-- Posted 29 April, 2006 | | Source: SilverSeek.com
And you thought Nixon was dead
The process of demonization is beginning anew. Naturally some of the blame for higher gas prices goes to a market that is topped out and oil companies that take every advantage to ensure their product's price is high. Do I blame them? Not at all. I take every advantage to ensure that every one of my books sells for the highest price at which it will move, and I make no apologies nor excuses for that.
But most of the blame, the vast majority of the blame, belongs on the heads of the government and its Federal Reserve, who are is destroying the purchasing power of the dollar through deficits and out-of-control money creation. If one has to find fault for high gas prices, that fault lies with those who control (or rather, destroy) the value of the dollar, because it's not just gas that's at a record high, it's housing and food and gold and silver and copper and zinc and stocks and college and everything else that is measured in dollars. The last bastion of falling prices is Wal Mart, and if the government has its way the Chinese currency will float higher soon enough, raising prices even there.
But rule #2 in politics (right after "get re-elected") is "deflect blame." The average congressman does not understand economics, thinks he can change economic law through the vote, and is frankly too self-absorbed to see what's he's doing to the nation. So now that blame is coming from angry consumers, it's time to deflect it by conducting a witch hunt. Both parties are lighting their torches for a trek to the castle of big oil:
Sen. Charles Grassley, R-Iowa, the committee's chairman, said the panel was concerned about high profits and executive compensation at oil companies.
"I want to make sure the oil companies aren't taking a speed pass by the tax man," said Grassley in a statement.
With gasoline prices soaring and oil companies announcing record profits, "it's relevant to know what the real financial picture is for this industry," Montana Sen. Max Baucus, the ranking Democrat on the committee, said.
It will start with investigating the oil companies, but because they'll not find much that can lower the price of oil, the focus will soon turn to controlling that price by law. In other words, since oil is not going down, probably ever again, price controls are on the way. They are the only weapon left in Congress' arsenal.
It's nothing new. PBS writes about the last time this happened, back when deficits were small by modern standards and inflation was a measly 5%: "While Nixon may have philosophically opposed intervention in the economy, philosophy took a rear seat to politics." We are not so far from Nixon as we believe, and that means the next step in the legal approach to our economic problems are laws that say what things should cost. As President Bush said Wednesday about his symbolic recommendations, "I do that for the sake of our consumers." But symbolic moves will be followed by real ones, and they will all be undertaken for our own good. Or at least to secure our votes.
Republican Arlen Specter is now considering pushing for a windfall profits tax - of course, that doesn't reduce prices, it just puts more oil money in the government's pocket Ė and his Democratic cohorts are talking about reducing pump taxes and replacing them with corporate taxes: out of one pocket and into another. Price controls are starting to be talked about - first by denial - and eventually they will be seen as the only solution to ease the pain of a dying dollar. Price controls produce shortages, and there are shortages on the way. And because the government will not stop the issuance of dollars (that would mean tax increases which the GOP will not support or spending cuts which neither party will support) the dollar will continue to die. It's 1970 all over again, and the 30 cent gas that became today's $3 gas is on its way to $30. Gold went from $42 to 850, silver from $1.29 to $50. Both last week reached highs not seen since the last commodity blowoff, and the pain is just beginning.
We are neither as paranoid as we need do be nor as angry as we will be, says the Mighty Mogambo. But Nixon is back, and this time he's gonna finish the job.
Being the owner of a bookstore, Iím blessed to have a continuous stream of old economics and investment books crossing my desk. The fact that they are old and out of date gives them two advantages over new ones: they are inexpensive (some sell online for literally a penny plus shipping) and the reader can understand which analyses have withstood the test of time. Each month Iíll bring a pair of reviews of old books that seek to answer the same questions investors are (or should be) asking today.
This week's review is a little different. Rather than reviewing two unrelated or opposing books, I present two books that preach the same message in nearly the same way: "How You Can Profit From the Coming Price Controls," by Gary North (1978) and "Playing the Price Controls Game," by Mark Skousen (1977). Both are available thru Amazon (at least today) for less than a quarter. Both books assume that the government's reaction to uncontrollably rising prices (at least those prices which are politically inconvenient) will be to cap those prices legally. Both review the logical and historical impacts of those price controls, and both offer sage advice on how to take advantage of the economic effects that must come from them.
Where they differ is, frankly, in focus. Skousen does a masterful job explaining the effects of price controls specifically on businesses, wages, and necessary commodities, while North focuses more on the macroeconomic effects and changes that a breakdown in the price system will create in the nation. Together they offer a plan whereby any individual, through planning, watching, and anticipating, can not only survive price controls but can come out of the dark tunnel of government mismanagement with assets and family intact.
History repeats itself because men do not change. As Bastiat said, mankind has a fatal tendency to try to live at the expense of others. As a result, people will call on the government to save them and the government will try anything do comply. But because men are always men, their solutions are guaranteed to bring pain and suffering on those who expect it least. And as Solomon said, the prudent man sees trouble coming and hides himself, but the simple pass on and suffer for it.
April 28th, 2006
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-- Posted 29 April, 2006 | |