Socialism: An American Scenario I

This essay is based on the promotional video from Porter Stansberry shown below. We warn the reader it is long – we didn’t time it and it doesn’t display its length – and is structured to sell a newsletter subscription. Some readers might find the newsletter beneficial but our intent is to examine the primary scenario, one of a wealth-driven radical increase in socialist programming in the US. We do not have to accept its basic premises but we can extract some valuable points and observations from it. Here’s the video. We follow it with an extract of what we consider to be key points and then we discuss the points.

(click to play)

The following are excerpts from Stansberry’s talk:

  1. Using vast new powers, I believe Obama will:
    1. Greatly increase the size of the Fed’s quantitative easing, leading to massive increases to inflation.
    2. Seize control of the entire 401k retirement system, forcing Americans to buy more of our government’s risky debt.
    3. Implement vast new taxes across our economy, as they have already done with the health care program and which they will do next by implementing a national sales tax.
    4. Continue to expand the welfare rolls by record amounts, buying still more votes, more power and setting the stage for a third Obama term (something I’ll explain in this letter.)
    5. Reshape our foreign policy, drawing America into partnerships with dictators and socialists around the world.
  2. [T]he president [will] gain enormous new powers, … Obama will go down in the history books as one of the most powerful presidents of all time. … his administration will be extended into a third… and possibly even a fourth term,…
  3. In 2015, during Obama’s second term, a specific event will take place that will change the course of history in the United States … the oil and natural gas boom that’s occurring right now in America.
  4. The wealth created during [the past] oil boom imbued Americans with a new sense of destiny and power. They responded to a demagogue uniquely suited to capture their imagination [FDR – 4 terms]. … All of these programs [by the FDR administration] were designed to give more power to the government… to increase taxes on the “rich”… and to redistribute the income or the benefits according to political patronage. This is just socialism dressed up to sell to Americans . … [and] the people of the United States began to demand their government do more and more things. … With this incredible wealth came hubris, great ambitions, and political power. It was an oil boom that created Teddy’s Roosevelt’s prosperity and his political power. And it was an oil boom that created his cousin’s too…
  5. People who believe that Americans don’t want socialism haven’t studied presidential politics. No other president did more to build up the “social safety net” in America than FDR. … How did America react? They re-elected FDR three times, making him the only president in history (for now) to serve more than two consecutive terms.
  6. So… how will Obama grab enough political power to re-write the U.S. Constitution and run for yet another term? Simple: I believe he’ll launch social spending program after social spending program. He will oversee the largest expansion of the welfare state in the history of our country. He’ll launch new federal departments (something he’s already done… but will expand). He’ll enrich thousands of his backers… and impoverish his enemies… all on a scale never seen before in American history.
  7. Today, in the United States, oil companies have recently found more than 20 different shale fields that contain more than 20 billion barrels of recoverable oil each. … As that happens, America’s proven reserves of oil will soar, from only 21 billion barrels to more than 100 billion barrels, making America the world’s leading oil producer.
  8. This incredible source of wealth will create so much political patronage and so much power that Obama, even with all of his robust socialist dreams, even with his desire to “spread the wealth around” won’t be able to spend it all in a single term… Just like Hugo Chavez has done with Venezuela’s oil riches, I believe Obama will take America’s natural bounty and convert it into a giant political slush fund. … Soon, you’ll see the crowds out cheering for him… and demanding a third term.
  9. Edward Morse, former U.S. diplomat and now global head of commodities research at Citigroup, says “The two vulnerabilities of the U.S. as a global superpower have been its dependence on imported oil and its current account deficit. Now it may be in the process of resolving both of those.”
  10. Whether by changing the Constitution or more likely by simply running his wife, Michele, in his place we can’t predict. We only know Obama will never give up the amount of power he will garner in his second term. He will capitalize on this energy revolution to become the most powerful president in modern history. Like other energy-backed demagogues around the world (Putin, Chavez, the Kirstners in Argentina), he will not willingly give up his power. … He will use oil and natural gas to transform America into a modern petro-socialist state. And he will use oil to stay in power… for as long as possible…
  11. Your neighbors don’t want freedom. They don’t want lower taxes. They don’t want more opportunity. You know what they want? More handouts.
  12. Just like the Roosevelts, he will excoriate and attack the people and the companies who have created the oil riches… just to win the public’s approval. And then, he will use those same resources to buy favors and luxuries for millions of Americans… people who have done nothing to earn it. This will create more and more political dependence… more and more corruption… more and more socialism…. and the crowds will love him for it.
  13. There’s no way we can hope to outvote the masses… especially not when more Americans than ever before are already on the government dole and nearly half of America pay no income taxes at all.
  14. In American history the two times we experienced real tyrannical presidents and revolutionary, liberal, progressive and socialist policies correlate directly with oil booms.

