A Melman Minute By: Leonard Melman   NOTE: In order to complete Mr. Melman's forthcoming book on the essential fundamentals of the developing international financial crisis and its relationship to gold and silver, new "Melman Minutes" will be posted only three times per week, each Monday, Wednesday and Friday. The working title of the book will be 'Just a Melman Minute!"   December 16, 2009   Well, one thing has now been proven.  Clearly, bureaucrats around the world love to pick up on ideas for extra taxation.  When one group learns of another's idea to increase tax burdens, the second nation has a strong tendency to follow the leader. The case in point is France following Britain's lead by imposing a 50% immediate tax on the payment of bonuses by banks to their key employees, very similar in nature and magnitude to the tax Britain has just enacted against her own citizens.  Like Britain, France has said the revenues from this particular tax will be used to fund the country's depositor protection programs. In a similar move, Japan has just now proposed a huge tax increase on all tobacco products to bring their tax rates more into line with those of America and Europe.  No specific target area for the funds raised by the new taxation was announced. What these tax gatherers seem to fail to take into consideration is that each new increment of taxation, by its very definition, diminishes the ability of the nation's consumers to buy products and services, thereby reducing such economic activity.  While they claim to be "creating" jobs by spending those tax revenues, they seldom appear to realize that it is the overall level of economic activity that is the vital consideration. We might even encourage such taxation if the funds raised went directly to the diminishment of national debt levels, but that is seldom, if ever, the case.  Reducing debt levels could then lead to reductions in the issuance of new debt and, ultimately of monetary creation.  Unfortunately for fiscal stability, but perhaps fortunately for precious metals speculations, most of the money raised goes immediately into spending programs and reduction of debt is matter for the far distant future, if it is considered at all. Speaking of job creation, the Obama Administration's new push in that direction is now moving forward relentlessly.  For the third time in four days, he has made an important address on the subject, this time at a suburban Virginia Home Depot store.  Included in the President's plans are the following items: - Tax credits for "green" home renovations, - Tax credits for small businesses that hire new employees, and - Tax credits for investments in alternative energy sources. It is likely that there will be many more proposals of this nature since the Administration is allocating $75 billion toward these types of measures, while only about $15 billion has been accounted for in spending suggestions offered to date. What is apparent to us is the steamroller of government growth is continuing apace, and in an ever-growing number of directions.  Therefore, we believe the likelihood of any serious attempt at spending reductions or debt repayment are virtually non-existent today and will remain so for several years to come.  Confirmation of the willingness to increase debt at a historic rate comes to us in the form, as we noted Monday, of the sure-to-pass proposal to increase the U.S. national Debt Limit to an astounding, astonishing fourteen trillion dollars.  This figure is absolutely remarkable when one considers the fact that the United States of America total government debt did not pass through the one trillion dollar mark until 1982!  Amazingly enough; that means it took 193 years of American existence to reach that level, but in the next 28 years, that nation's national debt will have been multiplied fourteen times over! There is a feature of particular interest regarding the growth of this debt.  It took 193 years for America to accumulate the first trillion in debt; five years for the second trillion; four years for the third; five years for the next TWO trillion, and, lately the accumulation of debt has accelerated to the point that in the eight years ending with the predicted effective span of this new legislation, Americans will have accumulated their last eight trillion dollar of government debt in just eight years, with the rate for the last two years approaching TWO TRILLION PER YEAR! Yet, there are multitudes of economists and other observers who do not seem overly concerned about this powerful trend.  However, one item, namely GOLD, continues to show concern and, we believe one look at the long-term chart for gold will show that the long-term trend for gold's price - despite the correction of the past two weeks - appears to us to be unmistakably higher. Perhaps the most volatile economic debate of all is whether the virtually unlimited deficits and debt creation of the past three years can proceed indefinitely without running a growing risk of price inflation, perhaps even leading to Weimar Republic style hyperinflation.  The pro-inflationists in this debate received an indication of support from the latest Producer Price Index released yesterday which showed Producer Prices rose a strong 1.8% in the month of November alone and by 6.3% during the past three months. Our argument has consistently been that while visible price inflation might not accurately reflect monetary inflation (meaning the total of monetary aggregates reported by government sources) while economic activity was contracting, inflation would become much more visible as economic activity picked up.  That apparently is now becoming the case and we also note that sources in the U.K. indicate price inputs into the production processes are rising in that nation as well. We cannot help but note as the weekend approaches that the Copenhagen Climate Conference is now moving into full swing with many world leaders arriving on the scene, particularly including President Obama and, for Canadians, Prime Minister Harper.  But we must ask, "what is the real business agenda at Copenhagen?" One might have thought it would strictly involve themes such as energy, pollution, meteorological data and so forth - but a growing litany of information suggest that an important agenda is nothing other than our egalitarian old friend, the transfer of wealth from "haves" to "have-nots", in a new and interesting wrapper.  As the WSJ noted this morning, "...poor nations staged a walkout to protest what they called inadequate aid offers from rich countries and the USA and China jockeyed for position."  We can only wonder what a "Global Warming" conference has to do with "inadequate aid"? Markets this morning appear to be making sharp moves, but ones which are having little effect on overall trends.  Gold and silver are up this morning, having reversed losses over the past few days.  As of 10:20 AM PST, gold was trading near $1,135 while silver was close to $17.65.  Base metals were showing considerable strength, up by an average of 1.5 to 3.5% while mining share indexes were ahead by about 2%.  Crude oil was sharply higher, the U.S. Dollar was trading quietly and interest rates were close to unchanged. Financial markets were on the plus side with the Dow Industrials up by almost 50 points and Canada's TSX, aided by strong resource prices, was about 135 higher. - - - - - All quotes US$ unless otherwise noted. Next Melman Minute scheduled for Friday, December 18, 2009 ◄  Previous Minute                                                                                                        Next Minute  ►
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