 | | The Daily Reckoning | Thursday, August 3, 2011 | - Congress cheers debt ceiling decision; Wall Street...not so much,
- Carbon nanotubes, graphene sheets, and the amazing properties therein,
- Plus, Bill Bonner on with the final installment of his Vancouver presentation
and plenty more...
.................................................................................................
Obama's Burning Shame Revealed Here...
This is the unspoken, burning shame that could kill Obama's presidency...
It could spell the end of his short political career...
It's all revealed in this extremely urgent and controversial documentary report >>
|  | | | The Fate of Inevitability | | The certain future of another declining empire. | |  | | Eric Fry |
Eric Fry, reporting from Laguna Beach, California...
Well, that was interesting!
Congress raised the debt ceiling yesterday, while stocks fell through the floor. The Senate voted "Yay" on the legislation, then passed it off to the President for his signature.
Washington was pleased with itself; Wall Street...not so much.
While our elected officials spent the afternoon applauding themselves for their "historic" performance on Capitol Hill, investors were hurling rotten tomatoes. The Dow Jones Industrial Average plummeted 265 points, the S&P 500 slipped into the red for the year, and the gold price rocketed $38.10 an ounce to a new record high of $1,638.40.
The debt ceiling vote probably did not inspire all the selling on Wall Street yesterday, but it certainly did not inspire any of the buying.
Our elected officials demonstrated once again that they are good for nothing (approximately), even on their best days. Not even the "revolutionary" Tea Party contingent could make a visible imprint on the ultimate outcome. It’s not their fault; it’s nobody’s fault in particular; but it’s everyone’s fault in general.
It is the fault of inevitability.
Democracies vote themselves perks and entitlements they cannot afford...until they go bankrupt. Empires, likewise, gorge themselves until their economies become starved for self-sustaining productivity.
So what hope is there for a democratic empire like America?
The Fates will not be denied. America will grow fat and happy until she cannot lift herself out of her La-Z-Boy to punch a time clock. She will vote herself perks she cannot afford until the day her creditors say, "Enough!" Her fate is certain; the day is unknowable.
But to get an idea what sort of fate may be coming our way, let’s cast a glance across the Atlantic.
While the U.S. stock market was tanking yesterday, bond yields around the periphery of the eurozone were soaring. (I.e., bond prices were falling). The PIIGS bond markets seemed to be saying, "Hey, if the U.S. cannot pass meaningful, debt-reducing legislation, what chance do we have?"
Good question.
The U.S. can always print its way to a kind of solvency. The eurozone nations cannot...at least not yet. (We have predicted -- and continue to predict -- that the drachma, escudo and punt will return to the stage within the next two or three years).
Greek bond prices have been tumbling for weeks - pushing short-term yields above 30%. But that’s old news. The newer news is that yields are also soaring in the relatively solvent nations of Italy and Spain. Two-year yields in these two countries are now rising faster than yields in Greece.
Admittedly, two-year yields in Spain and Italy are nowhere near Greek yields. But the trend is not comforting. And that’s not all...The very newest news is the nascent panic in the core of the euro zone. The chart below tells the tale.
The price of five-year credit default swaps (CDS) on French government debt have rocketed higher during the last few days, which means that investors have become increasingly concerned about the credit worthiness of the French government -- a AAA-rated credit. (CDS, as regular readers know, are a kind of insurance against a default. The greater the perceived risk of default, the higher the price of a CDS).
At 122 basis points per year, the French CDS price is still nowhere near the price of a comparable Greek CDS -- 1,722 basis points -- or a Portuguese CDS -- 962 basis points. But the French CDS is much more expensive than that of any other AAA-rated sovereign credit.
Soaring bond yields in Spain and soaring CDS prices in France are not necessarily cause for concern; but neither are they license for complacency.
| | | America 2012...Wall Street in Ashes...Main Street in Ruins...
Here’s SIX ways to protect yourself and profit from the biggest lies DC, Wall Street, the Fed and your banker are telling today...
Click Here To Find Out How >> |
| | | | | | | The Daily Reckoning Presents | | The Good Kind of Virus | |  | | Ray Blanco |
The insights presented at last week’s Agora Financial Investment Symposium, were both scary and hopeful. The event, entitled "Fight or Flight," featured gifted minds like John Mauldin, who put an exclamation point on the dire fiscal situation the country is in.
A proverb derived from ancient Greek drama asserts: "Those whom the gods wish to destroy they first make mad." And truly, the drama of the debt resolution impasse in D.C. (I'd rather not associate the place with George Washington's good name at this time) reveals a particularly perverse madness.
The gross mismanagement of the national economy -- which really boils down to the fatal hubris of thinking 300 million lives and trillions of economic decisions can be centrally managed at all -- has put our continued prosperity at serious risk. We are hanging on in the midst of a hurricane of debt. We will not emerge without first enduring a lot of pain.
