Wednesday, July 29, 2009

The Last Good Great Depression: Reflections from Vancouver

Whiskey & Gunpowder
Gary’s Note: Ah, the good ol’ days! When government knew the right way to fund itself…and to provide stimulus. Byron King recounts his trip to Vancouver. Enjoy. And send your questions and comments to

Whiskey & Gunpowder
By Byron King

July 29, 2009
Pittsburgh, Pennsylvania, U.S.A.

The Last Good Great Depression: Reflections from Vancouver

Just getting to Vancouver was a revealing trek.  Despite the ongoing Great Recession, it never ceases to amaze me how busy are the major airports.  My trip took me through Atlanta and Seattle, and both airports were wall-to-wall travelers.  The waiting areas were full, the planes were packed and the baggage areas were filled.  Even the rental car counters had lines out the door.

Busy airports may or may not be a sign of life in the larger economy.  Even unemployed people can buy a ticket and fly somewhere.  All you need is a credit card, if you can still get credit.  Meanwhile, airline profit margins are tight.  Fuel prices are creeping upwards.  The airlines are still nicking you for things like $15 baggage fees.  And as I flew over the heartland of the nation, I looked down and pondered our collective fate.


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Federal Reserve: “No Net New Jobs”

Recently, the Federal Reserve predicted that the U.S. unemployment rate would surpass 10% in the coming months.

That’s no big surprise.  The true U.S. unemployment rate is at least 15% already when you factor in the long-term unemployed who are not carried on the “official” books.

Then the Fed made a shocking prediction.  It forecasted that the U.S. economy would add NO NET NEW JOBS over the next five years!  Whoa!

No net new jobs?  That ought to scare you.  The Census Bureau predicts that the U.S population will grow over five years.  But the numbers of new jobs will remain static.  That is, for every job gain there will be a loss.

This job-stagnation is a recipe for all sorts of bad things at the local, state and national levels.  Government budgets won’t balance, so I guess we can plan on more “cost saving” measures such as releasing prisoners early and closing schools.  Yep, that’s how to build a great nation… More criminals and fewer well-educated citizens.

The Fed announcement is basically an admission of monetary and policy malpractice at the highest levels of the U.S. political class.  I witnessed it first-hand a couple weeks ago when I was in Washington, DC.  I met with some Congressional staffers who were just clueless.  But they sure were full of themselves.  They had all the answers, too.

The Good Old Days of the Great Depression

As my Delta flight flew over eastern Washington the other day, I looked down and saw a familiar sight.  It was a long, narrow body of water, with a stark, linear feature at the end of it.  It was Lake Roosevelt, impounded by the Grand Coulee Dam, of which I wrote last year.

From 36,000 feet, Grand Coulee Dam sure looked small.  But it’s the largest manmade structure in North America.  It’s three times the height of Niagara Falls.  It’s larger than the Great Pyramid of Cheops, times a factor of three.  It has enough steel in it (nine million tons) to build about 225 World War II-era battleships, at 40,000 tons each.  Today it’s rated at about 6.8 gigawatts of electrical power, or the equivalent of about seven large nuclear power plants.

Grand Coulee was built in the 1930s as a government “stimulus” project.  This was back in the good old days when the government knew how to “do stimulus.”  Y’know, build big dams.  Kick-start the steel and cement industry.  Employ tens of thousands of skilled workers.  Do some heroic engineering and create an energy project that will benefit the nation for decades into the future.

No, Grand Coulee by itself didn’t solve the issues of the Great Depression.  But it sure did come in handy when it started spinning power in 1942, just as the U.S. entered into fighting World War II.  One lesson is that if you dream big dreams, you never know what will come out on the other side.

And today?  Congress’s idea of “stimulus” is to pass a $787 billion pork-bill.  But most of the money won’t get spent until 2010 and 2011.  Oh well, we’re going to have to borrow it all anyhow.

