If we want energy security here in the United States (I think we need it) and not remain dependent on foreign oil, then why do we appear to be overlooking natural gas?

These questions beg for a logical response. Natural gas is far more cost effective than either oil or coal, and America’s known resource base exceeds 100 years of supply based on current U.S. consumption levels.

My son Keith is a chemical engineer and plant manager for Total Petrochemicals in Houston, Texas. He recently shared with me what I think is a thought-provoking lecture from Keith Rattie, president of Questar Corp, one of the fastest-growing producers of natural gas in America. You can read his speech in its entirety HERE.

This ten-page transcript of Rattie’s lecture is loaded with lots of irrefutable facts about our energy needs. In my opinion it makes an overpowering case for using natural gas—a significantly cleaner fossil fuel—to help wean our country away from gasoline and coal.

Unfortunately, many of the kernels of wisdom could be lost in the misinformation Mr. Rattie also cites about the ice cap in the Arctic and a “green” Greenland, along with some of his assertions about global warming (I prefer “climate change”). And the messenger does not help the cause with his subjective forecast for alternative fuels.

Perhaps that’s how he thinks the game is played. There is currently no accountability system existing to challenge hard-core environmentalists who willingly or naively misrepresent the facts or use doctored-up pictures to garner support for their doom and gloom views. Many Al Gore clones have successfully demonized everything and everyone associated with fossil fuel industries by using these methods.

Far too many in the public treat oil companies like the enemy, forcing them to defend themselves needlessly and to spend their valuable time and resources to satisfy poorly thought-out regulations. Yes – and it doesn’t help oil people when their cause is championed by Dick Cheney or radio personality Rush Limbaugh, someone who has turned the use of misinformation into an art form. But it also doesn’t invalidate what the “ditto heads” know to be the truth.

And so it is with Mr. Rattie. His use of misinformation doesn’t change the enormous opportunity for America to use more natural gas as an energy source. We’ll make a huge mistake by minimizing our staggering, 24-hours-a-day dependency on fossil fuel producers who are supporting our standard of living. Nor should we fantasize about how simple it would be to completely replace petroleum with energy from the sun, wind, and other natural resources.

Natural Gas: Pros and cons as a fuel for automobiles.

http://www.youtube.com/watch?v=gGaA7r2Y70I

I for one am grateful for Mr. Rattie’s motives. I feel that if he wants to make a case for natural gas – a really good one – a case that will be supported by the majority of the public and key politicians, then he needs to limit his speech writing to areas in which he is supremely qualified. Rattie isn’t a scientist, but I think he’s a damn good salesman who understands the potential for natural gas. And, I like his tenacity.

Here are Sunny’s responses:

“We are in a Depression, and this period of chaos will lead to new social and economic behaviors that will morph into the next equilibrium. They will look quite different than the ones we have just given up. I do not know how this new model will look like but I do have some thoughts:

“The new model will be global. The distribution of wealth will narrow. Uncontrolled free markets and corporate behavior will be regulated to a greater extent. Geographic boundaries will continue to shrink.

“A host of social norms will develop to counteract the pain of the coming rise in unemployment and the criminal behavior it will spawn.

“Religious extremism will have to give way to the more communal needs of survival in the developed economies.

“The human mind and our DNA for survival will foster the consumption/production equation that Jon is concerned about. Remember the ‘rats in the tub’ story (see inset at end of article). The key issues are when and how.

“I believe that risk management is critical in a period of chaos until the new paradigms emerge. Many of our past behaviors will not work in the emerging situation, and new behaviors will have to be validated by society before they can get traction as a norm.

“Strategies for portfolio management are no different. A broad index is likely to underperform as only a ‘few boats will rise on this tide.’ The needs for validation and constant performance feed-back are critical as conditions change; ‘Buy and Hold’ will not work in many instances. A strong intellectual curiosity and need to validate new trends and behaviors will be a key component to success in this endeavor.

“If you are concerned about where you should invest your money, you will have to think ‘outside the box.’ We live in a dynamic world, none more so than today. Those who wisely invested in cash over the last six months will soon have to reconsider where they want to invest their savings.

“A clear picture will not emerge for sometime. It’s more important to focus on actions to be taken now till the clarity of a new paradigm eventually emerges.”

It is in the DNA of man to survive—even more so in the nature of mankind. The more battle-tried we are, the better our survival instincts and the stronger our confidence in our cumulative ability to succeed. One veteran financial advisor put it this way:

“During World War II, German U-boats operating the Atlantic ran unchallenged, sinking merchant ships and leaving survivors stranded in lifeboats, sometimes for weeks, without rations or water. Inexplicably, the youngest and fittest sailors in those lifeboats were often the ones that didn’t survive. For years this phenomenon remained a mystery, until it was realized that the veteran sailors survived because they had been through earlier crises. The younger, inexperienced sailors perished because they saw themselves as trapped in a hopeless situation, often jumping overboard into the cold North Atlantic.

