Special Sources:

The Edward Snowden stuff just keeps on coming. Its becoming almost like an industry for those involved. I suppose we should be thankful for the efforts of the security services, to keep us safe from home grown terrorism and a host of other dangers. But at what point are we going to say enough is enough.?

This week we learned that the Canadian Security Establishment, by means of an operation dubbed ‘Levitation’  has been trolling File Hosting Sites on the web for ‘interesting download events’ whatever that may mean.  When they find such an event (0,0001 % of the time) ‘special sources’ are asked to provide the ‘Establishment’ with details as to the origination of the data (IP address et al)

It is almost certain that the ‘special sources’ in this case are the Telcos and the Cable Companies who, we are told,  may ask for Judicial Review before complying with any request.  Details of any such judicial review are rather like  Black Holes ( Talked about but never seen)

This may seem like just  another example of meta data scramble, until  the users of file hosting sites are revealed. The activists, lawyers, journalists, and a few business types.  Try as I might, I cannot recall any example of home grown or foreign terrorism that included people such as this.

I believe the real purpose of project Levitation may well be nothing more than the preservation of the Security Establishment itself.  Surely what they are looking for is another potential Edward Snowden.

It does not require a great conspiracy theory to figure why this might be the case. The people who work for the Security Establishment are thought to be very well paid (another secret) and have tenure, that normal working slobs can only dream of.  All they have to do is look busy and keep the fear level up.

The business of national security has become an industry, a juggernaut  that threatens  to get totally out of control. Just consider what happened with C.C.T.V. (the practice of video recording public places)

It started in the center of  London, when the IRA ( Irish Republican Army a terrorist organization) was at virtual war with Margaret Thatcher,  then Prime Minister of Great Britain. The justification for this war- time measure was clear to all and the results, we are told, saved countless lives.  But of course it did not end there.

Following 9/11  and long after the cessation of hostilities with the IRA, the practice spread to most public places all over the World as a measure for fighting crime and terrorism. The results of this colossal invasion of privacy are mixed. It would appear that its’ use in solving crime is greater than that as a deterrent to  crime.  For instance it did not deter the London Subway and Bus bombings by British Muslims nor the train bombings in Spain. Closer to home the Boston Bombers were clearly seen dropping off their bomb laden back packs and were apprehended largely because of C.C,T.V

Regardless of the efficacy, or results, the practice of video taping all public places  is now acceptable to the vast majority of the population as a necessary evil. It is therefor here to stay.

Will the same thing happen with Internet Snooping.? My guess is yes, if for no other reason than its far better than the alternative that would be control of the medium itself.

Stay Tuned:

 

 

 

Save the Planet:

The question now being raised by the pundits, is whether consumers (Just about everybody) will choose to spend, or, heaven forbid, save, the dividend accruing from dramatically lower oil prices.

I do not know the answer, but my guess would be, the rich will fail to realize it exists , the poor will spend it, and the middle class will pay down debt.

There is a  poignant dynamic to all of this. One of the main causes of the oil glut was, or is,   too much  liquidity (money) created by the central banks in an effort to solve the problem of a credit crisis, (housing) that was also caused by excess liquidity or easy money. (Allan Greenspan’s Irrational Exuberance)   The cumulative result of all this  is that most of us in the Western Industrialized  Nations, are , awash in funny money that could bankrupt us all.

The idea that Central Banks will somehow redeem the trillions of specie created for the purchase of worthless housing related assets, is a cruel joke, being foisted on a unknowing and gullible public. In much the same way as accounting for deficits that now seems to bear more resemblance to Enron’s books than to an accurate determination of the nations financial health. Surely its’ only a matter of time until the bond market figures out that the Emperor has no clothes.

So why not use the billions in savings from lower oil prices to pay down sovereign or provincial  debt?

The idea may make sense economically but the optics are terrible. It is almost impossible to solve any problem  that requires an omission of error by the elite., or for that matter the bearing of the unabashed truth.

So why not an excise tax that might be labelled S.T,P. ( Save the Planet)  Just consider the possibilities for a positive Spin for such a tax.

