Nothing talks in Washington any louder than money. Today, the big spenders are betting against the land of the free and the home of the brave. But of course, if you’ve been paying attention, the action is no surprise.

If you invested in United States treasuries over the last year, you bought into the worst performing sovereign debt across the globe. Thanks to the Obama administration’s unending yearning to artificially pull the nation’s GDP into positive territory, investors are quickly raising their nose to the country’s ever-growing pile of debt.

In all of 2009, the Treasury Department received loans of $2.1 trillion from the world’s investors. It was an extraordinary year of borrowing that took the nation’s debt liability from $5.80 trillion to $7.17 trillion at the end of November.

Of course, with unemployment likely to show yet another rise later this week and some 45,000 businesses tossing in the towel over the last twelve months, Obama is not done spending yet.

Many experts believe 2010 will mirror the borrowing habits of 2009, when Geithner and the Treasury hit the auction market 79 times.

As we are seeing today, excessive borrowing can lead to strong market opportunities for well-positioned investors.

As long as Uncle Sam is spending more than he is pulling from the pockets of hard-working Americans, the value of the dollar will be at risk.

After a very strong December, the greenback is showing weakness today. It now trades at $1.4436 against the euro, a dip of more than a penny below the 2009 closing figure. A penny may not sound like much to the uninitiated, but a quick look at anything dollar-denominated tells a different story.

Oil is up, gold is up and the equities market is soaring. A turnaround in the dollar is just what we needed to get the pendulum swinging once again.

As I have said many times before, a falling dollar is good, but it can only drop so far before it turns out to be an utter disaster. Once the markets believe the bottom is going to fall out, it is all over for the security of the world’s top currency.

But that’s a problem we won’t have to deal with until the Fed pulls out of the game. Unfortunately, Bernanke’s likely to put the fiscal rejuvenation machine into reverse in the not-so-distant weeks ahead.

For now, however, it is time to make money while you can.

Any good contrarian investor loves the gold markets lately. I love it because we are raking in the gains over at TFN Strategic Trader thanks to recent swings in the precious metals market.

For nearly all of December, I took flak because of my gold-market pessimism. But folks that followed my advice saved themselves some big money as the shiny metal lost nearly 10% of its value.

But in the final week of the year, you may recall, I noticed the market was ready to change direction. On Thursday morning, with just a couple of trading hours left in the year, I made my move. I wrote my subscribers about a strategic option contract.

The move paid off. Thanks to gold prices surging by more than $26 per ounce today, the contract has soared by 44%. I am sure plenty of members are taking the one-day gains, but I’m holding out for more.

2010 will be the year of all years for currency and hard-asset traders. We are already proving it.

*** Here’s a question that will help you get the New Year off to a profitable start.

What do Medifast (NYSE:MED), Green Mountain Coffee Roasters (NASDAQ:GMCR) and Hansen Natural (NASDAQ:HANS) have in common?

The answer: They all make food or drinks designed to make you feel good. Even better, they comprise the three best performing stocks of the last decade.

Medifast, with its popular weight-loss diets, soared over 16,000% over the past ten years. Green Mountain, and its diverse coffee lineup, led investors to gains of 9,210%. And Hansen, the maker of a variety of popular drinks, is up by 7,022%.

Not bad figures for a time that most pundits are eager to call a lost decade. It is not surprising to see a decade that was so focused on consumer spending and short-term happiness to produce these kinds of figures.

Looking forward, however, into a decade when unemployment is creeping higher, discretionary spending is down and it is becoming hip to be frugal (finally, my time to shine), the three stocks listed above may give back plenty of their recent gains unless they reposition their product portfolio.

In ten years, it won’t be “fun” food we will be talking about. With the nation’s population growing by leaps and bounds, it will be staples like corn, wheat and water that dominate the headlines.

Don’t worry. We’ve got plenty of time to figure it out.

That’s okay. It gives me plenty of time to stare at the ceiling and think.

Last night, on the heels of Obama’s speech, I had a lot on my mind. While talking about the military struggles in Afghanistan, the 11-month president looked very “Bushish.” Whether you find that a good quality or not, is up to you.

But Obama’s mention of the nation’s resolve, or lack thereof, struck me. He mentioned the fact that after 9/11 the country was fully united. Yet today, we could not be further apart.

It’s the first time Obama and I have agreed in a long time. (Maybe I’m getting what my wife has.)

Unless this country can get together and put partisan maneuvering aside, we’ll never move forward.  That includes economically.

Resolve is a word rarely used by investors, but it’s one that should be in our vernacular. Without it, we have no long-term strategy and, to borrow an overly popular term, we have no exit strategy.

Sure, when I first got into this industry, politics played a large role in Wall Street’s day-to-day maneuvers. But it was nothing like today, a market where Washington can create red or black with the stroke of a pen.

Investors don’t need a degree in finance. They need to spend four years studying political science. That’s not good.

I don’t agree with Obama too often, but when he calls for increased resolve, I’ll follow. But all I represent is one vote. For real action, all of us need to stand behind the notion of fixing this country and strengthening our once-fierce might.

At any point, but more critically than ever, the direction of the Dow is far more important than the direction of Obama’s approval rating. Until we get Congress to vote for what’s good for the country instead of what’s good for the party, my view of the economy is bearish.

And it’s getting worse every day.

There is no denying we all want to get rich. There’s no lack of ambition or will in that department. But until this country finds the resolve to work together and put political differences aside, our economy is going nowhere.

