This is Not The Matrix

The Century-Old Secretive Banking Elite

2010-12-12T21:25:00.000-05:00

A must-read article appeared in today's New York Times: "A Secretive Banking Elite Rules Trading in Derivatives" The NYT, despite numerous examples of leftward media bias and abandonment of objective journalism, is no grocery store tabloid. This story will confirm the worst fears of some conspiracy theorists. Jim Sinclair comments: "What has become of Western Financial Society that it needs to be run by secret cabals? What has become of the people that this can be discussed in the light of day and nobody really cares." I must add that, as an antitrust lawyer, I agree with the legal experts cited in the article that what is described is an illegal conspiracy under the Sherman Act. But bankers are uniquely insensitive to the legality of their actions. After all, the Fed is a cartel and was openly chartered as such. I digress with a little history lesson:

Legal tender greenbacks printed to support the Union war effort established a national currency after 1862; but that did not change the fact that some bankers occasionally underestimated depositors’ demand for money, causing bank panics and runs on the bank. And as commerce grew, the seasonal demand for credit became a larger and larger problem. Prudent bankers simply didn’t have enough money to lend out to businessmen for growth and to farmers at planting time. That was either a lost business opportunity for banks or it encouraged imprudent bankers to lend out more than they should, placing the bank’s stability at risk. It also created a liquidity problem in an economy that was growing increasingly sophisticated and an environment in which business could grow faster with outside financing. The bankers were in a straight jacket imposed by the market which required the banks to have a solid reputation and adequate reserves 100% of the time. And bankers felt a need to safely escape those strictures, which limited the banks’ ability to lend out more money and thus their ability to make more money on banking.

The Federal Reserve System

By 1910 the situation had begun to wear on the banks. And so, some influential people in banking and finance conceived of a central bank where they could pool their resources, to be drawn upon in emergencies. Key influential banking magnates met secretly in Jekyll Island, Georgia, to agree to and create a banking cartel. The cartel was modeled after the European banking cartels that existed at the time. Nelson Aldrich, the Senate Republican Whip and father-in-law of John D. Rockefeller, Jr., was the sole non-banker at the meeting. He described the idea as “not a bank, but a cooperative union of all banks of the country for definite purposes.” It went beyond the notion of private cartels such as we know today, like the DeBeers diamond cartel or OPEC. The notion was to make it a government imposed cartel like the Interstate Commerce Commission and later government agencies such as the Civil Aeronautics Board and Federal Communications Commission, all of which were chartered to give government and its proxies the exclusive right to set prices and allocate markets and resources for private corporations. A. Barton Hepburn of Chase National Bank speaking in support of the legislation said, “The measure recognizes and adopts the principles of a central bank. Indeed, if it works out as the sponsors of the law hope, it will make all incorporated banks together joint owners of a central dominating power.” Thus, in 1913 the Federal Reserve System was born. Unlike the CAB and FCC, however, the Fed is a private central bank owned by its members but imposed on them by law

"Dominating." Hmmm. To be sure. And that is how the key players understand their role. They justify in their own minds that what they do is patriotism: they preserve the Republic. (Their bonuses are only incidental to a greater good.) But that is clearly a rationalization.

Please remain alert to Congressman Paul's expose in the coming months of the Fed and its minions.

There is no nefarious intent here. The banks have not set as their goal to own you or your assets, or to run the economy. They only want to make money and conserve their capital, like any other good business. But they need to make money honestly, without the application of "force" (meaning ultimately the guns of the government) to coerce people into transactions (or to avoid them).

Dr. Paul advocates the gold standard, which applied to our money less than a century ago. That ideal cannot practicably be implemented in today's world economy although it can be approximated. The point is that we, indeed every nation, need a currency that adheres to an objective standard that is beyond the control of politicians and banking interests that use their inside influence to profit from advantages they gain from a special relationship with the government and its proxies.

A Perspective on the Mortgage Mess

2010-12-12T20:20:00.001-05:00

Here is a succinct perspective on the mortgage mess.

1. Ultimately, the people who didn't pay their mortgages will lose their homes.

2. Ultimately, the losses resulting from mortgage defaults will have to show up on someone's books; but they will not show up all at once. Reports of the losses will be bled out quarter by quarter on the "frog in a pot theory" * so that the market is not shocked at the magnitude of the problem.

3. People who bought foreclosed properties and thought they had clear title will find, in significant numbers of cases, that they do not in fact have clear title to their homes -- because it is not clear who had a right to foreclose in the first place or the party who foreclosed and sold the property actually had no right to do so. Either could give rise to the uncomfortable situation in which two (or more) people claim title to the same property.

4. Ultimately, who owns any particular mortgage and note will be sorted out. That process will be tedious, lengthy and contentious as the falsifications, mistakes and systemic flaws surface and reveal that more than just homeowners will lose.

5. Many investors, including not only private parties but also public and private pension funds and corporate treasurers, who thought they bought mortgage-backed securities will find that, as a consequence of the systemic flaws in the MBS creation process, their securities were not in fact mortgage-backed, reducing their investment to an unsecured note of substantially lower value than they thought they had.

6. The parties in every step of the MBS transactions who insured their bonds with Credit Default Swaps -- will call upon their CDS counterparties to cover their losses arising from the mess. Unlike regular insurance, however, CDS counterparties do not ordinarily set aside reserves to cover their CDS obligations. (This ignores the additional problem that because CDS obligations are traded many times over, it is difficult to identify the real counterparty.) The likely tidal wave of CDS demands cannot be met from the capital of the counterparties (usually large banks, investment banks and hedge funds). And the ensuing chaos from the uncertainty of who owns what will delay and defy resolution.

7. The investors will sue the CDS counterparties, MBS creators, sellers and brokers, the rating agencies, the accountants and the lawyers involved in creating the flawed instruments. Lawyers on all sides will get rich; everyone else will lose. The magnitude of the problem is measured in the $Trillions.

8. The Fed -- which has shown no reluctance to bail out banks, investment banks, hedge funds and commercial businesses by loaning printed money or by buying garbage at par -- will continue to backstop the system. Ultimately, while it could forestall another crash, the money printing and additional credit facilities could cause general price inflation or another bubble somewhere it is not wanted (the law of unintended consequences), either of which will end very badly for the economy. The public is becoming aware of the Fed's actions and is increasingly unhappy that the perpetrators of fraud are escaping prosecution and, instead, are receiving bonuses with public money while the consequences of their acts cause unemployment and decimation of the value of the one asset in which most citizens have invested their meager savings. With Ron Paul as the head of the Monetary Policy Subcommittee, the fireworks are likely to be significant. The efforts of the banks and the Fed to suppress any and all information in this regard will be huge. Fortunately, there is an internet -- where actual events (not just the opinions of bloggers) can be aired and facts checked -- that is, until the internet itself is constrained as a "security risk." (Shut those bloggers up for goodness sake! The truth will kill us all -- Joe Sixpack cannot possibly handle the truth: witness what he did in the last election!)

9. The stock and bond markets are anticipating all of the above. Real interest rates are starting to rise despite the efforts of the Fed to suppress them. And the stock market has recovered, more or less, from its 2008 lows, anticipating (somewhat scizophrenically) that the Fed's efforts to keep the economy afloat will restore consumer confidence.

10. The States, which collect transfer taxes on each real estate transaction (and which are in dire financial straits), are very, very unhappy that the banks created a system in which they tried to evade paying those taxes, even though title to local real estate changed multiple times.

11. Efforts to achieve a global settlement that would validate the flawed system, pardon the frauds, and compensate the States, investors, CDS counterparties and banks for their losses, will be very difficult if not impossible to achieve.

12. Because the underlying failures of the system have not been rectified and the health of our financial institutions restored, the economy and the stock market's hope for a substantive recovery remain fragile. You need to carefully (daily) monitor your investments and the financial news.

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*The frog in a pot theory holds that if you put a live frog in a pot of cold water and gradually increase the heat, the frog will stay in the pot until it is cooked. But if you drop a frog in a pot of boiling water, it will jump out immediately.

Election Day 2010

2010-11-05T18:21:00.004-04:00

Thu, November 4, 2010 7:05:30 PM

Between Tuesday's elections and Wednesday's announcement by the Federal Reserve that it will print more than half a trillion dollars, the Fed announcement is by far the most important.

The new Congress will be able to do little to reverse the damage done to our way of life by the social democrats and progressives to destroy the middle class -- although if the Republicans play their cards right, they might be able to shine the light of day on corruption at the highest levels and Democrat attempts to unravel the American Revolution. If successful, they could set the stage for regime change in 2012. It remains to be seen. The establishment in both parties see the Republican victory as a reflection of the state of the economy. Neither see it, really, as a demand from the people for less government, lower taxes and more personal responsibility -- the message of the Tea Party. Fundamental alteration of the trend in the other direction will not happen.

The Fed announced Wednesday that it will print $600 Billion (ephemistically termed "Quantitative Easing" -- "QE-2") in new money on top of the $300 billion+ ("QE-1") the central bank printed last year in a vain attempt to boost the economy. While that will make the dollar worth less and might suppress interest rates for a while, the actions will simply postpone the day of reckoning and impose a stealth tax on the little old ladies on fixed incomes and transfer hard-earned savings to the big banks so they can pay obscene bonuses to their thieves for thievery. As you consider the actions of the Fed, remember that the Federal Reserve is a creature chartered by the banks, for the banks. Those with a thirst for detail should read The Creature from Jekyll Island.

The Fed's attempt to print us out of a recession and inflate the value of housing back to bubble levels is extraordinarily risky. Debasing the currency to fund the government has been tried repeatedly for thousands of years and, without exception, has been unsuccessful -- repeat: without exception it has been unsuccessful throughout history. The result always is either hyperinflation as more money is printed to chase the elusive goal, or a depression resulting from a contraction in the money supply when the monetary authorities realize that the money supply needs to be reigned-in. In either event, it will not end well although a depression is preferable because hyperinflation is much more destructive. See Inflation, Deflation and Chaos. Many sound thinkers are aghast at the Fed's continued money-printing in an effort to inflate assets and the stock market. Consider the following:

Must Watch: David Stockman Says The Fed Is Injecting High Grade Monetary Heroin Into The Financial System
Inflationary Thursday - Benny Drops the Big One!
QE2 - The Day After: Entire World Blasts Deranged Madman's Uncheckable Insanity
A Minskian Explanation of the Causes of the Current Crisis

Hyperinflation is not a monetary phenomenon. It is a political phenomenon that occurs when a population loses faith in its currency -- and flees the currency. The change happens suddenly and in a panic as those who had been in denial realize that the game is over. When inflation occurs, one experiences a rise in prices and sees a deterioration in business performance as companies struggle to make a profit in that environment. In an inflationary environment, commodities provide the most opportunity for gain -- stocks and bonds, less so. But when hyperinflation begins, there is a rush to the exits, the so-called "fire in the disco" phenomenon, as everyone immediately tries to exchange the currency for something intrinsically valuable such as ounces of gold, real estate, diamonds or shares in a viable company. Stocks do well but the economic chaos makes most of them risky and regular folks have nowhere to turn but the historically proven assets: one's own home (pay off the mortgage with debased dollars) or precious metals -- silver, gold and platinum. In the short term, survival strategies (water, food shelter, energy and personal protection) become important. In the longer term, how to survive and benefit from the chaos is the most important issue that should preoccupy cool heads.

Be prepared enough not to be subject to or panicked by huge market downdrafts or currency events. But be alert for them and understand why and how they happen. If you see them happening, quickly implement the plan you have devised to respond to these events -- for they surely will occur -- two years hence, three years, five or ten. They will happen as surely as night follows the day.

I would be remiss if I did not discuss the injustice of the official theft that inflation represents.

In the Second Legal Tender cases Justice Bradley explained in salutary terms how printing money works as an "imperceptible tax" to finance war by invisibly spreading the financial pain:

In this country, the habit had prevailed from the commencement of the eighteenth century, of issuing bills of credit [paper money]; and the revolution of independence had just been achieved, in great degree, by the means of similar bills issued by the Continental Congress. These bills were generally made a legal tender for the payment of all debts public and private, until, by the influence of English merchants at home, Parliament prohibited the issue of bills with that quality. This prohibition was first exercised in 1751, against the New England colonies; and subsequently, in 1763, against all the colonies. It was one of the causes of discontent which finally culminated in the Revolution. Dr. Franklin endeavored to obtain a repeal of the prohibitory acts, but only succeeded in obtaining from Parliament, in 1773, an act authorizing the colonies to make their bills receivable for taxes and debts due to the colony that issued them. At the breaking out of the war, the Continental Congress commenced the issue of bills of credit, and the war was carried on without other resources for three or four years. It may be said with truth, that we owe our national independence to the use of this fiscal agency. Dr. Franklin, in a letter to a friend, dated from Paris, in April, 1779, after deploring the depreciation which the Continental currency had undergone, said: 'The only consolation under the evil is, that the public debt is proportionately diminished by the depreciation; and this by a kind of imperceptible tax, every one having paid a part of it in the fall of value that took place between the receiving and paying such sums as passed through his hands.' He adds: 'This effect of paper currency is not understood this side the water [i.e., Europe]. And indeed the whole is a mystery even to the politicians, how we have been able to continue a war four years without money, and how we could pay with paper, that had no previously fixed fund appropriated specially to redeem it. This currency, as we manage it, is a wonderful machine. It performs its office when we issue it; it pays and clothes troops, and provides victuals and ammunition.' In a subsequent letter, of 9th October, 1780, he says: 'They [the Congress] issued an immense quantity of paper bills, to pay, clothe, arm, and feed their troops, and fit out ships; and with this paper, without taxes for the first three years, they fought and battled one of the most powerful nations of Europe.' The Continental bills were not made legal tenders at first, but in January, 1777, the Congress passed resolutions declaring that they ought to pass current in all payments, and be deemed in value equal to the same nominal sums in Spanish dollars, and that any one refusing so to receive them ought to be deemed an enemy to the liberties of the United States; and recommending to the legislatures of the several States to pass laws to that effect." 79 U.S. 457, 558. [Footnotes omitted.]

