A Melman Minute — May 22, 2009

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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 until about mid-March 2009. The working title of the book will be 'Just a Melman Minute!"

Your editor spent a great part of last night reviewing what in his opinion is one of the most monstrous pieces of legislation he has ever seen, the "American Clean Energy and Security Act" of 2009, now making its way through the American Congress. It now looks like it may indeed become law, and the mining community around the world had better take notice. We say this because many other nations, particularly including Canada, have a tendency to follow the United States lead in the drafting of laws. And, for sheer size and complexity, this one is a 'doozy.'

The preliminary draft already runs 648 pages and that does not include any actual regulations, which are to be drafted and included down the road. However, a minor list of some of the subjects which will fall under this Act includes:

Lighting Efficiency Standards

Appliance Efficiency Standards

Energy Star Programs

Smart Grid units of Energy Star

Low Carbon Fuel Standards

Performance Standards for Coal-Fueled Power Plants

Revised Building Codes

Standards for Building Retrofits for climate control

Transportation Emission Standards

And 'many others'

There will be plenty - and I mean plenty - of bureaucratic jobs handed out. These will include Permitting Boards, Advisory Boards, Permitting Procedures, Defining Offset Credits, Procedures for Approval of Offset Credits and Creation of Federal Renewable Electricity Credits, and, of course, setting and implementing penalties for non-compliance.

All of this was gleaned from just the first two or three pages of the Table of Contents and that table runs for at least 15 to 20 pages, and then comes the interminable listing of titles, subtitles, and lengthy reference to other laws already in existence. The wording of those sections is so obtuse as to be virtually indecipherable, and the implication is that companies must not only become familiar with this horrendously complex law, but also every other law referred to within this one! Regarding ocean acidity alone, this includes the following:

The National Fish Habitat Plan

Plans for North American Wetlands Conservation

Federally Approved Coastal Management Plans

The Coastal Zone Management Act of 1972

The Magnuson-Stevens Fishery Conservation and Management Act

The National Coral Reef Action Plan

Endangered Species Act

etc.

Looks to us like this will be yet another version of the "full employment act for the legal profession." Am I the only one who is skeptical enough to realize that the legal profession was the largest single contributor to the Obama campaign and that numerous bodies of complex legislation are the greatest guarantee of future employment for that august profession?

We have feared for some time that the world was going to become inundated with massive doses of laws and regulations as a result of the Global Warming frenzy, combined with actions to fulfill all the promises Obama made during the recent presidential campaign, combined yet again with the onslaught of regulations and laws to 'solve' the economic crisis and rein in all the evils emanating from the business community. We greatly feared that these laws would be so complex and numerous that they will begin to impact virtually every industry on earth, particularly including the mining industry's efforts toward bringing new projects into development and production.

It looks like our worst fears are about to be realized.

We are not alone in this concern and just this morning, we noted a comment in a report authored by Karen DeCoster for the highly-respected Ludwig Von Mises Institute website. She wrote, "The last remnants of the American free-market system are experiencing a quick death by strangulation. After describing the virtual takeover of General Motors and Chrysler by government, she added this telling comment: "A defining characteristic of economic fascism is the control of private property and business through a government-business partnership."

We have noted 2009 will go down in history. Perhaps part of the historic commentary will be that 2009 represented the year that any remaining vestige of true, free-market capitalism met its demise in the United States as socialism rose to a position of ascendancy.

Fortunately, we still do have free trading markets and it is apparent that there is some real unease regarding these actions by the American government. "Voters" in these markets act instead of merely speaking, and their actions are showing us the following:

1 - The U.S. Dollar is weakening at an accelerating rate.

2 - Long-term U.S. government bonds are falling rapidly with a corresponding rise in 30-year bond interest rates.

3 - Gold is moving steadily higher, now within about $40.00 of the thousand dollar mark.

We believe it is vital to understand that the government's political and monetary authorities want "none of the above". They do not want a collapsing dollar since that is a virtual guarantee of future price inflation. They do not want interest rates to head higher, but rather want them lower. Since many regard gold as the "report card" for the economy at large, they do not want higher gold.

Unfortunately, markets in the USA will be closed Monday for their Memorial Day holiday and so we will have to wait an extra day for this unwinding saga to continue. And, in the meantime, mining company executives should become aware of the implications for their industry - in America and elsewhere - of the threats implied in the "American Clean Energy and Security Act."

Today's trading continued the patterns noted above and, as of 9:00 AM, the U.S. Dollar Index (DX) has crashed below '80' for the first time in months, reaching a low of 79.86. Long term bond rates just touched 4.38%, the highest in many months and gold has traded as high as $961.90 and stands presently just under the $960 mark. Silver is also stronger, trading at $14.67 and platinum is ahead by about $10 so far. Base metals are strong across the board and mining share indexes are up by about one percent.

Financial markets opened slightly lower, but have moved to the plus side with the Dow up by about 45 points and Canada's TSX has gained about 100. Crude oil is holding near $61.00 and, as an indicator of natural resource wealth, the Canadian Dollar is soaring in currency markets, now trading near 89 cents U.S. As can be seen from that currency's chart, the move upward during the past few weeks has had considerable power.

(All quotes US$ unless otherwise noted.)

DISCLAIMER

The information presented above is based on data which we believe to be from reliable sources, but the accuracy of which cannot be guaranteed. Any opinions or predictions contained herein are those of the editor and are likewise offered also for information purposes only.

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