*** We have aptly proved the value of shorting the American economy over at TFN Strategic Trader.

Earlier today, we sold three more positions for yet another cluster of double-digit gains. Out of the three options plays, two were put contracts that soared as the value of natural gas plummeted and another was call contracts that surged as the world turned its back on America’s economy and fled to Asian growth opportunities.

In all, we locked in gains of 33%, 55% and 50%. Even better another set of put contracts is currently worth gains of 300%.

It’s all thanks to the natural gas markets.

I recommended some selling today because tomorrow is likely to be a pivotal day for the industry. November is typically the first moth to see a drawdown in the nation’s gas stockpile. So far, we haven’t seen it.

Even with storage capacity at 99.9%, the nation’s gas producers continued to put more into storage facilities than the nation’s users could pull out.

But tomorrow, that is likely to change. If the week’s inventory report shows a drawdown, a skittish market is likely to send gas prices higher, at least temporarily. With options, that means we’ll be exposed to the detrimental effects of time decay.

So we sold today with the hopes of “resetting” our entry prices even lower in the near future.

You can either get in on the action here, or you can read about our gains in the next couple of weeks. Your choice.

*** Finally, it’s a good day for corporate executives and a horrid day for organized labor. Down at the local Harley Davidson plant, the union voted to ratify its latest seven-year contract with a 1,587-to-193 vote.

The new contract will most likely force Harley to call off the dogs and cancel its plans to move the plant to Kentucky, but it also cuts nearly 1,000 jobs and forces the union to take serious concessions.

Now workers will actually have to show up and work.

Even when the pendulum is swinging towards socialism, there are signs of capitalism at work. Doesn’t it make you feel good?

Bill Bonner (The Daily Reckoning, UK):

Poor Goldman Sachs. Everyone is on its case. Criticizing. Carping. Jealous. Envious.

So, today we rise in defense of the Wall Street giant. Yes, the Goldmen may be shysters. But they are honest shysters…

Besides, it was another slow day on Wall Street. Investors are still mulling the news. As we all know, the recession is over. But… what kind of strange recovery is this?

A survey showed that only 1 in 10 workers says his income is going up. This is the lowest reading since 1946.

Meanwhile, the news two days ago was that homebuilding took a dive in October. Work began on 11% fewer houses than the month before. On multi-family dwellings, the figures were worse – down 35%.

Why would homebuilding go down when the economy is supposedly gathering strength? Well, builders were wondering what would happen when they finished the houses. The new house tax credit was due to expire; they weren’t sure the politicians would be witless enough to renew it.

They need not have worried. Give the politicos a chance to do something stupid and they will come through every time. Since the end of October, Congress passed and President Obama signed an extension of the housing credit. Until next April, at least, first time buyers will get an $8,000 credit.

You’d think that would have revived animal spirits a bit in the residential construction industry. But today’s news tells us that mortgage applications are falling – even with lower interest rates.

How come interest rates are falling? Well, here again, we see the heavy hand of the feds. The “quantitative easing” has come to a halt… that is, the Fed is no longer buying US Treasury debt (it doesn’t need to). But its buying of mortgage backed securities continues. That program will last until March of next year.

Still… housing is not cooperating.

This news hasn’t had much impact on Wall Street. All that can be said is that investors have seemed to hesitate for the last couple of days.

Stocks fell softly yesterday, with the Dow down only 11 points. Oil stayed at $79. Gold rose to $1,141. And the euro remained at $1.49.

Investors must still believe in what the Washington Post calls a “lukewarm recovery.” It is like finding a body on the street. You feel for a pulse and discover that it has not quite reached room temperature. It is tepid… Not quite alive. Not quite dead.

Too close to the quick to bury… too close to the grave to boogaloo.

Click here to read the rest of Mr. Bonner’s commentary at The Daily Reckoning, UK edition.

Baltimore – (TFN): All eyes and ears are on the Fed this week. With Bernanke in New York discussing potential new bubbles and the New York Fed getting heat for overpaying AIG’s many creditors, investors are having a tough time knowing exactly who to follow.

For those of you who hold up the “Fire the Fed” signs, move over. I am thinking about joining your camp.

First, the real bad stuff. According to Neil Barofsky, TARP’s special inspector general, New York’s Fed (under the leadership of Tim Geithner) failed to use its leverage as the top-banking regulator to tell AIG’s lenders to take less than they were owed.

Instead of taking an across-the-board “haircut” as Obama and Pelosi told us we all should, finance giants like Goldman Sachs, Merrill Lynch and Societe Generale said they want 100% of what they were owed.

The only holdout, UBS, said it would be willing to take 98%. But after tough looks from the guys from across the table, that offer was quickly rescinded.

According to Barofsky, the move cost the country billions of dollars and much, much more in confidence for the nation’s banking cops.

Thanks, Tim!

With that bit of news in today’s headlines, it is tough to find the confidence in some of the Fed’s latest plans to help pull the country from financial failure.

As the nation slowly recovers from last fall’s economic collapse, Bernanke and his troops at the Fed are now facing the difficult task of unwinding massive expansionary policies.

One trick discussed today is shortening the length of emergency loans from 90 days to just 24 days starting in January. It’s a pretty mundane move that will have little tangible effect on the markets.

But what could have a much larger impact, with much less transparency, is Bernanke’s recent discussion of paying interest on the reserves banks place with the Fed.

A popular move with many overseas central banks, the interest rates paid on reserves helps to establish a rate floor that regulators can gradually increase without raising overall interest rates.

