money and trades like money it will react to inflationary pressures caused by rising oil prices since gold is the ultimate safe heaven in times of economic weakness.

* The Gold/Oil ratio has dropped to such an extreme that buyers of gold could be very well on the right side of the trade for next coming years if oil prices do not come down.


Is Gold a Better Investment than Oil? -Bud Conrad

Oil has a similar important history in defining the value of the dollar; so much so that it is sometimes called "Black Gold." Because oil is universally exchanged for dollars, it could be argued that oil is one of the definers of the value of the dollar. Oil is, after all, the biggest-trading world commodity at an annual usage of 30 billion barrels, costing about $50 each for an annual market of $1.5 trillion. The war in Iraq has affected the price, and new concerns about the limits of supply are being discussed.

The US imports 75% of its petroleum; but owns only 2% of world reserves, while using 25% of world output. The growth of Asian demand has spurred overall world consumption, even as existing fields are being depleted. China's oil imports grew 35% last year. The Middle East owns 65% of the world's reserves, and the political difficulties in this area, and in other oil producing regions like Nigeria and Venezuela, are as serious as they have ever been. All the fundamentals have combined to drive oil price to record highs. The chart below shows the price of oil, which has now broken above the old record high in 1980 to $55 / bbl.

The pre-1973 stable price reflects a time when price was set by long-term contracts -- somewhat like gold. A squint at the stair-step prices through the 1970s indicates that this was not a freely-traded price that fluctuated with short-term forces, even after the dollar went off the gold standard. I have overlaid another calculation showing the historical oil price in today's dollars -- the Real Price of Oil. I applied the change in PPI finished goods to the price and calculated backward. We would be paying $70 in today's dollars to equal the price of crude at $40 in 1980. When we look at the price of oil in real terms, after inflation is removed, it is surprising that oil today is well below record price when inflation of the dollar is factored in. My interpretation is that the price is not as high as it could become judging from the fundamentals, which look more serious to me than they were in 1980. I think oil could be headed higher in the decade ahead.

So, which is a better long-term investment: oil or gold? To get an opinion on this, I have overlaid the price of each in the chart below. The scale for crude oil is on the right and gold on the left. We immediately see that oil has jumped ahead of gold in the last 4 years even as gold has risen. There are some interesting points along the way. Overall, we see similar patterns for the two prices. This is not particularly surprising; the movement was probably driven not so much by the changing fundamentals of oil and gold, but by the change in the base valuation of the dollar. There were of course, isolated events that affected the individual commodities -- the most prominent for oil being the short-term spike for Desert Storm in 1990 - but overall these have been less of a long-term price factor. Gold has moved off its low of $256/oz in 2001 to $430 in early 2005, but the price of oil has moved more.

To look more closely at oil compared to gold, I calculate the ratio of gold to oil in the chart below. I've drawn a straight line for the average ratio, which is about 15. There are a few minor points to recognize here. Firstly, when gold was first de-linked from the dollar, gold got ahead of oil. In fact, one could say that the link to oil kept the dollar at a high valuation.

Even as gold has risen, oil has gained more. The important conclusion is that gold is at a relative price that matches historical all-time lows. My interpretation is that gold could rise more than oil to return to the more typical ratio of 15. If that happened, gold would rise to15 times the recent oil price of $54, equating to $800/oz.

There are many drivers of both these items, political and financial, so I caution that the ratio data alone are only part of the story. The historical data presented here does suggest, however, that gold could be an even better investment than oil going forward. As you can see in my commentary, I also believe oil still has plenty of opportunity for prices rises in dollars. The driver behind both of these could be the growing inflationary pressures on the dollar. As Doug Casey has said, the dollar will eventually reach its intrinsic value, and both gold and oil will measure the milestones along the way to that end. It is really up to all of us to make our own decisions and to incorporate a lot more than this simple ratio, but I hope the revelation that gold is close to record low compared to oil is one more point of light that helps to understand our financial situation.


WWJA: Who Would Jesus Assassinate? -Marvin Olasky
August 25, 2005

Liberal reporters since 9-11 have frequently equated conservative Christians with Quran-thumping Muslims, but the differences between the two religions are huge. For example, Islam initially expanded through the slaughter of opponents, but Christianity grew through the martyrdom of believers -- and the apostle Paul taught Christians in Rome, "If your enemy is hungry, feed him; if he is thirsty, give him something to drink."

Early this week, Pat Robertson, on his long-running TV show "The 700 Club," seemed more Muslim than Christian when he suggested that U.S. operatives assassinate Venezuelan dictator Hugo Chavez. Yesterday, he said he was misinterpreted and was suggesting kidnapping, not necessarily assassination, but he already had caused an international furor by using the A-word.

