Friday, April 27, 2007

The First Global Bubble

26 April 2007

Jeremy Grantham is one of our most respected global investment advisors. On April 24, 2007, Mr. Grantham published a groundbreaking article suggesting that, for the first time in the history of our planet, a global investment bubble has emerged.

You can follow the links above to learn more. However, a reader on Bill Fleckenstein's website has summarized Mr. Grantham's article for your convenience. What follows are a few excerpts and Mr. Grantham's summary:

It's Everywhere, In Everything: The First Truly Global Bubble

The necessary conditions for a bubble to form are quite simple and number only two. First, the fundamental economic conditions must look at least excellent - and near perfect is better. Second, liquidity must be generous in quantity and price: it must be easy and cheap to leverage....That these two conditions have been met now hardly needs statistical support, so widely accepted have they become.

Never before have all emerging countries outperformed the U.S. in GDP growth over a 12-month period until now, and this when the U.S. has been doing well. Not a single country anywhere - emerging or developed - out of 42 listed by The Economist grew its GDP by less than Switzerland's 2.2%!...

Bubbles, of course, are based on human behavior, and the mechanism is surprisingly simple: perfect conditions create very strong "animal spirits," reflected statistically in a low risk premium.

Widely available cheap credit offers investors the opportunity to act on their optimism. Sustained strong fundamentals and sustained easy credit go one better; they allow for continued reinforcement: the more leverage you take, the better you do; the better you do, the more leverage you take.......everyone, everywhere is reinforcing one another.

Wherever you travel you will hear it confirmed that "they don't make any more land," and that "with these growth rates and low interest rates, equity markets must keep rising," and "private equity will continue to drive the markets."

To say the least, there has never ever been anything like the uniformity of this reinforcement. The results seem quite predictable and consistent. All three major asset classes - real estate, stocks, and bonds - measure expensive compared with their histories and compared with replacement cost where it can be calculated.

The risk premium has reached a historic low everywhere...

So to recap and extend:

1. Global fundamental economic conditions are (perceived as) nearly perfect and have been for some time.

2. Availability of global credit is generous and cheap and has been for some time.

3. Animal spirits and optimism are therefore high and feed on themselves through reinforcing results and through being universally shared.

4. All global assets reflect this and are overpriced and show, probably for the first time, a negative return to risk taking.

5. The correlation in global economic fundamentals is at a new high, reflected in the steadily increasing correlation in asset price movements.

6. Global credit is more extended and more complicated than ever before so that no one is sure where all the increased risk has ended up.

7. Every bubble has always burst.

8. The bursting of the bubble will be across all countries and all assets, with the probable exception of high grade bonds. Risk premiums in particular will widen. Since no similar global event has occurred before, the stresses to the system are likely to be unexpected. All of this is likely to depress confidence and lower economic activity.

9. Naturally the Fed and Fed equivalents overseas will move to contain the economic damage as the Fed did last time after the 2000 break. But the heart of the last bubble, the NASDAQ and internet stocks, still declined by almost 80% and 90%, respectively. (The heart of the bubble this time is probably private equity. In 10 years, it may well be described as the private equity bubble just as 2000 is thought of as the internet bubble. You heard it here first!)

10. What is wrong with this logic? Something I hope.

11. Of course the tricky bit, as always, is timing. Most bubbles, like internet stocks and Japanese land, go through an exponential phase before breaking, usually short in time but dramatic in extent. My colleagues suggest that this global bubble has not yet had this phase and perhaps they are right. (A surge in money flowing into private equity might cause just such a hyperbolic phase.) In which case, pessimists or conservatives will take considerably more pain. Again?!

Wednesday, April 25, 2007

The Moral Implications of Excess Liquidity

25 April 2007

Excess liquidity is an economic concept that has been discussed several times on this site. Austrian Economics postulates that when the bank rate of interest is held lower than the natural rate of interest, then investment capital in an economy will become increasingly misallocated, leading to a series of relatively predicable and extremely serious economic problems.

That sounded dry and theoretical didn't it?

Let me bring that idea alive for you.

Let’s imagine you are the parent. Your child makes a poor or irresponsible choice. Rather than permitting your child to face the consequences of that choice, you provide an easy way out.

Perhaps your child wants a shiny new bicycle. You offer to share the cost, if your child will work and save to pay for half. But your child puts that off, and finds other things to do that are more interesting than working and saving. So… you buy the bicycle anyway, perhaps as a birthday or Christmas surprise. Your child has happily learned that rewards occur with little or no effort devoted to achieving them.

You have eased your expectations and rewarded your child for a level of effort that fell far below that which you originally expected.

Excess liquidity is about easing – specifically “monetary easing.” Run a Google search on that topic, and you will find considerable information about the Bank of Japan, whose post-bubble monetary easing over the past two decades has been the primary driver of global capital markets through the “Yen carry trade.” Search further, and you will find references to the US Federal Reserve Bank and to such names as Alan Greenspan and Ben Bernanke.

With any research at all, you will discover that stock markets rise when monetary easing is anticipated, and they fall when monetary restriction or tightening is anticipated.

Why is that?

Here is the shorter version (believe it or not).

About a century ago, the US government decided to take control of interest rates associated with the loaning and borrowing of money through the creation of the Federal Reserve System (sometimes referred to by its constituent parts as the Federal Reserve Bank or Board). This singular initiative took interest rates out of the control of free markets and placed them in government control.

As you may have noticed, politicians like to get re-elected. Over time, our politicians discovered that when the Federal Reserve Bank eased the supply of money by lowering interest rates, economic activity tended to increase. Jobs were created, and people felt generally prosperous. They had a magical formula for success.

When the Federal Reserve Bank lowers interest rates, the cost of borrowing drops, and private individuals and corporations will tend to borrow more money to undertake expenditures that they might not otherwise have considered prudent or affordable.

With interest rates low enough – as they were in the United States following September 11, 2001 – business projects that might have been uneconomic become marginally profitable. Why? Because the money to finance such speculative projects can be obtained almost interest free.

In fact, when you allow for the impact of inflation on the value of money, at some point it becomes cheaper to borrow money and to pay it back further in the future at very low interest rates, by using dollars that have become substantially devalued.

That is, at some point – when interest rates are low enough – banks are essentially giving money away to entrepreneurs and citizens, who may have to pay back less in real terms than they originally borrowed. (That has been true in Japan for perhaps two decades, though the Japanese economy fell into deflation, which is another story altogether. A similar situation occurred in the United States following September 11, 2001.)

When the Federal Reserve Bank initiates this process by giving away US dollars essentially for free, it is able to increase the amount of US dollars in circulation by selling treasury bonds to investors and savers (now usually foreign) who exchange their own currency for US dollars. This is referred to as increasing the US money supply. When the money supply grows faster than the production of goods and services, this leads to excess liquidity, the topic of today’s post.