Essentially, the move is a way of mopping up excessive liquidity without draining or lowering the water in a much larger pool of lending capital.

Like many things, the idea sounds great on paper, but so did letting the Fed negotiate with AIG’s trading partners and we now know how much that cost us.

Let’s face it. The markets like transparency and predictability. Anything less gives us what Friedrich Hayek called “malinvestment.”

As the Fed gets more and more creative in its efforts to boost the economy without creating deadly bubbles, transparency will go out the window.

Toss in growing political pressure from the folks from Washington and one thing is certain.

Anything the Fed does will cost you and I more money.

In the days following Obama’s inauguration, Washington quickly passed a wide set of tax reforms. Part of the legislation included a $400 tax break for the country’s working class and increased healthcare funding for the country’s poor, unhealthy children thanks to increased taxes on the tobacco industry.

It is no surprise neither measure has worked out as planned.

According to reports today, more than 15 million of us will have to pay back the $400 we saved in taxes over the last few months due to an error on Washington’s end.

I hope Uncle Sam doesn’t expect interest on his loan come April.

The news out of the tobacco industry helps us continue our discussion on regulations. The good and the bad.

Winston Churchill once said, “If you have ten thousand regulations, you destroy all respect for the law.”

The great orator hit the notion perfectly. With Congress working on reform after reform, the American people eventually became deaf to the noise from Washington.

Worse yet, we became savvier at circumnavigating weak legislation. Just ask the tobacco industry.

In an effort to fund children’s healthcare, the Obama administration levied a massive 2,000% tax hike on the nation’s roll-your-own cigarette industry. Taxes for the tobacco used to roll a custom smoke rose from $1.10 per pound to $24.78 per pound.

Washington figured the massive increase would deter smoking and create well-needed revenue care of the folks that refuse to kick the habit.

As you can likely deduce, it didn’t work.

What happened was manufacturers ripped off one label and slapped on other. Roll-your-own tobacco production plunged while pipe tobacco production, with its $2.83 per pound tax, soared.

Before the tax, pipe tobacco demand was just 270,000 pounds per month. Just a few weeks later, it hit 1.7 million pounds.

Turns out Washington had no idea pipe tobacco was so similar to the roll-your-own stuff that it could be considered a direct replacement.

The mistake is now costing the government some $384 million annually in lost tax revenues.

Once again, it proves the markets are always a step or two ahead of new regulations.

Barney Frank may think he can write a law that tells Wall Street to behave, but in reality all he’s doing is pushing the action from one unlit corner to the next.

I can’t wait to see what they come up with next.

The response from the “real world” is almost always ingenious, like a classic Tom and Jerry cartoon.

*** I sure hope the Fed knows what it is doing. With Big Ben stubbornly clinging to record-low overnight rates, the top inflation cop needs another trick to keep market forces at bay while still enticing a skittish economy to come out of its shell.

His latest trick? Paying interest on banking reserves left with the Fed. It is a trick used at other central banks to create a “corridor” that keeps rates from sinking too low or rising too high.

But many pundits don’t think the Fed is ready for such management “tricks”, especially as it sits on a massively inflated balance sheet.

I am one of them.

I am against the measure not because I feel it won’t work. It most certainly will work and has in the past.

I am against it because who in the world wants to give anybody in Washington any more power?

The Fed already owns the banking industry and now it wants to create even more opacity.

Over the last three days, we have seen more than enough examples of how increased government power fails. The more we mess with the markets, the harder they are to control and predict.

For all of you that constantly shout, “Fire the Fed,” here’s a tip of my hat. I’m starting to see the light.

Existing home sales rose 7.2% to a 5.24 million annual rate in July, the most since August 2007 and the fourth straight month the figure increased, the National Association of Realtors (NAR) said Friday. Year-over-year sales grew 5%, the increase since September 2007, just before the markets came crashing down the following month.

“The housing market has decisively turned for the better,” said NAR chief economist Lawrence Yun. “A combination of first-time buyers taking advantage of the housing stimulus tax credit and greatly improved affordability conditions are contributing to higher sales.”

Rising sales numbers in the past few months may have triggered previously discouraged sellers to re-list their homes, according to Yun.

Total housing inventory at the end of July grew 7.3% to 4.09 million existing homes available for sale, representing a 9.4-month supply at the current sales pace. However, the raw inventory totals are 10.6% lower than they were last year.

Sellers are responding to rising inventories accordingly: The national median existing home price was $178,400 in July, 15.1% lower than a year ago. But the fact that buyers are dipping their toes back into the murky depths of the housing market doesn’t necessarily mean the sector is trending toward a full-blown recovery.

Turn of the Year Makes for Uncertain Future

One in three homes sales last month came from first-time buyers who benefited from the Obama administration’s $8,000 tax credit, which ends after November. First-timers accounted for almost the same amount in June with 29%. That means there could be a significant drop in purchases when that program expires.

The real estate industry is lobbying Congress to extend the first-time buyer tax credit, and Nevada Democratic Senate Majority Leader Harry Reid told reporters earlier this month an extension is “something we can get done.”

With or without a tax break, consumers in this economy are looking for a bargain much like they are with retail sales and auto sales. The bulk of the first-time tax credit sales have come from lower-priced homes, and NAR data supports that. Sales of homes that cost less than $250,000 were up almost 17.8% year-over-year through June. Meanwhile, sales decreased 13.3% in the $250,000-$500,000 bracket, 18.6% in the $500,000-$1 million range, and 32.7% in the $1 million – $4 million range.

