Dow Hits Record High in Dollars, 20 Year Low in Ounces of Gold

New York SunThe Fiat Dow:

As the Dow Jones Industrial Average edges close to 14,000 let us just remark on the value of the famous index in ounces of gold. It may be that 14,000 is nearly twice the 7,949 at which the industrial average stood on the day President Obama was sworn. But what are we to make of the fact that the value of the Dow is actually lower today, having slumped to 8.38 ounces of gold from the 8.7 ounces at which it was valued on January 20, 2009?

We are by no means the first to ponder this point. There is a whole Web site that charts the Dow in gold.

Good News, California!

Illinois’ credit rating downgraded; state drops to worst in the nation.

How Many Olympic-sized Swimming Pools Would It Take to Hold All of the World’s Gold?

You often hear that all the world’s gold would fit into a certain number of Olympic-sized swimming pools. One and two seem to be the most popular numbers.

Agustino Fontevecchia at Forbes did a calculation and came up with a figure of 3.27 Olympic-sized swimming pools. He based his calculation on 2007 world gold reserves of 157,000 thousand metric tons. (The World Gold Council uses a figure of 171.3 metric tons for 2011, but that number is for all gold ever mined, as opposed to accessible reserves.)

Googling around I found a user on the Ron Paul forums (yeah I know) named ctiger2 who did a different calculation using the same 157,000 metric ton figure and came up with 2.57 Olympic swimming pools. What’s the difference?

It turns out that Olympic-sized swimming pools aren’t a standard unit of measure. Fontevecchia used a pool volume of 2.5 million liters. ctiger2 used 3125 cubic meters, which is 3.1 million liters. Which is correct?

Wikipedia gives the volume of an Olympic-sized swimming pool as 2.5 million liters, which is the number Fontevecchia used. That number is a slight simplification. Wikipedia references FINA, the organization that seems to set international pool standards for swim competitions. Fina’s specifications say that swimming pools for Olympic games and world championships should have a depth of  “2 Metres (minimum); 3 metres recommended.”

ctiger2 took that ambiguity into account. He split the difference between 2 and 3 meters and used 2.5 meters in his calculations.

So there is no fixed volume for an Olympic-sized volume, though if you have to quote a number 2.5 million liters seems reasonable. Based on that number Fontevecchia is correct that it would take about 3.27 Olympic-sized swimming pools to hold all of the world’s gold reserves, based on 2007 reserves of 157,000 metric tons.

The Final Number

In 2007 it took 3.27 Olympic-sized swimming pools to 3.43 to hold all of the world’s gold reserves. Reserves in 2011 were 165,000 metric tons, a 5.1% increase over 2007. As of 2011 it would take 3.43 Olympic-sized swimming pools to hold all of the world’s gold reserves.

Here’s an infographic that shows other ways of visualizing the amount of gold in the world.

Germany and Holland Want Their Gold Back

First Germany,* then Holland. And that’s not counting Venezuala. Actual first world countries with functioning democracies no longer trust other countries to keep their gold for them. What’s up with that?

* To be fair, it looks like Germany is only repatriating part of its gold supply. “It will reduce the amount it holds in New York from 45% to 37% by the end of the decade. “

U.S. Debt as a Household Budget

Worth repeating:

Debt ceiling debate in a nutshell … or two *

US Tax Revenue. $2,170,000,000,000
Federal Budget. $3,820,000,000,000
Deficit. $1,650,000,000,000
National Debt. $14,271,000,000,000
Recent budget cuts. $38,500,000,000

Now, let’s remove 8 zeroes from the above, and use it as a household budget

Annual income. $21,700
Bills. $38,200
New credit card debt. $16,500
Family debt. $142,710
Family belt tightening. $385

* reasonable approximations from a given point in time.

Did Cash for Clunkers Hurt the Environment?

Whoops—‘Cash for Clunkers’ Actually Hurt the Environment

Drudge linked to that piece as a study, but it’s actually quoting facts from this article at E Magazine. So we’ve got some facts, but calling it a study is a stretch.

That said, the article raises some of the same questions that people wondered about at the time. Isn’t destroying a functional car bad for the environment? And won’t this reduce the supply of used cars and hurt poor people?