OK, so far so good. But remember, we now have politicians overseeing the institution that sets the market interest rate (making our lending market controlled rather than free – an important distinction). Further, we have politicians promoting policies which increase the money supply, promoting a general environment of monetary easing.

And we have a vast populace casting their votes for politicians who make monetary conditions easy for them, rather than restrictive.

Sounds great so far, doesn't it? Who wouldn't want to make more money just by printing it? Let’s all share in the good times.

But the good times are not so good beneath the surface. In fact, a far-reaching process of decay sets in. Let’s think about that now.

Remember the child with the shiny new red bicycle?

Another year has passed, and the bicycle hasn’t been well cared for. It is now dented, rusty and clunky. The child wants another, newer, better and bigger bicycle. Once again, the indulgent parent provides the new bicycle with no expectations of the child. The old bicycle is discarded – and the cycle of easing (as it were) repeats itself.

How do you think this child, accustomed to a series of shiny new bicycles, is going to behave as an adult? I don't think you need me to advise you on this matter. We now have a spoiled and irresponsible child morphing into a self-indulgent and undisciplined adult.

And, what do you think might then be the moral implications of excess liquidity?

Let me walk you through a few of the more subtle permutations, then I'll set you free to think this through further on your own. If I achieve my goal, you will begin to see the world around you in a new light.

The following chart examines the growth of US MZM money supply (one of the better still-available measures) from 1980-2005. Is the trend apparent to you?

You are looking at growth from $1 trillion to $7 trillion US dollars in circulation during that time period.

OK, what if we go back further?

A more comprehensive measure, M3 money supply, increased from $250 billion in 1960 to almost $7 trillion in 2001 (and it has continued to balloon since then, to the extent that the US Federal Reserve Board is no longer willing to report this highly damaging statistic).

I think you're getting the picture now.

I told you that when money is given away easily, people borrow more – after all, it’s almost free! Here is what has happened to US debt as a percentage of GDP since the institution of the US Federal Reserve System in 1913:

Interestingly, in our present environment of monetary easing, US debt has never consumed a higher proportion of US GDP than it does today, including at the height of the great depression in the 1930’s.

So, you may ask, we’re still saving aren't we? In fact, the answer is no. The US savings rate actually moved into negative territory in 2004. Americans in aggregate are in fact now saving nothing at all.

You might then ask: Isn't all that liquidity making us richer? We've never lived in bigger, better houses or driven better cars than we do now, have we? We've never had more of so many things at often-declining prices?

Well, excess liquidity might cause us to feel rich, but the feeling of plenitude is driven solely by debt. That is, we are living a richer lifestyle than ever before, but we are selling our furniture for income, and burning the walls of our homes to keep warm.

The following chart shows that there is a small problem with printing money to generate wealth. US money supply in absolute terms has grown 32 times since 1959, but industrial production has increased only 4 times. That is, We have to print 16 times as many dollars to fuel twice the productive capacity of the industrial economy.

Why is printing money so ineffective in driving real economic growth?

Let’s think about that.

According to the Austrian School of economics, the core problem is that when our governments start giving money away, a cascade of vexing and inevitable problems begins to unfold.

The first and most serious is capital misallocation. In a restrictive monetary environment, it is highly risky to make new business investments as the cost of capital is high, and thus profitability must be substantial to sustain a new or expanded business. That sounds tough, doesn't it?

But here is the rub. A restrictive monetary environment provides discipline so that only well-conceived business ventures actually thrive. Half-baked and non-viable ideas flame out in the very early stages when the return on capital fails to match or exceed the cost of capital. Comparatively, far less capital is lost on fruitless or unproductive ventures.

That is, when economic conditions are tight, we have to work hard for our bicycles, and they might not necessarily be big, bright, shiny or even new. This restraint keeps us disciplined, focused and hard-working.

What exactly do I mean by capital misallocation?

Well, as we are in perhaps the greatest age of excess liquidity in world history, let me reply as follows – look around you – anywhere.

Capital misallocation is in evidence in almost everything you set your eyes upon today.

Our homes are too big, expensive to build, and expensive to operate (and many US citizens in particular cannot afford to pay for the homes they presently occupy).

Our productive capacity in almost every field of business is too great. We are producing too many computer and memory chips, too many cars, too many flat screen TVs, too many malls and shops, too many hotels and casinos, too many unnecessary luxury products, and too many consumer products generally.

Our debts have escalated to mountainous heights, and our savings have plummeted to subterranean levels.

Further, Americans can no longer afford to pay for the (unsustainable) activities of their government, the excessive investments of their corporations, or their personal consumer acquisitions.

Americans are presently borrowing 700 to 900 billion dollars per year from foreigners to finance their government, business and personal expenditures. Fortunately, because we are now producing too much of everything globally, prices have lowered, and Americans can finance this extravagant lifestyle by purchasing manufactured goods from overseas.

(By the way, Canada's situation is quite different at this juncture, though we have similar excess liquidity problems to those of the United States, because we are selling commodities as well as finished goods to the world. That is, Canada lagged while producing underpriced commodities while liquidity gradually mounted, and is now catching up again as liquidity has exploded.)

There is one small downside. The practice of relying on cheap labour overseas places us further in debt to foreigners. In fact, Americans are losing ownership of their country at a faster clip than has ever occurred in the country's history.

The United States was a net lender to the world from its inception until the rise of our present age of excess liquidity. A back of the envelope calculation indicates that Americans have already sold out about $3 trillion in ownership of their country to foreign holders of US dollar denominated securities (net external debt), and most of this transfer has occurred in the (current) first decade of the third millennium.

The United States owes the Japanese about $1 trillion, and the Chinese now over $1 trillion, and they are the two largest holders of US dollar denominated debt. Add another $1 trillion or so of US dollars in other foreign hands (including Canadian), and you will find that about 10% of the total value of all American securities (valued at $33.4 trillion in 2004), and obviously a rapidly growing percentage of all of the assets in America today, actually now belongs to non-Americans. Further, foreign holders of US debt now command over 30% of the $9 trillion US dollar money supply, and they are now adding to their investment in this United States fire sale at a rate of almost $1 trillion per year (equivalent to the annual US current account deficit).

Perhaps it is now becoming obvious that the only way Americans continue to own anything at all is by printing still more dollars, and that practice has not abated.

This is the era of monetary easing, and we all want a shiny new bicycle for every special occasion, and we will accept nothing less.

I suspect that the current trends are unsustainable, and that is why I have vocally advocated holding savings in gold and silver – as these traditional stores of wealth are preserving value while the worth of our currencies precipitously declines.

