Thursday, December 18, 2008

Where do you find Barney Frank?

I read and make snide decide.

by Byron W. King

Clearly the Fed wants to spread more cheap liquidity around the world. But
is the world’s problem really not enough cheap dollars? It seems to me
that we got here – deep in this current recession – with too many dollars
floating around. Too many people borrowed too much cheap money. Now the
big blowback of history is that we’ve entered into an era of deleveraging.
So the biggest concern for most of the world’s governments, businesses and
households is overall solvency. Can people pay down their bills as they
come due? For far too many people, the answer is “No.”

My inner-Austrian economist tells me that what the world needs is more
savings and more capital formation. The world needs more basic
productivity. Instead, we are getting more bailouts and government
programs that will benefit people and firms of dubious productivity.
That’s not capital creation. That’s capital destruction.

And pity poor OPEC. Saudi Arabia needs oil prices at $60 per barrel or so
just to cover its national budget. At $45 per barrel, they are losing
money. Russia needs to see oil at $75 to keep its accounts in balance, and
that’s before they lay the keels for the new fleet of aircraft carriers
they are discussing. And those poor souls in Iran? Mr. I’m-a-Dinner-Jacket
needs $100 oil to meet payroll. While Generalissimo Chavez of Venezuela
needs $125 oil to cover the national outlays. So OPEC wants to cut output
and try to drive the oil price back up.

Will it work? Don’t bet against OPEC on this one. They want to cut output
by over 4 million barrels per day. That’s a lot of crude. So expect to see
oil prices heading back up in 2009. We won’t see $147 again any time real
soon. But expect higher oil prices as 2009 unfolds, and expect to see
higher prices for everything else within the energy chain.

OPEC’ predicament just goes to show. The key OPEC players sure got used to
high oil prices in a hurry. They believed their own press releases. They
thought that oil was high and going higher, as if there was never an oil
bust before.

So you can have a lot of money, but not know anything about how money
works. Then again, we in the U.S. shouldn’t gloat at OPEC, let alone
laugh. Not as long as we keep electing the same members to Congress, year
after year.

Speaking of that, did you see Rep. Barney Frank (D-MA) on CBS’s Sunday
evening show 60 Minutes the other day? That noted public intellectual
Leslie Stahl interviewed him. Along the way Ms. Stahl called Mr. Frank
“the smartest man in Congress.” Wow. If that’s true then we’re in trouble.
OK, Rep. Frank is smart. He sure is not dumb. He came across as bright and
quick-witted. Ms. Stahl made sure to tell us that Rep. Frank “went to
Harvard.” (Big deal. So did I.)

But Rep. Frank came across as an angry and bitter man. From what I saw on
60 Minutes, the meaning of money does not register with Rep. Frank. He
just wants to spend dollars on things that make him feel good. And if you
disagree, he has a prompt explanation for why you must be a bad person. He
will give you a non sequitur of a comparison for why his subjective
feelings are better than yours. And if you persist he has a personal
put-down. He’ll call you an “idiot” or something worse.

Well, Rep. Frank is what I think we’re going to look back on, one of these
days, as a “financial sociopath.” He comes across as just in favor of
spending the national wealth with no regard for the long-term
consequences, as if the $10 trillion national debt is not already
crippling the nation. As Ronald Reagan once asked, “Where does this
country find such men?”

In Barney's guess would be to look for the asshole on the end of a dick.

It just goes to show about 60 Minutes. They can misquote you. Or worse,
they can quote you correctly.

Until next we meet,

Byron W. King
for The Daily Reckoning

P.S. I’ll keep you updated on these issues, and on other news about the OI
portfolio, in future articles. In the meantime, check out my latest

Editor’s Note: Byron King currently serves as an attorney in Pittsburgh,
Pennsylvania. He received his Juris Doctor from the University of
Pittsburgh School of Law in 1981 and is a cum laude graduate of Harvard
University. Byron is also co-editor of Outstanding Investments, and editor
of Energy & Scarcity Investor.

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