OUTSIDE THE BOX
IN less than three weeks the US is going to hold its presidential elections. While the race is virtually tied according to the opinion polls, there are firm indications from another forecasting tool that Mitt Romney will be the next president.
An interesting analysis is found in the work of two University of Colorado political science professors, Kenneth Bickers and Michael Berry.
Bickers and Berry look strictly at economic conditions, including unemployment and per capita income, and where their analysis differs from most, is they break this down to the state level, not just on the national level. The model they created has accurately predicted the next president in every election going back to 1980. Interestingly, their model said that Al Gore would receive more popular votes in 2000 but that George W. Bush would capture the presidency by having the most electoral voters.
The next president needs 270 electoral votes and the prediction is that Romney will win an overwhelming victory with 330 electoral college votes versus 208 for Obama.
The biggest problem in the US economy is a lack of confidence in the Obama administration. Banks are not lending and business is not spending. While all elections, here, there and everywhere, are as much determined by voter perception of personality and character more than policy and programs, business is hoping for a change, almost any change.
In the four years of the Obama presidency, the US government debt has risen from $5 trillion to $17 trillion. Even if Romney does capture the White House, that trend will continue for at least 18 months. What must be done, and this is Romney’s election platform, is to begin to reduce the government budget deficit to help control the growth of the debt. The Philippines experienced a budget deficit reduction through both the Arroyo and Aquino administrations. That is why government borrowing has been contained and that has been good for the PHL economy.
However, quantitative easing and money printing must continue as economic growth cannot increase soon enough or fast enough to reduce the government debt even under Romney.
I have said before that we can track the course and amount of Federal Reserve money printing by monitoring the price of gold. And I still stand by my “$3,000 gold in two years” prediction even as I predict a Romney victory, though my confidence in the gold prediction is much greater than the election forecast.
However, the blame for the current US debt crisis cannot specifically be laid at Obama’s feet or any other president’s as this has been a slow, creeping process since the mid-1980s that puts many global leaders and many global institutions at terrible fault.
Regardless of who is the next president of the US, the greatest problem facing the world and particularly countries like the Philippines is found in the gold/oil ratio (GOR). The GOR measures how many barrels of crude oil can be bought with one ounce of gold. Since 1946, the GOR has averaged 15 or 15 barrels of crude oil per ounce of gold. As of now the GOR is about 20, which means that oil is historically cheap or gold is expensive.
If gold reaches $3,000 because of a devaluing dollar, using a 15 GOR, oil would be $200 per barrel without any other negative changes in current geo-political/economic conditions. Gasoline in the PHL would cost P100 per liter. To pay the same price as today with oil at $200, the peso would have to appreciate to P22. So which is better; P100 gasoline or a 22 to one dollar peso? “Would you prefer the pistol or the poison, Mr. Bond?”
The world will not tolerate this happening as the US tries to save its economy.
If there is to be a sacrificial lamb, it will be the US as countries move off from paying for oil and other commodities with dollars. It is already happening. We will see a time when oil will be paid for in gold or exported goods valued against the price of gold.
That is why countries with smart leaders like Russia, Thailand and Mexico are continuously converting dollars and major currencies to gold. Other countries like Mongolia, Indonesia and Chile are developing their mineral resources as fast as possible.
The foolish nations are leaving their gold in ground and instead accumulating billions in paper currency as their rainy day reserves. It is truly frightening and astounding that government leaders learned nothing from the 1997 crisis and that situations can change literally overnight.
On Friday, June 6, 1997, the peso closed at 26. On Monday, June 9, the peso opened at 36.
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Friday, 19 October 2012