Justice Clifford, acknowledging the above in his dissent, pointed out that the "wonderful machine" described by Dr. Franklin had a dark side:

. . . these measures of violence and terror [i.e., making those refusing to take the Continental dollar enemies to the liberty of the United States], so far from aiding the circulation of the paper, led on to still further depreciation. New emissions followed and new measures were adopted to give the paper credit by pledging the public faith for its redemption. Effort followed effort in that direction until the idea of redemption at par was abandoned. Forty for one was offered and the States were required to report the bills under that regulation, but few of the old bills were ever reported, and of course few only of the contemplated new notes were issued, and the bills in a brief period ceased to circulate, and in the course of that year quietly died in the hands of their possessors. [Footnotes omitted.]

James Madison, the chief architect of our Constitution, understood what inflation means to ordinary people. He discussed it in The Federalist, No. 44 in discussing the Constitutional provision denying the states the power to emit bills of credit (paper money):

The extension of the prohibition to bills of credit [to the States] must give pleasure to every citizen in proportion to his love of justice, and his knowledge of the true springs of public prosperity. The loss which America has sustained since the peace, from the pestilent effects of paper money, on the necessary confidence between man and man; on the necessary confidence in the public councils; on the industry and morals of the people, and on the character of Republican Government, constitutes an enormous debt against the States chargeable with this unadvised measure, which must long remain unsatisfied; or rather an accumulation of guilt, which can be expiated no otherwise than by a voluntary sacrifice on the altar of justice, of the power which has been the instrument of it. In addition to these persuasive considerations, it may be observed that the same reasons which shew the necessity of denying to the States the power of regulating coin, prove with equal force that they ought not to be at liberty to substitute a paper medium in the place of coin. . . . The power to make any thing but gold and silver a tender in payment of debts, is withdrawn from the States, on the same principle with that of striking of paper currency.

The mainstream media does not spend enough time exposing the inflation that impacts most of us. It is a cruel hoax on retired people who contributed for decades to Social Security to be told that the cost of living on which their retirement payments are indexed exclude food and energy. The pretext is that these two items are too volatile. But the facts are that inflation overall, especially in these two areas, is increasing. See http://www.zerohedge.com/article/quick-glance-real-world-inflation.

Understand what is going on, folks. Protect yourselves and your own. Be alert, be nimble and be quick. You are amongst predators from every imaginable direction.

The Military Ethic

2010-06-22T16:53:00.002-04:00

Douglas MacArthur was arguably one of the greatest Generals in history. Even though his wars were not wars of aggression, he ranks strategically with Napoleon, Julius Caesar, Alexander and Genghis Khan. And, he was a master of public relations. His successes in the face of great odds, his personal charisma and his way with the press corps made him a popular figure back home. And he was a wise leader, even in government assignments: As governor of Japan after the War, he demonstrated a model for nation-building that the U.S. administrators in Iraq have ignored at their peril.

In a speech at West Point in 1962, he lectured the Cadets about their role as military officers, cautioning them to stick to their knitting and avoid participating in controversies that were the province of the civilian leaders:

. . . your mission remains fixed, determined, inviolable—it is to win our wars. Everything else in your professional career is but a corollary to this vital dedication. All other public purposes, all other public projects, all other public needs, great or small, will find others for their accomplishment; but you are the ones who are trained to fight; yours is the profession of arms—the will to win, the sure knowledge that in war there is no substitute for victory; that if you lose, the nation will be destroyed; that the very obsession of your public service must be Duty—Honor—Country. Others will debate the controversial issues, national and international, which divide man’s minds; but serene, calm, aloof, you stand as the nation’s war guardian, as its lifeguard from the raging tides of international conflict; as its gladiator in the arena of battle. For a century and a half, you have defended, guarded, and protected its hallowed traditions of liberty and freedom, of right and justice. Let civilian voices argue the merits or demerits of our processes of government; whether our strength is being sapped by deficit financing, indulged in too long; by federal paternalism grown too mighty; by power groups grown too arrogant; by politics grown too corrupt; by crime grown too rampant; by morals grown too low; by taxes grown too high; by extremists grown too violent; whether our personal liberties are as thorough and complete as they should be. These great national problems are not for your professional participation or military solution. Your guidepost stands out like a tenfold beacon in the night—Duty—Honor—Country.

A decade before, after more than half a century of active duty, the very popular five-star General was fired from his final military post and retired by the President of the United States because MacArthur publicly challenged the President's decision on the strategy for the Korean War. What was he thinking!? History will likely conclude that he took a risk on the chance that his strategy was correct and that it ultimately would be adopted. (The strategy was to create a nuclear hot zone by exploding nuclear bombs across the northern border of Korea to block a Chinese invasion.)

A very important ethic exists in the United States military -- that the military is subject to absolute civilian control by virtue of the President's position of Commander in Chief of the armed forces, a circumstance implicitly recognized by MacArthur's comments in 1962. While the President's role can be abused by inexpert micromanagement, such as Lyndon Johnson's making tactical decisions during the Vietnam War, that is the President's prerogative -- and he will be held accountable by the people, as was President Johnson.

Which brings us to the current indiscretion of General McChrystal. The military academies teach moral lessons using many techniques -- the case method, strategic studies, essays and counsel of iconic leaders, poems, and quotations such as "Where principle is involved, be deaf to expediency" and "Discretion is the better part of valor." General McChrystal seems to have failed to balance the latter two with the notion that he is subordinate to the Commander in Chief. As a junior officer, he would not have dared to publicly challenge his military superiors as he did with his Commander in Chief. It is no different now that he has four stars on his shoulders. What was he thinking!?

While as a citizen I might disagree with the U.S. government's decisions to send our troops into Iraq and Afghanistan, I strongly support the important principle that the elected representatives of the people, within their Constitutional limitations, should control the federal military, who should salute smartly and say, "Yes sir!"

As I write, General McChrystal is on his way to Washington to face his Commander in Chief. If he is worthy of his four stars, he will retire forthwith. And then he can criticize the President's decisions, as I do, but not before.

[Update July 9, 2010] Paul Hollrah, Senior Fellow at the Lincoln Heritage Institute provides an answer to the question, "What was he thinking!?" See The General and the Community Organizer.

AIG Bailout Avoided 25% Unemployment?

2010-01-27T16:11:00.001-05:00

Henry Paulson in testimony before a House Committee today asserted that the bailout of AIG avoided 25% unemployment. While that remains to be seen, as unemployment is still rising, Paulson's statement reminds me of the ridiculous "jobs saved and created" scam that the Administration tried but subsequently withdrew.

Democratic Congressman Stephen Lynch was more credible when he chewed out Treasury Secretary Geithner for the AIG bailout because Geithner failed to represent the American people. He compared the Bear Sterns bailout, in which the shareholders of Bear Sterns received only 2% on the dollar, while Goldman Sachs, AIG's counterparty in credit default swaps, received 100% on the dollar. The implication is that Geithner was trying to secretly funnel as much cash as possible to big Wall Street firms, an implication that finds further support in the Fed's election not to guarantee AIG's credit default swaps. See Why Did the Fed Board of Governors Nix Guaranteeing AIG's CDS?

But Rep. Lynch is comparing apples to oranges. The Bear Sterns "bailout" was a shotgun marriage arranged with J.P. Morgan. It was J.P. Morgan that was bailed out because J.P. Morgan was counterparty to much of Bear Sterns debt. So the two bailouts are in fact comparable. Rather than chewing out Geithner for not negotiating a good deal, Rep. Lynch should have chewed him out for failure to be forthcoming about where the money was really going in both cases.

Rep. Lynch's ire is a smokescreen designed to identify a scapegoat. In their desperation to win public favor, the Dems are throwing Geithner to the wolves.

More Propaganda

2010-01-27T11:59:00.001-05:00

As part of the government's continuing efforts to shape public perspectives on the economy, the SEC has proposed to limit short sales.

As Reggie Middleton notes (free registration required), this renewed effort to constrain the free actions of the stock market not only will inhibit the discovery of true equilibrium prices, but will mask activities, such as fraud, that deserve scrutiny. The SEC is once again demonstrating, as it has done in its continuing conscious failure to prosecute Paulson, Bernanke, and Geithner, that it is just another tool of the Obama Administration's propaganda machine, rather than the independent entity that it purports to be.

Simple, Straightforward, Succinct

2010-01-27T10:29:00.003-05:00

The Cato Institute just posted on Facebook a 10-point Libertarian suggestion for the State of the Union Address:

1. Abandon Obamacare
2. Forget Cap and Trade
3. Reject Card Check Bill
4. Withdraw from Iraq and Afghanistan
5. Legalize Drugs
6. Scrap tax code and replace with flat tax.
7. Expand free trade and immigration.
8. Stop bailouts
9. Cut spending
10. Cut spending
BONUS - Cut spending

For those who prefer bullet points instead of lengthy dialog, there you have it.

The Gods of the Copybook Headings

2009-12-22T16:50:00.002-05:00

There was an op-ed by Bret Stephens in the Wall Street Journal today entitled "A God of the Copybook Headings" in which the Author discussed Wall Street Journal editor George Melloan:

[A]s George Melloan reminds us in "The Great Money Binge: Spending Our Way to Socialism," just as bad ideas never quite go out of fashion, neither do good ones. Readers looking for an antidote to this season's political gloom will find more than the full dose in this splendid book.

Mr. Melloan was, of course, the writer of this column for many years, one of the labors in a career at the Journal that spanned 54 years as a reporter, editor and commentator. Among the benefits of a long career is a long memory and an imperviousness to intellectual fads. In Kipling's terms, he is one of the Gods of the Copybook Headings—the unfashionable keepers of hard truths about which we must occasionally be reminded.

In Kipling's day, a copybook was a book which students used to practice penmanship. The book comprised a series of blank, usually lined pages each of which was headed by a maxim or proverb that the student was expected to copy. The maxims and proverbs preached common sense and reality.

The current unreal behavior of the politicians in Washington has sparked a number of commentaries referring to and quoting the poem.

This from Lisa Shifferin, writing for the National Review Online:

Alas, I seem to have dour temperament of a liberal to go with conservative convictions. So from me you get Rudyard Kipling, explaining here why, even if we lose today, even if our worst fears of impending socialism and apocalyptic doom descend upon the land of the free, the eternal realities of life will bring us back to basics.

And from NRO's John Derbyshire, "Reality doesn't go away just because you stop believing in it."

Please enjoy the poem, linked here, and take comfort in the inevitable truth that if you ignore reality, the truth will come back to bite you.

State of the Union: Not Good

2009-12-14T21:44:00.010-05:00

Nathan's Economic Edge in a post called "The State of the Union - in charts" has compiled a series of charts from the Federal Reserve and the Bureau of Labor Statistics that is quite revealing. See http://economicedge.blogspot.com/2009/12/state-of-union-in-charts.html Read Nathan's post. His comments are instructive. You can scroll through the charts more easily on these pages: (Banking and Labor).

The state of the Union is not so good.

The stock market apparently believes that we have started a recovery and that the future will be better. But history reveals a pattern that might predict a another downturn in the economy. See the Morgan Stanley article linked by Nathan: "Here comes a brutal 2010" (http://www.businessinsider.com/morgan-stanley-here-comes-a-brutal-2010-2009-11#when-will-tightening-occur-when-jobless-claims-hit-the-350k-400k-level-5) Morgan Stanley's prediction is based on the notion that the Fed, after goosing the economy with low interest rates and easy money to move things out of a recession, always tightens money and credit and raises interest rates once the economy starts to pull out. And that is exactly what Ben Bernanke has signaled that the Fed would do. See, e.g., http://www.forbes.com/2009/08/10/federal-reserve-policy-business-oxford.html

However, this is not a typical recession and recovery and there are some good reasons why the Fed might not tighten any time soon.

The economy is in a very fragile condition. Banks, especially, are in bad shape and it could take years for them to get healthy. (Their balance sheets do not show how bad because the Financial Accounting Standards Board has recanted their proposal to make banks mark their bad loans and securities to market value -- so many banks are hiding insolvency.) The banks consequently are conserving their reserves and are not yet lending, impeding the Fed's plans to print their way out of a deflation. And another wave of defaults in home commercial real estate loans is fast approaching. Consumers have adopted, perhaps permanently, a new, prudent approach to personal finance, reducing their use of credit. Easy money from home equity loans, taken out on constantly rising real estate values, is gone forever. Deflation remains a serious problem for an economy that was based on easy credit. And it will take time for businesses to adjust to a new paradigm in which they will have to fund much of their growth from earnings and what credit they do receive will be based on a higher standard of financial wherewithal.

Businesses will suffer whose sales depend on consumer discretionary spending and spending that can be postponed, which includes almost all businesses. Those businesses which provide essential goods and services will suffer less, but they also will suffer as consumers turn down the heat and shop more carefully for food bargains and otherwise seek ways to economize.