Lost pricing power in the more expensive homes wasn’t lost on Pulte Homes Inc. (NYSE: PHM), which last Tuesday finished its acquisition of value-priced homebuilder Centex Corp.(NYSE: CTX), making Pulte the largest homebuilder in the United States.

“I’m not seeing a tremendous amount of good news on the job or economic front, so I do think it’s important that the [tax] credit get extended,” Pulte Chief Executive Officer Richard Dugas told The Associated Press.

The turn of the year isn’t likely to yield much good news on the job front. Most economists are expecting the unemployment rate to top out around 10%, and although July’s rate dipped one-tenth of a percentage point, the latest weekly initial unemployment insurance claims were discouraging, rising 15,000 to 576,000 for the week ended August 15.

“The improvement in the labor market has stalled,” Scotia Capital Inc. economist Derek Holt told Bloomberg News following the latest jobless claim figures. “Consumer spending will be pushed back on its heels for a longer time than markets are expecting.”

When the bleeding of jobs does peak, an upturn in employment could take some time as the United States experiences a jobless recovery. With an unemployment rate at or around 10%, home inventory levels could creep back in to 2008 territory.

“[The unemployment rate projection] indicates that the level of labor market slack would be higher by the end of 2009 than experienced at any other time in the post-World War II period, implying a longer and slower recovery path for the unemployment rate,” Fed economists wrote.  “This suggests that, more than in previous recessions, when the economy rebounds, employers will tap into their existing work forces rather than hire new workers. This could substantially slow the recovery of the outflow rate and put upward pressure on future unemployment rates.”

Source: Home Sales Will Struggle to Rebound Without Tax Credit Extension

That’s the president talking, not Taipan Daily. Mr. Obama’s remarks came in response to a question from a Canadian journalist, at a North American summit held in Guadalajara, Mexico.

Meanwhile, U.S. Representative John Dingell was shouted down by an angry protester at a town hall meeting in Romulus, Mich., last week. The protester, pushing his wheelchair-bound son to the podium, called Dingell a “fraud” and said that proposed changes would not help his son.

Emotions are heating up all around the country, with strong outbursts on either side of the divide. Some are furious that healthcare reform does not go far enough. Others are furious that it is being foisted upon the country at all.

We touched on this debate two weeks or so ago – see “Throwing Rocks at the Healthcare Hornet’s Nest” – but it seems worth another look.

“Increasingly, the [healthcare reform] battle looks like a presidential contest,” says The New York Times, “with expensive advertising campaigns and Internet-driven efforts to mobilize support.”

Interestingly enough, the debate does not appear centered on how much all this might cost. Instead, it is more focused on quality of care… and whether Americans would be denied access to care, as some say happens routinely in other systems.

The below excerpt (slightly edited for clarity) from Taipan Daily reader Helen M. does a good job, in your humble editor’s point of view, in summing up the strengths and weaknesses of socialized medicine:

Let me tell you a bit about socialized medicine, this coming from someone who lived with it. First 28 yrs of my life I lived in Eastern Europe, in Czechoslovakia. This country strived to reach socialism and eventually communism, after the Russian example. Thank God it never reached any of them. You had a doctor that was assigned to your employer, or in absence of employer to the place where you lived.

Offices were always overcrowded, they did not [push] medicine on you as doctors in our country do, for [they] were in short supply. Medical care was rationed and so were the surgical procedures. When you did not like the doctor assigned to you you couldn’t switch, [most] people of my generation worked very hard even physically (exercise) ate very sensibly (they could not afford more than basic food cooked from scratch at home, thus healthier than the USA supermarket food, most of which is bad for you) and they said keep away from the doctors if you want to live long healthy life. All my ancestors from both parents side lived a very long healthy life and worked till the day they died.

Later my scientist husband and I lived in other European countries for months or a few years. The U.K. had a sort of socialized medicine. It was not any better: overcrowded offices (lonely old ladies [w]ent to see their doc to talk), medications and medical care was rationed.

Germany did not fare much better. Not only for patients but for the doctors as well. Government determine[s] what they are allowed to charge even to private patients and till recent days it did not change. During the month of June German doctors were on strike to object to their low fee scale. Actually in spring of 2008 I did go to Munich, where [a] top oral surgeon placed 7 implants into my mouth and his associated fine American dentist educated in USA… did 3 perfect bridges and both charged me equivalent of $ 20,000 whereas USA dentist and his oral surgeon would not even give me an estimate [beyond] saying could be up to $ 120,000. I chose German team and paid $16,000 or $20,000 including two trips to Munich. And that for the best team in Munich.

But due to their government ran system they are much less paid than their U.S. colleagues. Still they provide very fine care. [German] strike accomplished some fee scale increases but how would American doctors respond when their salaries go 300% and more down? We shall all get equal care regardless [of]our financial status – equally lousy. I would rather pay my last buck for a fine doctor of my choice.

These experiences are not based on speculation… but where I was and what I experience[d]. Lets all pray this sick scheme never passes.

Sincerely, Helen M. AIA, subscriber

Notice the interesting plot twist in regard to excellent German care. Helen’s long experience with socialized medicine was, overall, quite undesirable – “pray this sick scheme never passes” – but that did not stop her from saving $100,000 or so on an expensive dental procedure courtesy of a government-run system.

Does that count as hypocrisy? I would say no – it’s only common sense. Who wouldn’t want to save $100,000 without any noticeable reduction in quality if they could? There is real value in upholding one’s ideals and making decisions based on principle… but there is also real value in hard-nosed pragmatism and doing what makes sense in a world that will by and large remain screwed up anyway.

