What do WWII, Peak Oil, and Hangings in the Public Square have in common? They all showed up in this week’s mailbag, as Taipan Daily readers responded to the FDR series.

Thanks to all of you who wrote in on last week’s FDR series. (If you missed it, you can start with “The Return of FDR, Part I".)

As usual, there were too many great responses to highlight anything but a fraction of them all. I continue to read all that you send, though, and I’m grateful for every single e-mail. (Even the ones that suggest I need my head examined.)

With that said, let’s dig into the mailbag...

Excellent series of articles so far. Waiting anxiously to read the next one. Question: Why are gold stocks and precious metals mutual funds down so much, and what will make them go up again? And what has to happen in order for them to recover. Again, thanks for an excellent series.

- TD Reader David G.

Why Thank You, David – Thank You Very Much. (That was my Elvis voice.) That’s a great question. It’s one that’s been on many reader’s minds, and mine too.

I was planning on answering it today, scout’s honor. But I made the mistake, again, of underestimating the sheer volume of great responses from you, the collective readership. And so I messed up the timing... again. (Forehead smack.) There was just so much good material today that I didn’t want to tack a gold discussion on at the end.

I’m a knucklehead, I know. And I know you are waiting to hear about gold. I tell you what, David: If I don’t address your question in full on Friday, I will have myself publicly flogged... or shave off an eyebrow... or swallow a live goldfish and post the video on YouTube. We will cover the dollar and gold. You shall not wait for an answer in vain.

Now to the mailbag...

As one who grew up during the Depression and is a WWII veteran, I can understand your fascination with FDR. His times certainly were much like these days. The financial manipulators may use computers and financial engineers today, but their general practices are the same.

While so much attention has been on the housing bubble, little has been said about the ethanol bubble. Same rush to invest; same over-capacity. While running for governor of South Dakota on the Libertarian ticket in 2006, I warned the public against investing in any more ethanol plants, because the existing or in-construction capacity was already too large. Lots of people didn't listen to their later regret.

Also, I suggested that the State of South Dakota work with private firms to build a series of wind farms along the interstates I80 and I29. That in addition to producing electricity for local use, these wind farms produce hydrogen for early use by farmers and later use by truckers and then motorists. Not much positive response to this proposal, but I believe that such will eventually happen.

About FDR. He not only gave people hope, but he had definite plans and implemented them.

- TD Reader Tom G.

Wonderful insights, Tom, thank you. There is a lot of overlap between then and now, as you point out, and the game is much the same.

I agree, too, that ethanol was a terrible boondoggle. If one follows the money – generally a wise thing to do – it seems clear that the ethanol rush was little more than a giant farm subsidy with a coat of “green” paint slapped on the side. The energy economics were shoddy from the start, as many pointed out, and the idea of burning up food in gas tanks should have set off alarm bells in the first place.

Show me one government program that is run well and long-term good for the country. Spending money on infrastructure sounds good if you believe we truly have Global Warming. We have had it three times in the last 120 years or so. We also had forecast a mini ice age. Why was 1938 I believe the hottest year ever recorded? You mean to tell me that in 70 years of ever rising Carbon Dioxide we can't even bust it one time. Most government programs are based on fictitious maladies that helped elect and keep government employees around. This when we are BROKE. Just because we have an infinite ability to create paper everything will supposedly be all right. DOES NOT WORK THAT WAY.

- TD Reader Jerry T.

“Show me one government program...” Okay Jerry, how about Eisenhower’s highway system? Was that not worth the cost over 50 years’ time? Could the private sector have pulled that off? Or how about all the private sector technologies that came about as a result of NASA research? Before any of you write in to enthusiastically inform me, I know that NASA is very poorly run these days. I also know that great things are happening – finally! – in the private sector as far as space flight goes. But would we be reaping those fruits today if NASA hadn’t planted the seeds?

I’m a staunch defender of free markets and limiting meddling where possible... just trying to play devil’s advocate here. And I fully agree with you that paper doesn’t solve anything in the long run.

As for global warming and infrastructure, one key thing to remember is the two aren’t necessarily tied. Even if all global warming concerns were dropped tomorrow morning, that wouldn’t change the fact that America’s infrastructure – and the world’s, for that matter – is in a state of woeful disrepair. We are looking at a repair bill in the tens of trillions.... that’s trillions with a T... just to get our roads, bridges, power plants, sewer systems, water pipes and so on, back up to code. All the new stuff we want to build, need to build, and in many cases must build – nuclear power plants, LNG terminals, light rail and so on – just goes on top of that huge repair cost.

Concerning the next bubble: There is no choice right now. We have reached peak oil consumption. Of all the oil under the ground, half has been extracted – the easy half. For the rest we have to drill deeper, drill offshore, drill at the poles, squeeze it out of tar sand or oil shale, and take it by gun from the rest of the world. We have coal, but it needs to be cleaned. Nuclear needs to move a lot of earth to recover the fuel, and the waste needs to be sequestered forever. Fossil fuel is limited, and world demand is going up. Global warming aside, alternative energy will become cost effective because fossil energy cost can only go up.

The mathematics of growth essentially require alternative energy to entirely displace all new fossil energy starting several years ago, and then some. Like interest, the consumption of energy tends to grow by X percent per year. At 3.5%, the use doubles every 20 years. But also the energy consumed during the next 20 years equals the total energy consumed since the fossil fuel use started (about 1900). With half of the oil already consumed, if we managed to keep increasing at 3.5%/year, it would all be gone in 20 years.

So while alternative energy is now a tiny fraction of the total now, it needs to grow to essentially 50% of the total within 20 years. It will be a better world!

- TD Reader Ted R.