There is also the problem of the politicization of the Federal Reserve System. Ben Bernanke seems to have been more responsive than his predecessors to the political winds that blow and he does not appear to have the will to oppose them. And the passage of a bill that would explicitly make the Fed more politically responsive means that the Fed will not be able to independently act to tighten money and threaten a recovery when the time to make hard decisions comes. Even if the bill does not become law, the mere threat that the Congress can reduce the Fed's independence, is sufficient to make the Fed more politically responsive. And while some predict a robust recovery, that does not mean the Fed will raise interest rates any time soon. See http://www.bloomberg.com/apps/news?pid=20601087&sid=a7yHrrr_Vklo&pos=4 And that is why the stock market has not yet dropped in anticipation of another downturn in the economy. The market believes that the recovery will continue but others do not. See http://globaleconomicanalysis.blogspot.com/2009/12/yield-curve-steepest-since-1980-hard.html.

And all of this ignores the international scene. See http://globaleconomicanalysis.blogspot.com/2009/12/eu-ready-to-bailout-greece-debt.html.

Is there any way out of this mess? Maybe. This fellow thinks that there is no alternative than resurrecting the gold standard: http://www.washingtonexaminer.com/opinion/columns/OpEd-Contributor/Interest-increases-central-to-looming-debt-crisis-8648650-79004147.html

Many say that there is not a practical way to return to the gold standard. But others have plotted a course to do so. The biggest problem is persuading the population that there really isn't a way to have your cake and eat it too. Some day, somehow, everything has to be paid for from real wealth, not printed paper.

Climategate

2009-11-30T09:27:00.010-05:00

For years we have known that some members of the scientific community who receive government funds have pursued a political agenda and suppressed an objective appraisal of the influence of man's activities on the climate. But clear, hard evidence of their bias did not achieve widespread public notice until this month when a hacker penetrated the computers of the Climate Research Unit and published the dirty details. The CRU e-mails, which have been verified as authentic, confirm a scandal of science that rivals the suppression of Galileo. Despite much of the main stream media's attempt to ignore the issue, the fallout thus far has been significant. Here are a few of the comments and reports identified by Robert Bidinotto, Breitbart and the Drudge Report:

Climate change: this is the worst scientific scandal of our generation
Climate Emails: Science and Candor - WSJ.com
Cooking the Books on Climate
Rigging a Climate 'Consensus'
Environmentalists in Denial Over CRU E-Mails
The Deleted Data from the "Hide the Decline" Trick
CRU's Source Code: Climategate Uncovered
Uh, oh – raw data in New Zealand tells a different story than the “official” one.
Climategate e-mails sweep America, may scuttle Barack Obama’s Cap and Trade laws
Climategate: five Aussie MPs lead the way by resigning in disgust over the carbon tax

Even those who believe that objective evidence supports the notion that mankind's commercial activities are altering the climate deplore the suppression of opposing views. See Pretending the climate email leak isn't a crisis won't make it go away.

But President Obama, Al Gore and others continue pretend that the e-mails and evidence of doctored statistics have not surfaced. And they continue their efforts to create expensive systems of government constraints on commercial activity using ~~global warming~~ climate change as a pretext. Gore is explicit in his anti-capitalist objectives: " . . . we have placed too great an emphasis on outdated modes of distilling economic value," citing Joseph Stiglitz's work in the Report by the Commission on the Measurement of Economic Performance and Social Progress. (As I revealed earlier, Stiglitz confuses "capitalism" with a corporatist/fascist economy, which he believes needs more regulation.) Gore's motives are more nefarious. He is out to both line his own pockets and facilitate global governance, the ultimate consequence of which would be to supplant the form of government bequeathed to us by our forefathers with an omnipotent superstate.

The cast of characters supporting the increasingly shrill cries of alarm about ~~global warming~~ climate change, alone, is sufficient to raise questions about the motivations of those who assert that "science" justifies relinquishing the beneficence that free enterprise bestows on us. The biggest question is why, when climate change is a phenomenon that occurs over centuries, millennia and eons, is there is such an all-fired rush to diminish and dismantle mankind's progress?

Going Rogue

2009-11-17T05:50:00.001-05:00

No, this is not about Sarah Palin's Book. It's about the United States Congress.

As if cap and trade, perpertual bailouts and nationalization of everything from health care to General Motors were not enough, the usual suspects, Barney Frank and Christopher Dodd, are proposing to give a new regulatory agency sweeping powers to regulate non-bank financial activity in the name of avoiding "systemic risk." Please read Peter J. Wallison's The Permanent TARP in the Wall Street Journal. [Update 11/23/09: Also see No Bondholder Left Behind.]

Clearly, the Congress is out of control.

We are staring straight down the barrel of a paradigm shift -- from the age of caveat emptor, due diligence, prudence and personal responsibility to the age of government paternalism, bailouts, and shifting the cost of an individual's misfortune, stupidity and vice to his neighbors. Despite the many voices objecting to their creation, the Congress and its willing accomplices in the Administration proceed deliberately to institutionalize moral hazards at a pace that would have been unthinkable a decade ago.

This is not what the people who pay the bills and vote want. Consider the following letter, which was apparently sent to Glen Beck, now circulating around the internet:

GLENN BECK: I got a letter from a woman in Arizona . She writes an open letter to our nation's leadership:

"I am a home grown American citizen, 53, registered Democrat all my life. Before the last presidential election I registered as a Republican because I no longer felt the Democratic Party represents my views or works to pursue issues important to me. Now I no longer feel the Republican Party represents my views or works to pursue issues important to me. The fact is I no longer feel any political party or representative in Washington represents my views or works to pursue the issues important to me. Instead, we are burdened with Congressional Dukes and Duchesses who think they know better than the citizens they are supposed to represent.

There must be someone. Please tell me who you are. Please stand up and tell me that you are there and that you're willing to fight for our Constitution as it was written. Please stand up now.

You might ask yourself what my views and issues are that I would feel so horribly disenfranchised by both major political parties. What kind of nut-job am I? Well, these briefly are the views and issues for which I seek representation:

One, illegal immigration. I want you to stop coddling illegal immigrants and secure our borders. Close the underground tunnels. Stop the violence and the trafficking in drugs and people. No amnesty, not again. Been there, done that, no resolution. P.S., I'm not a racist. This is not to be confused with legal immigration.

Two, the STIMULUS bill. I want it repealed and I want no further funding supplied to it. We told you No, but you did it anyway. I want the remaining unfunded 95% repealed. Freeze, repeal.

Three: Czars. I want the circumvention of our constitutional checks and balances stopped immediately.. Fire the czars. No more czars. Government officials answer to the process, not to the president. Stop trampling on our Constitution, and honor it.

Four, cap and trade. The debate on global warming is not over. There are many conflicting opinions and it is too soon for this radical legislation. Quit throwing our nation into politically-correct quicksand.

Five, universal healthcare. I will not be rushed into another expensive decision that will burden me, my children, and grandchildren. Don't you dare try to pass this in the middle of the night without even reading it. Slow down! Fix only what is broken -- we have the best health care system in the world -- and test any new program in one or two states first.

Six, growing government control. I want states rights and sovereignty fully restored. I want less government in my life, not more. More is not better! Shrink it down. Mind your own business. You have enough to take care of with your real [Constitutional] obligations. Why don't you start there.

Seven, ACORN. I do not want ACORN and its affiliates in charge of our 2010 census. I want them investigated. I also do not want mandatory escrow fees contributed to them every time on every real estate deal that closes -- how did they pull that one off? Stop the funding to ACORN and its affiliates pending impartial audits and investigations.. I do not trust them with taking the census with our taxpayer money. I don't trust them with any of our taxpayer money. Face up to the allegations against them and get it resolved before taxpayers get any more involved with them. If it walks like a duck and talks like a duck, hello. Stop protecting your political buddies. You work for us, the people. Investigate.

Eight, redistribution of wealth. No, no, no. I work for my money. It is mine. I have always worked for people with more money than I have because they gave me jobs -- and that is the only redistribution of wealth that I will support. I never got a job from a poor person! Why do you want me to hate my employers? And what do you have against shareholders making a profit?

Nine, charitable contributions. Although I never got a job from a poor person, I have helped many in need. Charity belongs in our local communities, where we know our needs best and can use our local talent and our local resources. Butt out, please. We want to do it ourselves.

Ten, corporate bailouts. Knock it off. Every company must sink or swim like the rest of us. If there are hard times ahead, we'll be better off just getting into it and letting the strong survive. Quick and painful. (Have you ever ripped off a Band-Aid?) We will pull together. Great things happen in America under great hardship. Give us the chance to innovate. We cannot disappoint you more than you have disappointed us.

Eleven, transparency and accountability. How about it? No, really, how about it? Let's have it. Let's say we give the buzzwords a rest and have some straight honest talk. Please stop trying to manipulate and appease me with clever wording.. I am not the idiot you obviously take me for. Stop sneaking around and meeting in back rooms making deals with your friends. It will only be a prelude to your criminal investigation. Stop hiding things from me.

Twelve, unprecedented quick spending. Stop it now.

Take a breath. Listen to the people. Slow down and get some input from nonpoliticians and experts on the subject. Stop making everything an emergency. Stop speed-reading our bills into law. I am not an activist. I am not a community organizer. Nor am I a terrorist, a militant or a violent person. I am a parent and a grandparent. I work. I'm busy. I am busy, and I am tired. I thought we elected competent people to take care of the business of government so that we could work, raise our families, pay our bills, have a little recreation, complain about taxes, endure our hardships, pursue our personal goals, cut our lawn, wash our cars on the weekends and be responsible contributing members of society and teach our children to be the same all while living in the home of the free and land of the brave.

I entrusted you with upholding the Constitution. I believed in the checks and balances to keep from getting far off course. What happened? You are very far off course. Do you really think I find humor in the hiring of a speed reader to unintelligently ramble all through a bill that you signed into law without knowing what it contained? I do not.

It is a mockery of the responsibility I have entrusted to you. It is a slap in the face. I am not laughing at your arrogance. Why is it that I feel as if you would not trust me to make a single decision about my own life and how I would live it but you should expect that I should trust you with the debt that you have laid on all of us and our children. We did not want the TARP bill. We said no. We would repeal it if we could. I am sure that we still cannot. There is needless urgency and recklessness in all of your recent spending of our tax dollars.

From my perspective, it seems that all of you have gone insane. I also know that I am far from alone in these feelings. Do you honestly feel that your current pursuits have merit to patriotic Americans? We want it to stop. We want to put the brakes on everything that is being rushed by us and forced upon us. We want our voice back. You have forced us to put our lives on hold to straighten out the mess that you are making. We will have to give up our vacations, our time spent with our children, any relaxation time we may have had and money we cannot afford to spend on bringing our concerns to Washington . Our president often knows all the right buzzwords like unsustainable. Well, no kidding. How many tens of thousands of dollars did the focus group cost to come up with that word? We don't want your overpriced words. Stop treating us like we're morons.

We want all of you to stop focusing on your reelection and do the job we want done, not the job you want done or the job your party wants done. You work for us and at this rate I guarantee you not for long because we are coming. We will be heard and we will be represented.. You think we're so busy with our lives that we will never come for you? We are the formerly silent majority, all of us who quietly work, pay taxes, obey the law, vote, save money, keep our noses to the grindstone... and we are now looking at you.

You have awakened us, the patriotic freedom spirit so strong and so powerful that it had been sleeping too long. You have pushed us too far. Our numbers are great.. They may surprise you. For every one of us who will be there, there will be hundreds more that could not come. Unlike you, we have their trust. We will represent them honestly, rest assured. They will be at the polls on voting day to usher you out of office.

We have cancelled vacations. We will use our last few dollars saved. We will find the representation among us and a grassroots campaign will flourish. We didn't ask for this fight. But the gloves are coming off. We do not come in violence, but we are angry. You will represent us or you will be replaced with someone who will. There are candidates among us who will rise like a Phoenix from the ashes that you have made of our constitution.

Democrat, Republican, independent, libertarian. Understand this. We don't care.. Political parties are meaningless to us Patriotic Americans are willing to do right by us and our Constitution, and that is all that matters to us now. We are going to fire all of you who abuse power and seek more. It is not your power. It is ours and we want it back. We entrusted you with it and you abused it. You are dishonorable. You are dishonest. As Americans we are ashamed of you. You have brought shame to us. If you are not representing the wants and needs of your constituency loudly and consistently, in spite of the objections of your party, you will be fired. Did you hear? We no longer care about your political parties. You need to be loyal to us, not to them.. Because we will get you fired and they will not save you.

If you do or can represent me, my issues, my views, please stand up. Make your identity known. You need to make some noise about it. Speak up. I need to know who you are. If you do not speak up, you will be herded out with the rest of the sheep and we will replace the whole damn congress if need be one by one. We are coming. Are we coming for you? Who do you represent? What do you represent? Listen. Because we are coming.

We the people are coming."

Time to Shrug?

2009-11-04T20:23:00.001-05:00

Peggy Noonan, who writes on the opinion page of the Wall Street Journal online, today posted a thoughtful article entitled "We're Governed by Callous Children." The article is well-worth reading. The following portion of her article was especially interesting:

And so the disheartenedness of the leadership class, of those in business, of those who have something. This week the New York Post carried a report that 1.5 million people had left high-tax New York state between 2000 and 2008, more than a million of them from even higher-tax New York City. They took their tax dollars with them—in 2006 alone more than $4 billion.

