WESTERN PETROLEUM MARKETERS ASSOCIATION CONVENTION
MGM GRAND, LAS VEGAS, NV. FEBRUARY 2004

I believe that prices are lower today, when you adjust for quality, than they were in 1982. We have been in a benign deflation for over 20 years.

Winning the Cold War bought a degree of economic freedom that had an impact on hundreds of millions of people. And with that freedom came a blooming of human energy.

The computer age caused a change of what one human could do in a spike unequalled since the Industrial Revolution.

If we think America's going back to 4% unemployment, we're going to be disappointed. Economists say full employment is 6%.

At the end of a 20-year boom, we had people employed who would have been deemed to be unemployable. When we had the recession, those were probably the first people laid off. I think we're fooling ourselves to think they're going to be the first people rehired.

Politically, unemployment is a dominant issue when it's rising, not when it's falling, People who are out of work don't put politicians out of work. People who are working and afraid they will lose their job put politicians out of work.

Today, the deficit is doing us no harm. But it will become a major issue in the future when interest rates start to rise. It will be the dominant problem of the second Bush administration, in my opinion.

Americans vote their pocketbook. They talk about other things but in the end they vote their pocketbook. If I'm right and the economy is strong, Bush will be re-elected. I am relatively confident that Republicans will gain seats in both houses of Congress.

This will make a profound different in everything from opening up ANWR to making the tax cut permanent.

If we can count on anything, it's a political year and very little is going to happen.

We did deregulate natural gas prices and that was God's work.

Everyone was for an energy policy until they found out how much it cost. After three years of working on it, I concluded that America is not going to have an energy policy. As of today, America still does not have an energy policy.

I think there is a permanent change in the price of natural gas in relation to oil. I think people believe we had a spike but I don't think so. We are depleting natural gas deposits, we are limiting exploration, and it's hard to transport. I think it's going to become very expensive. I think it's increasingly important to open up more areas of the United States for natural gas exploration.

As I look at the future of America, it's hard not to be optimistic. The one area I'm concerned about is Medicare and Social Security. These programs were never set up on any kind of sound financial basis. They were modeled after a program set up by Otto Von Bismarck in German in the 1800s. It rolled liability down generations. Germany had relatively few old people and lots of new young workers. There are two problems, a victim of demographics. People are living longer and retiring earlier and they are not have as many babies as they once had.

Today, the biggest problem in the world is a declining population. Germany has a fertility rate of .9%. They are in a death spiral.

The second problem is that it creates no wealth because of no compound interest. So the only way to get money is to take it away from someone else. We're about to enter into a 20-year period where four people retire for every one person who enters the workforce.

The solution is easy to talk about but hard to do: enter into a system based on money creation.

America tends not to do things unless there's a crisis.

Certainly next year interest rates are going to start to go up. The real test of recovery will come when interest rates start to go up. Rates cannot — and will not — stay where they are.

International trade is like skiing. It's counter-intuitive. What you'd naturally do doesn't work and you have to teach yourself what works.

When a plant closes, we know about it. When new jobs are created, we don't always know about it.

We have to accept the fact that if somebody can produce something cheaper than we can, we either buy it from them or we disadvantage ourselves.

In the end, I'm betting on the ability of America to compete. We do one thing better than anyone else in the world: we adapt to change, the ability to change as efficiency demands.