Anara Tower, Dubai

Also, check out this amazing bridge being built in Dubai:

If you are against raising the debt limit, you are a terrorist

So says Paul O'Neill. Actual quote: "The people who are threatening not to pass the debt ceiling are our version of al-Qaeda terrorists. Really."

Ok then, Pablo. I don't know what to say. Wow.

Barrick shall not live by gold alone

The largest gold mining compan in the world, Barrick Gold, has suddenly taken a shine to copper. Here are some relevant quotes:

"Mr Munk said Barrick was not trying to become a diversified miner like Rio Tinto or BHP Billiton, saying copper is the only non-gold metal where it desires significant expansion.

Minmetals, the Chinese state-owned miner, was among the multinationals targeting copper assets.

Barrick has gatecrashed Minmetals’ bid for Equinox with its C$7.3bn agreed deal. The competition for Equinox – whose value is based around a single mine in Zambia – is one sign that the metal is taking on an aura traditionally reserved for gold.
http://www.ft.com/cms/s/0/2a102274-6f6a-11e0-952c-00144feabdc0.html#ixzz1KaYCke98

and

For a company long concerned with protecting its image as a pure-play gold miner, doing an (almost) unapologetically copper-driven deal is a big admission about the relative futures of the two metals.

Barrick could have put that money to work buying a gold deposit and adding to gold production per share, but instead it’s going for copper. It’s a big statement on which metal has more opportunity right now.

http://www.theglobeandmail.com/globe-investor/investment-ideas/streetwise/barrick-suddenly-takes-a-shine-to-copper/article1998210/

The great recession hits China

BEIJING (MNI) - Prices of new homes in China's capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city's Housing and Urban-Rural Development Commission.

http://imarketnews.com/node/29203

Copper keeps going up

From: http://business.globaltimes.cn/china-markets/2011-04/647533.html

Copper on the Changjiang Nonferrous Metals Trading Market, a major spot metals market in Shanghai, traded Thursday at an average price of 71,825 yuan ($11,018) per ton, up 425 yuan ($65.19) from the previous day.

I think they mean metric ton, which is 2,204.62 lbs or 1,000 kilograms. If that is correct, then the price is right at $5.00/lb.

The Comex price is $4.34 (see http://www.metalprices.com/FreeSite/metals/cu/cu.asp).

Silver is going nuts

It was $40 only 1 week ago. Now it is almost $46 and it will probably jump quickly to $49 and bounce off the $50 ceiling. The question is how long until it breaks $50.

See: http://news.silverseek.com/SilverSeek/1303153473.php

That point is here today, and I think the signs are clear: gold is approaching $1500 and more importantly Silver is about to smash through the most protected price in the history - $50. I think it bears repeating, $50 silver is the most protected price in recorded history, it is a price that's cost trillions and trillions and millions of lives and untold millions in misery to defend. $50 silver has been defended with all the energy and manpower the cult of evil can muster. The war is not over and the price is still out of reach, but momentum is on the side of humanity. After $50 there's no more resistance - Silver will break free and rise quickly to crush the banking system, the energy and life blood of the enemy. Beyond $50 silver, the dollar and the banking system will collapse quickly. George Soros and the BRIC nations are already aware - the dollar hegemony is cracking and $50 silver is the wedge in the heart of the beast.

Is China moving towards the "copper standard"?

First of all, here is an article from a couple of years ago:

China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.

Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

"The next industrial revolution is going to be led by hybrid cars, and that needs copper. You can see the subtle way that China is moving into 30 or 40 countries with resources," he said.

The SRB has also been accumulating aluminium, zinc, nickel, and rarer metals such as titanium, indium (thin-film technology), rhodium (catalytic converters) and praseodymium (glass).

While it makes sense for China to take advantage of last year's commodity crash to restock cheaply, there is clearly more behind the move. "They are definitely buying metals to diversify out of US Treasuries and dollar holdings," said Jim Lennon, head of commodities at Macquarie Bank.

John Reade, metals chief at UBS, said Beijing may have a made strategic decision to stockpile metal as an alternative to foreign bonds. "We're very surprised by Chinese demand. They are buying much more copper than they will need this year. If this is strategic, there may be no effective limit on the purchases as China's pockets are deep."

...

Beijing may yet buy gold as well, although it has not done so yet. The gold share of reserves has fallen to 1pc, far below the historic norm in Asia. But if a metal-based currency ever emerges to end the reign of fiat paper, it is just as likely to be a "Copper Standard" as a "Gold Standard".

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/5160120/A-Copper-Standard-for-the-worlds-currency-system.html

Now, here is another old article about China investing in copper mines in Peru:

Li Shiping, 47, owns a smelting company that is about to fire up a new electric furnace made with 110 tons of copper, one of thousands of industrial projects in China’s developing interior. To stoke them, a Chinese state-owned mining company will tear down the peak in Peru and ship home the copper. It plans to relocate the town of Morococha, population 5,397. Many, including Ancieta, don’t want to leave.