(By the way, gold and silver are advancing against every major global currency at present, so it is really a competition to determine which country will devalue its currency fastest. The United States seems the clear winner by far in that regard at the present time, due to its originally hard-won role as the largest by far of the world’s economies – unless it is compared to the European Union as a whole, which is about the same size. The Chinese economy, despite its breakneck growth and much larger population, is on less than 20% the scale of the US economy in GDP terms.)

What then are the moral implications of excess liquidity?

Let’s start at the government level.

We have a nominally “conservative” Republican government in Washington, D.C. which believes it can finance foreign wars by record levels of government debt accumulation while also cutting taxes. The Iraq war, like our transfer of assets to Japan and China, is rapidly becoming yet another trillion dollar US project.

Right or wrong, the United States simply can't afford the Iraq war… and it is not very bright, new, shiny or otherwise attractive at this point in its evolution. Similarly, we can't afford to fund the essentially non-productive US military industrial complex at its present level of full-bore operation in the background of the Iraq misadventure.

Americans have just floated their way through a classic stock speculation bubble of historic proportions in the year 2000, and the US real estate bubble began to implode in 2005. This latter speculative bubble will now be winding its way downwards for many years more, if not for decades to come.

US stocks are not worth 20 times earnings and more when one considers that their earnings are transient and of low quality (sustained primarily by record levels of consumer debt and household equity extraction). When earnings fall off a cliff, the present somewhat elevated US equity market price to earnings ratios will appear to be products of fantasy alone. They will be seen as attempting to soar in stratospheric realms with no means of ongoing propulsion.

US homes are worth no more and no less than what the next buyer will pay for them. It is no secret that there are fewer and fewer buyers every month for now very high-priced US homes, and it is virtually certain that there will be fewer buyers next year, and again the year after that.

Japanese real estate lost half its value following its bubble period, and has not recovered its value in the two subsequent decades. A similar outcome is probable for the majority of US real estate investments (there may be some exceptions, but that is not certain).

When we spend money we don't have, commodities move up in price to match the amount of money we have, accounting for the now just-beginning generational surge in commodity prices. Note how the following chart illustrates the close match between US dollar money supply growth and US dollar oil prices:

Again, the cost of what we buy rises to the level of the amount of money we have.

Thus expanding the money supply doesn't in fact make us richer at all. It redistributes wealth, and tends to do so in ultimately unfair and quite disturbing ways.

This disruptive and arbitrary redistribution leads to the core moral problems associated with excess liquidity.

When prices are stable, we are generally content with what we have.

When prices are rising – as they always do when liquidity increases – we now have to struggle to keep our share, or perhaps to get a few steps ahead of our neighbours.

It is no secret that those who struggle best for wealth when it is being redistributed are those who already possess it, and this fact accounts for the oft-noted mounting imbalance between the richest and the poorest Americans.

In an environment of monetary easing, savings accounts produce low interest rates, and inflation erodes their value often to the point of negative real returns. So people are forced by such an environment to engage in increasingly speculative activities with their hard-won income and savings.

Money becomes something to get rid of before it loses further value.

What does this redistributive environment produce?

Stock market bubbles. Real estate bubbles. Surges in gambling activity and casino construction. An increasingly unstable social and cultural environment. And increasingly irresponsible – and immoral – private citizen, government and corporate behaviour.

What do I mean by this last assertion?

Corporations have become cabals of CEOs who award themselves outrageous bonuses and stock options with little if any thought to the creation of shareholder value. Any form of deception to drive the stock price up the next notch will do. The stock market rises as the value of the US currency collapses. Equity analysis become cheerleading. There is little if any accountability anywhere in the corporate world.

Further, business now becomes a process of winning government favour and of using government contacts to constrain your competition while securing your own advantage. (Historically, this constitutes a return to the mercantile system and the ultimate decline of the free market system.) One need only speak the name “Halliburton” to illustrate this point, but Halliburton’s Iraq-based contracts are but the tip of the iceberg of an increasingly government-dependent corporate world.

From government subsidies to grow corn for ethanol production (forcing Mexican peasants to forego corn as the staple of their diet) to government bailouts of speculative investment firms (think Long Term Capital Management – who lost too massive an amount for the government to allow the losses to be absorbed by shareholders) to government subsidies for favoured business ventures of all kinds – every company is forced to find its edge with government so that it can play to win in an increasingly unlevel, distorted and ultimately surrealistic playing field.

And what of our money that is finding its way overseas to buy inexpensive manufactured products and increasingly expensive but necessary commodities?

Interestingly, the Chinese and the Japanese are deeply invested in the game of excess liquidity, and both are playing to win – with the result that they don't want to sink the US boat by selling out their excess of US dollars. Due to a shared vision of convenience, these countries remain America's paradoxical monetary allies.

But it is another story in Latin America, Africa and the Persian Gulf states, where anti-Americanism is literally being funded with US petro-dollars. America is bankrolling its own enemies by flowing excess funds to unstable oil-producing nations whose leaders and/or citizens are literally rewarded for their increasing hostility to the United States.

I have written earlier that the flow of excess oil funds into the Islamic world is in fact the primary stimulus for Islamic extremism and jihadism. When too much comes your way too easily, it is destabilizing, rather than opportunity-producing.

Those who have little or no experience of the generations of hard and exhausting work required to bring about free market growth have correspondingly little appreciation for the rewards of the free market system, including freedom itself. So the funds of the formerly free are being transferred at a rapid rate to many who do not know, appreciate or respect the hard-won prizes of social liberty or economic freedom, and this is much to our detriment.

Lastly, what of our own moral fibre in the present environment?

As has often been noted, philosophers throughout history, from as long ago as Plato’s time and before, have bemoaned the deteriorating moral standards of their youth.

Does this mean that young people in Plato’s time were no different that those in our time? Perhaps. But this begs the question, have kids always been the same in all ages?

I don't think so.

Let me posit an alternative explanation. Excess liquidity has preceded if not engendered the fall of virtually every human civilization throughout history, and as excess liquidity has weakened the fibre of the citizens of every empire, it has played a key role in the behaviour and the personal and moral standards of citizens in every generation.

(For more on this historical perspective, read Marc Faber’s Tomorrow’s Gold or Bill Bonner’s Empire of Debt.)

Let me assert that in times of monetary restraint in free market economies, the general population grows inclined towards actions that are responsible and respectful towards their fellow citizens – for in these times, the citizens of all nations require their fellow citizens to survive and prosper against ever-present adversity for the commonweal. And in such times when citizens are better behaved, their children are better behaved as well.

When monetary easing makes the flow of monetary liquidity excessive, and therefore too easy, our personal standards deteriorate. While this trend is perhaps most visible in our children – recognition of these moral changes is of greatest import for ourselves.