Yard Sale Nation — People Are Dropping

I drove across part of southeast Washington and northwest Oregon during my journey to Vancouver.  I haven’t been up in these parts in many years, so this was my chance.

As I motored around the two and three lane back roads, I sure saw a lot of stuff for sale.  It seemed that many households wanted to sell one item or another, often parked prominently along the highway.

I saw cars for sale — old, not-so-old, and nearly new.  There were vans, SUVs, trucks, campers and trailers.  There was farm and construction equipment.  There were boats and ATVs.  Then there were dozens of homes and lots with “for sale” signs.  Plus many yard sales, with all sorts of household, workplace and institutional goods waiting for buyers.

It was entirely clear that many people are trying to raise cash.  So everything’s for sale.

Remember that old expression, “Shop ‘Till You Drop?”  Well, people are dropping.  Where’s that Grand Coulee Dam project when you need it, right?

Following the Trail of Lewis and Clark

I drove along the Columbia River for quite a ways, following the trail of Lewis and Clark, from their expedition in 1805-1806.  Today the Columbia is a well-regulated, controlled body of water crossed with dams and dredged as necessary.  Large ocean-going ships float serenely in the water next to downtown Portland.

In their journals, Lewis and Clark described a wild Columbia River of raging rapids, filled with gigantic log snags.  Some of the logs floating down the Columbia of old were up to seven-feet in diameter and 200-feet long.  Big trees, huh?  It was a different world back then.


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The Old Portland Customs House

Speaking of a different world, I was impressed by the old U.S. Customs House in Portland. Now THAT building also represents a different world, one where the federal government raised its revenues from duties and imposts.

In the olden days a ship captain would dock at Portland, or another locale on the Columbia.  Then he’d walk over to the U.S. Customs office to declare the cargo and pay the taxes due.  This was how the federal government funded its operations.  And when the funds were spent, the government had to observe its own fiscal limits.

In other words, the original U.S. government had to take an interest in growing and maintaining the economy.  Today, with the fiat dollar, the feds think that they can do anything.  Until, of course, the nation spends itself into national penury.

Until we meet again,
Byron King

Parting Shot...
There is no joy in B-more.

But if you’ve been following these Shots, then you already know that.

This poor town can’t even get McDonald’s right. And what could be simpler? Tasty beef patties at a price even a penurious managing editor can love.

Alas, almost every McDonald’s to which I’ve been in this town has served the burgers cold, sometimes undercooked.

Last night found me complaining about my dreary little life at a McDonald’s just outside of Baltimore. The quality of the fast food improves with distance from the city line. The burgers here were warm and tasty as well as affordable.

A pack of teenage virgin boys dined nearby and reminded your editor of himself and his old crew nearly 20 years ago.

I thought it’d be a kindness to kill them now in order to spare them the lives of quiet desperation they were just beginning. There would be many years accented with humiliation and pain before they would finally find homely girls willing to bed them.

I enjoy Mr. Kunstler's commentary but disagree with his conclusion that "life is tragic.”  A fortune cookie expressed it perfectly for me over 40 years ago. "Life is a tragedy to those who feel, a comedy to those who think."

Oh, it’s a tragedy all right. And a comedy. Every hand’s a winner, Shooters, and every hand’s a loser. The best you can hope for is to die in your sleep.

Expressing such sentiment seems to cause worry in those around me, however. Not a few of you have written to me in concern. Here at Agora Financial headquarters more than one brow has furrowed in apprehension.

“Shall we toss out your hooch and lock up the firearms?” they ask.

If only it were that simple, patrons!

Solon the lawgiver is often misquoted as having said “Call no man happy till he is dead”…in Greek of course. And while it certainly is catchy, what Solon actually said was “Call no man happy until you know the manner of his death”…in Greek.

Despite my mien, I hope for the best: like the song says, to die in my sleep.