“In the 1970s, researchers tested the survival theory by immersing mice in a tub of water. They found that the mice would swim for a brief time, then give up and drown. However, if they were “rescued” and taken out of the water before drowning, when they were returned to the tub they would swim for hours. The difference was that they had hope.”

“Why don’t you call Sunny Bal?” Eric suggested. I’d known Sunny informally for the past five years. He owns the bridge club where Eric and I play. I also knew that Sunny was a successful, upbeat, self-made business man. I soon realized that I didn’t know the “real” Sunny Bal.

I called Sunny and asked if we could get together because I was in need of some financial advice. He immediately invited me to join him the next day at his finely appointed home perched high on the south side of the Catalina Mountains in Tucson, Arizona.

When I arrived at his house late in the afternoon, I was greeted by Sunny, still wearing a long sleeved dress shirt and a tie cinched tightly over the top button of his shirt. He was accompanied by Baxter, his three-year-old security guard—a one hundred pound, crotch sniffing, playful bundle of energy. He directed me to his office where we enjoyed an excellent bottle of Francis Ford Coppola red wine paired with dainty tomato and cucumber sandwiches. The first fifteen minutes passed quickly.

But I was on a mission and it wasn’t to make small talk. I wanted to get deep into Sunny’s head and perhaps hear some pearls of wisdom. He didn’t disappoint me.

I hope you will find his sound bites on the current economic problems, our potential for recovery, and his general philosophy, as insightful as I did:

• The current economic meltdown that we are experiencing was a long time in building with a successive series of deregulations fueling the excesses of financial and real estate speculations. There’s a lot of blame to go around, shared by financiers, governments, and investors alike. The fact is that we are here and our focused attention should be centered on asking and answering the question: What do we do? Traditionalists take a militant view that we should “let them fail” and then go in afterward and clean up. That is tough medicine that could kill the patient. The cost of doing nothing is too much to bear: Economic misery for the have-nots could lead to social unrest or worse. These very problems have already started in Eastern Europe. Let’s pray we don’t get infected too.
• I believe we need to arrest the “domino effect.” This will require that people work in concert, not at cross purposes. We need to give our young, charismatic President our support in this tough challenge. President Franklin D. Roosevelt tried many things, keeping what worked and discarding what didn’t. We find ourselves in similar but uncharted waters. Extinction is not an option – evolution to the next level is!



• Fred Mishkin says, “If Wall Street falls apart, Main Street collapses.” I believe Ben Bernanke and the U.S. Secretary of the Treasury have it right by trying to stabilize the financial system to prevent it from seizing up. I only wish they had started several months ago.
• The stimulus package will have a powerful effect in stemming our weakening economy. I do believe it is the right medication for a very sick patient. I only question if the dosage is sufficient. The credit markets are thawing rapidly. Capital markets all around the world are regaining their footing and the banks are lending again. If we can find solutions to the foreclosure crisis, we will have made considerable progress in getting back on the road to recovery. Survive we will!
• It is in periods of chaos that great opportunities are frequently born. Fear leads to panic selling. The market has been cut in half over the last eighteen months. Great stocks have been thrown down with the bad. In the meantime, a flight to safety has also driven Treasury, Money Market, and CD yields to less than 1% for short-term maturities, well below the cost of inflation. The price of all this stimulus spending, financed through borrowing and the copious printing of money, risks future inflation when the economy finally recovers. Survive we will, but the price we pay could be higher inflation.
• I believe “efficient markets” are a myth. The efficient market hypothesis is based on critical assumptions that human behavior is “rational” and that the markets are “free.”  In fact, neither assumption is even remotely accurate. Any study of the behavior of crowds will show that human behavior is anything but rational and competent. Advertisers and public relations consultants have developed and practiced the skills of being able to quickly and decisively alter our impulses and opinions. While our markets are supposedly “free,” the regulations that were designed to keep them free and fair are often thwarted because regulators are frequently seduced by the regulated.
• The need for security is almost always driven by fear. Fear of both the known and unknown; fear that can be rational or irrational. Fear clouds our judgment, stifles creativity, and prevents us from serving mankind; it makes us suspicious of the motives of our neighbors. Security comes from the will of society at large. You can keep your wealth only if society lets you. When the very rich flaunt their wealth or abuse their power, the will of the majority soon acts to deprive them of both. True security cannot come at the expense of your neighbor, but through a collective feeling of well-being. Thus to preserve wealth, and the security it offers, you have to share it.
• Each individual is responsible for living his own life and for finding himself. If he persists in shifting this responsibility to somebody else, he fails to find out the meaning of his own existence. Bill Moyers says, “When you get to be older and the concerns of the day have been attended to, and you turn to the inner life—well if you don’t know where it is or what it is, you will be sorry!”