To return to my original example. You are again the parent (or perhaps the chairman of the Federal Reserve Board). Your child wants a shiny new bicycle (your voters – citizens and corporations – pressure you in every imaginable way for tax breaks and monetary easing). You do… what?

As you can see, the choice remains ours – to say no to easy money, and to its inevitable results: excess liquidity, excess debt accumulation, capital misallocation, ultimate economic decay and/or collapse, and, above all, inevitable associated moral compromise and decline.

Strong nations are built upon monetary discipline. Those who weaken their monetary foundations imperil the survival of their culture and civilization itself.

(Thanks are extended to the many public domain sources who have provided the charts utilized for this article.)

Iraq: You can't win when nobody is on your side

24 April 2007

Let's get back to basics on Iraq.

The Sunnis are against us. The Shiites are against us.

It is not possible to win a foreign war of hearts and minds when essentially nobody is on our side.

Only wars of conquest can be won without allies, and such victories are short-lived. Further, the American aim in the Iraq conflict was not to conquer, but to set people free. Unfortunately, for a variety of reasons, including a succession of disastrous strategic errors, this has not happened.

I think that the West had much to offer to the people of Iraq. We were not there to steal or even to secure the oil, but this has been misunderstood. Unfortunately, the people of Iraq don't appear to have seen things this way, and certainly not Mr. Bush's way.

We have not communicated well with the Iraqis, and it has cost us their support - on virtually all sides.

History teaches us that it is unwise to wage unwinnable wars. Such ventures tend to be associated with declining empires. Good intentions do not secure the peace. Allies do. Our primary failure has been that few real allies have been secured, whereas many new and bitter generational enemies have been created.

WIthout allies, we cannot win the peace. With the daily increase of our enemies, what can we do - particularly with military tools - that can possibly be effective?

Let us learn to put our efforts into cooperative ventures with those who desire our partnership.

Greg Mortenson is building schools in the autonomous mountain regions of Pakistan and Afghanistan. What he is doing works.

Let's put the kind of resources into Mr. Mortenson's work that have been expended on the Iraq War. Mr. Mortenson is creating allies by the thousands while the Iraq War is creating enemies by the thousands.

Redirecting our resources to the work of those who build relationships, such as Mr. Mortenson, is the kind of international investment that makes sense.

Winding down the ghastly military-industrial complex also makes sense. Here, I am not referring to the courageous soldiers and support personnel, who have sacrificed their lives for a noble cause, but to those who profit by promoting war when peace-building alternatives exist and remain unexplored.

Let's get better at the business of building relationships and alliances. Let's use guns less and friendship more. Let us learn to take on missions in which peace-based constructive alliances assure our success.

Let us abandon missions where our use of destructive military technologies assures that our enemies will increase and our allies will vanish.

It is time to leave Iraq to the Iraqis, and to aid the Pakistanis and the Afghans in building schools.

More about Greg Mortenson later.

Note (30 August 2008): A combination of the US troop surge and disastrous tactics on the part of Iraqi insurgents seem now to have turned the tide in the Iraq War in favour of stabilization. I admit that I was unprepared for this turn of events, but it is very pleasing now to report that my earlier pessimism appears to have been incompletely founded. Thanks to Michael Yon for being one of the first to report the favourable news - independently - from the front lines!

Monday, April 16, 2007

Girl in Landscape

I referred to this novel by Jonathan Lethem in my recent review of the state of science fiction in literature and particularly in film. Since Robert Heinlein's death, I have been looking for anyone who could sustain Heinlein's ability to project the reader into an imagined future and then to build sympathy with the characters. Lethem has the critical ability to establish empathy essentially with his every character, and few do this as easily as he. I have just completed Amnesia Moon, where Lethem tries on empathy with a clock and a potted plant as (metamorphosed) primary characters – and he makes even that work. Therefore, I found Pella (the 13-year-old protagonist of this novel), her family and friends, and the alien race in particular (not to mention the planetary ecosystem), to be so sympathetic that it was somewhat wrenching to put the novel down (the same was true of Amnesia Moon, though in that case, the characters were not intended to be quite so sympathetic). The last time I felt this way about a book was reading Heinlein (and in this case, Heinlein’s earlier rather than later novels). This is perhaps the only book I have ever read about which I still experience literal pain due to the fact that there was so much more of the story to tell, and it is virtually certain that the sequel (or sequels as I imagined them) will go unwritten. It is thus my plea to Mr. Lethem that he consider a sequel to this novel – though I suspect he has far too many projects boiling in his prolific mind to return to this one….

Sunday, April 15, 2007

More News of the US Dollar's Accelerating Decline

15 April 2007

Peter Schiff has very succinctly encapsulated the mounting problems of the declining US dollar (click here).

The issue is really one of transition. Decades of fiscal irresponsibility and imperial ambition have taken their toll on the inherent worth of the US dollar in its now rapidly fading status as the global reserve currency of the 20th century.

Consider the following developments: Euro-denominated investments have surpassed US dollar-denominated investments in net value for the first time since World War II. The Chinese are on the way to doubling their $1 trillion dollar US holdings of last year as soon as next year. The British pound sterling (global reserve currency of the 19th century) is returning to its historic 2:1 ratio (and then higher) against the US dollar. The Canadian dollar is again nearing parity with the US dollar.

To simplify the issue, America is giving away US dollars far too quickly and easily, and they are accumulating (and backing up) all around the world. Due to decades of inflating the currency (printing unbacked US dollars to pay for every American excess – and it is a litany of excesses), Americans continue to spend $2-3 billion dollar per day internationally more than they receive in income. Americans are thus selling out their assets, including the US dollar itself – at a $2-3 billion dollar per day clip.

As any budgeter knows, daily expenditures add up. The day eventually comes that the family simply cannot pay the bills. That reckoning day is drawing ever nearer for increasingly indebted Americans. Others have called this historic development the long emergency, the great unraveling or financial reckoning day.

The good news is that when US dollars are no longer readily taken up by citizens of other countries at a $2-3 billion dollar per day rate, Americans will then have to face the consequences that will ultimately require them to behave responsibly. And this will be the first time in more than half a century that such a moral and financial reckoning has been required.

I continue to believe in the inherent goodness of the American people. They will respond appropriately. But this will now occur from weakness, rather than from strength. This time around, the resulting enrichment of the American spirit will be moral in nature, rather than financial.

Such a transition is overdue – and will perhaps ultimately be welcomed, as a great global rebalancing will certainly result.

($9000 gold as the US dollar collapses? Click here.)


Thursday, April 12, 2007

Universalism as a Spiritual Principle

12 April 2007

This entry is not intended as a philosophical treatise.

Historically, the Christian Church has regarded Universalism – the doctrine of universal salvation – as a heresy. It is a tricky issue, because as Christian practitioners, we acknowledge that we simply do not know who is and is not saved. Though we often refer to converts and adherents as “the saved” we are in fact making a presumption when we do so, as it is our Creator’s right alone to make this determination.