As a father of two young children, this situation is very worrisome, of course. From one generation to the next, we've been able to pass a better quality of life on to our children. For many who immigrated to the U.S., the radical move was undertaken so that the children could have a better life than was possible back home. This was certainly my family's case when it escaped the clutches of a Marxist dictatorship, and for that, I am truly grateful to my folks.
But what will we do for our own kids? Will we give them a better life than what we have received from our parents? These are difficult questions to answer.
I'm an optimist, however. Although we are all being squeezed by this great recession in various ways, there are great reasons to have hope. The kinds of technologies that will grow us out of this mess are being pioneered and commercialized right now.
On this front, Patrick Cox wowed the audience at the symposium with thoughts on the meaning of the great technological advances of our time. Looking at technological progress from 20,000 feet up, he showed us how things are actually getting better even now.
In his signature style, Patrick shared insights from great economists and Enlightenment thinkers and presented information about an amazing plant-derived medical breakthrough. (As a side note, it isn't very often in a presentation that two Hayeks, both Salma and Friedrich, challenge us to imagine what innovators will accomplish).
In the midst of the difficulties America currently faces, Patrick argued, we should not overlook the technological marvels that are sure to emerge.
The "nanotech revolution" is one particularly exciting example. The ability to manipulate matter at the atomic level is already changing the way we do nearly everything...
The importance of this technology is like discovery of fire. It changes everything.
Nanotech will facilitate dramatic innovation in medicine, energy, and electronics. For example: In one form, carbon is soft. It is known as graphite. It is usually inexpensive. It comes apart very easily.
When carbon atoms are bound together in a different way, they form diamond.
Diamond is the hardest naturally occurring substance.
Nanotechnology has given us the ability to design new molecular structures not found in nature. In the past two decades, researchers have learned to assemble carbon atoms together into new shapes.
Two of these, carbon nanotubes and graphene sheets, are the strongest substances known.
They also have amazing properties that are only beginning to be used.
Nanotechnology is already making a big impact on the computer chip industry...
But there is another industry where nanotechnology is making big strides.
As I mentioned earlier, carbon nanotubes are one of the strongest substances known. Because of their distinctive electronic properties, they also have game-changing potential.
One of the big challenges is manipulating the tiny super tubes with care to produce useful products. Simply mixing together batches of carbon nanotubes isn't enough. They need to be properly placed in order to work.
In the case of the MIT solar cells, nanotubes are used to selectively transport electrons.
However, the performance of solar cells that use carbon nanotubes is not as efficient. There is a lack control. The nanotubes tend to clump together.
Additionally, some nanotubes act as conductors. Others act as semiconductors. As conductors, nanotubes in a solar cell reduce the overall efficiency. They create a short in the circuit.
To solve this problem, MIT scientists used the M13 viruses. The virus has peptide proteins that bind to the nanotubes and keep them from clumping. This prevents short circuits. A single virus can hold many nanotubes in place.
In addition, the virus coats the nanotubes with titanium oxide. Titanium oxide is a dye component that absorbs light. This improves the electrical connection between the parts of the solar cell.
Even with this breakthrough, dye-sensitized solar cells aren't the most efficient available.
But, using viruses to assemble the nanotubes boosts efficiency by a third. And, these cells are also much cheaper to manufacture.
With solar cells, being the best doesn't mean being the most efficient in the physical sense. It means being the most efficient in the economic sense. The MIT discovery makes impregnating nanotubes in the solar cells a water-based, room-temperature process. It moves the ball in the right direction.
These MIT researchers are just the start. Nanotube technology has enormous potential. As technology investors, this is an area you will want to keep a close eye on.
Nanotubes have so many applications, not just in the solar field. Companies working towards improving this technology could surely take off... and could yield large returns for early movers.
Regards,
Ray Blanco,
for The Daily Reckoning
| | | URGENT NEWS... | Breakthrough: New "Magic Bullet" Technology
Could Zap Deadly Cancer Cells at Will
In the latest clinical trial, over 85% of cancer patients achieved complete or partial remissions of their symptoms using the "magic bullet" technology. This is a rare opportunity to get in early on a little-known Biotech Company that’s making medical history...
Click here for full details >>
|
| | | And now over to Bill Bonner with the rest of today’s Reckoning
from Paris, France... | The Great Correction...
Five Years On, Part IV | | The Final Installment from Our Vancouver Presentation. |  | | Bill Bonner |
It doesn’t look good, dear reader.
The Dow lost 171 points yesterday. Oil slipped closer to $90. And what’s this...gold, up $22.
The debt deal is done. And the Great Correction intensifies...as expected.
"Another bear market has begun," says our old friend Marc Faber.