The fears of nationalization are based on the premise that most Americans don’t want Washington bureaucrats running our major corporations, especially banks and energy companies. The general consensus is that having banks like Bank of America and oil companies like Exxon managed by the government will remove any incentive for both industries to invest their own money toward innovation and modernization. Private industry (translation=”big corporations”) is always viewed as being far more efficient and more friendly to its clients (translation=”we the people”) – and therefore can do a better job than government.

(Friday, Feb. 20, 2009) It has been reported that Senator Christopher Dodd, chairman of the Senate Banking Committee, suggested that the Obama administration wants to avoid nationalizing U.S. banks, but that certain banks might have to be nationalized for a short time. According to Bloomberg and other sources, Dodd stated that he didn’t welcome that possibility, but could see that it was possible and might actually happen.

In reality, many banks and major corporations have been nationalized to some degree in the past, albeit with mixed results.

President Franklin Delano Roosevelt took over the banks and declared a “bank holiday” in 1933 to stop the disastrous mass withdrawal of funds due to public panic. The banks were released back into the private sector in a short time, but were forced to carry and pay for government insurance for all accounts under $100,000 (now $250,000) to the FDIC to protect their depositors. Roosevelt’s action is credited as being the first step toward ending the “Great Depression.”

During World War 2, 90% of major industry in the United States was effectively “nationalized.” Giant corporations that included the automobile, steel, and petroleum industries were still run by their civilian managers, but the federal government told them exactly what they would manufacture, how much and how often they would produce, and told them exactly what they would be paid. Thanks to this approach, America was in and out of the worst war in human history, one we fought on two major fronts on a world wide basis, in less than four years.

So it is with our current banking crisis. Wouldn’t it be better to have competent banking executives, those with reputations untarnished by recent scandals, volunteering to work to achieve an industry turnaround situation for reasonable compensation packages? Instead of forcing them to work under the very CEOs and directors that managed these big banks into bankruptcy, let them work under the guidance of government officials like Federal Reserve Chief Ben Bernanke and Secretary Tim Geithner and be directly responsible to the President. Above all, let there be transparency to what they are doing, so that the American public can be reassured that progress is being made toward an ultimate solution instead of a bunch of already wealthy fat cats making themselves richer using taxpayer money.

Nationalization would absolutely require tighter regulations from Congress, closing some banks and having them operate under the supervision of the FDIC, and having the entire industry under the direct supervision of the Federal Reserve, Treasury and General Accounting Office. Above all, the American public and members of Congress should be informed at specified intervals as to how taxpayer money is being used and what results are being achieved.

Nationalization may not be the right solution for the entire banking system, and in many cases it simply would not be needed. Small locally run banks and most credit unions seem to have weathered the crisis well because they have maintained conservative lending and investment approaches in their daily operations. Whether any of these financial entities should be included in a government takeover would need to be made on an individual basis, based on their demonstrated performance.

Any government bank takeover plan should be viewed as temporary. If and when the banking system stabilizes, then a carefully programmed return of these institutions to tightly regulated private ownership should occur, similar to what happened to the country’s major manufacturing industries after the World War.

For now, however, the viability of most of the major banking institutions in this country is doubtful. When you have banks like Washington Mutual and Wachovia disappearing almost overnight, and Bank of America and Citigroup trading on the stock exchange for just pennies, you have to acknowledge that the government must step in and take decisive action.

Should big banks be nationalized? Lindsey Graham says we might…

http://www.youtube.com/watch?v=fREe1rZev7g

We also have to realize that it is inevitable that some major banks will not survive in spite of the government’s endless stream of band aid measures. As the process progresses, some will need to be taken over, some declared bankrupt and closed, and others forced to merge.

The real question is how much time, effort, and taxpayer money will have been wasted before someone with the power (read the Federal Reserve, the Treasury, or the President), uses that power effectively to stop the destruction of our nation’s financial system. It has been admitted that the possibility that the Obama Administration may need to nationalize some financial institutions and the issues have been discussed at some length in and out of the White House.

The fear is that the highly charged political nature of just the mention of the word “nationalization” will create an initial policy by the Obama Administration of almost any action except nationalization. Politics aside, the urgent nature of this problem requires immediate action and any delay in stabilizing the banking system could set the stage for a complete and irreversible meltdown of our economy.

The current Treasury plan tries to tackle the banking industry problem using several different approaches: buying up or insuring toxic loans, injecting more capital into the system, and promoting more lending to consumers.

At this stage, the injection of more capital using taxpayer funds appears to be the administration’s choice for the near future. The trouble with capital injection is that funds are being given to banks with no control over their use to the same managers who drove those banks into near bankruptcy.