I was raised as a Unitarian-Universalist, and there is no mistaking how this movement’s founders were regarded by the Christian church. They were burned at the stake.

The majority of Unitarian-Universalists do not (presently) identify themselves as Christians, and this is not difficult to understand, given the history of the movement. Those who do refer to themselves as Christians continue to be regarded as outside the pale even by the liberal wing of the mainstream Christian denominations.

However, as I meditate upon my walk with Christ over my past 25 years or more as a Christian, I am finding that I must call upon my Unitarian Universalist roots in order to explain how I understand Christ – his person and his teachings – today.

I have not run a Google search on Universalist doctrine, so it is possible that I am repeating statements that have been better made by others. But I feel increasingly called to comment more openly on how I presently view my Christian faith.

I am not a believer in Universal salvation as I believe was the case with the original Universalists. I adhere to the classic Christian doctrine that it is up to our Creator alone to determine who will and will not share eternity with Him (or Her if you prefer), and also to determine how that sharing will take place.

I certainly expect that such personalities as Hitler, Stalin, Mugabe, bin Laden, and the leaders of the Janjaweed (as one example) and other genocidal movements – as they live or have lived in our present worldly sphere – are by no means fit (in my view) to spend an eternity with a loving and accepting – but also discriminating – Creator. But that is just me speculating, and I truly don't know how salvation will or will not work out, even for these most blatantly evil of human beings.

But where I perhaps differ with many mainstream Christians is in my belief in the universal availability of salvation (here I define salvation to mean the state of being in receipt of an invitation to participate in eternity in the shelter and company of our Creator).

It is one thing to espouse the classic Christian doctrine – that no one comes to the father except through Christ.

It is another thing entirely to make presumptions as to how or where any particular individual may come to encounter and form a relationship with Christ – or as to what such a relationship can or cannot look like.

I tend to agree with my wife Susan that the organized church is presumptive in its adherence to the inherently reflexive doctrine that the organized church – whether as an institution or in an alternative collective form – is the only vehicle through which a saving and healing meeting with our Creator can take place.

Because my own perspective is Christian, I do accept that there are certain very fundamental advantages to meeting Christ through the church – and these derive primarily from the availability of teaching and of fellowship.

However, there remains a critical flaw in the doctrinal expectation that Christ, as a universally available spiritual being of infinite power, can introduce himself to those with whom he chooses to commune only through this particular organizational structure.

Let us briefly reconsider the history of Christ’s church.

The church was clearly an important concern to the historical Jesus, and he spoke of it often. But I am unable to find the teaching or the text by which he limited his power to engage us in relationship with him to the mediation of this particular extension of His body.

In my personal experience, I have encountered many individuals over the years who adhere to a variety of both Christian and non-Christian spiritual traditions who quite evidently enjoy a personal relationship with the very same Christ whom I know. Many of these persons understand who He is differently than I, but in my experience, this disjuncture is as true of the diversity within the organized church as it is of the diversity without it.

Here is what I think is going on.

I believe that Christ is universally available to all humans – to every single one of us – and at all times and in all places.

This is what I mean by Universalism – not universal salvation, but universal availability.

We live in a culturally and spiritually diverse world within which many of us call Christ by different names, and also understand or emphasize quite different aspects of his personality.

However, I recognize these persons (outside the organized Christian church) to be engaged in a relationship with exactly the same spiritual person who has engaged me as a Christian.

Without belabouring my point, I believe that this is because the risen Christ – the spiritual expression of our Creator’s ability to relate to us (beyond life and death) as the harvest of His creation – has the ability to relate to any human being who by any means recognizes who He is (a spirit living both within them and among all of us) and is receptive to entering into a give-and-take rhythm of relationship with him. (Christians recognize that He gives more and takes less than we do, but it is still a give-and-take relationship that emerges.)

My own journey of the past 15 years has drawn me into extensive involvement in the personal, community and spiritual lives of the Ojibway people of Northwest Ontario.

Strikingly, hundreds of these individuals who have opened their lives to me through my work with them have been brutalized and abused to an unimaginable degree by representatives of the Christian church.

These encounters have certainly alerted me to the issue of self-regulation (or lack thereof) within the body of the organized Christian church. In order to seek salvation and healing, many of these survivors of institutionalized Christian abuse must step back from the church, and they are pursuing and finding restoration through recapturing their historical (pre-Christian) spirituality and traditions.

Despite having been a vicarious witness probably to thousands of acts of abuse perpetrated in the name of the church of Jesus Christ against aboriginal Canadians, I do not blame Jesus, or even his church, for these acts of callousness and cruelty. I understand fully that each of us individually is capable of spiritual hate crimes which take root easily in the infertile soil of distorted self love. Christians – and their church – are as capable of evil as anyone – and that is central to what Jesus has already taught us about who we are.

The lesson which interests me here is a different one – that those who have been brutalized by and through the church can quite clearly find authentic salvation and healing outside of it. In fact, many of these individuals must journey outside the church in order to obtain the gifts of restoration and renewal.

Is this doctrine of Christ's universal availability contrary to His teaching and instruction? I do not anywhere find Jesus to be limiting of himself in this way, though this is one of many issues which he does not in fact address directly.

This is the same Jesus who never stated that he wanted anyone even to write anything down about him.

On the one occasion where it is recorded that Jesus was questioned about how his words and teachings should be verified, it is indicated that he simply replied that he spoke in public places, so it is obvious that those who were there knew what he had to say (a seeming slight to those of us who were not yet born, and thus could not have known of his teachings by this method).

So, how might Jesus have replied, had we been able to ask him a question so central to church doctrine of the past two millennia: “Can you save and heal – can you enter into a life-changing relationship – with individuals who do not participate in your Christian church – perhaps individuals who have no knowledge of your church – or even individuals who have been harmed and abused by it?”

I cannot imagine that he would have said, “No, I can't do that.”

Jesus is recorded as saying (in the texts that the organized church has chosen to retain) that “No one comes to the Father except by me.”

But where did Jesus say, “No one comes to the Father except through joining and studying in my church”?

Let me say it here, and say it directly. The latter doctrinal statement is simply not Jesus’ teaching.

I have observed this: Christ knows, saves and heals people whom we do not know (through the church), and who do not know us (again through the church). Yet he knows each of these persons (outside the church) every bit as well as he knows his followers within the organized church.

What then is the use of the organized church (about which Jesus certainly spoke many times)?

There is no question that the organized church can be extremely difficult and trying, even for its most devoted participants. And at its worst, it can be bureaucratic, closed, oppressive, murderous and even genocidal.