Saving $100K on a procedure is no small thing, and in many ways it goes to the heart of the healthcare reform debate. Many of those who passionately argued for reform, like Taipan Daily reader Ron E., had experience with financially debilitating healthcare-related events.

What about honest, hardworking Americans who have health care, insurance, good doctors, etc, but still face ruin in the event of a catastrophic health issue? For example, I am a hard working individual who has a fairly decent health policy. I have bulging of damaged vertebra in almost every disc in my back, and a fused neck. On top of that I had to have a valve replacement when my heart was attacked by infectious bacteria while on a trip to Singapore. My wife had brain surgery to clip an aneurism, she also suffers from Hepatitis C, and she has [a] ruptured disc due to an accident – a patient kicked her in the E.R. These health issues have required us to cash in 401Ks, IRAs, savings, and every penny we can get our hands on, and still led to financial ruin.

I don’t expect to have a free ride, nor do I expect the government to pay for all of my costs but it just isn’t right that I live in ruin due to poor health over which I have no control. Don’t tell me our health system is fine. It isn’t. I’m only one of millions in this position. I would say if you would take the anti-govt health plan constituent and give them a good healthy dose of my problems they would be changing camps in a hurry. Something must be done, and fast. There are way too many people with views like yourself. I’m not one to wish bad luck on anyone, but I do wish that all of the people that are “happy” with our health system would suffer (just temporarily) until they get a good taste of the consequences of poor health. They would change their minds in a hurry.
– Ron E.

TANSTAAFL

Ron E.’s situation powerfully underscores the source of strong emotions in this debate. In a free market system, the safety net is thin at best. Catastrophe can be absolutely devastating, no doubt.

This strikes many as a deep and grievous injustice… and who can blame them? Personally I would not wish poor health or capricious tragedy on anyone – there is already enough pain in the world – but given what Ron has gone through, I can understand why he would.

The debate also brings to mind one of the best science fiction novels of all time: The Moon Is a Harsh Mistress by Robert A. Heinlein. Written in 1966, the story is about a lunar colony’s revolt against exploitative Earthbound rule. The novel has been embraced by libertarians as one of the best expressions of libertarian thought to be found anywhere.

An acronym popularized by the Heinlein novel is TANSTAAFL, which stands for “There Ain’t No Such Thing As A Free Lunch.”

No matter how much we would wish it to be otherwise, everything has a cost. Like the moon, Mother Nature is a harsh mistress too. The discipline of economics is all about the allocation of scarce resources – “scarce” denoting the fact that there is not enough for all to have as much as they desire in the quantities they seek.

One might say TANSTAAFL applies to healthcare in terms of a trade-off… the trade-off between astronomically expensive (but rare) medical procedure coverage versus quality and availability of day-to-day care. Consider this from TD reader Joan:

As a Canadian I’m here to tell you our Health CARE(?) sucks. Our government has no problem making [its] citizens wait well over a year in pain for procedures to eliminate that pain. It doesn’t matter how much money you have you wait just like a bum on the streets. I needed a herniated disc operated on and waited 13 1/2 months to see a surgeon, who told me it would be another year to get into surgery. BUT, he wouldn’t operate on me then because 70% of hernias heal. (really?) Well, I had been in pain for a year and a half already and it was getting worse by the day. I was taking morphine and you know how addictive that is! I went to the U.S. and had the surgery in 2 weeks. I’m fine now and pain free. I look around me at all the people in pain and wish they could afford to go somewhere to be fixed. Now mind you, If you have a car accident and need immediate care, you jump to the first of the line. They also take cancer seriously. You only have to wait a month or so for that surgery. Imagine having cancer and waiting at all!!

Just my opinion, but I would take the U.S. health care over ours. Private insurance in the U.S. costs about $4500/year. I pay that here for additional health insurance and still have to wait in line for specialists.

Free ain’t what it’s cracked up to be…

Joan

Yep. That’s TANSTAAFL right there… anything with the appearance of “free” actually has a cost.

Where You Stand Depends on Where You Sit

The healthcare reform debate seems deeply driven by personal experience. “Where you stand depends on where you sit” as the old saying goes.

Those who have experienced catastrophic health events in their lives tilt strongly toward U.S. reform, of the sort that would have society (i.e. taxpayers by way of government) pay full freight. In contrast, those who have experienced the headaches of a dysfunctional government-run system on a day-to-day level tend to focus more on the general awfulness of that experience.

It isn’t quite that cut and dried, of course. Socialized healthcare systems also have horrible failings on the catastrophic side – think of patients dying on waiting lists – and free-market oriented systems can feel like a blatant rip-off to healthy individuals gouged by frivolous charges left and right.

Simple answers are hard to come by. TANSTAAFL still seems a fair guideline, though, because there will be major costs associated with whatever system America chooses. It’s never a pleasant exercise assigning financial weight to moral decisions – but the alternative is a fiscal road to ruin.

Source:  The Catastrophe Conundrum – Healthcare Revisited

Unfortunately, it’s too late to reverse course for America. President Obama’s spending program is speeding up the collapse, not slowing it down. Right now, 21 cents out of every $1 paid over to the feds in income tax goes to paying off the interest on the national debt. Soon, it will be almost double that amount. It doesn’t take a genius to work out that this is unsustainable.