You know what New York, both state and city, will do to make up for the lost money. They'll raise taxes.

I talked with an executive this week with what we still call "the insurance companies" and will no doubt soon be calling Big Insura. (Take it away, Democratic National Committee.) He was thoughtful, reflective about the big picture. He talked about all the new proposed regulations on the industry. Rep. Barney Frank had just said on some cable show that the Democrats of the White House and Congress "are trying on every front to increase the role of government in the regulatory area." The executive said of Washington: "They don't understand that people can just stop, get out. I have friends and colleagues who've said to me 'I'm done.'" He spoke of his own increasing tax burden and said, "They don't understand that if they start to tax me so that I'm paying 60%, 55%, I'll stop."

He felt government doesn't understand that business in America is run by people, by human beings. Mr. Frank must believe America is populated by high-achieving robots who will obey whatever command he and his friends issue. But of course they're human, and they can become disheartened. They can pack it in, go elsewhere, quit what used to be called the rat race and might as well be called that again since the government seems to think they're all rats. (That would be you, Chamber of Commerce.)

The sales of Atlas Shrugged remain high after more than 50 years. Ayn Rand intended the book as a warning, so that the conditions compelling the producers, carrying the world on their shoulders, to shrug would not happen. The import of the book now is that those who have read it understand and recognize that it is already happening. Whether they can be energized by Ayn Rand's message to turn the tide remains to be seen.

Soon, very soon, those of us who have struggled for decades to fight off tyranny and exploitation will simply vanish (poof! -- like that!), flip hamburgers like Hugh Akston, or retire to our fishing boats and no longer build our wealth that incidentally supports "society."

So I have a question for Barack Obama, Harry Reid and Nancy Pelosi: I am a rich guy who produces, who generates beau coups jobs and creates wealth for myself and others. What are you going to do when I and my kind decide that it isn't worth it any more to suffer your crap, to give you any kind of sanction to steal from me?

Corruption of Rights

2009-10-26T07:11:00.007-04:00

Welfare rights, animal rights, health care rights, and, now, a "right to housing." If we are not careful to call people out when they misuse the term "rights," the term will cease to be useful for its original meaning and our real rights will become fair game for demagogues and tyrants.

Even this self-styled progressive emergency room physician recognizes the dangerous trend to corrupt the language:

Fellow bleeding heart (and shyster) JimII said it well in the comments the other day: rights are limitations on government power. Exactly. When we use the language of "rights," we are generally discussing very fundamental liberties, which are conferred on us at birth, and which no government is permitted to take away: free speech; religion and conscience; property; assembly and petition; bodily self-determination; self-defense, and the like. Freedoms. Nowhere in that list is there anything which must be given to you by others. These are freedoms which are yours, not obligations which you are due from somebody else. There is no right to an education, nor to a comfortable retirement, nor to otherwise profit by the sweat of someone else's labor.

Even though I disagree with the fellow's politics and some of his opinion, especially his comment about Objectivists' being hopelessly muddled (follow the link he provides and decide for yourselves), the entire post is worth reading. Also see David Kelley's work on this subject, A Life of One's Own and "Is There a Right to Health Care?"

Where is the Inflation?

2009-10-23T09:12:00.000-04:00

With so much money-printing at the Federal Reserve, one wonders. Professor Alan H. Meltzer has some explanations in his Wall Street Journal op-ed, "Preventing the Next Financial Crisis :"

Many market participants reassure themselves that inflation won't come by noting the decline in yields on longer-term Treasury bonds and the spread between nominal Treasury yields and index-linked TIPS that protect against inflation. They measure expectations of higher inflation by the difference between these two rates, and imply long-term investors aren't demanding higher interest rates to protect themselves against it. But those traditional inflation-warning indicators are distorted because the Fed lends money at about a zero rate and the banks buy Treasury securities, reducing their yield and thus the size of the inflation premium.

Further, the Fed is buying massive amounts of mortgages to depress and distort the mortgage rate. This way of subsidizing bank profits and increasing their capital bails out these institutions but avoids going to Congress for more money to do so. It follows the Fed's usual practice of protecting big banks instead of the public.

He states what many economists know: Public perceptions are being manipulated by government intervention in and influence over a variety of markets. The results (suppressed prices in this case) are not substantive and fundamental. Rather, they postpone the day of reckoning.

Still No Outrage

2009-10-19T10:31:00.000-04:00

Mike ("Mish") Shedlock, whose site, "Mish's Global Economic Analysis," is linked below in the left column, has been discussing the origins of the financial crisis for years in strong terms. He now asks, "Where the Hell is the Outrage?" in which he identifies the principal culprits and summarizes the cases against them.

Please revisit my July 2008 post, "How Can They Do This??!!" in which I submitted James Grant's answer to Shedlock's question and suggested that they can do this because you let them.

I agree with Mish that these people are criminals and wonder where are the indictments.

Crisis, Emergency and Devastation

2009-10-18T12:42:00.007-04:00

"It is no exaggeration to say that unless we act, [health care] costs will devastate the U.S. economy," President Obama asserted yesterday in his weekly address. When the government leaders apply such rhetoric, either there is an actual and obviously immediate emergency, or there is not. If the alleged problem is not imediate, you should be almost as worried as you would be if there were a real emergency. Why? Because the government is preparing to move immediately on an issue that requires deliberation and debate and they wish to avoid any studious evaluation of what they are up to.

Emergency power is something we identify with the two-bit banana republic dictators who regularly "suspend the Constitution" when faced with dissent. There everything becomes an emergency with the fate of the nation at stake -- like when when the Hilton will not let the Presidente use the premises for a conference (just nationalize the hotel).

In the U.S. it is not so easy to suspend the Constitution. More subtle measures are necessary to circumvent the charter developed by the founders. Yet it its done. The time proven measure to avoid Constitutional constraints is to argue that the Congress can do anything that is not expressly forbidden in the Constitution -- despite the fact that the 10th Amendment reserves to the states and the People all of the powers that are not expressly granted in the Constitution. The power granted the Federal government "to regulate commerce among the several states," originally intended to assure free movement of trade between the states, has morphed into the power to control all commerce, and commerce touches almost everything. And the Constitutional power to enact any laws "necessary and proper" to support the other powers granted by the Constitution has been used as the back door to justification for all sorts of legislation that has only an arguably tenuous connection to any power enumerated by the Constitution. Thus, rather than suspend the Constitution, Presidents and legislators alike simply argue that the Constitution authorizes their action. That is how they rationalize an omnipotent United States government.

Those in power realize that if they can enact legislation, it is especially difficult to repeal. And in the case of entitlements programs, it is well-nigh impossible to undo. Moreover, under today's Constitutional jurisprudence, it is even more difficult to get the legislation struck down in its entirety by the courts. The only real threat to the designs of omnipotent government here is opposition by the voters before legislation is enacted. And the way to avoid that threat is to treat the voters like mushrooms (keep them in the dark and feed them cow manure), and to move fast before the voters realize what is happening. So, it is an emergency. Earth altering consequences will occur. Populations will be wiped out. The economy will be destroyed. The government is all-powerful; they should dooo something -- quick!

Here are some examples:

The Health Care Crisis:

One wonders why, after more than 200 years as a republic built on individual rights, we are just now realizing that government mandated health care is an "right"? Why, now, is it such an emergency that 15% of the economy needs to be set on the inevitable road to nationalization? Why is it such an emergency that Congressional leaders oppose giving Congressmen and the public 72 hours to read legislation before calling for a vote? Why was it such an emergency that the leaders of Congress strove mightily to ram through an unread 1000 page bill only a few days after its introduction?

The real emergency was that the Congress and the Administration all knew that if the American people had time to understand what was really being done to them, a majority of the voters (those whose wealth was being redistributed) would oppose what the lawmakers were doing. Fortunately, the tactics attempted by the Congressional leaders to eliminate due deliberation about health care legislation failed. And we now are beginning, after careful and public analysis, to understand the logical consequences of the legislation being proposed.

And who caused the so-called problems with the health care system in the first place? Who placed an army of bureaucrats and clerks between doctor and patient and caused the individual to become disconnected from the cost of his own care? Who is forcing hospitals to take people into their emergency rooms who will not pay? Who has allowed a legal system that encourages medical malpractice suits and causes doctors to take extreme and costly measures to protect their reputations?

The proponents of change do not appear to have studied the reality of the "high cost of health care" in the U.S. Some of the costs reflect beneficial contributions to the quality of health care (See "Health Care Mythology"). Perhaps as advocates for a certain result, they conveniently overlook these separate elements in the overall health care costs.

Global Warming

The proponents of global governance and those who see an opportunity to line their own pockets with a new government tax and bureaucratic system, have attempted to create a panic about global warming (now called climate change because no one could see any warming), rushing to draw conclusions from pseudoscience and theories about data that support a variety of conflicting conclusions, none of which seem to establish scientifically that reduction of industrially-created carbon dioxide will have any significant influence to cause the climate to remain the way it is now. The viciousness with which scientists who disagree with the proposed government control are attacked smacks of postmodernist tactics, which are used when a proponent knows he cannot prove his case by civil discussion and debate.

The Credit Crisis

You have read enough on this blog and its links to the commentaries of others to know that the so-called credit crisis is a circumstance that was caused by The Creature from Jekyll Island and other monsters and policies created and imposed by the Federal government, described in detail here. The debacle which the Bush Administration predicted would happen unless they were given a blank check to bail out anyone without oversight was one that should have been allowed as a catharsis to purge the financial system of toxic assets and practices. Instead, we have zombie banks and a central bank that now has toxic assets on its own books, circumstances that guarantees low real economic growth for a decade or more. The "crisis," which was an economic event that should have been left alone to cure itself quickly, has instead been used to justify the nationalization of all sorts of private businesses.

The Next Crisis: The Swine Flu Pandemic?

To defend the right of individual citizens not to be subjected to outside exposure to disease, governments legitimately have a public health function. Part of the proper implementation of that function is to be a competent gatekeeper at the nation's borders. The U.S. government in the enforcement of its immigration laws has not been adequate. As in earlier cases like the bird flu, U.S. public health officials have taken the usual precautions thus far, even though U.S. Homeland Security has declared an emergency. A serious epidemic is always a possibility, and stringent public health measures, such as quarantine and government school closings might be necessary. But look out: the people populating the Obama administration are well schooled in the technique of capitalizing on real emergencies to expand government powers far beyond what is absolutely necessary to deal with the emergency and to integrate the new-found powers permanently into the fabric of government. [UPDATE 12/5/09: See Swine Flu Hoax Exposed:

The majority of the world's population refuses to take the swine flu vaccine. The climategate scandal and hacked emails proving that climate change is a hoax and the realization that those in power are totally corrupt and tyrannical has led to the massive awakening throughout the planet that has the scumbag elite shaking in their boots. People all over the world are shattering the left/right paradigm and realizing that both parties are controlled by the same corporate interests and the same global elite who have the objective for a totalitarian one world government. The people are waking up and reclaiming their individual sovereignty, freedom and taking back their own personal power refusing to sit idly by while their liberties are being stripped away day by day by those who consider us their slaves.

Examples from Earlier Times

From almost the beginning of the Republic a titanic struggle has been waged between those who wanted limited government and those who felt that government could make decisions for citizens better than the individuals could make for themselves. The people thought that the words in the Constitution would protect them; but history shows that eternal vigilance, not words on paper, is the price of liberty. Here are just two historical examples of significant power grabs in an emergency.

The Tonkin Gulf Resolution

The Congressional Resolution that effectively enabled Lyndon Johnson to undertake a war in Vietnam, was justified by the attack by 4 North Vietnamese patrol boats on a U.S. destroyer, which was damaged by "a single 14.5-millimeter machine gun bullet." No Declaration of War, as required by the Constitution, was ever passed by the Congress. Ultimately, over 58,000 American troops died in the conflict, which ended with the total withdrawal of American troops from Vietnam.

FDR's Confiscation of Gold from All U.S. Citizens

From Confiscation and The Gold Clause:

"Even knowing that it actually happened, it still is almost unthinkable that the United States government would nationalize the personal assets of its citizens, give paper in exchange at 60% of the value of the assets - and book a profit. The public begrudgingly recognizes that the government can take private property as long as the taking is accomplished by due process (such as an eminent domain proceeding) and the owner receives just compensation. However, we expect those cases to be relatively isolated and infrequent. In 1933, the U.S. government devalued the dollar by 40% in less than eight months, but not before it ordered a docile population to exchange their gold for paper and banned gold ownership and transactions in gold to keep citizens from escaping the devaluation. The combined actions operated as a confiscation of the property of every citizen, all at once, with no compensation."