Yet Christ certainly describes a church which will tell the people of all nations about him (or at least certain texts indicate that this was the case). And, because those who follow Christ are doing so in freedom, the church can certainly separate itself from Christ by turning away from Him.

What is going on here?

My present construction of this dilemma is that the fundamental point at issue is that each of us must determine if we wish to engage in (rather than to abstain from) a relationship with our Creator.

With our having made this decision, then our Creator – through Christ – has chosen to be available to each of us. The evidence of my experience is that our Creator has not limited the variety of paths available to those of us who have answered “yes” to this call to relationship.

Some of these paths will lead some of us to the organized Christian church, but other paths will lead others of us to Christ in much more diverse ways than perhaps the majority of Christians presently conceive – and I do not think that this is a problem for Christ – rather, it is a problem for Christians.

Many of these ways will not be called Christian, and it is obvious based on my experience that exactly the same saving spiritual relationship that Christians enjoy is also available to Buddhists, Hindus and explicit non-believers, to name only a few.

This diverse and pluralistic conception of spiritual reality undergirds universalist spiritual practice as I presently understand it, and I believe that I am giving full credit to Christ – as well as to practitioners of other spiritual and even anti-spiritual traditions – in making this statement.

How then are we as humans called to seek spiritual truth?

Let me be very direct.

If we consciously adopt an attitude of open-mindedness (a key principle in my own Unitarian Universalist upbringing), we will (1) know Christ (as the spiritual and accessible embodiment of the source of our being) when we meet him; (2) recognize others who know Christ – in whatever form and by whatever name they happen to call him; and (3) be recognized by those who share our own relationship with Him (the human and spiritual manifestation of our Creator within and among ourselves as human beings thrown into a world of mystery and wonder).

How then should we come together to share our relationship with our Creator with others whose understanding may in some cases be similar to and in other cases quite different than our own?

My own (universalist) answer is as follows: The decision to share our spiritual journey and practices with others may occur in response either to an acknowledged drive arising from within ourselves, or to a call experienced as arising from beyond ourselves – it is really the same thing in either case. Wait, listen, watch, be attentive, and respond to that which stirs most deeply within you, or in your relationships with others.

Let me acknowledge here that this prescription will certainly be discomfiting for some readers, whether Christian or non-Christian. Let me go so far as to speculate as to why this might be the case.

I suspect that many Christians will fear that the spiritual stirrings leading us into relationship will arise from sources other than Christ. In this case, let me counter that perhaps the faith of these persons is not strong enough – as I believe that Christ – and not His opponents – is in charge of this domain.

As for those who may be on guard due to perceptions of Christian coercion in my writings, let me acknowledge that I am using Christian language because I am a Christian, but the criterion I advocate is authenticity, not doctrinal rigour. The challenge is to pursue relationship (with our very Creator), not to master buzz words and socially sanctioned religious behaviours.

(P.S. Our language makes it very difficult to speak about God in gendered terms. Here we might take a lesson from the Ojibway, whose pronouns recognize no gender. S/he is one word in Ojibway. Perhaps one day we as English speakers will advance to this level of understanding of the human condition in our use of language.)

Visiting Bill Bothwell

12 April 2007

Bill Bothwell is a good old friend from Springfield, Missouri - now in Los Angeles. Over lunch at the Argyle Restaurant at Aviara in Carlsbad, California, we updated the last 35 years of our lives and learned of Shambhala Tibetan Buddhism. In his view, it is essential to be mentally and spiritually awake in order to address the inescapable challenges of our troubled materialistic age. In my view, it was good to spend three hours together. (Marcel Proust would have enjoyed this discussion.)

Saturday, April 07, 2007

What Is Authentic Science Fiction in Literature and the Cinema?

6 April 2007

This topic is a bit off the beaten track with respect to my usual blog entries. However, the topic is in fact closer to my heart than I usually disclose.

I will grant you that I have limited time to read the new science fiction literature or even to follow many of the new movies, though I more often have 2 hours to spare for a DVD than 10-20 hours to read a novel.

Here is my complaint. Very little of what is being released in the name of science fiction is in fact science fiction at all. So-called science fiction movies tend to be suspense, action, adventure or even horror films in science fiction disguise. You don't need me to name them for you – the titles abound in the so-called science fiction sections of the neighbourhood and online video stores.

Similarly, science fiction literature rarely has much to teach us about science these days. And this, in my view, is the intent of what I call true science fiction – that is, to explore the possible future places where science might take us, given both what we know – and what we know that we do not know – about the vast and mysterious, multi-dimensional universe that we inhabit.

I will accept the burden of proof for demonstrating what true science fiction is by proffering examples for your consideration.

In the area of science fiction as literature, I present the body of work of
Robert Heinlein as perhaps the purest science fiction writing of which I am aware. While Heinlein had a number of peers whose work was similar in many respects, for example, Isaac Asimov, Arthur Clarke, Ray Bradbury, and somewhat later, Frederick Pohl and Larry Niven (Doris Lessing is another category herself), I believe Heinlein extended the genre to the furthest reaches of its potential during his era.

What Heinlein was able to do, that perhaps no other writer has done so well, was to propel the reader into a conceivable future world that has been shaped by the imagined evolution of one or more scientific principles, and then create sympathetic characters with believable dilemmas to inhabit this imagined world.

In my view, Heinlein's consistently best-conceived works were in fact his
juvenile novels, commissioned in large part by the Boy Scouts in the 1940’s and 1950’s. Such titles as Space Cadet, Red Planet, Farmer in the Sky, Have Spacesuit Will Travel, Citizen of the Galaxy and Tunnel in the Sky painted imagined futures in vivid and challenging detail for young readers whose intelligence Heinlein consistently respected (and never underestimated).

Heinlein was not by any means rigid in restricting himself to the known realms of science. He had no difficulty imagining faster than light space travel (managed with slide rules, as computers of any power had not yet been conceived), time travel, space warps and in some cases telepathy. Virtually every planet was inhabited, and usually with creatures of intelligence equal to or greater than our own. So giant leaps of the imagination beyond known science were well within Heinlein's comfort zone.

However, Heinlein never neglected the scientific aspects of the technologies he imagined, and his work rarely contradicted what was known scientifically at his time – this allowed him to imagine Venus as a steamy tropical jungle populated by a multicultural human society – as well as by alien natives – rather than what we know it to be today, a burning oven surrounded by a caustic sulphuric acid atmosphere.

Given that Heinlein was (in my view) the master of authentic recent science fiction, it is telling, and disappointing, that so little of his work, and none of his best work, has ever been translated to the cinema. Two minor novels – The Puppet Masters and the controversial Starship Troopers – have been translated into mediocre movies, both of which hint at, but fail to capture, Heinlein's much wider-ranging vision.

Until Heinlein's better works have been translated to the cinema – and I fear this is now unlikely half a century later – I shall remain somewhat pessimistic about the prospects for science fiction cinema.