The project is part of $11 billion in Chinese mining investments planned for Peru, a quarter of the country’s total, according to Fernando Gala, the Peruvian vice minister of mines. China is prospecting for mineral treasures around the world as it develops faster than any major economy in history. Its copper use is growing so quickly that by 2035 global demand for the metal may outstrip supply by 11 million tons, according to CRU, a London-based mining and metals consulting firm.

China’s annual needs for copper will almost triple to 20 million tons by 2035, CRU projects. In 2010, it will consume 6.8 million tons, 38 percent of global production, after more than doubling its share of world purchases this decade, CRU says.

As a result, copper has almost tripled on the London Metal Exchange since December 2008 despite the global recession. The metal closed at $8,200 a metric ton on Oct. 29 [2010]. Jeremy Gray, global head of resources at Standard Chartered Plc in Hong Kong, calls copper “red gold.” He says the price may rise almost 50 percent more to $12,000 in six to 12 months.
...
Peru and China signed a trade agreement in April 2009 in Beijing that became effective this March [2010]. Peru’s exports rose 31 percent through September, lifted by sales of copper, gold and fishmeal, according to Comexperu, a business trade group based in Lima. The U.S. and China each accounted for a sixth of those sales.

http://www.bloomberg.com/news/2010-11-01/china-becomes-boss-in-peru-on-50-billion-mountain-bought-for-810-million.html

Using copper as barter

Gold and silver have traditionally been used as stores of value, but the problem with them is that they are so expensive they would just locked in a vault. Also, you could be convicted of terrorism if you use them as money.

What about copper? It is very attractive cheap and useful, and I doubt that the Secret Service has any interest in copper bullion.

As of today, you can buy a 1 kilo copper bar for $19.00 at Liberty Bell Bullion (spot price about $9.40 based on $4.30/lb). Here is one for $22.60 from Deadwood Gold. Ebay also sells copper bullion.

Anyways it is interesting to think about buying copper as a tangible physical investment.

Cities of the Future

Architecture of the Future: Russia from cih_ru on Vimeo.

Mubarak Tower, Kuwait

Dagny confronts the unions

The new Silk Road

See: http://www.chinadaily.com.cn/china/2011-04/15/content_12330303.htm Ju Chengzhi, director of the international affairs department at the Ministry of Transport, told China Daily the soon-to-be-built Kashgar-Erkeshtam expressway is a section of the proposed new link between Asia and Europe. He said the route within China will start in Lianyungang, in East China's Jiangsu province, and travel through Xi'an, in Northwest China's Shaanxi province, before reaching the Xinjiang Uygur autonomous region. The proposed route will continue through Kyrgyzstan, Uzbekistan, Tajikistan, Turkmenistan, Iran and Turkey, before heading into Europe, he added. "The route will link China with major countries in Central Asia, Western Asia and Europe. It will pass these countries' administrative centers, major cities and resource-producing areas," he said. According to Ju, China has also proposed two other road connections between China and Europe -- one going via Kazakhstan and Russia and the other going through Kazakhstan and via the Caspian Sea. Experts said barriers -- including technical ones and issues connected to taxation and customs -- are the reason why almost all of China's exported goods to Europe are transported by sea. Even goods from Xinjiang, Gansu and Inner Mongolia are currently sent east by rail to China's ports before they are shipped to Europe.

Who is Norman Foster?

The Frank Lloyd Wright or Buckminster Fuller of our time, but probably more influential than either. The visionary of our time - Norman Foster.

Camko City, Cambodia

Astana, Kazahkstan

The effect of the threatened shutdown

The recent minor cuts made to avoid a threatened government shutdown will have almost no effect on this future crisis I am talking about. It appears that before the cuts, the 2011 fiscal deficit would have been $1.65 trillion. The cuts total about $50 billion, with $38.5 billion in the deal and another $10 billion done earlier as part of the continuing resolutions.

The national debt on 9/30/2010 was $13.561 trillion. On 9/30/2011 it should be about $15.16 trillion, and this is after the cuts.

I am all for anything that would improve the situation. However, the deficit is at least $100 billion/month and the cuts at best totaled $50 billion. So the "fix" pushed the crisis out by 2 weeks at best.

Crisis in 2017?

From: http://www.bloomberg.com/news/2011-04-05/u-s-fiscal-crisis-in-spitting-distance-commentary-by-laurence-kotlikoff.html "CBO’s baseline budget updates suggest the date for reaching what Carmen Reinhart, Kenneth Rogoff and other prominent economists believe is a critical insolvency threshold -- a 90 percent ratio of federal debt held by the public to gross domestic product -- has moved four years closer, in just nine months! ... Last June’s analysis had us going critical (crossing the 90 percent debt-to-GDP threshold) in 2021. ... On March 18, when the CBO released a new forecast that incorporated the president’s budget, the 90 percent mark had moved up to 2017." Comment: I'm using a different metric and am still sticking to the 2021 date.