Commentary

Point by point:

  1. A summary of what Obama might do:
    1. The Fed is nominally independent of the executive branch and Obama cannot dictate Fed policy. The Fed governor (Bernanke) will be replaced this year. Obama may have some degree of control over his successor (we don’t understand the process). The inflation debate remains open and “massive inflation” has not been demonstrated. We don’t see a massive increase in either QE or inflation in his second term.
    2. This is possible and we would argue highly likely as the government desperately looks for new sources of money. It’s been done recently in Greece and Spain if we remember correctly.
    3. As in 1.2, the government will increasingly look for additional revenue sources since Obama will not cut spending.
    4. This is consistent with what we understand Obama has put forward (more entitlement programs) for his next term.
    5. We expect closer alignment to the Muslim world. We think Obama would secretly like to throw Israel under a bus.
  2. The accretion of power has begun with his use of executive orders, oratorical intimidation, and the appointment of a cadre of ‘czars’ to oversee policy and administration in most areas of the government. We expect this to continue and will be one of the key things to watch in Obama’s second (and more?) term.
  3. The shale oil revolution is the pivotal aspect of Stansberry’s thesis because it is the means of funding it. The expiration of Bush era tax cuts is already negatively affecting the economy. The debt and deficit are so high, the government now stalls every few months as the an increase in the debt cailing is negotiated. In short, there is little ability to fund new social programs through taxation so new revenue sources will be critical to the thesis.We have previously discussed this oil revolution in the context of geopolitics. We will discuss the American context later.
  4. The past supports his argument for oil as an economic driver of the expansion of socialist policy.
  5. He makes the argument that people want socialism and will support a president beyond 2 terms that gives it to them.
  6. This is the idea that Obama will copy FDR with massive social spending expansion fueled by oil revenue through taxation.
  7. The magnitude of the shale oil discovery is larger than anything in America’s history.
  8. The attendant political patronage and power will give Obama the ability to implement the social programs that will buy him additional terms.
  9. America’s current economic vulnerabilities, its dependence on imported oil and its current account deficit, will be eliminated, increasing its geopolitical power.
  10. The power Obama will gain and his unwillingness to give it up are presented.
  11. The key dynamic driving socialism through democracy is the desire for handouts – self-interest.
  12. The political process behind oil-driven socialism. The means by which the government appropriates the new oil wealth is not determined. In the past it always finds an evolutionary way of achieving it.
  13. The inevitability of increasing socialism.
  14. The supporting observation for Stansberry’s thesis.

Summary

The energy revolution in the US from shale oil and gas development will create immense wealth in America. Obama will find the means to tap this wealth for new social programs and the expansion and support of existing ones. This in turn will increase his popularity enabling him to find the means for extending his power and influence beyond two terms in office. As Stansberry notes:

In American history the two times we experienced real tyrannical presidents and revolutionary, liberal, progressive and socialist policies correlate directly with oil booms.

His argument is that history is about to rhyme.

Additional Commentary

The challenge is for the government to sequester the oil revenue. A carbon tax might achieve this while placating the environmental lobby and furthering his ambitions around climate change. Alternatively, a royalty scheme might be used. New revenue will come just in time as social security and Medicare payouts  – the unfunded liabilities widely discussed by pundits nowadays –  are about to grow dramatically. He may also have one or more major wars to fund.

It is not clear to us that new energy revenue will be available for new social programs. It may all be necessary to support the status quo – for now. In the abstract, the question is how much wealth generated can be diverted for destruction through social programs. In a sense, the accumulated national debt is a claim on that wealth and may exhaust it.

That being said, we agree with Stansberry that increasing socialism is a natural aspect of democracy leading to totalitarianism. We see Obama as a demagogue who is increasingly seeking to bypass Congress and the constitution as he seeks to implement his Marxist ideals. He may well be able to engineer a third term. The main point we would disagree with Stansberry on all that he said, is over Obama’s being able to capture enough of the coming oil wealth to effect his plans. We also fear he may be correct.

 

 

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