A Melman Minute
| By | Leonard Melman |
|---|
How many times have we seen a dramatic 'non-confirmation' between one category of government financial numbers and another, with the conflicting government figures frequently being accompanied by political commentaries. Two cases at hand illustrate the point.
First, we are now continually receiving data from the American government that their economy is improving at a steadily increasing rate with GDP numbers escalating to the positive and unemployment figures falling. However, if this was true in real life, wouldn't it appear reasonable that government revenues would be increasing; government payments for items like unemployment insurance would be decreasing; and, therefore, all else being equal, the US deficit and national debt should be in the process of improvement? In fact, politicians are actually assuring us that this is indeed the case.
How then can be reconcile all that favourable blather with the reality that the same government reported last Friday that the American National Debt stood at $17.352 trillion, an increase of some $920 billion over the year-earlier figure. Aren't (almost) trillion dollar deficits supposed to be a thing of the past?
Another category within the same vein suggests itself. We are told that inflation is not only under control, but in fact it has been below the suggested levels required for economic efficiency and growth. Even with the general improvement in published economic numbers, we are also told that overall economic growth is on the order of 2-3% at best. How then can we reconcile the combination of both those sets of data with the fact that the USA Money Supply numbers show monthly growth rates of 9.0% for M-1 and 6.5% for the more widely-defined M-2?
If the money supply is actually being expanded at those rates and the economy is roaring ahead, shouldn't that be reflected in higher rates of inflation?
The combination of all this data suggests that something is not totally 'kosher' in the entire situation but rather reflects a conundrum which is yet to be resolved.
DEMOGRAPHICS REVISITED
The conversation which follows is based primarily on Canadian data but I have no reason to doubt that the situation in America contains difficulties of a similar nature or perhaps those which are even more ominous.
One of the easiest budget tools to use is the simple proposition that if expenses rise without a commensurate increase in revenues or income, some form of increasing debt and deficits should ensue. With that in mind, please note some recent information reported in Canada by the press media.
According to a story in Canada's National Post newspaper, Vancouver Island's Merle Barwis has just celebrated her 113th birthday, making her the oldest living Canadian and the only one still alive who was born during the life of Queen Victoria. However, along with that good news, the paper also published some other data which should give cause for some serious consideration regarding Canada's financial future.
The article gives us the following information: "The number of Canadians who live beyond 100 is growing steadily. In May 2012, a Statistics Canada release of 2011 census data indicated there were 5,825 people in the country aged 100 or older, a total that had increased by about 1,200 since the previous national headcount in 2006 and by more than 2,000 since the 2001 census...the number of century-old Canadians is expected to reach 78,300 in 2061." (Our emphasis)
From our point of view, it is obvious that people over the age of 99 are most unlikely to be engaged in any income-producing activities of any sort while the costs to government of providing them with some income plus expenditures for medical services, housing, counselling and other support functions cannot help but steadily increase.
One of the particular frailties of old age which has been receiving increasing attention is a condition known as "Alzheimer's Disease" or the more general term of "dementia" and another article deals with that particular subject. That article tells us that, "...As our society ages, more and more citizens will be afflicted with Alzheimer's or other forms of dementia and cognitive impairment." Regarding the scope of the problem, we are informed that, "...With an estimated 500,000 Canadians suffering from Alzheimer's or a related dementia, and millions more in the U.S., the scope of the problem becomes apparent.
The anticipated problems for government are compounded by the fact that the only successful way of protecting most sufferers from these conditions is to provide, "...care in a controlled environment that specializes in caring for those with dementia. Only there can round-the-clock medical care and monitoring be provided..." However, the next reality is that, "...These care homes are also, however, very, very expensive..." (Our emphasis)
The picture as we see it at The Melman Report is clear enough. The numbers of aging people who will become non-productive will be on the rise while at the same time the costs to government to support and take care of them will also increase substantially and these trends will likely be accelerating relentlessly on the rise over the next four to five decades.
The resulting deficits, debt and increasing pressure on government to increase both taxation and money creation should likewise be relentless. We hold the opinion that such trends will likely support increasing financial disruptions which should accrue to the benefit of precious metals prices over time.
CANADIAN DOLLAR SINKING
We have previously noted that action in the Canadian Dollar is of particular interest since Canada's economy is based to a large extent on wealth provided by resource development and resource developments within mining hold our particular attention. Accordingly, it would appear reasonable to work on the thesis that if currency traders were optimistic as a group on Canadian resource development, it would be reflected in a rising C$ - and vice versa.
Well, the 'vice versa' appears to be taking place as the chart on the C$ has just broken to a three-year low and technical patterns appear to indicate a possible further severe drop in that currency into the future. It is also worth noting, however, that as the C$ drops in value compared to the US$ and metals are priced in US$, current producers within Canada actually receive a bonus in the receipt of greater numbers of C$ for each unit of production as the home currency declines.
However, our concern is with the future of the mining industry and a weakening Canadian Dollar would appear to open some serious questions.
As of 8:00 AM PST, financial markets in Canada and the USA are diverging with the TSX Index now ahead by 15 points while the Dow Industrials are down by nearly 70. Precious metals are trading to the downside with gold off by $8 to $1,222 and silver is down by 43 cents to $19.42 per ounce. Base metals are slightly lower on balance with mining share indexes off by 1-2%.
In other markets, the US Dollar Index is ahead by 12 basis points to 81.10; Crude Oil is continuing its recent decline by falling 44 cents to $93.23 per barrel and the TYX Index of rates on US Treasury 30-year bonds is up by 37 basis points to 3.918%.
All quotes US$ unless otherwise indicated.
Next "Melman Minute" scheduled for Friday, January 10 when the next set of US Department of Labour job figures will be released.