It could be a ‘feel good tax’ We are doing something to hold back the ravages of Climate Change, while digging ourselves out from the nightmare of the present public relations disaster related to the Kyoto Accord.

We could claim revenue neutrality, whatever that means, by returning a small part of the proceeds to lower-income families, much like a negative income tax, while at the same time as reducing our standard of living to a more sustainable level. (leaving the resources for future generations)

There is  precedent for this type of revenue stream. Britain and Norway, two major Carbon producers, use high gasoline taxes by various names to finance activities unrelated to the environment or climate change.

The Province of British Columbia has the only Carbon tax ( a levy based on a ton of carbon) in North America in addition to excise taxes on fuels. The tax is supposed to be revenue neutral to the Provincial Treasury, but by whose accounting standards, no one seems to know.  It remains to be seen how well this will fare in light of current greatly reduced oil prices.

We live in a World where price reductions for commodities are feared because they can lead to deflation and the inability of governments to pay the interest on their ever-growing sovereign debt. But this one has already happened and so far, our world is not falling apart, although it is early days. It can thus be considered as a windfall and a priceless opportunity for North American  governments at all levels to do something useful for the benefit of generations to come.

Will it happen? Not without political leadership that seems to have gone missing from the halls of democracy. But hope springs eternal, from the ‘Accidental Gold Miner’ that, as proved by  history, a leader will arise when most needed.

Stay tuned.

 

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Black Gold No More:

We have been hearing a great deal about oil prices lately, most of it nonsense, having little to do with reality.

Since the discovery of oil at Spindletop at Beaumont Texas one hundred and fourteen years ago, there have been more times when there had been too much oil rather than too little. (The Standard Trust owned by  Rockefeller was forbidden from owning oil wells in the State of Texas) Indeed the Rockefeller fortune was made by solving the problem of too much oil rather than too little. Seems like not a whole lot has changed and history may well repeat.

The current pricing problem for oil has been caused by several  historic  factors. The breakup of the Seven Sister Oligopoly  and the policy of supplying oil by means of long-term fixed price contracts; the invention of the Spot Market; and most recently by the Federal Bank of New York and the flood of cheap money that allowed for  a binge of spending on uneconomic marginal production. (aka Oil Bubble)

Contrary to the in vogue thinking OPEC did not, and still does not play, a big part in oil pricing.

With the exception of the De-Beers  Diamond  Monopoly/Oligopoly, the Seven Sisters, formed by seven giant oil companies was, for many  years,  the most successful sub rosa trading organization in the World. ( Esso, Shell, Anglo-American Oil/ BP,Mobil, Chevron, Gulf & Texaco) It was the stability of oligopoly pricing, at a level no more than $3.50/ barrel, that allowed for the explosion of growth of the auto and aircraft Industries in the years following the end of the Second World War.

When the continuing Arab, Israeli conflicts led to the formation of OPEC the Sisters lost a lot of their pricing power and started to integrate.  The final end came with the introduction  of the Spot Market, a clever invention by a master trader, as a way of circumventing the attempted blockade of oil shipments by OPEC.

The Spot Market was good for the non-aligned countries but not so good for all the others because oil lost its’ status as Black Gold and became instead just another commodity.

Today it should be obvious, to all but conspiracy freaks, that COMEX futures drive the price for oil just as it does for nearly ever other commodity. The volatility of market prices is aided and abetted by a monetary component, that allows speculators to hedge currency transactions in addition to physical inventories of oil.

These two historical factors, along with the advance of the science of fracking  set the stage for the most recent blow out, that is bubble like  in nature. Throughout history we have witnessed many commodity bubbles ( the South Sea Bubble, the Tulip Bubble. the Housing Bubble  and now the Oil Bubble). Bubbles are  caused by excess liquidity that most times leads to  a gambling frenzy as the speculators rush in to bet on a sure thing.

Trouble with fracking is that it is not a sure thing, and the oil produced by enhanced methods maybe a lot more expensive than the marginal value. We have experience in this type risk taking with steam assisted forms of production from heavy oil deposits, Sometimes they work and sometimes they do not and almost invariably  the costs of production are far greater than anticipated.

A great deal of the present marginal production has come either from fracking or from other enhanced recovery operations that will likely be uneconomic at current levels of pricing.