The process up to this point hasn’t been in any way transparent as promised by the Bush Administration. The public is beginning to feel that the Treasury is being looted by the same shameless financial opportunists that created the very situations and management decisions that created the current banking crisis. There aren’t any positive signs of stabilization to date, but rather an apparent deeper slide into financial hell and the rest of us are forced to follow behind.

Bank of America and Citigroup have received nearly $100 billion of the TARP funds, and yet they are both closer to the brink of complete collapse than when the TARP bill was passed. They have become the most likely candidates for immediate nationalization or FDIC takeover – or both.

So now what do we do? If we need to, do we use the bitter pill of nationalization to stop the disease before it spreads any further? Or do we just let these big financial institutions die and let their rotting corpses infect other healthy companies and corporations, pulling the entire system down into the depths of hell with them?

The current situation reminds me of an old childhood game that forced a choice between two unimaginable but equally horrific options. “Would you rather (a) slide down a mile long razor blade, or (b) swim in a river of burning gasoline?”

At the moment it feels like our government is faced with similarly distasteful options in dealing with the banking crisis.

The book’s author, Van Jones, presents a well-written, substantive, and viable first-draft plan for solving what I believe are some of the biggest issues facing our country today. These include repairing the failing economy, eliminating our foreign oil dependency (a major threat to national security), and efficiently reducing our reliance on fossil fuels with clean and renewable energy.

I think the author may have tried to appeal to too many constituents because I felt the first 77 pages of the book dragged a bit and I was suspicious that this was just pie-in-the-sky stuff. When I finished reading the book in its entirety, however, I was a believer.

Am I getting soft in my old age? I don’t think so. I’m still a capitalist at heart, a business man who wants data, facts, and numbers, not wishful thinking.

Jones contends that our current economy is built on and powered almost exclusively by oil, natural gas, and coal—all fast-diminishing non-renewable resources. Our government subsidizes tens of billions of dollars a year to this pollution-based “gray economy” with little incentive for change.

Jones calls this potential new paradigm “The Green Collar Economy,” believing that it could create millions of new jobs for American workers. For this new economy to blossom and flourish, government policies must play a key role in setting standards, spurring innovation, realigning existing investments, and making new investments. It must include all segments of society. Jones also contends that only the business community has the requisite skills, experience, and capital to make it work. Success will be tied to new “eco-entrepreneurs”—and the success and survival of their enterprises.

We can no longer afford to engage in the old politics of naming, blaming, and shaming someone else, while concealing our own faults, flaws, and hypocrisies. It is most unlikely that the present high lords for oil, coal, and armaments will reverse course or give up their power without a bitter struggle. So a new force must emerge to realign American politics, transform the political landscape, and supplant the Texas/Pentagon axis.

If it is to succeed, the critical mass of businesses in this green collar economy must produce renewable energy and reduce energy waste. This can be done with the use of wind and wave farms, solar energy, bio fuels, solar-powered hydrogen farms, improved weatherizing of homes and office buildings, just to name a few. The author also lists over 50 companies that are currently making money in these market niches.

What I liked most about Van Jones’ vision was his macro view of today’s major problems and how everything is interconnected. More importantly, he spends the bulk of his time re-framing these problems into definitive opportunities that even I could understand, refusing to get mired in details or playing the blame game. And he does not advocate that government create a new bureaucracy to exploit this monstrous, once-in-a lifetime opportunity.  Instead, he reminds the reader that no major new set of modern industries—from the railroads, to nuclear power, to the Internet—has ever succeeded without government playing a powerful and supportive role.

http://www.youtube.com/watch?v=aj-7uRCLoX4

Take the time to read this book, all 197 pages, and you’ll come away with a totally new way of looking at “green.” It’s not about narrow-minded Ralph Nader hoopla and scare tactics, and you don’t have to believe that Global Warming is what Al Gore makes it out to be. Frankly, I’m turned off by all the misinformation about how to save the planet. However, my business instincts, as a consequence of the 33 years I spent in manufacturing conveyor belt products, tell me that the Green Collar Economy is a real business opportunity.

In summation, The Green Collar Economy presents an excellent first draft vision of what America could and should do to revitalize its standing in the world community. And it matters not whether you believe that global warming is a serious threat to future generations or a cyclical phenomenon. If you are concerned about the current economic woes, you owe it to yourself to read this book.

The Green Collar Economy: How One Solution Can Fix Our Two Biggest Problems

I thought it was ironic that 61 years ago a middle-aged woman came to my mother’s home, knocked on her door (the story is told in Growing Up In Mama’s Club), and gave her a book, purporting with certainty that a new world, a pollution-free paradise earth, was hers to have in her lifetime if she believed, followed its interpretation of the Bible, and proselytized its unique message. Unfortunately, Mama is still waiting for her new world that was supposed to arrive before I reached the age of 20.