It doesn’t take a genius, either, to figure out that higher spending and higher debt mean higher taxes and a weaker dollar. Here are just some of the shocking forecasts James makes in this explosive report:

• No matter who you are, your taxes will go up. The government will continue to raise taxes in an attempt to keep its spending programs alive. The Obama administration is already planning to raise corporate taxes, already the second highest in the world. The costs of this will be passed on to you whenever you buy something.
• The US dollar is already being undermined as the world’s reserve currency as US debt holders led by China, Russia, India and Brazil move to protect themselves against dollar depreciation. Soon the dollar will lose its reserve currency status.
• The Social Security Ponzi scheme will collapse. The government will be unable to borrow the funds it needs to replace all the money it has already spent from the Social Security trust fund.
• Interest rates in the U.S. will rise to 6% plus as the government needs to raise the rate to stimulate foreign demand.
• Excessive government borrowing will push up mortgage rates and trigger another leg down in the housing market. Huge numbers of prime borrowers have already begun to default on their mortgages, triggering what is destined to become another wave of toxic asset writedowns at banks.
• The government will default on Social Security payments and Medicare and Medicaid obligations. It will not do so in an open way. Instead, it will fail to accurately index-link Social Security benefits to the cost of living… it will ration hospital stays and doctors visits… and it will deny expensive treatments and medication to state-insured patients (beginning with the elderly)
• The US will enter a long period of economic stagnation coupled with inflation.
• In years to come, the period between 2008 and 2018 will be known as America’s “lost decade.”
• Oil prices fall to $25 a barrel before breaking through their July 11 2008 high of $147.90 a barrel.
• Unemployment rates will rise to 20%.

James is a personal friend. And he’s one of the best thinkers about the global economy we know. Back in 1993, James sent out a similar warning to investors. His forecasts, 14 years before the subprime collapse was ever heard of, were scarily accurate…

· I see at millions unemployed or in make-work public assistance jobs.

· I see millions more homeowners “upside down” – with a mortgage bigger than the value of the home.

· Banking industry problems will prove too big for the government to paper over.

We strongly urge you to read James’s latest report. Of course, he could be wrong. The nearly $12 trillion national debt could just keep on growing to infinity with no serious repercussions for America’s economic standing in the world. The breakneck increase in the money supply since the outbreak of the economic crisis may not trigger a dangerous inflationary cycle. And President Obama might pull a white rabbit out of a top hat instead of increasing taxes to pay for his bloated budget. But we doubt it. As we like to say here at Notes, “Smart investors hope for the best, but they prepare for the worst.”

The Congressional Budget Office (CBO), the non-partisan federal agency responsible for providing economic data to Congress, knows the game is up, too. This from the CBO’s director’s blog:

Under current law, the federal budget is on an unsustainable path, because federal debt will continue to grow much faster than the economy over the long run. Although great uncertainty surrounds long-term fiscal projections, rising costs for health care and the aging of the population will cause federal spending to increase rapidly under any plausible scenario for current law. Unless revenues increase just as rapidly, the rise in spending will produce growing budget deficits. Large budget deficits would reduce national saving, leading to more borrowing from abroad and less domestic investment, which in turn would depress economic growth in the United States. Over time, accumulating debt would cause substantial harm to the economy. […]

Keeping deficits and debt from reaching these levels would require increasing revenues significantly as a share of GDP, decreasing projected spending sharply, or some combination of the two.

We believed in Santa as a kid. But we don’t believe that Team Obama is going to decrease spending “sharply” or otherwise. So “revenues” (aka taxes) will have to rise.  And to soften the blow, you can count on the administration reneging on its Social Security and Medicare obligations.

What Barack Obama and Joe Biden just don’t get is that too much taxation drove the American Revolution. And with the federal government now consuming about 28% of GDP and state and local governments another 15%, tax hikes are inevitable. In fact, they are already here. This from well-known fiscal conservative Pat Buchanan:

Obama plans to repeal the Bush tax cuts and take the income tax rate to near 40%. Combined state and local income tax rates can run to 10%. For the self-employed, payroll taxes add up to 15.2% on the first $106,800 for all wages of all workers. Medicare takes 2.9% of all wages above that. Then there are the state sales taxes that can run to 8%, property taxes, gas taxes, excise taxes and “sin taxes” on booze, cigarettes and, soon, hot dogs and soft drinks.

Comes now national health insurance from Nancy Pelosi’s House. A surtax that runs to 5.4% of all earnings of the top 1% of Americans, who already pay 40% of all federal income taxes, has been sent to the Senate. Included also is an 8% tax on the entire payroll of small businesses that fail to provide health insurance for employees.

One thing you can be sure of is that the world’s economic mandarins are slow to learn from the mistakes of history. This from the Daily Reckoning:

After the expansion comes the contraction. After the bubble comes the clean-

up. After the storm comes the sun.

But what is going on in China? What comes after the biggest export-led
bubble ever? Another bubble?

It doesn’t seem possible. China’s number one customer is broke. It has far too
many factories for those that are left. It should be closing up shop…and
waiting out the bad weather. And yet, China is growing. A combination of hot
money…and hot financial policy…is falling on everyone’s favorite green shoot
like Miracle-Gro. Its trade surplus and foreign direct investment – the usual
source of reserves of foreign currencies – are only half what they were last
year. But the speculators are coming in…and they are bringing cash. This has
boosted Chinese reserves past the $2 trillion mark…and provided the liquidity
for another round of bubble-like conditions. Trading volumes in Chinese
stocks, for example, are running three times last year’s.