If the past is any indication of the future we can expect the expensive oil to be shut in very quickly. (Oil companies are no different and cannot afford to lose money) Provided the relative value of the US currency remains the same (the Dollar is still rising against the other major currencies) oil prices should  stabilize as the bubble dissipates.

Beyond this point the future is murky.  My guess would be that the market will remain volatile because there is now no oligopoly to set prices.  World growth in oil consumption is unlikely allow for huge new high cost sources such as the Canadian Oil Sands and pipelines to everywhere, to come on stream for some years to come.

In the meantime get ready for Carbon pricing (new taxes on oil) as governments seek new sources of funds to pay for past excesses.

Stay tuned:

 

 

The Dead Metal?

“We the prospectors on Toby Creek’ locate this claim to be known as Old Man Brown’s claim.: Prospectors pause and shed a tear, for old man Brown lies buried here, For gold he’ll prospect now no more, He’s patented the golden shore”  (Post marker of year 1890 of mining claim found in North Kootenai Mining District of British Columbia).

Lord Maynard Keynes , the famous British Economist, once called gold ‘the Dead Metal’ He did so  after the passage of the 1935 Act of Congress that forbade American Citizens from buying or hoarding gold bullion. His meaning may be obscure but the intent of the act was clear. To stop the  flight from the paper dollar to hard assets in the form of gold and to encourage Americans to spend rather than save; a classic description of the cure for Deflation

Turned out that this paranoia was unfounded because the Second World War, along with draconian economic controls, intervened, so we will never know what may have happened

Lately we seem to be hearing a lot about Deflation from Economists and Central Bankers, despite the fact that few  know anything about it. Deflation is becoming  the new bogey man in the closet, a name without a face.

The present answer to this misnomer is to print more money by means of Quantitative Easing, and, in the case of Europe, to forgive Sovereign Debt. In other words more of the same or inflate at any cost.

Seems to me this is all self-serving nonsense.  After inflating for five years, and destroying trust in the value of the American Dollar, the Federal Bank of New York has driven up prices for soft assets (commodities stocks derivatives et al)  to completely unrealistic levels that cannot be maintained by any means.

Now, in a blinding glimpse of the obvious, it is realized that this charade cannot continue forever.  The smart money is now selling over valued soft assets and parking the proceeds in highly liquid dollars to await a new direction for hard assets.

Truly hard assets are hard to come by. The Swiss Franc and gold are good examples that are rounding into popularity once more. The Swiss apparently want nothing to do with the Euro, if the ECB (European Central Bank) starts to print vast quantities of worthless money. The Germans likely feel the same way and may be expected to voice their concerns, that could, if the Euro skeptics  have their way, lead to the demise of the common currency.

This kind of nonsense is the reason why Britain, under Margaret Thatcher, and more recently the Scandinavian Countries, have steadfastly refused to sign the Treaty of Rome that governs the Euro.

If all of this fits the new definition of deflation, so be it.  The central banks, notably other  than China,  are now clearly swimming against the tide of  investor opinion and may have finally run out of ammunition. To make matters right,without bringing down the house of cards the Bankers are going to need the help of China, now the second largest economy in the world. Sooner rather than later.

Will it happen? Stay tuned.

 

 

 

 

 

 

 

 

Netflix Where you are not:

A battle looming over the physical location of Netflix customers.

Going back in time, when Netflix was expanding its service World Wide, a decision was made,  at the very highest level, that the provider would bend, rather than fight,  the wishes of the oligopolies  that controlled the airwaves in most of the World. They achieved this by delaying or, in some cases by changing, the content format from that offered in the home country of the United States.  Not a bad decision for a company that clearly had a clear lead over the competition.

Now the decision is looking very different. Destructive technology has invalidated the idea, because, according to reliable reports, over one-third of all Netfix customers use web sites that mask their location so they can down load US content at will.

Netflix, sensing  the looming battle,  recently put out a statement to the effect that the users of these masking sites are breaking the terms of service of their existing Netflix contracts. Pointedly they did not say what they proposed to do about it other than scold and rattle their sabers.