***

Apparently working behind the scenes with the Fed, knowing that he could very quickly secure the legal support from the Democrat Congress, he declared a bank holiday on March 6, 1933, two days after his inauguration. (Proclamation No. 2039). Three days later, without seeing the bill and with only 38 minutes of debate, Congress ratified the new President's Proclamation in the Emergency Banking Act, 48 Stat. 1, and amended section 5(b) of the Trading with the Enemy Act to read as follows:
(b) During time of war or during any other period of national emergency declared by the President, the President may, through any agency that he may designate, or otherwise investigate, regulate, or prohibit, under such rules and regulations as he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting, or earmarking of gold, or silver coin or bullion or currency, by any person within the United States or any place subject to the jurisdiction thereof; and the President may require any person engaged in any transaction referred to in this subdivision to furnish under oath, complete information relative thereto, including the production of any books of account, contracts, letters or other papers, in connection therewith in the custody of or control of such person, either before or after such transaction is completed. Whoever willfully violates any of the provisions of this subdivision or of any license, order, rule or regulation thereunder, shall, upon conviction, be fined not more than $10,000, or, if a natural person, may be imprisoned for not more than ten years, or both; and any officer, director, or agent of any corporation who knowingly participates in such violation may be punished by a like fine, imprisonment, or both. As used in this subdivision the term 'person' means an individual, partnership, association, or corporation. [Emphasis added.]
Thus, what was solely a wartime measure that many believed had expired was converted into a statute granting war time powers to the President in times of "national emergency," a term which was not defined in the law (and which, if such an emergency existed in 1933, itself had been precipitated by government mismanagement). This law identified a new "enemy" - domestic "hoarders" who would be subject to imprisonment for violating any rule laid down by the President at any future time during a period of national emergency declared by him based on undefined criteria. Professor Henry Mark Holzer's monograph "How Americans Lost Their Right To Own Gold And Became Criminals in the Process" catalogues the events of 1933, and more.

Since Thomas Jefferson first lost the debate with Alexander Hamilton over the use of the Necessary and Proper clause, it seems that, to a greater or lesser degree, there has been an unrelenting trend toward more government. It did not start with Bush or Obama. And it will not end without changing the prevailing attitudes of the voters who accept the role that the government has taken in our lives and the futility of changing that role. To do nothing is to join them.

Debating Charles Manson

2009-10-12T13:55:00.010-04:00

Leigh Scott opines that Debating Leftists is Like Debating Charles Manson. His point is that they are so disconnected from reality that rational people cannot engage them in meaningful discussion or debate:

For an actual debate, two things are needed. One, there must be a logical and factual distinction between two separate positions. Two, there must be equally matched participants, each one prepared and versed enough to intelligently present their side of the issue.

We don’t have that. We have one group of people who live in a fantasy world, full of twisted facts, backwards logic and wishful thinking. You can’t debate that. There is no factual, honest, or logical way to support their positions. It’s like arguing the best way to take a cross-country trip with a delusional Dungeons and Dragons geek. You want to reroute to avoid traffic on the I-10. He wants to “avoid the realm of the Bugbears.”

The other side of the “debate” isn’t operating in the same reality. They do not operate in reality at all.

You should read the entire post.

Now you know why this blog is devoted to evaluating history, philosophy and economics as part of reality. Otherwise, there is nothing worthwhile to say.

Murkey Deception by Paulson and Bernanke Revisited

2009-10-07T19:07:00.127-04:00

Neil Barofsky, the Special Inspector General for the Troubled Assets Relief Program (the "SIGTARP") issued an audit report Monday, Emergency Capital Injections Provided to Support the Viability of Bank of America, Other Major Banks, and the U.S. Financial System, October 5, 2009
in which, according to CNN Money, the SIGTARP said that "officials painted an overly rosy picture, creating 'unrealistic expectations' when they called the first bailout banks 'healthy' institutions that would be able to lend more with government help."

What an understatement. As I discussed earlier, Bernanke and Paulson intentionally mislead the American Public regarding the true financial conditions of the banks, preferring to shore up a failed system rather than allow banks to come clean about the nature of their assets and allow individuals to protect themselves. They are criminals who strong-armed and colluded with banks to conceal the truth in violation of the securities laws. Now, adding insult to injury, the Fed continues to fight a court disclosure order, with the "You can't handle the truth!" argument.

The SIGTARP Report concludes with the following statement:

It is apparent … that senior government officials had affirmative concerns, at the time the nine institutions were selected, about the health of at least some of those institutions: the Federal Reserve had concerns over the financial condition of several of these institutions individually and for all of them collectively absent some governmental action; and former Secretary Paulson noted concern about the potential of an outright failure of one of the institutions. In addition to the basic transparency concern that this inconsistency raises, by stating expressly that the ”healthy” institutions would be able to increase overall lending, Treasury may have created unrealistic expectations about the institutions’ condition and their ability to increase lending. Treasury and the TARP program lost credibility when lending at those institutions did not in fact increase and when subsequent events – the further assistance needed by Citigroup and Bank of America being the most significant examples – demonstrated that at least some of those institutions were not in fact healthy. [In other words, they lied.]

It is not our intent to suggest that Government officials should make public their concerns over the financial health of individual institutions, but rather that government officials should be particularly careful, even in a time of crisis, of describing their actions (and the rationales for such actions) in an inaccurate manner. [I.e., they should not lie.] Ultimately, the lesson is straightforward: accuracy and transparency will enhance the credibility of government programs like TARP and restore taxpayer confidence in the policy makers who manage them; inaccurate statements, on the other hand, could have unintended long-term consequences that could damage the trust that the American people have in their government.” [I.e, don't lie; it's stupid.]

Barofsky is wise beyond his years.

In a former life, I had occasion to study the methods of the investigators and prosecutors of white collar crimes. One technique was going after "the highest indictable officer." They would chase the evidence up the chain of command, giving immunity to lesser employees in return for their testimony until they reached the culpable individual in the highest position; and that's who they would charge with the crime. Barofsky is a ninny if he pulls his punches and does not seek indictments of Paulson and Bernanke. Hey, they are Republicans after all.

Barofsky seems to be doing a yeoman's job ferreting out the fraud being perpetrated on the public. Do follow his progress. Other inspectors general have been fired for doing their job. If that happens to Barofsky, you will know, for sure, that - Republican and Democrat - your government is corrupt to the core; and you should run for cover and protect your own.

In Defense of Glenn Beck

2009-10-06T10:26:00.002-04:00

Jonah Goldberg written and editorial in USA Today: In Defense of Glenn Beck. Even if you haven't experienced Glenn Beck, Goldberg's view about the lack of good humor on the left is worthy of consideration. Beck presents important public issues from a mostly libertarian perspective at a level that most folks can appreciate. And he is entertaining.

Paying for Your Own Propaganda

2009-10-05T10:38:00.002-04:00

What with political correctness and speech codes on campus, legislative and regulatory moves to shut down talk radio, introduction of vague legislation to control speech on the internet, suppressing information about Wall Street bailouts, and attempts to ram through legislation before it can be read much less studied, it is clear that the left and people running the government have no respect whatsoever for the First Amendment. The latest assault is the Administration's attempt to use taxpayer dollars for partisan political gain by propagandizing the sheeple. See http://bighollywood.breitbart.com/pcourrielche/2009/10/05/the-big-truth-selling-white-house-policy-through-art/#more-240146.

No matter how distasteful it is to put up with people whose opinions are offensive, you need to defend their right to express them because by doing so you are protecting your own right to speak out. The other side of this coin is your right not to be taxed (coerced) to subsidize the political speech of those who are out to shut you down.

Tax and Spend

2009-10-01T12:24:00.006-04:00

Despite the Bush Administration's profligate spending, the Democrats have now rehabilitated their traditional role as the party of Tax and Spend. Their bailouts of Wall Street dwarfed those of the Bush Administration (which were supported by a Democrat Congress). The so-called reform of the health care system will impose huge taxes on anyone with income marginally capable of coming up with the cash and heap huge unfunded financial burdens on States that are already bankrupt, causing more taxes from governments that can't print money. Any doctor who accepts Medicare or Medicaid will see his already inadequate income from these sources nosedive, yet another tax. And now, according to Democrat Senator Ben Cardin from Maryland, the Democrats will pass cap and trade, "the most significant revenue-generating proposal of our time," No wonder it's called "Cap and Tax." Oops, I forgot newspeak. Freedom is Slavery. War is Peace. And it's not a tax. Taxes are voluntary.

[Update 10/5/09] Senator Boxer says that , cap and trade will create jobs by creating an entirely new industry. She is unquestionably correct: full employment for pseudo scientists, bureaucrats, and eco-freaks and their ilk whose strange religion casts mankind and his reason as the evil destroyer of morally superior plants and fish. Of course, we know who will profit.

Congress Has Their Own Health Care

2009-10-01T11:16:00.001-04:00

ABC News has published an expose on Special Health Care for Congress, detailing the health care perks for the lawmakers. (Hat tip to Robert Bidinotto.) This information probably will not set well with the public.

In fairness, there is some validity to the idea that special care should be taken to assure the good health of Congresspeople. But when those Congresspeople then presume to pass laws that are intended to keep you from securing similar care for yourself, it is outrageous.

When many of the tyrannies we see around us are totalitarian governments run by single dictators, it is easy to forget that the population can be oppressed by any form of government. Athens, a democracy, deteriorated into tyranny by the majority. The French revolution resulted in a republican form of government that tyrannized the population with purges. Our founders crafted a unique republican form of government that they attempted to preclude from tyranny by limiting its functions to avoid the scope of damage it could do to the people. But, as Ron Paul notes, it ultimately is the responsibility of the people to protect themselves and preserve the original intent of the founders:

Mr. Franklin in his plea to those attending the Convention also issued a warning which we have not heeded. A Constitution is only as good as the people who administer it. If the people become corrupted, the government will become corrupted, and the Constitution will become a worthless piece of paper. The wisdom and integrity of the governors of the Constitution are the strength that makes the document so powerful. The American people have failed to take note of Benjamin Franklin’s warning.

Have a majority been so dumbed down by a government education system designed to produce a nation of sheep, so ignorant of the principles on which our freedoms are based, and so misled by corrupt politicians and their surrogates, that they have been rendered incapable of defending their own liberties? Will the great American experiment implode suddenly like the Soviet Union? Or will it just slowly slide into historical oblivion as a temporary anomaly, with neither a bang nor a whimper?

It will take more than you and me to change the trend. So if you care, you need to persuade others to get politically involved and work to limit government to the defense of our individual liberties, not to curtail them.

Benevolence: Health Care and More

2009-09-30T14:21:00.042-04:00

This summer while vacationing I had a civil, back-and-forth discussion with a neighbor about the raging health care debate: I maintained that charity should be left to the charities. His response was that the resources of the charities would be inadequate to provide health care to the truly needy. I replied that an inadequacy of private benevolence should be no justification for coercing one's neighbor and further damaging the dreadful financial condition of the country. It seemed a pretty harsh response to him despite the fact that for most of mankind's history, the poor have had to survive on their own, supported only by their wits and the voluntary benevolence of their neighbors. (The discussion never reached the stage where we might address the factual assumptions supporting the argument for any legislation.)

My neighbor's position was a variation of the moral duty and "but what about . . ." arguments. He did not understand why I felt no moral duty to coerce my neighbor to be benevolent, even though I patiently explained that there is nothing moral or benevolent about coerced giving. His starting point was that society ought to take care of the poor, and he seemed blinded to any challenge to that assumption and was incapable of evaluating it on a deeper level.

A large part of the support for universal, taxpayer-funded health care is the prevailing notion of moral duty held by both the left and the right: They believe that benevolence is something that is owed the recipient. The difference between the left and the right seems to be that the right is inclined to limit the duty of benevolence to that which is practical.

As Stephen Hicks succinctly explains in "On 'Giving Back'," the origin of this idea lies in philosophy. And it is their implicit philosophy which forms the foundation for the left's fervent belief that they are doing justice by imposing on "society" the cost of caring for the poor, the disadvantaged, the needy, the victims, etc., terms which seem to have floating definitions. (As an aside, note that the health care bill proposed by the Chairman of the Senate Finance Committee proposes to raise the definition of the poverty level by 50% in order to impose on the States the financial obligation for the new regime under Medicaid. So much for the idea of the truly needy.) This is an intractable problem for those of us who prefer to practice benevolence on an individual level and who object to bearing the cost of someone else's notion of social justice. The problem is exacerbated by the lack of any serious public opposition to this dark concept of duty.

The idea that benevolence is "owed" has spawned a welfare state of gigantic proportions and an entire class of people (swiftly becoming a majority of voters) who believe that they have a rightful claim to society's surplus (whatever that is), and more; and the mere fact that they are victims or disadvantaged gives them that right.

The claim to your "surplus" (and more) is facilitated by the collectivist fiction that it is not an individual that owes the duty, but the anonymous, faceless, collective "society." While many recipients of this kind of "benevolence" would shrink from pointing a gun at me and taking my money, they have no qualms about doing the same when they do not have to face me but use the guns of a surrogate (the government) and pretend that it is voluntary.

For decades few have effectively protested the coerced benevolence of the welfare state, probably because it was not sufficiently painful and because, frankly, many people don't mind parting with a little here and a little there to help the truly needy -- and the fact that taxation was involved didn't seem to bother them much. But the foot was thus in the door.

Finally, however, people are becoming agitated about the size of "society's" recent and proposed benevolence. The government bailouts of private enterprise were justified by our presumed duty to keep people from suffering the consequences of risky behavior, poor judgment and fraud (rather than leaving them to seek recourse from the culpable). The government's attempts to make housing affordable to those who could not afford it has crashed the economy. And huge sums were paid to murky leftists with questionable backgrounds to assure that people had full access to the benefits of the welfare state and the ballot box, with predictable results: embezzlement, voter intimidation and fraud, and a takeover of neighborhoods by political outsiders. Now comes the proposals to "reform" the entire health care system, with a huge price tag, justified by our "moral duty."

A great many people are aghast at the sweeping health care legislation being proposed and a majority of the voters are against it. But, still, few challenge the basic justification underlying the entire matter, that "we" owe a duty to provide health care to those who cannot afford it (whatever that means). Without such a challenge, opponents of the legislation are left only to dicker about the price.