"After debt deal: economy in deeper peril," says MSNBC.
Why would the economy be in deeper peril? Actually, it’s in the same peril. But most people didn’t know what peril it was in. They had swallowed the "recession...recovery" story. They believed it was just a matter of time before the economy got back on its feet.
But it’s not a recession. And there will be no recovery. Never.
It’s a correction. And it has to do its work. It has to reduce debt levels. And that takes time...and pain. Here’s Bloomberg, on the case:
Consumer Spending in U.S. Unexpectedly Falls as Hiring Slumps
Aug. 2 (Bloomberg) -- U.S. consumer spending unexpectedly dropped in June for the first time in almost two years and savings climbed, adding to evidence that the slump in hiring is hurting household confidence.
Purchases declined 0.2 percent after a 0.1 percent gain the prior month, Commerce Department figures showed today in Washington. The median estimate of 77 economists surveyed by Bloomberg News called for a 0.1 percent increase. Incomes grew at the slowest pace since November.
The lack of jobs combined with wage gains that have failed to keep pace with inflation raise the risk of further cuts in consumer spending, which accounts for 70 percent of the world’s largest economy. Companies like Newell Rubbermaid Inc. are among those cutting forecasts for the year.
"Wages are very stagnant and that’s affecting consumer spending and consumer confidence," Fed Chairman Ben S. Bernanke said in semi-annual testimony to Congress on July 13. "There is also ongoing uncertainty about the durability of the recovery."
Friday's news on GDP shows the double dip has arrived -- an expansion of only 1.3 percent and consumer spending up 0.1 percent in the second quarter. Astonishingly low by any account. The debt ceiling trouble and lack of a longer term resolution to the deficit will make it worse.
Yes, dear reader, so far, so good. Things are not looking up. They’re looking down. Which is fine with us. This correction needs to speed up...so we can get it over with.
Where are we so far? Houses in Florida, California, Nevada and Arizona are down about 50%. Banks have about 2 million foreclosed houses in stock...and about 11 million more are underwater. Prices will probably fall another 25% or so before bottoming out.
Unemployment, depending on how you measure it, is near depression levels. About 14 million people are jobless...with nearly half of them out of work for more than 6 months.
A quarter of the people asked by Gallup pollsters said they thought the economy really is in a depression.
Are we back in a recession? No! The correction never ended...and it has a lot further to go.
Before it is over, stock prices will be cut in half. Food stamp rolls will hit 50 million. Houses will have lost 60% of their value. And more than 20 million people will be out of a job.
Then, our problems will be over, right? Then, things can begin looking up, right? Then, the worst will be behind us, correct?
Wrong!
Then, the feds will really get to work. Private citizens can make mistakes. They can get themselves into deep trouble. But if you really want to make a mess of things, you need government support. Stay tuned.
And more thoughts...
*** Our speech, concluded:
Even in a world ruled by destiny, the morons still stand out. History always seems to find knuckleheads to do Her dirty work ...especially when it involves ruining a great empire.
First, there was Woodrow Wilson. He got America involved in a war in which it had no business being involved....and began the imperial agenda on a big scale. Now, the US has no business in Iraq, or Afghanistan, or Yemen, or Somalia, or Pakistan, or Libya. It claims to be fighting ‘terrorism.’ But terrorism is in the eye of the beholder. According to press reports, for example, America’s vice president, Joe Biden, sees terrorism at work in the Tea Party. That’s right, he called the Tea Partiers "terrorists." Apparently, anyone who tries to stop America from going bankrupt is a terrorist. It is probably only a matter of time before the Pentagon orders drone attacks on Michelle Bachman and Grover Norquist.
Of course, the nation’s bankruptcy owes a lot to a long line of enablers stretching all the way from Woodrow Wilson to Barack Obama. Each one made his contribution. Richard Nixon substituted make believe money for the real thing. He cut gold out of the dollar altogether. So, foreign central banks started carrying the dollar and other foreign currencies...and government bonds...their own and other nations’...as reserves. This freed Americans to borrow and spend much more money. They could pay for goods and services in China or elsewhere. He also opened up China...making the beginning of the end for down-market US manufacturing.
And Ronald Reagan. Not only did he defeat communism -- turning loose some 3 billion people to compete against us -- he also greatly increased US debts.
But George W. Bush deserves special mention. If history was looking for someone to drive the country into bankruptcy, he was the man for the job. He used the 9/11 event to vastly expand the scope of US military operations...in what has to be the least profitable investment of military resources in the world.
And here is the interesting thing. George W. Bush was supposed to be a conservative. He wasn’t, of course. He was an activist -- expanding the role of the state in almost every direction, including a huge expansion into health care..
The Barack Obama took over. He was supposed to be a liberal. But what did he do? He just continued doing everything Mr. Bush was doing -- and added an even bigger expansion into health care.