At Christmas this year, a middle-aged woman came to my home and gave me a book, The Green Collar Economy. She didn’t set high and lofty expectations, but simply said, “Read it Dad. I think you’ll like it.” After twice doing as she instructed, making extensive notes, and confirming the author’s credibility, I was a believer. However, I realized that there is no certainty that any of this stuff can ever happen unless there is a groundswell of support – from the President, members of Congress, and the majority of all the citizens of this country, not just a majority made up of affluent people.

Now, like Mama, I intend to proselytize the potential for a “new world”—not the one she hoped for—but one with a green collar economy driving it, a truly sustainable new world for generations to come. - Richard E. Kelly

Business Opportunities for the Green Collar Economy

• Wind Power Farms
• Wave Energy Farms
• Weatherizing & Retrofitting millions of Homes & Office Buildings
• Solar-Powered Hydrogen Farms
• Refining waste oil into Bio-Diesel
• Manufacturing and Installing Solar Panels
• Manufacturing ultra efficient vehicles, such as plug-in hybrids
• Produce/Farm more local, organic food, decreasing transportation costs
• Improving the Mass Transit System
• Manufacturing & Servicing Electric Vehicles powered by a clean energy grid
• Production of more Bio-Fuels
• Production of renewable fuels from non food biomass (switch grass, etc.)

What We Must Stop Doing

• Subsidizing fossil-based fuels
• How we transport food to reduce energy costs
• Using food biomass for fuel
• Allowing Rainfall runoffs to become “storm water”
• Using fossil fuels in our fertilizers and massive Robo-tractors
• Building new coal plants that can’t safely capture & store emissions

The Christmas story is an endearing tale, filled with subtle beautiful meaning, no matter your faith, or depth of belief. What a shame it is lost in the blur of shopping and wrapping, of Santas dropped from airplanes or delivered by fire trucks and worshiped by all.

Take time to imagine the journey of the Wise Men from the East, following a star, “…westward leading, still proceeding…” I’ve had the good fortune to pilot a sailboat hundreds of miles from land. After sunset, it can be tiring frustrating work to keep a compass heading. But when the ink black heavens are ablaze with stars, it becomes pure joy: look through the rigging, find a guide star, follow it and you will hold a true course. Should clouds interfere, you search for another guide star to hold your bearing.

Their quest to find the meaning of the star was an arduous one. High mountains with bandits and desolate deserts threatened the Wise Men’s lives, wore down their resolve, but they persevered. What sustained them? Their guide star always appeared and gave their journey meaning.

Was theirs a journey to reclaim lost innocence, to find purpose, find hope? I’m quite sure it ended with an expression of thanksgiving that comes at the end of any difficult journey. Claire and I know about such quests, athough our journeys are much easier, and will be soon forgotten. Did they find what they sought in the Child? We will never know for sure, but we know they found joy in the journey itself.

The Christmas story bears many a lesson worth considering, and it is a far more satisfying pursuit than buying one more, soon to be forgotten trinket. The lesson of greed is taught one hundred times more often over this season than the lesson taught by the Biblical story of Christmas.

I am not a believer in the inerrancy of the Bible, but I know a good story when I read one, I know a story with a message of truth behind it. It deserves to be shared and thought about. If you’d prefer a more secular seasonal story, How the Grinch Stole Christmas is a wonderfully simple tale of great value. The Grinch took away their toys and gifts, yet the people of Whoville were still joyous, and celebrated their blessings together.

This Christmas Eve, Claire and I are toting up our blessings in our wonderful little home: We are warm, and dry, we have each other, a large community of friends, and three stuffed pandas. We will go to bed well fed, anticipate a wonderful breakfast, and a full day of stimulating activity. We have a simple healthy life, and plans for the future. We don’t have a decorated tree or brightly wrapped packages. Our presents are our blessings, wrapped in the joy of deeply felt thanksgiving.

So have a merry Christmas, a happy Hanukah, Kwanzaa, or Saturnalia… Whatever your seasonal story might be, take time to savor it, and be thankful.

I didn’t know who Peter Schiff was before I received the video. He is the president of Euro Pacific Capital, which is an American company specializing in international investments. The piece that was forwarded to me was comprised of snippets of several interviews he did in 2006 and 2007 on several major business news television shows.

• In the first interview in 2006, he stated that we were headed to a recession, and it was probably going to last for several years. In a later interview, he stated that we would be in a recession by November of 2007. Since we all know now that the recession has been officially recognized as beginning in December of 2007, he missed it by one month!