I do not by any means claim to have kept up with the 50 years of science fiction literature beyond Heinlein. Speaking on a personal basis, I have read only two contemporary science fiction authors whom I regard as writing in Heinlein's league, and these are
William Gibson, whose cyberpunk stories attempt the same task as Heinlein (creating an imaginable science-based future), though his work is centred around much more self-preoccupied (and therefore less sympathetic) characters, and Jonathan Lethem, whose occasional science fiction works in my view fully measure up to Heinlein's efforts, particularly his novel Girl in Landscape.

Interestingly, Gibson has also seen two of his works translated to the screen, one of which I am familiar with. Unfortunately, that is the science fiction “B” movie, Johnny Mnemonic. This movie is based on one of his very minor stories, and fails by virtually any measure in capturing Gibson's vision of a future society whose inhabitants move – at times imperceptibly – between a familiar but twisted natural world and a seductive and mysterious virtual cybernetic world.

Are there, then, true science fiction movies being made today?

The gratifying answer is yes – some.

Once again, there have been a number of credible efforts in the direction of creating an authentic science fiction cinema, though the genre as a whole is so regularly disappointing as to leave the true science enthusiast reflexively anticipating multiple compromises before ever entering the theatre or pressing the play button on the DVD player.

Interestingly, a number of the better efforts in science fiction film date back to its earliest days in the 1950s, though few of the best science fiction films have ever experienced a wide viewership.

As I am not an expert, I'm certain I will unintentionally pass over many of the better science fiction films, and I apologize for this in advance. I will attempt to name some of the obvious (and perhaps not so obvious) examples of better science fiction in the cinema.

One of the early classics that still stands out is Forbidden Planet, the story of Shakespeare's The Tempest re-made as science fiction, and built around a somewhat spurious but conceivable Freudian theme – which does in fact require both thought and exercise of imagination on the part of the viewer.

Some other titles which explore authentic science fiction themes, almost always in somewhat flawed ways, include such original efforts as This Island Earth (I have not viewed this one in many years), The Man Who Fell to Earth (whose amoral protagonist challenges us to imagine alien ways of thinking that are not so unlike our own), Kurt Vonnegut’s Slaughterhouse Five (in which science fiction serves primarily as a contrasting and playful backdrop in service of grim historical fiction), and some low budget specials from out of the past, including the Original George Pal version of H.G. Wells’ The Time Machine and Henry Levin’s 1959 Journey to the Centre of the Earth.

There are a couple of films I feel I should mention that I have not so far seen, but which have come well recommended. These include The Brother from Another Planet and Open Your Eyes (Abre Los Ojos).

In another category, which I might call the time-travel morality story, there is Ken Grimwood’s eminently readable popular novel, Replay, and on a very similar theme, the Bill Murray film, Groundhog Day. Neither is primarily a work of science fiction by any means, but they are worthy of our interest and attention.

Several more recent films have done some credit to the science fiction genre. I am not including the original Star Wars trilogy, which, though well done, falls more under the rubric of science fantasy, nor A Hitchhiker’s Guide to the Galaxy, which is more a social commentary (and comedy) using science fiction as a vehicle to comment on the human condition (much like Kurt Vonnegut’s series of science fiction novels).

The majority of authentic science fiction films have failed at the box office, and many of these are deeply flawed, despite their at least partial fidelity to science fiction’s core purpose, which again is to invite us to imagine a world changed by the progression of scientific knowledge and technology in areas which are presently either only partially known or unknown.

A number of action/thriller/horror/adventure crossovers have at least brushed past the great ideas of science fiction, and here I include the Alien series, the original Jurassic Park (and perhaps some other Crichton adaptations), The Matrix series (primarily the original episode), the Back to the Future series, several of the Schwarzenegger films, and perhaps also Cronenberg’s eXistenZ, Outbreak, Dark City, Aeon Flux and The Astronaut’s Wife (there are many others which could be listed here), In all cases, however, science fiction is secondary to the purpose of these films.

Some more recent, passable, and in some cases commendable, science fiction films (and I am including some box office flops and bankruptcy-engendering failures as well as more popular efforts), include Contact (one of the best true science fiction films of all time), 2001: A Space Odyssey (another classic), Mission to Mars (a true science fiction story), Outland (High Noon in outer space, though with a somewhat devolved action-oriented conclusion), The Chronicles of Riddick (Pitch Black, the first in the series, is a true science fiction film, despite its flawed fundamental science), The Thirteenth Floor (in my view, the most successful virtual reality film so far crafted), the delightful Riverworld pilot (which sadly never went on to production), A Sound of Thunder (true science fiction based on a Bradbury story, but a box office disaster that was released with the special effects tragically incomplete), and quite recently, and truly a magical and classic science fiction story, The Last Mimsy – which on my recommendation is not to be missed – in theatres today.

Having written this, I am in fact now feeling more hopeful, as I can look back and see that a veritable garden of credible written and filmed science fiction, though in many cases highly compromised, has somehow managed to blossom in the cracks of the pavement of our concrete-thinking world, despite the seemingly anti-scientific mindset of media decision-makers and the general public whose tastes they measure, target and ultimately serve.

We are a long way from the utopian world I envision, in which the public at large might be so intrigued by the mysteries of science that their minds are recurringly stimulated to imagine how our lives might be changed by its further evolution, thereby creating a rich science fiction literature and an imagination-stretching library of science fiction cinema titles.

Be that as it may, something has in fact been accomplished in the cultural domain of science fiction literature and cinema, and what has already been created may yet aid us in exploring further where science could take us over the upcoming century and millennium.

If history is any guide at all, then it is a virtual certainty that the places to which science ultimately takes us will extend far beyond our present imaginings. This knowledge makes me wish only that I could imagine more than I am presently capable of imagining – and be aided in doing so by further developments in science fiction literature and cinema.

Perhaps the advancements I hope for will emerge as the uprising of the future brings with it yet more unanticipated, often destabilizing and yet still promising developments. The inherent nature of the mysteriously and surprisingly unfolding future itself could therefore augur well – if perhaps unexpectedly – for a renewal and blossoming of the science fiction genre in our third millennium.

Friday, April 06, 2007

Total Disaster for the US Dollar?

5 April 2007

I will be the first to admit that I am over my head on this topic. So I will defer to Jim Sinclair, who has been around to call the entry and exit points on the gold bull and bear markets since 1967. Mr. Sinclair has just issued a warning that "total disaster" is near for the US Dollar. Mr. Sinclair's chart is here. I honestly don't know when or if the US dollar will fall below the critical .80 figure on the international US Dollar Index (its all-time low), but I do know that if that happens, it will be Mr. Bernanke's first real test.