Baku, White City

See what a little oil money can do at http://www.bakuwhitecity.com/

Better news

I am so cynical that even a slight improvement is good news. The annualized rate of increase of the national debt has dropped from 14.1% in my last calculation to 12.9% now. The average quarterly increase is 3.07% (based on the timeframe of 6/30/09 to 3/31/11). Using these number, I arrive at the following projections:

9/30/11 15160
9/30/12 17115
9/30/13 19323
9/30/14 21816
9/30/15 24630
9/30/16 27807
9/30/17 31394
9/30/18 35444
9/30/19 40017
9/30/20 45179
9/30/21 51007

So yea, the system won't collapse until 2021, one year later than in my previous projection!

Update: 6/19/2012.  This is model D-3, and is still too pessimistic.

How money is created

For background watch this video: Money as Debt. I am expounding on some ideas raised by it.

Anyone can create money, with the assistance of a bank. The act of signing a loan document creates money. Now the bank has a new asset, the note receivable, and a new liability, the demand deposit. The bank will quickly sell the note for cash but this just changes one asset class into another one. The total amount of money in existence has increased by the amount of the loan. With credit cards, the debtor is literally creating money every time the card is used.

When you write (draw) a check on this newly created money, you are creating an asset to the banks; however, this does not in itself create money (unless there is overdraft protection). The recipient deposits it in his bank. Now his bank has a new asset, the check, and a new liability, the increase in the recipient's bank account. They will "sell" the check to a clearing house. Now the clearing house has the asset, the check, and will credit the recipient's bank account. They will then "sell" the check back to the originating bank. The originating bank then "sells" it back to the drawer by debiting his account. Once a check has cleared, it is no longer an asset.

So once this model is understood some more discussion points emerge.

1. What happens if a check is made out to Cash and circulates as money for a while, say one month, before being deposited. In this situation, you are creating sort of your own private money out of then air. Furthermore, this private money exists in the "shadow" economy, outside the formal banking system. Imagine a club where people do this and write a number of $100 bills all post-dated for one month which they use to trade amongst themselves. And then at the end of the month, the holder of the note then would redeem it, or possibly reissue a new check in perpetuity. Now if people actually tried to do this they would be committing the crime of "check kiting". The banks who run everything hate this type of behavior. Yes there are valid concerns about fraud, but they are probably more worried about the competition. I think this is the main reason why banks are concerned about third-party endorsements - not because they are worried about whether the check will clear but because they don't want people using endorsed checks as private money.

But big corporations do this all the time. It is called "commercial paper" and since it is negotiable, it can be used as cash. In the 1800s, bank would print their own bank notes as money. They can no longer do this since the Federal Reserve has a monopoly, but commercial paper is a form of money. Some banks also issue commercial paper; however, the minimum denomination is usually at least $100,000.

2. Since anyone can create money, why not create an unlimited amount? The only constraint seems to be interest, which is necessary to pay for bank operations. What would happen if there were no banking costs? The Bank of North Dakota is a state-owned bank. Although I'm sure it is self-supporting, what would happen if its operating costs were just paid by the state? Could it create its own "commercial paper" at 0% interest in $100 denominations in whatever amount it wanted which would function literally as cash? I think it could but I'm sure there is some law against doing that.

3. This model of money creation, which our whole economy is based upon, has a fatal flaw. Although money is created out of thin air, no money is created to pay back the interest. It is mathematically impossible for all loans in existence to be paid back with interest. A certain amount of defaults and bankruptcies are necessary for the system to work.

4. Money is destroyed by people when they default on their loans. The process of money destruction is much more painful than the process of money creation. When money is created, the bank doesn't make any money except for the loan origination fee. When the loan defaults, the bank loses the entire amount of the loan - it is a bad debt expense. And since banks are so thinly capitalized, it doesn't take many of these defaults to totally wipe out their capital.

5. Right now we are in the process of money destruction, which is actually very healthy for the economy in the long run. Private money is being destroyed at an enormous rate. The Federal Reserve is creating money, but as long as the private money is being destroyed faster than the Federal Reserve creates new money, then there is no danger of hyperinflation. However, at some point in the next few years, the destruction will slow down, and then there is a huge danger of hyperinflation.

6. The flip side of this is although anyone can create money, it is idiotic to do so. Why would banks ever issue unsecured loans when default is so painful to them? And the borrower literally becomes a debt slave. Having a negative net worth is a lot worse than being poor. And this process of money creation is also destructive to the economy as a whole because it makes it unstable. And the more debt money that is created the more unstable the system becomes because the risk of default increases over time.

Anyways, enough rambling for now.