• Long before the official recession began, he stated that we had too much debt financed consumption and too much borrowing. He continued by saying that the increases in home prices were only paper values, and that home prices were unsustainable. Peter said home values were going to come crashing down when Adjustable Rate Mortgages began to reset, and the market would collapse.

• In 2007, Peter stated that the worst was not over, but the party was over. He said everyone was going to have a difficult time borrowing, and that the foreigners who had been lending us money for years were now realizing that we can’t repay it. He recommended that we stay away from financials as equity investments, because they had no earnings.

In all cases, Peter was counter-pointed by other so called experts, who, in many cases, actually laughed at him. Somebody I’ve never heard of named Mike Norman laughed continuously, and I hope he has watched this video since then to see how ridiculous he looked…and how pathetic his understanding of what was happening in a world he professed to understand looked. He was joined in his misguided disdain by Arthur Laffer, who was indignant and said that Peter was totally off base.

Ben Stein may have been further off base than all of them. He said that the credit crunch was over-blown, and the sub-prime issue was a tiny problem. He also said the worst was over. Stein put his other foot in his mouth and mumbled that financials were a bargain, and recommended Merrill Lynch. If Ben Stein’s Money went where Ben Stein’s Mouth went, he is probably at home practicing, “Hi, welcome to Wal-Mart.”

Charles Payne, who probably caught a serious case of foot-in-mouth disease from Stein, predicted a boom within a few months, and recommended Goldman Sachs and Washington Mutual as good buys. He also predicted the Dow would hit 16,000.

It is actually uncomfortable watching men such as Norman, Laffer, Payne, and Stein make fools of themselves on national television programs. I know nothing about Norman, and I don’t want to…he reminds me of one of the very few guys I have met in my life who I immediately didn’t like. I know very little about Laffer (how appropriate is that name?) and Payne (That’s a little appropriate too!), and Stein should have stuck with goofy game shows. All three were rude to a man who obviously has a much better grasp of the big picture than they do.

With all of that in mind, it brings us to the present, and I’m going to pay a little more attention to Peter Schiff from now on. The point of this writing is not to discredit the laughing boys who chided Peter; it is to present him as a credible source for us to listen to now. Currently, he states that he has always warned that rapid expansion of government debt would result in inflation and higher interest rates, because a rising supply of government debt inflates the money supply and weakens the government’s ability to service it’s debt through legitimate means.

He now believes Barack Obama’s New Deal stimulus and public works program, which is wholly dependent on the willingness of foreign creditors to supply the funds, will face difficulties because purchasing U.S Treasuries will be a tough sell to foreign lenders. According to Peter, once the dollar begins to collapse beneath the weight of all of this new deficit spending, accumulation of contingency liabilities, and the socialization of our economy, commodity prices and interest rates will rise…which is hard to imagine right now. Additionally, once all of the going out-of-business sales at U.S. retailers are over, and excess inventories have been reduced, there will be big price increases at the consumer level.

Continuing, he says that once there are no bidders for new treasuries, the Federal Reserve will be the only buyer, and sensing that, the Fed has recently indicated a desire to begin issuing it’s own bonds. The vicious cycle widens. The Fed already issues debt, since dollars (Federal Reserve Notes) are recorded as liabilities on the Fed’s balance sheet. The Fed hopes the proposed interest bearing debt will be more attractive…but the interest will be paid with additional Fed script (more debt!).

Peter Schiff’s messages are daunting, but given his right-on prediction about what is happening now, he is hard to ignore. It is easy to pick the right opinions when using hindsight, but Peter’s staunch defense of his convictions in the face of open ridicule on national television is admirable, and gives him credibility. I wish I could say he is wrong, but all of this is barely within my grasp. I write fiction so I can make up the endings. In our non-fiction world, I don’t know where all of our current problems are going to take us, but I do know that we will come out of this eventually, and we will probably come out of it as a much stronger and wiser nation.

Peter Schiff debates Arthur Laffer in August, 2006

http://www.youtube.com/watch?v=LfascZSTU4o

Video mentioned in the above article from August, 2007

http://www.youtube.com/watch?v=RYX1AgEV0vo

Oh! You thought I was talking about belt-tightening, as in spending less? Well, did you know that the first widely known usage of the two words together was in 1887 by Rudyard Kipling, “I was once starved and tightened my belt on the sharp belly pinch.” So you see, it all did begin with losing belly fat, starving really in his case. Few Americans are starving yet, and for most, the last thing they’d consider giving up would be their pizzas, beer and chocolate chip cookies. And, we don’t like the idea of financial belt tightening either.

We are a society who has had it all, whatever and whenever we want. Why not? We think it’s our birthright, “the American way.” We are the richest, most powerful country in the world. We deserve to be fat, and to remain fat. We deserve to overindulge and to have the health care provider of our choice fix the resultant damage, at whatever cost. We are deserving of the most and the best; those who believe otherwise are un-American.