Further reading: David Kelley, "Is There a Right to Health Care?"

Coercion, Pure and Simple

2009-09-29T12:44:00.002-04:00

The Wall Street Journal today has more about health care legislation:

Chairman Max Baucus's bill includes the so-called individual mandate, along with what he calls a $1,900 "excise tax" if you don't buy health insurance. (It had been as much as $3,800 but Democrats reduced the amount last week to minimize the political sticker shock.) And, lo, it turns out that if you don't pay that tax, the IRS could punish you with a $25,000 fine or up to a year in jail, or both.

Under questioning last week, Tom Barthold, the chief of staff of the Joint Committee on Taxation, admitted that the individual mandate would become a part of the Internal Revenue Code and that failing to comply "could be criminal, yes, if it were considered an attempt to defraud." Mr. Barthold noted in a follow-up letter that the willful failure to file would be a simple misdemeanor, punishable by the $25,000 fine or jail time under Section 7203.

So failure to pay the mandate would be enforced like tax evasion, but Mr. Obama still claims it isn't a tax. "You can't just make up that language and decide that that's called a tax increase," Mr. Obama insisted last week to ABC interviewer George Stephanopoulos. Accusing critics of dishonesty is becoming this President's default argument, but is Mr. Barthold also part of the plot?

More . . .

Coercion, pure and simple (unless you agree with Harry Reid that paying taxes is voluntary).

Those with a thirst for detail will want to study the Kaiser Family Foundation's side by side comparison of the health care bills being proposed. Seek truth from the facts, not from the statements of politicians. Despite the shrill screams from the left, Obama lies. Look and see for yourself.

Racial Politics - The Double Standard

2009-09-29T11:22:00.006-04:00

Mark Steyn discusses the double standard in racial politics in the National Review Online. (Hat tip to Robert Bidinotto.)

How can the left veer so far from their avowed principles and stretch the truth to paint conservatives with the racist brush?

It all boils down to philosophy.

It is really difficult for us regular folks to understand how all of this political correctness and interest groups based on race and gender came about. How did this stuff suddenly appear on the scene, giving such far-out and/or corrupt people political power over us, our freedoms and our pocketbooks? How do the member of Congress and their supporters justify what they are doing? Where did the crazy ideas that they promote come from? And make no mistake, it is the ideas and their unchallenged belief in them that energizes them -- the philosophy energizes them and gives them the conviction that they are "right" -- and deludes them into believing that they are entitled to subjugate the rest of us, like Martin Heidigger's philosophy justified the Nazis and gave the moral sanction for what they did.

You might remember that a couple of hundred years ago the fortuitous conjunction of grievances against English colonialism and the ascendency of Enlightenment philosophers such as John Locke produced a revolution and the construction of a limited government by united states in America based on individual rights. Historians of philosophy have deemed that the "Modern" period. But, it did not end there. There is a subsequent "Postmodern" period of philosophy which now drives the humanities, journalism, political science, and related departments in our formerly great universities, who fill our children with twisted ideas and leave them with "mush for brains." Modernism in these departments has been supplanted by Postmodernism.

But what is "Postmodernism?" To you, I am sure, the entire question is pretty much irrelevant and invisible. But believe me, it is the fundamental thing that is driving us to ruin and placing us and our grandchildren on the Road to Serfdom. You need to understand it in order to decide whether you ought to oppose it.

A few years ago The Atlas Society funded a project by a young philosopher, Stephen Hicks, to write a book explaining Postmodernism. It is remains in my top 10 books on philosophy -- of course behind Aristotle, Locke, Rand and some others, but there, nevertheless -- because it is both comprehensive and succinct. It has been available on Amazon and elsewhere for a few years, and I have passed out many copies on my own. You need to read and understand it.

Dr. Hicks is posting the book on the web for free at http://www.stephenhicks.org/2009/09/18/explaining-postmodernism-chapter-one-online/. Please explore what he has to say about the development and nature of Postmodern philosophy and the left's use of it as a pretext to gain political power. The philosophy is seriously flawed, yet it forms the unstated basis for the development of a very, very dark political and financial future for us, our children, our grandchildren and beyond. We don't want that to happen. And we need to gird ourselves, intellectually, for a major battle so that we can recognize and credibly oppose government encroachments cloaked in language such as "diversity" and "equality" when they are intended only to suppress and tax people who produce better than others and to distribute their hard-earned wealth to the favorites of government – a captive population of ignorant followers.

Which is More Unreal?

2009-09-26T13:50:00.001-04:00

Mark Steyn in the Orange County Register offers the answer to this rhetorical question when evaluating the speeches of President Obama and Moamar Gadhafi at the U.N. this week:

Barack Obama is not to blame for whichever vagary of United Nations protocol resulted in the president of the United States being the warm-up act for the Lunatic-for-Life in charge of Libya. But it is a pitiful reflection upon the state of the last superpower that, when it comes to the transnational mush drooled by the leader of the free world or the conspiracist ramblings of a terrorist pseudo-Bedouin running a one-man psycho-cult of a basket-case state, it's more or less a toss-up as to which of them is more unreal.

Read the entire article here.

A Moral Duty

2009-08-31T07:24:00.006-04:00

Politico reports the latest tag team effort between Bill Clinton and Al Gore to drum up support for Obama Care. Speaking at the Tennessee Democratic Party's annual Jackson Day dinner, Gore, "Playing off the focus of the Kennedy funeral on the Gospel of Matthew’s parable of Jesus taking care of “the least of us,” thundered that the country has “a moral duty to pass health care reform. This year.”

A moral duty.

Last year I warned you not to let the political left claim the moral high ground. So here we are at the point where they are attempting to do exactly that. It is their ultimate argument. Those who are not armed with an understanding of morality are defenseless. And that is likely to include the Republicans and conservatives who are not able to see that there is no morality in being your brother's keeper if you are forced to do it. To the contrary, it is coercing your neighbor into being his brother's keeper that is immoral.

The health care debate can only be won permanently if it is taken to the fundamental level. Gore's assertion provides the opportunity to do that. If it remains unchallenged, a defeat of the current proposal to have government controlled health care will be only a temporary bump on the road to serfdom.

Please study "Let's Have Some Real Change for a Chang e" and confront this issue directly and publicly.

You Are Still the Enemy of the State

2009-08-27T16:13:00.010-04:00

In November, I advised you that you are the enemy of the State (the Government). Please revisit that post. Nothing much has changed.

The U.S. District Court in New York has now ruled that the Fed must disclose the recipients of its loans and also identify the garbage assets that it swapped at par for Treasuries. Predictably, the Fed is still resisting disclosure (belying its lip service to transparency), arguing that they don't want depositors to know how bad off their banks are and they don't want the banks' shareholders to know either. See Quelle Surprise! Fed Uses Scare Tactics to Try to Forestall Loan Disclosures by Yves Smith on Naked Capitalism. These people have no shame. It is like the postmodern criminal who killed his mother and father and threw himself on the mercy of the court because he was an orphan.

And now the Obama Administration has announced that it will appoint Helicopter Ben Bernanke to another term as head of the Fed. This guy is a criminal who, you may recall, I suggested, should be accorded the same status in society as a child molester, robber or rapist who preys upon the innocent and unsuspecting. And apparently he and Henry Paulson are being given a pass by the SEC. Bernanke's reappointment is consistent with other Obama appointments.

Some in the fawning media are saying that President Obama should inherit the Camelot mantle. Even if you were one of those who pines for the return of the glamor and mystique of the Kennedys, you ought not to buy in to this suggestion. First and foremost, President Obama has not surrounded himself with the intellectual firepower that John Kennedy did. To the contrary, Obama has surrounded himself with second-rate radical left-wing ideaogues bent on ending economic and political freedom and growing the size of the federal government and its power over the individual.

Consider, for example, Ezekiel Emanuel, an Administration health care policy advisor. This person is truly scary. He would have a government board place the interests of "society" over the interest of an individual and have the government makes the individual's health care choices. This is what socialism is all about: elevation of "society" over the individual. But to articulate the interests of "society" you need an authority, a leader. While the promoters of socialism believe that such authorities will be benevolent, we know better -- they will be benevolent to some at the expense of others. Now you know why protesters are worried about "Nazis" in the Administration.

Raw Footage Exposes AARP and Many Others

2009-08-07T07:42:00.037-04:00

Please See AARP Organizers Cancel ‘Listening Session’ After Participants Refuse to ‘Keep Their Comments Quiet’

The headlines in today's Drudge Report reveal more than a few nationwide grumblings about proposals to nationalize health care:

Tampa: Protests, passions roiling town hall meeting on health care
St. Louis: Six people, including P-D reporter, arrested at Carnahan meeting
Little Rock: Rowdy crowd grills congressmen over healthcare reform
Miami: Tempers flare in South Florida over healthcare overhaul
Simsbury, CT: Protesters Confront U.S. Representative At Simsbury Supermarket Meeting
Utica: Man Yells "You're A Liar" To House Leader Steny Hoyer: *** "You're lying to me," said Don Jeror as he loudly interrupted Hoyer. "Just because I don't have sophisticated language, I can recognize a liar when I see one." *** "Why would you guys try to stuff a health care bill down our throats in three to four weeks, when the President took six months to pick a dog for his kids?!"
Houston: Physicians speak out on health care bill
Michigan: Tempers flare over health care plan
Denver: Pelosi's visit to Denver a lightning rod

A man in Little Rock raised the John Galt solution: "You Need To Get The Government The Hell Out Of Our Way."

The politicians are fighting back. President Obama has launched a White House Program, which is probably illegal, to identify the individuals who send suspicious e-mails opposing the Democrats’ health care proposals, by asking citizens to rat out their fellow citizens. The White House Press Secretary accused a reporter who asked about the program of “hatching a nefarious plot.” The Democratic National Committee has launched a media (propaganda) campaign, including ads that attack the protesters at town hall meetings. And they have been controlling the debate by retreating from town meetings in favor of conference calls.

It seems that, rather than selling their health care on the merits of change, the Democrats are attacking the opponents of government control with a well-worn but deplorable debating tactic: when you have no arguments on the merits, attack the speaker personally. Nancy Pelosi complains that the opponents of government health care are “carrying swastikas.” (There were some swastikas but they were used by the protesters to compare ObamaCare to Nazism. Pelosi was insinutaing that the protesters are Nazis.). Rep. Brian Baird also conjures up Nazis by accusing protesters of using “Brown Shirt” tactics. Harry Reid “accused the protesters of trying to "sabotage" the democratic process.” And others go after the usual suspects:

The White House and Democrats have called the protests an orchestrated "mob" driven by Republican- and industry-backed groups and conservative talk radio and television hosts.

"They have been sent by their corporate and lobbyist bankrollers to disrupt, heckle and block meaningful debate. This is a desperation move, meant to slow the momentum for change," said Richard Trumka, secretary-treasurer of the AFL-CIO labor group.

But the discontent is neither faked nor staged by the GOP.

Aside from the merits of any proposal, the level of complexity and the vast implications of changing 15% of the economy in a rush by government fiat with an unread 1,000-page Bill – especially the one sector of the economy that is the most personal – simply unnerves people. Peggy Noonan in the Wall Street Journal, seems to have put it succinctly: “You are terrifying us.” In the same article, she also makes an astute observation:

In an odd way [President Obama] sometimes seems not to have fully absorbed the awesome stature of his office. You really, if you’re president, can’t call an individual American stupid, if for no other reason than that you’re too big. You cannot allow your allies to call people protesting a health-care plan “extremists” and “right wing,” or bought, or Nazi-like, either. They’re citizens. They’re concerned. They deserve respect."

Politically Mean-Spirited and Dangerous

2009-08-03T22:27:00.008-04:00

"Depicting the president as demonic and a socialist goes beyond political spoofery," says Hutchinson [Los Angeles Urban Policy Roundtable President Earl Ofari Hutchinson], "it is mean-spirited and dangerous." That was the cry of the Obama supporters in L.A. who objected to the picture of President Obama made up as The Joker with the caption, "Socialism."

So why do the socialists object to being called socialists? Please revisit my previous answers to this question at "Healthcare Bill: Socialism?" and "What's So Bad about Socialism?"

A rose by any other name is still a rose. Even those who deserve the appellation view it as an epithet. [Update 8-12-09:] Now the main stream media is moving to persuade people to be more reluctant to toss around the word.

I make an 8-hour round-trip trek to from Annapolis to New Jersey at least monthly and use the time in my car to sample Talk Radio -- Rush Limbaugh, Sean Hannity, Laura Ingalls, Michael Savage and others. You are no doubt aware that liberal talk shows have been singularly unsuccessful and "conservative" talk shows have been wildly successful. The reason is that the message of the "conservatives" -- individual liberty and limited government -- resonate with those who are interested in ideas, and who listen.

Today's trip was filled with revealing and thoughtful discussions about the Democrats' attempt to nationalize 15% of the economy and to control among many other things, in the President's words, your "end of life decisions."

ARE YOU LISTENING TO THIS! --- THEY WANT THE BUREAUCRACY TO CONTROL YOUR END OF LIFE DECISIONS!

So what's so bad about socialism? Well, there you have it: they presume to control your life -- and death.

Your Congressman is home this month. If you don't find a way to reach him, through town meetings or otherwise, to tell him to oppose further government involvement in the health care system, you and your children will suffer their decisions about when you live and when you die. Does it sound important? Does it sound like you need to get politically active? Or have you given up?

