McAlvany Weekly Commentary, April 21, 2010

The Creation & Destruction of Value. An Interview with Harold James

The Creation and Destruction of Value: The Globalization Cycle

>- by Harold James

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Jim Rogers: Next Recession Will Be Much Worse

The Great Recession that may have just ended will amount to nothing compared to the next one, says commodities expert Jim Rogers.

The huge fiscal and monetary stimulus is what will cause the crisis, he says. Rogers notes that the United States suffers a recession every four to six years on average.

“When it (the next one) comes, it’s going to be much worse, because Washington can’t quintuple its debt again,” he told Newsmax.TV Money. (more)

FT: U.S. Debt to Hit $20 Trillion in 10 Years

While the global financial system remains transfixed the by the problems of Greece and several other European countries risking default over their massive debts, the real threat is whether the credit standing and currency stability of the world’s biggest borrower, the US, will be jeopardized by its disastrous outlook on deficits and debt.

That’s the fear raised in a devastating op-ed on the Financial Times website written by Robert Altman, a former deputy US Treasury secretary under President Clinton who is now chairman of Evercore Partner, a leading global advisory and investment firm.

“America’s fiscal picture is even worse than it looks,” Altman writes. “The non-partisan Congressional Budget Office just projected that over 10 years, cumulative deficits will reach $9.7 trillion and federal debt 90 percent of gross domestic product – nearly equal to Italy’s. (more)

Obama suggests value-added tax may be an option

President Barack Obama suggested Wednesday that a new value-added tax on Americans is still on the table, seeming to show more openness to the idea than his aides have expressed in recent days.

Before deciding what revenue options are best for dealing with the deficit and the economy, Obama said in an interview with CNBC, "I want to get a better picture of what our options are."

After Obama adviser Paul Volcker recently raised the prospect of a value-added tax, or VAT, the Senate voted 85-13 last week for a nonbinding "sense of the Senate" resolution that calls the such a tax "a massive tax increase that will cripple families on fixed income and only further push back America's economic recovery." (more)

The Stock Market Is Starting to Look Toppy

From a big-picture perspective, the stock market’s advance off the March 2009 low is nothing more than a huge, bear market rally.

To understand how I come to that conclusion, just look at two classical valuation measures, price-to-earnings ratios and dividend yields, in the chart below. You can easily see how this stock market bear, which started in 2000 at record overvaluations, still has a lot of work to do … (more)

Taxes take up greatest part of household income, Fraser Institute says

A prominent think-tank that's often critical of government spending policies says Canadian families spend more than two-fifths of their total income on taxes.

The Fraser Institute says its annual Canadian Consumer Tax Index calculated that taxes ate up 41.7 per cent of the average family's income in 2009.

That's up from 1981 when taxes accounted for 40.8 per cent of a family's income, or 33.5 per cent in 1961 when the Fraser Institute first compiled the index.

12 Reasons Americans Are Incredibly Angry About The State Of The U.S. Economy

We have reached a very interesting turning point in American history. More than at any other point in modern times, Americans are deeply angry about the state of the economy. In fact, it is no stretch to say that millions of U.S. citizens are hopping mad about the economic situation. Most of them don't know exactly what is wrong, and even fewer of them have any idea about how to go about fixing things, but they do know one thing. They know that they are mad.

As Americans, we were raised with the belief that our overwhelmingly powerful economic machine would always provide good jobs and prosperity for all of us as long as we worked hard. But we have come to learn that is not true. We have come to learn that our politicians and our leaders have squandered the great inheritance that our forefathers left for us. We have come to learn that the financial future of our nation is beyond bleak. We have come to learn that our government has piled up the biggest mountain of debt in the history of the world. Now the foolish decisions of the past several decades are catching up with us. (more)

China Importing More Coal

“China, for the first time, is an importer of coal,” writes Chris Mayer. “And it looks like it might be an importer for some time yet, providing a boost for coal prices. There has been drought in southern China and the Mekong Delta for months now. Now there is also drought in the northern part of the country. Since there is quite a bit of hydropower in these places, it looks like output could drop 70-90%. That would mean electricity shortages of 10-15% nationally.

“Unless China gets some big-time rain soon, that will mean it will have to rely more on coal to make up the difference. In fact, there is a possibility that China’s reservoirs go completely dry, in which case its hydropower plants will have to shut down…

“The longer this drought goes on, the more the Chinese will have to buy coal to offset the decline from hydropower. We could see quite a spike in coal prices over the next few months as Chinese buyers wade into the market.”

Chart of the Day