At its recent .8240 level, it is clear that the US dollar is in critical condition. At the same time, a historic fall below the .80 level will be a signal event, and no global decision-maker is going to allow this level to be compromised in the absence of a contingency plan.

The fall of the US dollar makes it less attractive to global policy-makers (particularly the central bankers of the countries most heavily committed to holding US dollars – specifically, China, Japan and some of the Arab states). However, the primary central bank holders of the US currency have no interest in seeing its value diminish, as this will compromise the worth of their international reserves.

Thus, the international face-off may continue to play out in complex and difficult to predict ways.

Specifically, the US dollar's primary holders will at some point desire to be rewarded for holding this declining currency, and stable or lowering interest rates will not address their needs.

On the other hand, if Mr. Bernanke continues raising interest rates (to reward the international investors in US dollar bonds who daily prevent a US dollar débâcle by adding to their holdings), then he risks bringing the US economy to a stalling point, which will undercut the attractiveness of US general equities (stocks) to foreign investors.

(N.B. The US must sell $2-3 billion dollars per day in bonds so as to cover the massive US current account deficit, which runs at 5-7% of US GDP. This level of imbalance is typically seen only in countries whose currency values are breaking down.)

Given the present stalemate situation, Mr. Bernanke would prefer neither to lower nor to raise US interest rates, and he may be able to extend this no-win game for a lengthy period – so long as the US dollar does not fall below the critical .80 level and the US economy does not crash and burn.

Most all of those in the gold camp expect Mr. Bernanke at some point to lower rather than raise US interest rates under pressure, but this will weaken the US dollar further.

Hang on for the ride – as Mr. Bernanke cannot preserve the present stalemate situation indefinitely.

My advice – hang on to gold for its ability to provide security in times of turmoil!

P.S. By the way, if the US dollar falls below the .80 level, my guess is that we will gradually start pricing gold in terms of currencies other than the US dollar. For example, even Canadians almost never consider the Canadian dollar price of gold.

At some point, whether sooner or later, Mr. Sinclair will be proven right on his call. We will then start to look at the price of gold more in terms of our own national currencies, and less in terms of the US dollar – as it will no longer function as a single global reserve currency. For example, Canadians are buying gold in pooled accounts on Kitco today at $782.38 Canadian. These numbers will gradually become more familiar to us as the US dollar wanes in global significance.

19 April 2008: For more recent opinion on the fundamental problems with the US dollar, click here or here.

($9000 gold as the US dollar collapses? Click here)_

Tuesday, April 03, 2007

A Tribute to Paramount Energy Trust

3 April 2007

I extend my commendation to the leadership at Paramount Energy Trust in their struggle with Jim Flaherty of the Conservative Party of Canada over the regressive and counter-productive taxation measures announced by Mr. Flaherty on Halloween Day, 2006.

Paramount is doing the right thing, and they are offering a reasonable proposal.

Mr. Flaherty – and Mr. Harper – are you listening?

The Conservative Party purports to be the party of business in Canada. Were they to follow Paramount's proposals, they might in fact demonstrate the truth of what they claim.

The Paramount Proposal follows:

Paramount Energy Trust (PET) is continuing to work to try to effect change to the Conservative government's October 31, 2006 announcement with respect to the change in the tax treatment of existing Trusts effective January 2011. Throughout this process, we have been extremely disappointed by actions of the Conservative government and the lack of action by elected Members of Parliament who have not responded to the concerns of thousands of Unitholders who have contacted them because they have been negatively impacted as a result of this issue.

The federal government's Standing Committee on Finance (the "Finance Committee") initiated hearings beginning January 31, 2007 to review the proposed changes to the tax treatment of income trusts, despite efforts of Conservative and NDP members to dispel such a process. It is ironic that while the Conservative election platform strongly promoted the issues of transparency and accountability, the government has provided no concrete evidence to support its claims of a $500 million per year tax leakage. Instead, only heavily censored documents have been provided to the public.

In fact, several expert witnesses provided detailed calculations countering the government's claim, and the government has not rebutted these assertions to date. In the absence of government research into the role the energy trusts, the Coalition of Canadian Energy Trusts ("CCET" or the "Coalition") collected data and prepared a detailed report documenting the unique role that energy trusts play in the Canadian economy. During the Finance Committee hearings many reputable experts testified in support of the energy trust sector. These expert witnesses supported our own findings, concluding as we did that energy trusts do not cause tax leakage, but rather they enhance government revenues.

Energy trusts are an effective vehicle for maximizing production from maturing oil and gas assets and for securing Canada's role as a global energy player, particularly considering the current expansion of the equivalent to the energy trust sector in the United States. It is important to note that witnesses who were opposed to the trust structure in general all acknowledge that the trusts have a role to play in specific sectors, including the oil and gas sector.

Nevertheless, the Finance Committee has put forth researched and reasoned recommendations, which PET believes would allow the government to further its goal of a fair and neutral tax system that promotes growth and competitiveness while also returning much of the tens of billions of dollars of value lost by Canadian investors. The primary recommendation for change to the government's proposals submitted by the Finance Committee is that the federal government should implement one of the two following strategies:

a. Reduce the proposed distribution tax to 10% from 31.5% (instituted immediately, but refundable to all Canadian investors), but continue the moratorium on new trust conversions while remaining open to representations from sectors that feel they may be well suited to the trust structure; or

b. Extend the proposed transition period to 10 years from four years.

PET is encouraged that a forum was established to receive evidence on this matter. The Finance Committee review considered expert testimony on many sides of the issue and the committee found compelling evidence to put forward positive recommendations for change. Now, we hope the government will not treat the process with disdain but rather listen to the findings and modify its position. The Government of Canada has not yet responded to this report. PET encourages the Conservative government, an administration that has been clear on its pursuit of democratic reform in Canada, to adhere to the democratic process and accept the result of open and transparent review, and to adopt the recommendations of the Finance Committee.

The government's proposed taxation plan has been extremely harmful to all Canadians and PET continues to urge all Unitholders to take action and contact their Member of Parliament, the Finance Minister and the Prime Minister directly. Further, PET encourages all Unitholders to join the advocacy group that was formed to be the voice of concerned Canadians and individual investors, the Canadian Association of Income Trust Investors ("CAITI"). Unitholders and concerned Canadians can register online at the CAITI website. Information is available on PET's website as well as the CCET and CAITI websites to assist Unitholders in their efforts to gather facts, formulate opinions and voice concerns.

Although PET continues to believe that energy trusts should be exempt from the proposed legislation for many reasons outlined in the detailed report prepared by the CCET, PET encourages Unitholders to voice support for adoption of the recommendations of the Finance Committee, in the absence of the government accepting further input on this matter. Your voice is important and we encourage Unitholders to ensure it is heard in respect of this significant issue.