Demonize and Divert

2009-07-31T15:49:00.036-04:00

Nancy Pelosi has attacked the insurance industry, an easy target for demagogues. It is so obvious: demonize and divert, a well-known tactic of power-seeking extremists who cannot persuade using reason and facts. That was why Hitler targeted the Jews.

Every time Pelosi makes a pronouncement, it is an embarrassment to the position of Speaker of the House. I am no fan of contemporary politicians or the role that they have assumed to run our individual lives and take our money to do it. But there have been many solid people, even if they were liberals, who held the position that were respected by the public and their peers -- Sam Rayburn, John McCormack and Tip O'Neill, for example. None of them were loudmouths. Most exercised quiet leadership. And none of them stood before the public and spewed such silly, irrelevant nonsense. She is a caricature, a stereotypical radical left-wing demagogue. Even Ted Kennedy's style is more reserved these days.

I have never been a fan of insurance companies either. My bias comes from sad and extensive experience with them in the area of commercial liability insurance, where the companies' written procedures revealed their dark side in surprisingly candid terms: they were in business simply to take your money, keep it and give you nothing in return.

My experience with major liability carriers was especially revealing. Once I sued 18 of the largest carriers in the United States; and, because it was clear that they were denying my client's claims with no justification whatsoever, we were able to force them to settle the claims -- but only after a protracted battle in which they attempted to overwhelm the client with legal costs. It did not hurt our case that a key public decision of a state insurance commissioner, which had mysteriously vanished from the commission's files, somehow appeared in the confidential files of the insurance industry's trade association. The resulting implication that insurance companies might steal official files or otherwise not engage in honest litigation or practices left me with a life-long bias that "insurance companies are evil." When representing a client, I need to be persuaded otherwise.

But it would be an over generalization to extend my bias against liability carriers to, for example, automobile insurance (where my experience has been positive) and health insurance (where I have had only a few minor negative experiences). And any bias, whether against liability insurance carriers or others, needs to be regularly confirmed by the contemporaneous facts.

Too many of us, even (and perhaps especially) in the area of health insurance have bitter memories that still make our blood boil. Do you think this will get better or worse if a government bureaucracy is placed in charge? Pelosi is pandering to people's anger at the petty, misguided bureaucrats who gave us such a hard time about intensely personal matters. But in recent years, in my experience, health insurers have done a better job at communicating in advance what they cover, which leads to improved understanding and less contention. But even if the insurance companies were perfect, it wouldn't fix the system.

When interviewed recently Nancy Pelosi said, "Let me assure you: There will be a health care reform bill passed and it will make a big difference in the lives of the American people." No doubt, if a bill is passed, her prediction will be correct, except that the difference will not be positive when compared to the existing system.

As explained by Shikha Dalmia, except for those without health insurance (who use the emergency rooms for free), our health care payment system is a private insurance system which removes from the consumer the responsibility for negotiating the price or controlling the cost directly. She compares the systems in France, Germany and the USA:

For the same flat fee—regardless of whether it is paid for primarily through taxes as in France in Germany or through lost wages as in America—patients in all three countries effectively get an ATM card on which they can expense everything (barring co-pays) regardless of what the final tab adds up to. (Catastrophic coverage plans are available in America, but the market is extremely limited for a number of reasons, including the fact that most states have issued Patients Bill of Rights mandating all kinds of fancy benefits even in basic plans.)

Thus, in neither country do patients have much incentive to restrain consumption or shop for cheaper providers. In America and Germany, patients don't even know how much most medical services cost. In France, patients know the prices because they have to pay up front and get reimbursed by their insurer later—a lame attempt to ensure some price consciousness. But since there is no cap on the reimbursed amount, the French sometimes shop for doctors based on such things as office decor rather than prices, according to a study by David Green and Benedict Irvine, researchers at Civitas, a London-based think tank. (Green and Irvine reported this as a good thing.)

The health care system in the U.S. needs to be fixed to enable the consumers to pay for and control the cost of their own health care and for physicians to treat their patients without the state dictating the terms, access or methods. In other words, the government should get out of the way rather than imposing more control. Cliff Asness, in a lengthy article (see Health Care Mythology), which is worthy of study, has said it better than all others.

It appears that the Senate will approve a health care bill. Then it ultimately will end up in Conference where the bill will be changed to one that can be subscribed to by both houses. The problem with Conference is that negotiations between members of the two houses are behind closed doors. The phrase, "Nellie, bar the door," comes to mind. If they get out, "it will make a big difference in the lives of the American people."

This is not a time to be a sheeple unless you want your children and grandchildren to be sent like lambs to the slaughter. It is time to become politically active and persuade others so that many, many respectable voting citizens can have their voices heard. Remember, numbers is the only thing your elected representatives respect.

SIGTARP Shines the Light of Day on the Cost of Bailouts

2009-07-28T09:44:00.004-04:00

The Special Investigator General for the Troubled Asset Relief Program, known as SIGTARP, reported to Congress last week that the total cost of the combined TARP bailouts could reach as high as $23.7 Trillion! His report was quickly criticized and disputed by the murky Treasury Department, of course. Read all about it, including links to the SIGTARP's Report and testimony in the American Spectator.

Lobbying And Health Care Reform

2009-07-24T15:11:00.031-04:00

I received a recorded telephone message from the AARP this week. I hung up as soon as I heard "This is the AARP." As a retired person, I probably should have listened; but I knew what the message was going to be -- support the health care bill. The AARP has spent more that $6 billion lobbying health care since April 1.

The Lobbyists have opened their checkbooks. Those who hope to gain big from regulation and wealth transfer are on the front lines.

The Congressional response to the credit crisis and the effort to nationalize health care, which represents over 15% of the economy, are just two examples of a government that recognizes no bounds. The presumption of government power that has most recently accelerated to a level never (in their wildest imaginations) contemplated by the Founders creates a nasty scramble for the fruits of your labors, which Dr. Edward Hudgins has described as a war of all against all:

To understand the paths to social conflict and harmony respectively, we must understand that all ideologies—and the governments on which they rest—are not created equal.

The government devised by America’s Founders sought to protect the lives, liberties, and property of the citizens, that is, to ban the initiation of force—the essence of conflict—by individuals against one another. All relations between people should be based on mutual consent. In the economic realm this means that individuals must produce and trade goods and services voluntarily with one another. The situation is not a zero-sum game. The only way I can prosper is to convince you to part with your money by offering you something you want.

But when government is allowed to manage and manipulate the economy and to redistribute wealth from one individual or group to another—the essence of Obama’s policies—we have a system that is by its nature contentious. You win only because I lose.

****

This is a politicized economy. Decisions about our economic lives and affairs are taken out of our hands and decided by raw political power, pitting us against one another, creating winners at the expense of losers.

Individuals look more often to government—that is, to their fellow citizens—to help them meet the economic challenges in life that should be their responsibility as individuals—education, career, financing a house, saving for retirement. We become burdens on our neighbors or they foist burdens on us.

There is nothing wrong with lobbying per se. The Founders established it as a First Amendment Right. But it was established in the context of a constitutional scheme of limited government. DeToqueville warned that the American system of democracy was subject to abuse and could lead some day to the majority's voting money out the pockets of the minority. And it has now come to pass. The right to petition the government for a redress of grievances has spawned a huge industry that corrupts the political process and causes citizens to assume that everyone in Congress is a crook. Big money flows into the coffers and elsewhere for the benefit of someone's re-election campaign. It happens because of the huge resources the government commands (taxation and inflation) and its presumed power to do just about anything.

The solution to this mess is to restore a government with limited functions, reduce taxes, balance the budget and have a currency that cannot be inflated.

Professor Michael S. Rozeff observes that there are some good lobbyists -- those who advocate that the government should do less, who oppose government transfer of money from those who earned it to those who didn't, and who resist the imposition of restrictions on voluntary trade and property rights, such as the NRA and National Federation of Independent Businesses. And there are some "bad lobbyists," one of them being the AARP:

The AARP’s lobbying is directed against budget caps, against entitlement caps, against cuts in Medicare, Medicaid, and veterans’ benefits. It is for the prescription drug entitlement. It is against any privatization of Social Security, including voluntary or mandatory personal retirement accounts. It supports the progressive income tax. The AARP looks upon tax measures in terms of their impact on government budgets (that is, tax cuts have a "cost"). It favors the income tax at the federal level. It favors reducing "tax expenditures," that is, revenue losses to the government that arise from deductions, exclusions, and credits, etc. In other words, it favors tax increases from this source. The AARP takes "the need to fund national spending priorities" as a given, for which Congress "must ensure an adequate revenue base." (AARP manages to use the words "need" and "must" in the same sentence.) AARP favors taxing capital gains at the same rate as ordinary income.

The AARP has positions on many more general areas such as housing, transportation, education, social services and utilities. As in the cases of entitlements and taxes, its positions are monotonously of one stripe – the government should do this and do that and do the other thing. It should regulate and control. Such an animal as a market solution that is unassisted or undirected by a government directive does not seem to exist in its view. In short, the AARP’s lobbying is thoroughly and one-sidedly in favor of big and bigger government.

The AARP lobby is unabashedly socialist, for it advocates controlling the income produced by the productive efforts of others. If one controls, one owns. The amazing thing about its calls for more and more and more directed to the "elderly" is that there is seemingly no upper bound. Economists tell us that wants are insatiable. They usually analyze cases where freedom to choose is present. We learn from the AARP that coercive satisfaction of wants also is insatiable. No matter how much misery is caused to those paying the bills, the master seeks to extract more from the slave. This seems irrational, so maybe there is an upper bound. The AARP hasn’t hit it yet.

And that is why I don't care to listen to the AARP's recorded messages.

Lighten Up. Take a Break from Seriosity

2009-07-24T14:00:00.011-04:00

I have loaded my iPod (a gift from my daughter) with a wide variety of music -- classical, big bands, Sousa marches, rock & roll, bluegrass, blues, easy listening, and country. I use music to be uplifted and entertained, to give me a break from the demands the bad guys impose on us hourly.

Izhak Perelman's recording of Beethoven's violin concerto in D is my favorite. I refused to buy a CD player until it was issued as a CD. Then I added all of the Mario Lanza archives and the Three Tenors. Then Souza, a big time inspiration, especially the piccolo solo in the Stars and Stripes Forever. Wow! What memories of marching in those midshipman parades! And The Seldom Scene -- how much they evoke the images of my college days when the Anchormen appeared in national TV on Hootenany in Annapolis. Time passes -- one 0f the Anchormen, Connie Lautenbacher, is now a retired Vice Admiral (class of '64's last man ashore) and head of NOAA; but I have no doubt that he still plays a mean Dobro.

You undoubtedly have your own imbedded memories. Music takes us back and makes us laugh.

Recently (when you are over 65, 10 years ago is recent), I began to listen to country music again -- after a 50 year hiatus -- because I had ceased to enjoy the other popular formats. Quite a few contemporary country songs satisfied my preference for rational audio arts: melody, harmony, rhythm, intelligibility and lyrics. Many country lyrics are especially entertaining -- not because they are about mama, and trucks, and divorce, and jail, and trains, and getting drunk, but because they tell a story and are often humorous. And not infrequently they contain good poetry. I don't necessarily subscribe to much of the populist and hedonistic philosophy inherent in these songs, but I am discerning enough to overlook that and enjoy them as they are.

Poetry? Consider Toby Keith's Rodeo Moon. Here are a couple of kids who have struck out in their truck to earn their way in the Rodeo circuit. "Sometimes we stay at a hotel when we are riding that hot band of luck. Sometimes we crash at a friend's house. Sometimes we just sleep in the truck." But Keith creates images: "Our windshield's a painting that hangs in our room. It changes with each mile like a radio tune." There are many poetic country songs that can be appreciated as art and many more that are just plain fun.

And many blues songs also are full of good humor -- B. B. King's especially.

So, take a break. It's 5 O'Clock Somewhere. Download iTunes. Sample Toby Keith, Jimmy Buffet, Garth Brooks, Alan Jackson, Confederate Railroad, Brad Paisley, Kenney Chesney and many other contemporary country singers. They're a hoot.

The Velvet Glove Contains an Iron Fist

2009-07-22T14:53:00.017-04:00

Coercion, pure and simple.

Robert Bidinotto, award-winning, independent author, sent a letter to his Congressman objecting to the health care bill. He explained his personal choice not to have health insurance, which for many thoughtful Americans is a personal decision about risks and individual circumstances. In his letter he said, "I currently opt not to have health insurance, for financial reasons. But all the pending proposals would force me by law to take on this additional burden, or pay a tax penalty -- or, I assume, go to jail if I refused to pay the penalty. That is simply tyrannical."

Bidinotto's concern is not mere rhetoric.

In a recent town meeting Robert's U. S. Senator, Ben Cardin, declined to say that you will not be fined (you go to jail if if you don't pay your fines) if you don't buy health insurance. As reported by WUSA9 ("Cardin Town Hall Meeting On Health Care Gets Angry"):

Perhaps the most controversial [question], came from Robert Broadus of Clinton, Maryland, an audience member who had lost his job and replaced it with one that paid him far less money.

"I decided not to get the health insurance. That's working out for me because I'm able to save that extra money and give it to my family members and use it on myself. Senator Cardin, I want to know are you going to tell me an individual...that I have to buy health care or else you're going to fine me $2,500 every year I don't get it? Our founding fathers assured us we have a Bill of Rights and I want to see you uphold that," Broadus said in an increasingly emotional voice and to scattered applause.