Read more of this post

Let’s Say It Again: Normal Interest Rates Would be a Disaster for U.S. Debt

Zero Hedge“The Magic Of Compounding” – The Impact Of 1% Change In Rates On Total 2022 US Debt:

The bottom line: going from just 2% to 3% interest, will result in total 2022 debt rising from $31.4 trillion to $34.1 trillion; while “jumping” from 2% to just the long term historical average of 5%, would push total 2022 debt to increase by a whopping $9 trillion over the 2% interest rate base case to over $40 trillion in total debt!

And for those more curious about that other critical economic indicator, debt/GDP, the three scenarios result in the following 2022 debt/GDP ratios:

  • 2% interest – 169%;
  • 3% interest – 183.5%; and
  • 5% interest – 217%, or just shy of where Japan is now.

PreviouslyNormal Interest Rates Would be a Disaster for U.S. Debt

Gold Has Another Great Year

BloombergGold Extends Longest Streak Since 1920 on Central-Bank Stimulus

Gold rose, capping the longest annual gain since at least 1920, on renewed concern that central banks from Europe to China will take steps to spur economic growth and as U.S. leaders near a budget deal.

Investors from John Paulson to George Soros have a $140.6 billion bet via near-record holdings in gold-backed exchange- traded products after the Federal Reserve said Dec. 12 it would buy $45 billion of Treasury securities a month as of January, adding to $40 billion a month of mortgage-debt purchases. Gold will probably peak in 2013 because of improving U.S. growth, even as the Fed expands stimulus, Goldman Sachs Group Inc. said Dec. 5. Morgan Stanley said a day later bullion will be among next year’s best-performing commodities.

Right-sized Government

Mark SteynKindly Note the Impending Bankruptcy:

My Gallic charmer is on to something. According to the most recent (2009) OECD statistics: government expenditures per person in France, $18,866.00; in the United States, $19,266.00. That’s adjusted for purchasing-power parity, and yes, no comparison is perfect, but did you ever think the difference between America and the cheese-eating surrender monkeys would come down to quibbling over the fine print? In that sense, the federal debt might be better understood as an American Self-Delusion Index, measuring the ever widening gap between the national mythology (a republic of limited government and self-reliant citizens) and the reality (a 21st-century cradle-to-grave nanny state in which, as the Democrats’ convention boasted, “government is the only thing we do together”).

Generally speaking, functioning societies make good-faith efforts to raise what they spend, subject to fluctuations in economic fortune: Government spending in Australia is 33.1 percent of GDP, and tax revenues are 27.1 percent. Likewise, government spending in Norway is 46.4 percent and revenues are 41 percent – a shortfall but in the ballpark. Government spending in the United States is 42.2 percent, but revenues are 24 percent – the widest spending/taxing gulf in any major economy.

This weekend I heard someone at another table talking about big government and small government. Those terms are entirely relative. A little bigger or a little smaller than what we have now is still big. What’s more, right now there’s about a dime’s worth of difference between Democrat and Republican politician’s notions of spending.

One thing that’s absolute is whether the government can write the check to pay for the services it’s providing. Last fiscal year the government borrowed 40 cents of every dollar they spent. So far this year it’s 46 cents on the dollar. That doesn’t count the off balance sheet expenditures, such as the quasi-governmental Federal Reserve buying $40 billion a month of bad debt from banks.

The annual deficit has been a trillion plus for four years. Total national debt is 16 trillion. Once Treasury interest rates go from the current 2-3% back to their historical average of 5-6% we’re in deep doo-doo.

We can’t afford the government we have with the amount of taxes we’re collecting and no one wants to pay the taxes it would take to afford it. It isn’t that’s something’s gotta give. It’s that something’s gonna give. Whether it’s inflation, Treasury buyers revolting, or something else, borrowing 46 cents for every dollar you spend is going to end badly.

Federal Reserve’s Operation Twist Ends, Operation “The Money Printing Will Continue Until Morale Improves” Begins

Fed Links Rates to Joblessness, Expands Bond Purchases

The Federal Reserve said it will buy $45 billion a month of Treasury securities starting in January, expanding its asset-purchase program, and for the first time linked the outlook for its main interest rate to unemployment and inflation.

Interest rates will stay low “at least as long” as the jobless rate remains above 6.5 percent and if inflation “between one and two years ahead” is projected to be no more than 2.5 percent, the FOMC said in a statement. The committee roviews these thresholds as consistent with its earlier date- based guidance. It dropped its earlier pledge to hold interest rates near zero “at least through mid-2015.