The world’s investors and economists think they are looking at the Second
Coming. Chinese growth will power the world out of its slump.
Hallelujah…we’re saved! Things will be ‘back to normal,’ soon. Stocks rose
yesterday in anticipation – with the Dow up.

Daily Reckoning readers are warned: this too shall pop.

The President’s man at the Treasury, Tim Geithner, is also towing the party line. On Friday Turbo Timmy spoke of “substantial improvements” in trying to beat back the “worst recession globally we’ve seen in generations.”

Why the defensive posturing? Because the White House is feeling touchy and irritable as the polling numbers sink. The rotten jobs market, it seems, has cut into Mr. Obama’s popularity. A poll of Ohio voters showed approval numbers falling from 62% to 49% in a mere two-month span.

If the stimulus is “working,” then, heaven forbid how things might look had there been no stimulus at all.

Or hold on, wait a minute. How might things have looked really and truly with no stimulus? What would have been different?

Heads I Win, Tails You Lose

This is one of the challenges in dealing with a very sick patient (i.e. the U.S. economy). Sometimes the patient gets better all by himself. Other times, the medicine that is supposed to be helping actually makes things worse. Without the proper diagnostic tools, though, there’s often no way to tell.

And not all deeply ill patients die, of course. Some really do make a self-powered comeback. Shamans and faith healers often rely on this simple binary outcome to set up a “heads I win/tails you lose” type deal for themselves.

That is to say, if the sick patient gets better, then clearly it was the shaman’s powerful medicine that made it happen.

But there are other alternatives, each tailored to the situation at hand. If the patient fails to get better but still lives, then the shaman can take credit for keeping him from death’s door. And if the patient up and dies, well… then the shaman was called in too late. Or the family members did not have enough faith. Or there was a hidden mortal sin, or some other exculpatory thing.

That’s the trouble with big decisions and messy historical turning points. There’s no way to rewind the tape, so we can’t always be sure what helped or what hurt – or even which actions were justified in the first place.

The weight of history does suggest at least one thing. When it comes to intervention, the government’s track record isn’t so hot. In fact, not to put too fine a point on it, it stinks. And when you think about it, the logic as to why is fairly straightforward.

Take the whiz-bang idea of creating jobs, for example. Creating jobs – real, sustainable productive jobs – is no easy task. Just ask any hard-working entrepreneur. So why should the government be any good at it?

And if the government possessed half a clue when it comes to creating jobs, why wouldn’t that capability be rolled out in good times as well as bad? If the jobs genie is all he’s cracked up to be, why wait for history’s darkest hour to rub the magic lamp?

Quantitative Wheezing

And then there is quantitative easing, or QE for short. What does the historical record say about quantitative easing? Basically two things. “Japan tried it… didn’t work.”

Hugh Hendry, co-founder of London-based Electica Asset Management, had this to say about QE in a recent Financial Times interview:

…There is no precedent, no precedent, that says quantitative easing succeeds. None. I’ll give you one actually, there is one, because there was some quantitative easing exercised by the Federal Reserve in 1933-34, and it did initiate a dramatic economic recovery without inflation. But I hesitate to say that was actually a success of quantitative easing, because it was preceded by a 46% collapse in nominal GDP.

So perhaps if you’re telling me that nominal GDP will collapse by 46% next year, then I would believe, and I would come back to you and I’d say then quantitative easing might have a chance in succeeding.

For the record, U.S. GDP (gross domestic product) was an estimated $14 trillion to $15 trillion in 2008. A nominal 46% collapse would nearly cut that in half, taking us back to 1996 levels. The Dow was around 5,000 back then.

So What’s Worked Before?

This leads to an important question. What can history teach us about getting out of jams? The last economic jam we faced of comparable size and scope was the Great Depression. How did we beat it once and for all?

There are many different theories as to how America finally beat the Great Depression. Some give credit for the comeback to FDR (Franklin Delano Roosevelt) and his far-reaching policies. Others say no, FDR really didn’t help much at all (or even made things worse) – it was World War II that finally pulled us out. And still others say, simply, that “time heals all wounds,” even economic ones, and we simply had to slog our way through.

History rarely obliges historians by providing neat, packaged answers. Most sea-change type events have many factors involved, not just one. But still, your humble editor suggests there is one very powerful, yet generally overlooked element that brought us out of the Great Depression. That element was consumer savings.

Here is a statistic that will make you blink. According to journalist-historian William Greider, personal savings levels hit a whopping 25 percent of income in 1943 and 1944.

World War II played a clear role. As Greider writes, “with so many millions conscripted for war, unemployment vanished and scarcity became the problem.” Those who were not drawn into the WWII effort saw their income levels rise. Women saw as much demand as men, a new development for the times. And because the country was on a war footing, a sort of forced saving effort was in place. Families had to make do on an “austerity budget,” and wound up banking much of what they earned.

This huge build-up of savings – 25 cents out of every dollar earned – set the stage for an explosion of consumption in the years to follow. After the war, an era of new products came rushing in. And consumers had both the pent-up savings and pent-up desire to spend, spend, spend.

A Long, Long Road

So what does history have to say about our current predicament? Mainly that, when it comes to getting an economy back on track, there is little that the government can do (case in point Japan).

And secondly that, short of starting a new World War and railroading the nation into a forced austerity program, the country’s best hope probably resides in the U.S. consumer getting his fiscal house in order.

As Tom Petty once sang about love, “it’s a long long road.” That lone dip on the chart above shows where consumer savings rates actually went below zero at the height of the bubble. The impressively tall bar on the far right – representing one of the fastest savings upswings in more than a decade – tops out at just 4%.