Yep, thanks for that Ted. It’s a funny thing about markets... investors have trouble focusing on more than one big mind-bending idea at a time. Thus with the credit crisis dominating the headlines, Wall Street has forgotten all about the long-term realities of peak oil.

Hedge fund manager and energy investor John Burbank compares our situation to a country shutting down its education system. If all the high schools and colleges were closed tomorrow, the country would get along fine for a few years as existing graduates filtered into the economy.

But a few years down the road, the scarcity of educated new hires would show up as a budding problem... and eventually morph into a full-blown disaster with no easy fix. Solving the problem would involve not just re-opening all the schools, but waiting 5 to 10 years for a new crop of graduates to cycle through.

The multi-year time lag is what kills, and it highlights a big problem with current energy attitudes. We’re still asleep to the fact that whatever solutions we get cracking on, it will take years to ramp them up fully... and we might not have that much time. That’s another reason I think staggering sums of capital – public, private and otherwise – will eventually pour back in to the energy sector.

No, cut the crap! Stop with the old BROKEN thinking - the kind of thinking that only failed to deep-six the USA in the 30s and 50s because the real, private economy was real and productive. Now there is not substance to pay for such waste, waste, waste! This time, with almost ZERO substance remaining, and a totally brain-dead populace, and no common sense or grounding in reality, any such mass program will just consume and WASTE the resources that the few honest, rational productive people remaining need to make the country productive again.

If you want to solve the problem, organize a gigantic mob to take down the Federal Reserve and Fractional Reserve Banking, burn them to the ground, hang them in the town square, and pass a constitutional amendment against "modern" banking. The Federal Reserve system is inherently a corrupt and unworkable system that necessarily "goes exponential" and self-destructs. That is what is happening, and no big program CAN work unless those criminals stop creating ever more debt with every breath of every person in the USSA – debt that can ONLY be paid off with new dollars created by additional debt, recursively, which eventually leads exactly to today – an exponential explosion of debt that cannot be managed within a Federal Reserve system.

Finally, as a long time scientist, engineer, inventor and product developer, I can assure you government CANNOT BE the solution to the problem. I, and every talented and highly creative and productive counterpart I know, have been effectively cut off from implementing the kinds of advances that would "save the world" so to speak. Why? To oversimplify slightly (but only slightly): The government of the USSA steals from everyone to enrich their criminal counterparts at organizations Goldman Shafts and Halliburton.

- TD Reader Max R.

Hey Max, tell us what you really think. (Just kidding.) Really, though, I appreciate the heartfelt point of view.

First off, remember that I’m not necessarily endorsing the idea of a new FDR, putting myself in league with Soros, etcetera. (Boy do you guys love Soros – not!) What we try to do here is more an exercise of figuring out what’s likely to happen... as opposed to opining on what we wish would happen or prefer would happen.

In that light, I’m not sure the birth of a “Green New Deal” is automatically a good thing... I just think it is a likely thing. It has the potential to be executed well, but also has the potential to be executed poorly, depending on how much freedom the private sector is given to pursue true innovation.

And Max, speaking of executing – do you really think hanging Ben Bernanke in the town square would solve anything at this point? What you describe, re: “going exponential”, is essentially the Austrian Economics boom-bust cycle writ large. The lunacy embedded in our current way of doing things is undeniable. But as Walt Kelly, the creator of Pogo, has observed, “We have met the enemy and he is us.” We can no more rip up the current system and start fresh overnight than we can give up fossil fuels in one fell swoop.

I agree, too, that government can’t be the direct solution to our problems. But can the government not better enable the private sector to solve our energy problems? Is this really impossible?

For instance, what about the advances we’ve seen in navigation systems that came about as a result of military funding? You know, all those whiz kid teams trying to get an unmanned vehicle across thirty miles of desert, competing for grants and a cash prize? Why can’t logical capital allocation, under the right competitive guidelines, have a long-run positive impact on innovation?

My honest opinion – and it’s a controversial one – is that the form and shape of government doesn’t matter nearly as much as the watchfulness and thoughtfulness of the populace. At the end of the day, it really is about “we the people”... and that makes it less about the “system” than some make it out to be.

The responsibility of the populace trumps all. Politicians get away with murder because the electorate lets them. Politicians get elected via shameful pandering tactics because the electorate laps up shameful pandering. Directives get mismanaged because the electorate fails to pay attention... and so it goes.

In other words, there is no political system so fool-proof that a dumb populace can’t screw it up, and hardly any political system so broken that an informed populace can’t make it work. Even in a monarchy, the monarch can get beheaded if he does a lousy enough job! It’s about what the people do, how the people react and respond, rather than any built-in tendencies of the system.

To suggest, then, that government is always and everywhere incompetent and dumb is to imply that the electorate is too. Can a case be made for this? Sadly, yes. But I’m not convinced that’s the whole story. I suspect there are a few areas where the need for coordination is so pressing, and the funding requirements so great, that government at least has the potential to help.

One last quickie, just for fun:

I actually thought you knew something...but I was wrong. You're just another neocon. So now your mail goes in the trash along with all the rest of the financial crap.

- TD Reader (presumably ex-TD reader) Bradley

My first real piece of hate mail! Thank you so much Bradley... I’ll cherish it, really and truly. Plenty of readers have disagreed with me aggressively, but you’re the first one to spit genuine venom. I hope you don’t mind that I capitalized your sentences and cleaned up the typos in quoting you here.

Seriously though... can anyone tell me why I’m “just another neocon?” I feel like someone just insulted me in Italian. I have an Italian grandmother, so by all rights I should know what was implied... but in this case I don’t have a clue.

Warm Regards,

JL

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