And if you look back over the last 100 years, what you find is almost the same uninterrupted pattern. With a few exceptions, it didn’t seem to matter who was in the White House or who was in Congress. The role of the government increased. The budget increased. And government debt increased -- especially after 1971, when the feds no longer needed to pay for things with real money. When a recession threatened the economy, the feds added more credit. Presto! Another boost of spending and borrowing.
And here’s something odd too...this pattern of growing government debt...with a declining private sector... happened in almost all developed countries at about the same rate at about the same time. It didn’t seem to matter whether it was France or Japan...or the US.
In France, they refer to the "30 glorious years" after WWII ended. That was a big growth period for the US too. Then, in the 80s, France and the US took very different routes.
France put Mitterand, a socialist, in power. The US elected Reagan, a conservative. But guess what? It didn’t make much difference. In France, as in the US, the good growth came to a halt after the ‘70s. Then, it was more or less bad growth -- financed by debt, and led by an expansion of the public sector. In France, as in America, real private sector wages have not increased since the ‘70s.
So how could two such different countries, with such different policies, end up in more or less the same place? Wait a minute. They’re not in the same place. France is way ahead. Both countries have about the same amount of debt -- about 5 times GDP, when you include pension and health liabilities. But at least, as I mentioned earlier, the French households are in much better shape.
Still, what I’m trying to show is that there is more going on here than just a few bad decisions by a few particularly incompetent public officials. It is almost as if there is some kind of destiny at work. Or at least some grand historical forces that we don’t understand yet.
When the developed nations ended their phase of healthy growth, the emerging nations took over. India, China, Russia, Brazil are now growing at about twice or three times the rate of the US and Europe.
Maybe the two things are related. Maybe the emerging economies are taking jobs and market share from the advanced economies. The emerging markets have less debt to weigh them down. Less social legislation. Fewer impediments to growth and commerce.
And here’s something else that helps explain it. As you use more and more borrowed money, it becomes less and less effective. This is just the old principle of declining marginal utility, or what most people call the Law of Diminishing Returns, applied to credit. A little is a good thing, in other words. A lot is not so good. And eventually -- in 2007 -- you have so much credit that you can’t keep going. It blows up your private sector economy.
And then you have a Great Correction to work through. Which is where we are now. And when you realize what has happened you also realize that you can’t possibly help things by lending more money. More credit is the very thing the economy doesn’t need.
When an economy is saturated with debt, additional inputs of credit produce negative returns. In other words...they produce the kinds of returns you’d expect from central planning. They take good capital and waste it.
So, the credit expansion alone may help to explain what is going on. After the ‘70s, the economies of much of the developed world were driven by debt expansion...which did not yield much in the way of real growth or incomes. By 2007, the whole credit expansion broke down...as diminishing returns turned into vanishing returns.
And here’s something else. Economic growth has been largely driven by using more energy. More energy use -- mostly from oil -- raises living standards and GDP/person. But the law of diminishing returns applies to energy use as well as to everything else. It could be that by the ‘70s, developed nations were reaching levels of energy use where further inputs produced less and less extra GDP. The oil shock of ’73 sent oil prices soaring...the first time the US economy came under that kind of stress. Oil prices subsequently came back down, but it may be that the point of diminishing returns had been reached. The developed economies simply were not getting much extra bang for the energy buck.
And then, in the late ‘90s, oil consumption topped out in much of the developed countries...which was followed by a decade not of slow growth, but of no real growth at all.
That doesn’t mean there hasn’t been progress in the last 10 years. Many of the electronic gadgets and gizmos we take for granted were developed since 2001. But these are mostly entertainment devices. They don’t seem to increase GDP. To the extent they have any effect at all, it seems to be negative...in that better communications makes companies more efficient and enables them to out-source more work to the cheaper emerging markets. Result? Fewer middle class jobs in the developed countries.
Just look what happed to Borders. The company was undermined by electronic books that don’t have to be printed on tree products, nor shipped in trucks, nor stocked in warehouses, nor put on the shelves of bookstores, nor sold by clerks who know how to read and right. Result -- greater efficiency. Fewer jobs.
But this is only the beginning. This is where it gets interesting. Faced with such sluggish growth -- the authorities in America are likely to want to print money to stimulate the economy, just as they have done so far.
It will take years of painful de-leveraging to bring debt burdens down to more comfortable levels. As for public debt, Europe will struggle to bring it under control. America will let it run... that is the meaning of the debt deal just concluded in Washington. Since it has the world’s reserve currency....and since everyone has come to think that the US is good for the money...it will be able to continue debasing its currency for a while longer. That is, until the whole thing blows up.
Regards,
Bill Bonner,
for The Daily Reckoning |
|
|
|
The Daily Reckoning U.S. Edition
Posts