The latest move will follow the expiration at the end of this year of Operation Twist, in which the central bank each month has swapped about $45 billion in short-term Treasuries for an equal amount of long-term debt. That program kept the total size of the balance sheet unchanged, while the new purchases will expand the Fed’s holdings.

France’s New President Lowers Retirement Age for Some Workers

France’s new socialist president lowered the retirement ago to 60 for some people. It was just two years ago that Sarkozy raised it to 62.

Hat tip to Marko.

“Rich Dad, Poor Dad” Author’s Company Files for Bankruptcy

MSNBC ‘Rich Dad, Poor Dad’ author files for bankruptcy:

Robert Kiyosaki, author of the bestselling “Rich Dad, Poor Dad” series, has filed for Chapter 7 bankruptcy protection after losing a nearly $24 million court judgment to The Learning Annex, The New York Post reports.

As one of Kiyosaki’s earliest backers, The Learning Annex was responsible for arranging the speaking engagements and platform that led to his massive success.

But apparently the fame went to his head because according to court papers obtained by the Post, Kiyosaki, who published his first “Rich Dad” book in 1994, never paid the Annex its rightful share. Said founder and chairman Bill Zanker: “Oprah believed in him, and Will Smith believed in him, but he didn’t keep his promise to us.”

John T. Reed has been warning people about Kiyosaki’s dubious claims and shady business practices for years. The Kiyosaki entry in Reed’s real estate guru ratings is worth a read.

Previously

Breaking News: Bono and Matt Yglesias Mugged by Economic Reality

If these two can learn the benefits of markets and capitalism, anyone can.

U2’s Bono Admits: “A Humbling Thing Was to Learn the Role of Commerce” in Development

The Irish singer and co-founder of ONE, a campaigning group that fights poverty and disease in Africa, said it had been “a humbling thing for me” to realize the importance of capitalism and entrepreneurialism in philanthropy, particularly as someone who “got into this as a righteous anger activist with all the cliches.”

“Job creators and innovators are just the key, and aid is just a bridge,” he told an audience of 200 leading technology entrepreneurs and investors at the F.ounders tech conference in Dublin. “We see it as startup money, investment in new countries. A humbling thing was to learn the role of commerce.”

Matt Yglesias – The Case for Price Gouging:

The basic imperative to allocate goods efficiently doesn’t vanish in a storm or other crisis. If anything, it becomes more important. And price controls in an emergency have the same results as they do any other time:  They lead to shortages and overconsumption. Letting merchants raise prices if they think customers will be willing to pay more isn’t a concession to greed. Rather, it creates much-needed incentives for people to think harder about what they really need and appropriately rewards vendors who manage their inventories well.

Not only did Yglesias get it right, he got it right at exactly the same time that Republican Chris Christie was getting it wrong.

Upon declaring a state of emergency today, Governor Chris Christie issued a forceful reminder to merchants: Price gouging during a state of emergency is illegal; will be investigated by the Attorney General and Division of Consumer Affairs; and will result in significant penalties.

“During emergencies, New Jerseyans should look out for each other – not seek to take advantage of each other,” said Governor Christie. “The State Division of Consumer Affairs will look closely at any and all complaints about alleged price gouging. Anyone found to have violated the law will face significant penalties.”

New Jersey’s price gouging statute, N.J.S.A. 56:8-107, et. seq., makes it illegal to set excessive price increases during a declared state of emergency or for 30 days after the termination of the state of emergency.

Say a company wants to get supplies to people afflicted by Sandy. Their trucks can’t just zip in and out due to downed trees and blocked roads. So their truck might have to sit in line for days. Lost trucking time costs money. They could potentially make up that loss by charging more for the goods, but in New Jersey they’d be charged with price gouging. So they have no incentive – and potentially a negative incentive because of the truck sitting idle for days – to get supplies into the disaster area.

Quote of the Day

“If you want less of something, like tobacco or income, tax it. If you want more of something, like tobacco or unemployment, subsidize it. (And if you want proof that our government is crazy, roll those two sentences around in your head for awhile.)”
Tam

Get Ready for a Recession

Sunny Fact #1High energy prices are often leading indicators of recessions

Sunny Fact #2As of this week, gas prices have never been higher

EIA.gov data includes September, 2012 and confirms that we’re at the highest inflation-adjusted gas prices ever.