Ah! But they don’t call it a Depression for nothing. I guess we’re all feeling a bit out of sorts, as if the joy has gone out of life. And that’s probably because the joy has indeed fled. Joy, like most good things, has a price and it charges by the hour.

I can hear the protests: “Not all good things have a price tag…the universe can’t be so petty!

“What of love and being loved?”


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Had you signed up back then, I wager you’d be doing something a lot more interesting than reading this right now. Then again, maybe not. I’ve recently been very surprised by who reads Whiskey despite the means to be doing something more interesting. More on that below…

Why not take advantage of this service myself?

I do it for you. I wouldn’t be nearly as entertaining if I were rich, fat and happy.

Hi Gary,

I'm one of those math nerds, actually chemistry with a minor in math.  Obama has already played with the number of math nerds by the Stimulus money that went to NIH and NSF. Money tossed into these agencies fund more undergrads get a job as graduate students.  These students are hopefully working on new technology that will drive the economy forward, not backward.  The same thing happened during the Kennedy administration with the "moon race."  This meddling provided new technologies that drove the computer science, electronics and materials over the last 40 years.  It also encouraged many to seek PhDs and train in the hard sciences.  These people are now retiring.  For history to repeat itself, we "need" more people thinking about stuff that could make life better.  We could also use a Ray Bradbury and Isaac Asimov to make people think about the possibilities.  We need a vision of what could be.

NSF and NIH have been trying to increase the number of people in math and science for 30 years.  It's not new.

I'd be happy to work on the farm with Kunstler, but I would be tinkering with ways to make that farm more efficient without petroleum or with soybean oil. Then maybe I can sell that technology and move onto the next challenge.

I’ll let a quote from James Howard Kunstler himself rejoin:

“Tom Wolfe wrote a fabulous op-ed in the Sunday New York Times commemorating the Apollo 11 moon landing of 1969.  In it, he speculated that the achievement itself spelled the end of the NASA program because it lacked a philosopher corps that might have furnished it with more meaning beyond its element of ‘single combat’ between the US and the Soviets in the ‘space race.’   This meaning, he said, might have been supplied by someone like NASA's chief engineer Wernher Von Braun, who once stated (in effect) before a congressional committee that  ‘...we must build a bridge to the stars, because as far as we know, we are the only sentient creatures in the entire universe. When do we start building that bridge to the stars? We begin as soon as we are able, and this is that time. We must not fail in this obligation we have to keep alive the only meaningful life we know of.... Unfortunately, NASA couldn't present as its spokesman and great philosopher a former high-ranking member of the Nazi Wehrmacht with a heavy German accent.’

“The further trouble, of course, is now that we sentient creatures seem to be in the process of destroying our home planet, how might we justify our spread to other worlds? We've fallen short both in resources and philosophy.  In our current state of evolution we seem unlikely to ever again go further afield than the moon and not exactly worthy of making trips elsewhere anyway.  Stay tuned a few hundred thousand years....”

And for those of you who are still wondering about deflation and inflation, here is Bill Bonner once more with a bit of wisdom…

Since we rate the risk of financial distress very high, we buy gold - as insurance. But we do not expect a major bull market in gold soon. Later, after deflation and depression have surprised investors and squeezed inflationary expectations out of them, we will buy gold as a speculation. Then, investors will be surprised by how fast inflation comes back.

I discovered two pleasantly surprising things about Mr. Bonner at this year’s Symposium: he is a Whiskey Shooter; he has a fine singing voice. And I discovered these things in rapid succession. Within moments of our introduction, Bill was coaxed onstage in the ballroom and sang backup to his son Jules who also played guitar (sadly NOT on the CD). Ah, to be a Bonner.

Jules happens to be working from Agora Financial HQ these days and his desk sits juxtaposed to mine. He has therefore been witness to the sort of horrors you’d expect, but has promised never to share the details with anyone.

Gary Gibson
Managing Editor,
Whiskey & Gunpowder

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