U.S. consumers will probably never again save twenty-five cents out of every earnings dollar. There is too much financial innovation and benign leverage built into the system to dial back the clock that far. (And a little bit of leverage, like the kind that lets a young couple make affordable car payments, is a good thing.)

But could the consumer once again save at double-digit savings rates, as we saw not 20 years ago? Could the savings rate more than double from here, even as a hefty chunk of income goes towards paying off a serious overhang of debt? Absolutely.

And that’s why the U.S. economy is never, ever going back to “the way it was” – if by “the way it was” one means the gross runaway excesses of the past two decades. There will be new mistakes, new insanity, new bubbles… but for now and the foreseeable future, we’ve got a hell of a lot of saving to do.

Source: Guess What Really Brought Us out of the Great Depression?

President Obama is hoping that Midwest rural areas will return the favor, and provide much needed wind-generated power to densely populated cities and towns up and down both coasts of the country…

Wind turbines are huge, and not well suited to more densely populated areas. They are a natural fit in the vast open plains of the nation’s heartland, where the wind almost never stops blowing. But there’s a problem… it’s just not the one you might think.

Here’s why wind-generated power is still going to be the driving force for change in the way we use energy, and one of the biggest obstacles it has right now to getting us to where we need to be.

A Banner Year For The Wind Power Industry

2008 was a banner year for the wind power industry:

• Previous installation records were blown away, with over 8,500 megawatts (MW) of new generating power installed in the United States alone. That’s enough to light over 2 million homes.
• Wind power installations represented 42% of all the new power generation capacity added in 2008.
• The 44 million tons of carbon emissions avoided equates to taking 7 million cars and trucks off the highways.

As a result of the current recession, the wind energy installation outlook for 2009 will be somewhat muted compared to last year, with about 5,000 MW expected to be installed. But despite the downturn, the industry is still in expansion mode.

And that’s a good thing.

A lot of the stuff is engineered and made right here: domestic “made in the USA” components now make up about 50% of the average system, up from 30% in 2005. And like any other burgeoning sector, when business is booming, companies expand and hire people.

In just the last two years, wind turbine, tower and component manufacturers announced new facilities, added or expanded 70 facilities, 55 of them in 2008 alone.

It’s creates lots of jobs as well. Today 85,000 people are employed in the wind industry. That’s a 70% increase from just one year ago. It’s all good news… well almost all of it.

Where Wind-Generated Power Is Needed The Most

You see, while plenty of wind farms dot the ranchlands of the Midwest, the bulk of the wind-generated power produced is needed in the dense urban areas on the east and west coasts.

And there’s the big problem: the existing power grids won’t cut it.

Just consider: 3,000 utilities generate power and send it to 500 transmission owners. They control over 164,000 miles of transmission lines divided into three major interconnection regions: East, West, and Texas.

As an electrical engineer, I may be one of the few who can appreciate the technology, but it’s truly amazing that it all plays together.

They’re fragmented, low power grids that aren’t capable of transmitting the hundreds of thousands of megawatts that will be needed thousands of miles away from the wind farms.

The bottom line is that in order for the estimated 300,000 MW of proposed wind-generated power to get to where its needed, $60 billion will need to be spent on grid upgrades and interconnects by 2030.

The Biggest Problem Facing Wind-Generated Power

But even assuming the $60 billion was available to be spent on this type of alternative energyright now, not a dime of it would be used to build wind-generated power transmission lines.

The problem? Red tape with a capital R:

• Regulations that aren’t designed for power transmission between states.
• Rules that burden the local ratepayers unfairly with the construction costs instead of distant beneficiaries.
• Approval times measured in years, not months.

Here’s an example of how ridiculous it gets: American Electric Power (NYSE: AEP) is a public utility holding company in the business of generation, transmission and distribution of power at both the retail and wholesale level.

As part of an expansion of its network, the company erected a transmission line between West Virginia and Virginia. The construction time was two years. The approvals took 14.

Susan Tomasky, AEP Transmission President, explains the problem: “There are lots of people with authority to make pieces of the decision, and no single entity that can say ‘yes’ or ‘no’.”

Clearly what’s needed is federal permitting to locate cross-country transmission lines. The federal government has been doing it with natural gas pipelines since the 1960’s.

Looking To The Future Of Wind Turbines

So what are the chances of the fed’s saving us, and getting it done in the near future?

Better than you might think: Jeff Bingaman – Chairman of the Senate Energy Committee – has a proposal that will require comprehensive plans for grid interconnections.

More importantly, it will greatly expand the FERC’s powers to locate big new transmission lines at the federal level (bypassing the myriad of local regulations) and the authority to properly allocate their costs.

And firms like AEP and ITC Holdings Corp. (NYSE: ITC), another power generation and transmission company, are both eager to invest and build lines from the Midwest to cities in the east.

Even if all goes according to plan – which isn’t ever the case in Washington – these lines wouldn’t be in service until 2020 or so. Clearly a more streamlined approach is needed. The refreshing news is that it appears politicians are actually working on the problem.

We’ll be watching and reporting on it here and in my Energy and Infrastructure newsletter soon to be published by the Oxford Club.

Next week, I’ll be traveling with my colleagues to Vancouver, British Columbia, and speaking at the Oxford Club’s Victoria Chapter Meeting. I’ll return here the following week.

Source: Wind-Generated Power: Why Midwest Wind Power Isn’t Blowing East