We deserve cheap gasoline, (we have it again, for awhile). We deserve unlimited credit (we don’t have it anymore) so that we can buy huge homes and unlimited quantities of stuff we’ll soon shove to the back of the garage. We deserve to have heavy inefficient vehicles so that when we have an accident the other guy will die, not us. We deserve, we deserve, we deserve.

Now we just might not be able to afford some of the things we feel we deserve anymore. Whether we deserve those things or not our belt tightening has begun, and the end is nowhere in sight.

We must realize that our descendants will be paying for this financial mess most of their lives. Some of you know that your excessive “deserving” probably contributed to the problem. Americans’ sense of entitlement over recent decades led to the lowest savings level in the developed world as “deserving” people overdosed on debt. Now their children might never be able to buy their own dream home – ever.

Don’t you wish the solution was as easy as cutting down on food enough to tighten your belt a notch or two? Our grandparents and great-grandparents didn’t face these dilemmas: Grandpa wrestled a bull-tongue plow behind a Percheron, sheared sheep, or wrestled logs at the sawmill 12 hours a day. Grandma washed laundry by hand, made the soap from hog fat and lye, kept the vegetable garden, gave birth 10 times and then went right back to work. No wonder they could challenge those horses for eating, and still stay slim.

What about their financial belts? They didn’t know that plastic was a word for money, or care how strong, or weak, the U.S. dollar was against foreign currencies. There were no such things as derivatives or hedge funds. What was under the mattress or in a small savings account was about it for investments.

Retirement? Who retired? They just slowed down a little as their garden got smaller, they sold the milk cow, and the five surviving children made up the slack. When they finally got really sick, nobody hooked them up to humming machines in a hospital for months; family and friends came to their bedside to say goodbye, and they just passed on.

It’s not so simple these days. Medicare might be bankrupt by the time you need it, but you don’t expect your children to take care of you in your old age, and there probably aren’t five of them either. Should a double income family lose one job, it’s bankruptcy time. There’s no milk cow to sell or a garden to tide the family over. For many kids the chance of a college loan is zero.

Maybe all those years of entitlement weren’t such a good idea. Perhaps the younger generation will pay attention, deciding that they don’t necessarily deserve everything the advertisers tell them they need – and they just might save a little money. The pendulum always swings back, sometimes painfully.

So take in that belt a couple of notches and accept responsibility for your health, both physical and financial. The days of “deserving it all” could be over for awhile.

In an article on JustOneOpinion.com in September 2007, I referenced an earlier article that I wrote fifteen months before in June, 2006. Here is what I said in that September article:

Our financial world is coming to an end!

Recession looms in our near future. Holiday sales are expected to be disappointing. Over 150 mortgage banks and lenders are out of business, and many more are expected to close their doors. Chrysler, GM, and Ford are still selling cars, but mostly to fleet purchasers at basically wholesale prices. Retail sales are down across the board, but most especially in any industry that involves home ownership (furniture, carpeting, appliances, home improvement, etc.). Vacation travel is now at its lowest level since before 9/11. Employment is down and expected to fall even further as the winter months approach. Existing home sales have dropped by 20% and in some areas so have the market prices of single family and condo homes.

Yet our President and the Federal Reserve governors keep telling us that our economy is doing well. They know better, but are afraid that if they tell the truth about the economy that two things are sure to happen. First, there will be a panic that will not only bring on a recession, but will intensify it – possibly creating another Depression. Secondly, any chance that the Republicans have of holding their seats in either house of Congress or the Executive Branch will evaporate – no matter who the Democrats run.

Last week the Federal Reserve voted to drop the bank rate by 50 basis points (.50%). For most of us that means the Prime Rate is now 7.75% rather than 8.25%, dropping the payments a bit on home equity lines of credit, 2nd trust deeds, and maybe credit cards. But this “gift” from the Fed is more likely to be “too little, too late” and may do more harm than good for the U.S. economy.

Past actions by the Fed in raising the bank rates as high as they did effectively killed off the real estate markets and the mortgage lending industry. Home prices are lower and it should really be a good market for buyers. But now there are no lenders willing to loan mortgage money to anyone who doesn’t have a down payment and superior credit. A small half point drop in the bank rate will not change this situation and has only reinforced the market opinion that the worst is yet to come.

The Federal Reserve needs to take strong action as they did right after 9/11 to keep the economy moving and to get retail sales and home building back to previous norms. When they meet again in November they need to drop the bank rate by at least a full percentage point. If they don’t, then go back and read the first line of this post. It won’t be funny for the Republicans, many business owners and corporations, or for the average wage earner. The stock market could lose half its value in less than six months, leaving retirees and large investors looking for high-rise windows to jump from.