If the Netflix situation sounds vaguely familiar  it may be because I wrote about this very subject in my piece Uber Uber, the story of Taxi Cabs on demand, for a fraction of the price as that offered by the oligopolies of urban regulated taxi services. Uber has since paid  a price, in terms of public support, for their hubris, some would dumbness, in refusing to even  come  to the table with municipal authorities. The efficacy of this policy will have to await further developments, but in the meantime the reasons why destructive technology is prevailing have not changed.

Oligopolies, including many now say, airlines, all too often, offer  bad service at outrageous prices. Put another way they have forgotten the customer and should be broken up.

Would be it was all that simple, for under the rumble of discontent lies the very real threat to Net Neutrality that is at the core  of the w.w.w. We maybe only inches away from  stifling government control of the net by means of a super utility. Much the same as the old Ma Bell that controlled telephone service in North America for many years and successfully  stifled innovation. (Ma Bell was broken up only to put back together again, at enormous profit to the major banks)

The case of Sony stinks to high heaven. The very idea that a country with only six thousand internet users can lay low a giant World Wide corporation, without so much a raising a finger, is farcical. This was an inside job done for money, maybe even to drum up support for a Class B Movie. But if this was not enough consider why the President of the United States, in all his might and majesty, seemed it fit to jump in and use the hack, if it even was one, to pump for greater net security. All made possible of course by your friendly N.S.A.

It  is very difficult to imagine a scenario where users of Netflix who have paid for the service  would be prosecuted, presumably for piracy, when all that is involved is a matter of timing.  Unless of course  there is another agenda that, in a round about way, goes to the control of the medium.

In many cases  the security paranoia  is a crock. The disruptive technology that created the opportunity can easily solve the problem. An example advanced chip and pin technology for credit cards. This has been available for some time, but has been shunned by a lot of merchants because of the cost.     We can expect a lot more of this for there is now too much money at stake to justify passing the problem to higher powers.

As for the battle of control of the net. Stay tuned.

The Practicarian: Sic

Happy New Year to all our followers and would be followers:

If you have read my latest book “Sell the Pig” Tales of an Accidental Gold Miner, you might  already know that I am a Gold Buff at heart, and do not have much faith in Specie or printed currency. I am sure readers might also have a glimmering, much to the chagrin of my left leaning followers, that I tend to be libertarian in my thinking. Not to the extent of a Rand Paul, (named after Ayn Rand Russian American author of Atlas Shrugged)  but more along the lines of an older and, hopefully wiser, ‘Practicarian’ (Sic)

A ‘Practicarian’ in my terminology,  is someone who has a set of beliefs  that are unattainable, and so concludes, it is necessary to settle for a half of the proverbial loaf and get on with it. This is why I do not make projections, economic or political, as to the future but settle for possible solutions to the apparently  intractable.

An example: I believe the Gold Standard, as practiced in the British Empire during the period 1815 to 1915 was the best system of monetary control ever invented. Much as I might long for the simplicity of  the rigid link of printed specie to physical gold bullion, or to basket of commodities ,  I know it is just not practical in the age of the trillion-dollar World Economy. But as an economist I also know of the terrible danger we are in because of the indiscriminate  printing of trillions of US dollars that are linked to nothing of real value, other than an airy fairy notion of G.D.P. (Gross Domestic Product)

So what might be done about it? One solution might be to recognize the obvious, that China is now a major player on the world economic stage, and, as such,  should be allowed to liberate it’s here-to-for domestic currency, the Yuan.  This has not happened to date because of distrust of  the closed economy, dictated by the hegemony of the Communist Party, and the stupid and outdated notion in the West, that  all the World must live in a democracy.

In return for greater transparency why not make the Yuan the Sixth currency ( Gold, US Dollar, Euro Pound and Yen)  in determining the value of Special Drawing Rights,  the current international store of value used by the I.M.F. (International Monetary Fund) ?

I have a feeling that we all might be very surprised to learn that the Yuan, backed by trillions of US dollars and a big stash of gold, would be a stabilizing force in avoiding cataclysmic volatility in World trade. It might also act to reign in the horrific risks involved in the current trade in unregulated currency derivatives.

Will it happen?

Stay Tuned.