Thursday, March 31, 2011

San Onofre and Sunset: Persistence of the Past

At Haggerties and Swamies
Pacific Palisades
San Onofre and Sunset
Redondo Beach L. A.
All over La Jolla
At Wa'imea Bay.

Everybody's gone surfin'
Surfin' U.S. A.

-Brian Wilson, 1963 (credit also to Chuck Berry as tune is that of Sweet Little Sixteen)

Times have changed. Now, even landlocked 80 year olds surf, but is from their computer, and it is cyberspace rather than the waves they enjoy. Now as then, a young Democratic president engages in deficit spending to get the economy moving again. Then, San Onofre was merely an isolated beach in northwest San Diego County.
Now, it has two functioning nuclear power plants sitting oddly by the popular beach/surfing spot as well abutting I-5, the same site also including a decommissioned plant that is used to store "spent" nuclear fuel.

An entrepreneur has proposed a "green" project that would, his company asserts, cleverly use power from the tides to generate more electricity than the two plants generate, while saving costs by tying into the power lines the nuclear plant uses. This modest proposal has excited opposition from surfers and fishermen, among others. Environmental damage is feared.

Will the surfers still rule at San Onofre?

I don't know, but it strikes me that something as allegedly simple as meeting California's energy needs and desires via the uber-renewable source of tidal power ought to be relatively noncontroversial. The fact that such is not the case strikes me as indicative of how difficult it is to effect change in settled situations.

Let's take a walk down recent memory lane.

Financial Armegeddon in 2008?

No problem, let's just react using existing tools. And make sure we defend all our actions leading up to the financial myocardial infarction. Take a fresh look at new (different) paradigms? Heavens forfend?

Rampant abuse of public corporations for insider gains?

No problem, the "market" must continue (resume) its upward course. (Why that is important is not explained.)

Economic activity not fast enough to suit the central authorities?

No problem, just force-feed the goose. It always produced delicious foie gras in the past.

Recovery still slow?

Just print (electronically) even more money. Output gap? It must be filled. By order of: the authorities.

Isn't all this money issuance unfair to savers, by diluting out their savings, just as the California Gold Rush made existing gold worth somewhat less?

Sorry. Don't save: speculate.

Even if you are a well-meaning statist (if that's not inherently an oxymoron), you will tend to identify with Hamlet:
You tend to want to bear the ills you have than fly to others that you know not of.

And so the government flails on, doing whatever Big Finance wants every day, and trying to buy off or at least placate most other constituencies with one-offs as needed: one day making the unemployed happy with enhanced benefits, another day making high earners happy with continuation of current tax rates, another day making Big Pharma and Big Insurance happy with corporatist-oriented health care "reform", another day making the military-industrial complex happy with expanded wars in non-core parts of the world, the next day making the bond guys happy by keeping interest rates in their 30 year downtrend, another day making perverts know where to get a fun job by mandating nude scanning or intrusive patdowns simply for wanting to fly from LA to NYC, and so on.

A government that is simply trying to please enough constituencies by promising and giving money so promiscuously is one that is planning to bear the ills of inflation rather than some other pain.

The financial markets see through the fiction that quantitative easing is anything other than the central bank buying its creator's debt because no rational market participant would want to do so it at the price (interest rate) the government requires to issue so much of it. Whatever shifting explanations the central bank gives for its rationale can, at a first cut, be ignored: As John Mitchell of the Nixon administration said, watch what the Fed does over what it says. The Fed is not independent by statute and from its operational onset in 1914, it was immediately squeezed between the twin powers of Treasury and the big banks. This remains the case. The government means to inflate the debt burden away, and it has tremendous powers to do just that. From an individual investment standpoint, resistance is futile, no matter how much one may believe that this policy is improper, unfair, and counterproductive.

Just as it is hard to get away from burning hydrocarbons to obtain energy even with renewable sources such as tidal power, it is hard to get away from the global memory that gold is a store of wealth independent from the tyranny of governments that impose one and only one currency system on an entire society.

Thus I "like" gold because I see the U. S. government making numerous promises it does not mean to keep. I also "like" hydrocarbon producers that have leverage to a "high" price of oil and gas, and I "like" such companies to have borrowed a lot of money at existing rates to develop resources at today and tomorrow's nominal costs, because then I have double-barreled leverage to the potential for much higher nominal hydrocarbon prices in not-too-many future years.

In medicine as in finance, the DoctoRx rule is that tomorrow is usually more like today than it is different, and patterns of the past persist more often than not. I expect that surfers will continue surfing at San Onofre (and Sunset) no matter whether tidal power is harnessed beneath the waves, and I also expect that as the effects of rampant base money creation percolate through the economy, traditional ways to sustain purchasing power as described above will likely prove to be better investments than cash, bonds or "conservative" stocks.

Simultaneously, I am well aware that the superstructure of our financial system is unstable. Might it crash? Yes. Might that crash be deflationary? Yes. Am I confident I can predict such in advance to take evasive action? I hope so. Currently, though, I believe that the powers that be want growth and they want inflation. So, I'm putting new money flows alongside what I believe is the government's intention, all the while resenting their power.

So it goes.

Copyright (C) Long Lake LLC 2011

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