I hope I’m wrong, but I doubt it. When the Prime Rate hit 7.00% I predicted that if the Federal Reserve stopped there we would be just fine and inflation would be reduced. But if we went to 8.00% the housing market and lending would crash. The Fed fooled me and went right past 8.00% and the Prime ended up at 8.25%. Bernanke wanted to make his mark. I’m afraid that he did, much to our detriment. Trying to get the economy turned around now will be like trying to level Everest with a hand shovel.

I hate to say “I told you so” in June 2006 and again in October 2007, but today the Federal Reserve actually cut its key interest rate to the lowest level on record and pledged to use “all available tools” to combat the current severe financial crisis and prevent a prolonged recession.

The Federal Reserve announced Tuesday that the Federal Funds rate, the rate that banks charge each other, would drop to a range of zero to 0.25%, down from 1.0% since their last meeting in October.

Chairman Ben Bernanke pledged to use “all available tools” to contain a financial crisis that is the worst since the 1930s and a recession that is already the longest in a quarter-century. This was the exact same phrase he used in October 2007 when he also pledged to prevent a recession. This time, however, Bernanke promised to keep the rates low until the crisis had been brought completely under control. This is the first time in history that the Federal Reserve has pushed its rate below 1.0%.

The Fed’s decision will be matched immediately by a reduction in the Prime Rate, taking it down from 4.0% to 3.25%. The Prime Rate is the benchmark rate for most business and consumer loans.

Interest rates are now at their lowest level in modern history. In spite of that, fewer loans and credit lines are being approved, making it difficult for even borrowers and businesses with good credit histories and excellent FICO scores to get a loan. To counteract that trend, Bernanke said that Fed was planning to use unconventional methods to flood the banking system with credit and and drive consumer and business borrowing interest rates lower.

If the Federal Reserve adopts new rules at its meeting scheduled December 18th, credit card companies could no longer boost interest rates on existing account balances. The new rules are intended to define how credit card companies can adjust their rates. In the past, banks and credit card companies would simply increase their margins over the baseline Prime Rate so that they could continue to charge excessive interest rates even as the Federal Reserve tried to lower them.

Banks were borrowing money from the Fed at 1 to 3% and then loaning it out at usurious rates of up to 34.99% and hiking miscellaneous fees at the same time. Every time the Fed would drop their bank rate, the credit cards companies would simply increase their margin – and their profit.

“The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Fed said in its release.

Let’s hope so. It took Bernanke and the Bush Administration almost two years to finally recognize the true condition of the economy and start to do something to get it back on track. So far nothing they have done has changed the direction of the fall. Until they can get the banks to actually start loaning money at reasonable rates (and we’re not talking about rates of 10 to 20%!) with reduced underwriting requirements, this recession will continue with no end in site.

Unfortunately, evidence seems to prove that the plans they come up with are flawed and the actual processing is burdensome. Add the banks’ general indifference to any real aid to homeowners and their lack of enough staffing to support the programs, and you soon come to the conclusion that its all just window dressing to keep the Feds from coming down on them.

None of the plans address special situations. What happens when there are second mortgages on properties not held by the same bank? These are common situations – and quite frankly banks don’t want to deal with the hassle of trying to get the second-lien holders to approve a deal.

Proposed moratoriums just delay foreclosures and don’t really improve the homeowners’ chances to save their properties. Reducing interest rates on home loans, which is a primary element for many plans, can lower monthly payments. If a borrower still owes more than his home is worth, then nothing is really gained and future default is more likely. A 3% interest rate on a $500,000 trust deed still does not make sense if the property is only worth $250,000.

Many of these programs initially look good, but when you really analyze the numbers or try to implement them, you find that there are more problems than real solutions. What seems to be required is that federal regulators need to set down general guidelines with a lot of slack built in for the homeowner. Those guidelines need to be part of the bailout program that many lenders have or will receive from the federal government and violations need to have some real penalties.

What might work would be a strong federal regulator for loan servicers, similar to existing regulators for banks. Lenders generally sell most loans they originate, so the bank or mortgage broker that services loans usually don’t own them. Servicing loans has been one of the most profitable components of the lending industry, so the interests of servicers is very different from that of the actual owner of the notes.

On the other hand, modifying loans can be better for investors in mortgages than always foreclosing. But servicers tend to be lazy, so they see foreclosure as an easier and less costly approach than renegotiation of loan terms.

There is more to consider that just the interests of the banks, servicing companies, and homeowners. Servicers must not only act in the best interest of the investors, but also those of the families who will be displaced, the neighborhoods and communities that are damaged by empty and vandalized homes, and the general real estate market that falls into depression.

Taking that approach could not only be better for the homeowner, but also for the banks and investors. Now, more than ever, is the time for everyone involved to try to create “win-win” situations for each other – and ultimately for our economy and society as a whole.