The televangelist should have remembered Spiderman's message that "with great power comes great responsibility." By his blurting, Robertson aided Venezuelan autocrats such as Vice President Jose Vicente Rangel, who sarcastically said that assassination advocacy was "very Christian" and went on to argue that "religious fundamentalism is one of the great problems facing humanity."

National and international journalists also played up the story, often treating Robertson as if he were the Protestant pope, as did some Islamic groups. Under a press release heading, "Pat Robertson's Fatwa," the Muslim American Society screamed that "someone should remind the darling of the Christian Right about the Ten Commandments. About the one that says 'thou shall not kill.' If that had been a Muslim cleric talking about killing a head of state, you would have never heard the end of it."

(Actually, Muslim clerics have done more than talk -- their fatwa followers have murdered intellectuals such as Faraj Foda, Hussein Muruwwa, Mahmoud Taha and Al-Sadeq Al-Nayhoum, and U.S. reporters have largely ignored that.)

None of these prudential concerns would matter much if Pat Robertson were biblically correct in calling for assassination -- but it's hard to see either general or specific biblical warrant for his fatwa. In general, as Paul wrote to Timothy, Christians are to pray "for all people, for kings and all who are in high positions."

Hugo Chavez is an evil tyrant, but so were many Roman emperors -- and Paul told Romans to "bless those who persecute you. ... Repay no one evil for evil, but give thought to do what is honorable in the sight of all." Last time I looked, "assassin" was not on the general list of honorable callings. Wartime is different, but last time I looked, we weren't at war with Venezuela.

Applying Old Testament history to current politics is sometimes exegetically tricky, but the wartime assassinations in Judges 3 and 4 -- Jael hammering a tent peg into Sisera's brain, Ehud the left-handed man thrusting his sword into the fat belly of the king of Moab -- also do not provide warrant for taking out Hugo Chavez. Nor do any of Christ's words or deeds suggest a WWJA (Who Would Jesus Assassinate?) list.

The people most affected by last week's tempest, of course, were Venezuelans, one of whom wrote on www.worldmagblog.com of Chavez's demagoguery and election-rigging, but noted that "after decades of corruption and ignoring the needs of the poor, our country may deserve a leader like Chavez. The fact is that Venezuela needs revival; corruption ... is a way of life there. All potential leaders are corrupt, and we could end up with someone worse than Chavez. Pray for my people!" Prayer should also be for missionaries who now face greater danger.

God is the God of history. He raises up leaders and strikes them down. The Christian goal is to follow biblical principles, including "just war" ones, and not to create new orders. Christians who are careless bring dishonor to God's name by making many believe there is no difference between the pre-eminent religion of peace and the many religions of violence.



REAL MONEY PERSPECTIVES is Growing ~ Post RMP on YOUR website!

Welcome to the 21st century paradigm shift
-- from a "stock-driven era" to a new "commodity-driven era."

In "Economic Solutions for the 21st Century" you'll discover ...
* WHY YOU MUST OWN assets that offset a DECLINING DOLLAR
* WSJ SAYS: "You don't have to be rich to invest in COINS."
* WHY SILVER could rise to $50, $75 or even $100 per ounce.
* "ATOMIC IRAN" spells the beginning of a new U.S. "Dirty War"

ECONOMIC SOLUTIONS for the 21st Century -- FREE Offer! ($19.95 value) ... LISTEN: "A Must Read" ... LISTEN: "I SLEEP BETTER!" -Michael Savage

NEW!! -- The Future of Gold and Silver CD Offer! --
Craig Smith Interviews Bill Murphy, GATA -- Recorded: June 1, 2005 (30:00 trt) ... Bill Murphy, founder of The Gold Anti-Trust Action Committee, explains why gold should be $750 and silver $15 an ounce -- nearly twice current prices -- IF major bullion banks would finally stop their market manipulation!


David M. Bradshaw is Editor of REAL MONEY PERSPECTIVES, a new, syndicated daily financial/cultural news digest. In 2001, he published REDISCOVERING GOLD IN THE 21ST CENTURY: The Complete Guide to the Next Gold Rush and has been an economic commentator since 1987, when he produced the World Economic Perspectives radio show. In 2004, he produced "A CITIZEN'S GUIDE TO COUNTER-TERRORISM" a free-to-the-public educational resource on DVD and CD. In 2005, he released a new CD, "WHAT'S YOUR WORLDVIEW?" a one-hour CD sample from his 24-hour series, "THE BIG PICTURE: The Shape of Things to Come" discussing geopolitical, economic and spiritual trends in the 21st Century. MORE ... PERSONAL NOTE: Youngest daughter Braida Zoe (age 18 mo.) is now feeding herself, running, climbing and floating & swimming. Shown with her mom (and loving wife) Micki.

DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.

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