Cardin responded by asking Broadus what would happen if he became sick, broke a bone, had a car accident and ended up in an emergency room.

"You don't pay. You are part of the population that shifts its costs over to a person who does pay, and they're paying for you," Cardin said.

Explaining how hospitals have often to absorb those costs, Cardin said many hospitals would chose simply to leave the community.

"I just think the overriding public interest is to require you and everyone in this country to have health insurance," Cardin said.

It's about control, people. You WILL DO what they tell you to do, or else -- because they know how to run your life better than you do -- YOU IGNORANT STUPID DROOLING IDIOT.

Cardin's argument for restricting individual freedom to choose is a regurgitation of the helmet law argument: The State pays for the support of your family if you are injured because you did not wear a helmet. Therefore, the State may require you to wear a helmet to minimize its potential costs.

Check your premises, people. Why does the State (the taxpayers) need to support the families of injured cyclists, and just exactly how many families of injured cyclists did they actually have to support before restricting the liberties of responsible people? The truth is that helmet laws were passed on theoretical assumptions with no factual support. And no one challenged the basic premise that the State must support the families of injured cyclists, which they don't.

By the same token the proponents of universal health care and this bill argue that because the government underwrites much of the cost of health care, it can control and configure the entire health care system. But too few challenge the basic premise that the government should pay for any health care in the first place.

When I was growing up in the '40s and '50s, we had no health insurance. My mother was widowed in 1942 and was was left with my two older sisters and not much more when I was 4-months old. But she responsibly assured that my sisters and I remained sufficiently healthy to become self-supporting adults. She paid her bills. And the family doctor was a friend, not a Medicare Provider or an adversary.

My mother's uncle was a country doctor during the Great Depression. He was a professional. He took care of his neighbors and trusted them to pay him for his services in whatever way they could -- cash, chickens, hams (by the way, Tennessee country ham is better than gold), labor, etc. No Medicare paperwork, just eyeball to eyeball trust. And the system worked.

So if health care was not a right then, why is it a right now? If you believe that the concept of "rights" is relative to time or contexts, you have a flawed philosophy, or no philosophy, which is a deadly circumstance to be in.

Government does not have to be involved in health care at all. In any respect. Period. Do you want them involved? To decide who your physician is? To decide when or if you have an X-ray, a blood test, a mammogram, a colonoscopy, a knee replacement or whatever? Do you really want someone to preempt and make your personal/financial choices for you about these intensely personal matters? Or, are you the kind of person who wants it all, free, at the expense of someone else?

Turning those decisions over to the Government, whose ultimate recourse is coercion and force, after all, is an ethical decision. Will you turn the guns of the Government toward your neighbor, deny them the right to choose, and force them to pay for your medical care and the care of the people who those in charge deem entitled to receive it?

We started out with our freedoms protected. The only way to lose them is for a majority to give them up voluntarily. Are you willing to answer to your grandchildren that you were too timid to speak out to protect them?

Healthcare Bill: Socialism?

2009-07-21T07:13:00.011-04:00

Michael Steele, Chairman of the Republican National Committee, when asked this week if Obama's healthcare proposal is socialism, responded, "Yes. Next question." A brouhaha in the press ensued as if the President had somehow been disparaged by the Republicans.

The term, with good reason, has achieved the status of an epithet because, it is widely acknowledged, socialism punishes individual productivity and achievement and rewards incompetence and sloth, killing the goose that laid the golden egg (i.e., a rising standard of living for everyone). Even the former head of the KGB, Vladimir Putin, warns that socialism doesn't work:

Excessive intervention in economic activity and blind faith in the state's omnipotence is another possible mistake.

True, the state's increased role in times of crisis is a natural reaction to market setbacks. Instead of streamlining market mechanisms, some are tempted to expand state economic intervention to the greatest possible extent.

The concentration of surplus assets in the hands of the state is a negative aspect of anti-crisis measures in virtually every nation.

In the 20th century, the Soviet Union made the state's role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.

Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state.

Do not be intimidated by those who want the Government (i.e., you) to pay for health care for the poor. Implicit in their justification -- and you are well aware of it -- is their presumed moral superiority for pursuing the notion that you should be your brother's keeper. But moral arguments used to justify socialism are simply wrong. Morality is about free will. There is no superior morality in being forced to be your brother's keeper. Please revisit What's So Bad about Socialism? Challenge the unstated assumptions of your friends who support socialist programs. Don't cede the high ground to them.

The main objection to making our health care system more socialist (than it is already is) is not that it will launch yet another permanent entitlements program which, together with Social Security and Medicare, is unafordable and will burden future generations. And it is not that the government rationing of health care will result. And it is not that your doctor will retire (shrug) in the face of new burdensome regulations and lower income. And it is not that you will lose the ability to pay for better health insurance or lose your present coverage. The main objection is moral. It takes money from those who earned it and gives it to those who didn't. Expropriation (thievery) and coercion are the hallmarks of socialism.

If you subscribe to the ideals of the Founders and the original concept of the U.S. Constitution -- individual rights and limited government -- the initiatives of the Democrat Congress and the Obama administration must alarm you.

For many decades our elected officials have drawn the population increasingly away from personal responsibility and toward dependence on government, making parasitism an institution. But the current moves to accelerate the trend are way over the top. If you don't object, loudly and publicly, you will contribute to the unraveling of the American Revolution.

Cap and Tax

2009-07-14T17:52:00.012-04:00

Cap and Trade has been passed by the House and is before the Senate for approval.

Those who don't know what cap and trade is need to educate themselves. Read the Wikipedia article. The Bill is an attempt to reverse the effects of global warming by curtailing carbon emissions from man-made sources by legislating limits on emissions. It also establishes a market for trading emission allowances to encourage those who comply with the limitations to reduce emissions further so that they can sell their allowances. Wikipedia also discusses that.

To those who think that Al Gore deserves a Nobel Peace Prize, the scheme -- which the Europeans have already adopted -- is one of the key solutions to global warming. But let's check our premises: (1) An epochal change in the earth's climate, global warming, is taking place that is outside of the normal range of the earth's cyclical climate change (if such a thing is determinable), and (2) this unusual change is caused by mankind's industrialization of the planet, which produces carbon emissions that cause the greenhouse effect that will warm the planet to a disastrous extent -- to such an extent that it now requires emergency action to control industry. If you evaluate all of the scientific evidence and are objective, you must acknowledge that neither of these has been scientifically proven. So the logical foundations of the entire idea of man-made global warming have not been established.

To those supporting the legislation, the notion that global warming needs to be proved by objective evidence to a gnat's eyebrow is silly -- and worse, the calls for proof are part of the capitalists' schemes to escape government oversight so that they can continue to ravage Mother Earth for individual greed, a short-sighted, selfish, sociopathic attitude that is endemic to the capitalist creed: run roughshod over the powerless for personal profit. But rhetoric aside, the legislation establishes a new massive and expensive regulatory construct for which the taxpayers and consumers will have to pay -- based upon unproven premises. And this, at a time when the economy is faltering.

There are many reasons why this Bill should be defeated, not the least of which it its potential to create another bubble. The Heritage Foundation's site catalogues the criticisms of it in great detail.

Al Gore thinks that passage of the Bill will help bring about "global governance." But Sarah Palin agrees with Warren Buffet that "poor people are going to pay a lot more for electricity." (Hat tip to Robert Bidinotto.)

Too much big government is being rammed through Congress without due deliberation. The Democrats, led by Harry ("taxation is voluntary") Reid and Nancy ("Oh happy day, tax the rich") Pelosi, should cease being driven by fascist and socialist idealogues who yearn to bring down the successful and productive, and address the cost of Medicare and Social Security before they throw out more pork to buy the votes of illegal immigrants.

You have read on these pages that the profligate printing of money and out of control deficit spending will create price inflation to an extent not seen since the days of the Continental dollar. And it can happen in the midst of a deep recession or a depression because hyperinflation is a currency event, not an economic event. As wages and prices increase in response to a depreciating currency, taxpayers will experience something called "bracket creep." As your wages increase in a race to keep up with costs, it will push you up into a higher tax bracket so that a larger percentage of your earnings will be claimed by the government, even though you are receiving less value in your paycheck. And, guess what? You will be among the "rich" that have been tapped to pay for the Democrats' expensive new populist pork.

No one who knows anything about Washington believes the balderdash about taxing the rich. Even absent bracket creep, the estimates of the costs of these brave new permanent regulatory and entitlement programs is invariably, grossly understated. When the real figures come in, the Congress will simply raise everyone's taxes or lower the definition of who is rich, or both.

As Yogi might have said, if it doesn't stop somewhere, it will never end.

Capitalism, The Culprit?

2009-07-09T19:03:00.009-04:00

A well used, and ultimately effective tactic in debates is to use the language in ways that it denies the opponent a means to succinctly refer to his position. In effect you steal the opponent's terms and redefine them to suit your purposes. Too many debaters fail to jump on the tactic because it would drag the debate into a philosophical discussion of epistemology, a subject with which precious few are conversant.

A good example is "capitalism." The classic economic definition of the term is private ownership and private control (i.e., no government control) of the means of production. Today, the enemies of individualism and private ownership and their willing accomplices in the press have (many intentionally) so perverted the use of the term, that they are now in a position to blame the credit crisis and our deteriorating economic woes on "capitalism." See my discussions in the archive: "Blame Capitalism?" and "Look Who's Blaming Capitalism." Also read George Reissman's essay, The Myth that Laissez Faire is Responsible for Our Financial Crisis. What they have done by corrupting the language is divert the blame in the opposite direction so that the culpable parties are in a position to do even more damage in the name of saving the economy. Government involvement created this mess and now they want more government involvement to reverse the excesses of "capitalism."

The latest example is another Michael Moore movie. If Thor Halvorssen were as outrageous as Michael Moore, he might get more press, but it seems that the integrity of libertarians keeps them intellectually honest, so they avoid the Big Lie and other public deceptions in favor of reason and truth. (Support Halvorssen, by the way.)

Moore's new movie is entitled "Capitalism: A Love Story." According to the releases, including the one on TheMovie.net --

Oscar winning documentary filmmaker Michael Moore has revealed the title for his latest film. On October 2 Capitalism: A Love Story, which addresses the causes of the global economic meltdown, will arrive in theaters.

In the announcement Moore said “It will be the perfect date movie”. “It’s got it all. lust, passion, romance and 14,000 jobs being eliminated every day. It’s a forbidden love, one that dare not speak its name. Heck, let’s just say it: It’s capitalism.”

The film is described as focusing on “the disastrous impact that corporate dominance and out-of-control profit motives have on the lives of Americans and citizens of the world. The film’s release date comes a year and a day after the U.S. Senate voted to approve a $700 billion bailout of Wall Street.

The opponents of capitalism, including Moore and the controlling socialists and fascists in the Bush and Obama administrations are bent on eradicating economic freedom for individuals so that they can divert whatever is left of the wealth in the country to their cronies and the drooling masses, the end of which is to buy more votes, to amass more political power, more control and more wealth appropriation, ad nauseum. But in the end it won't work. Who will create the wealth that these clowns want to steal? Ask Mr. Putin -- he knows. And so did Ayn Rand. Read Atlas Shrugged.

Capitalism, the "unknown ideal" is laissez faire capitalism. When you hear "capitalism," substitute "laissez faire" (and know what that means). If it makes no sense, someone is misusing the term, corrupting the language, misleading the population, selling you down the river and destroying the engine of wealth and human prosperity. Corruption of the language is serious business. It can ruin us all, and everything we have built. When you see it happening, speak out; don't be one of the sheeple.

No Sanction from This Hedge Fund Manager

2009-05-15T20:28:00.004-04:00

Cliff Asness is a bona fide hedge fund manager -- 20 billion dollars worth. But unlike most other hedge fund managers, he is not cowering in the shadows with his head low, hoping to go unnoticed by the bullies in Washington. Here is a man with solid principles who is not about to be dragged down the road to serfdom without protest. Last fall the New York Times published his views on the short selling ban in "Cliff Asness is Mad as Hell." His latest is an essay posted on his blog entitled "Unafraid in Greenwich Connecticut in which he refuses to accept President Obama's attack on hedge funds for "endangering Chrysler's future by refusing to sacrifice like everyone else." (CBSNews.com has the complete story, "Chrysler Bankruptcy Exposes Dirty Politics.)

Obama's call for for the hedge funds to sacrifice, Asness points out, means simply that hedge fund managers are being called upon to steal from their investors, who did not invest their funds to be sacrificed to President Obama's political ends.

The ethic of sacrifice is carried to its logical conclusion in Ayn Rand's Atlas Shrugged, a novel that describes today's economic predicament in philosophical terms. Not only doesn't sacrifice work, it is downright evil and it will unravel the American Revolution. Asness is a trustee of The Atlas Society and has read the book. No wonder he is willing to stand up and speak out passionately and with moral certainty.

They Lied about Waterboarding

2009-05-14T17:39:00.012-04:00

Nancy Pelosi says that the CIA lied to her about the use of waterboarding. See http://online.wsj.com/article/SB124231488742119859.html and http://apnews.myway.com/article/20090514/D9865AJO0.html

The acid test is this: Will Pelosi file a criminal complaint against these people for lying to Congress? Or is her assertion a PR ploy without substance -- i.e., is Pelosi the liar or is she willing to go to the mat?

It is easy to lie to the press. There are no significant consequences. Lying under oath before a Congressional committee is a different matter altogether. You could go to jail. So one should not expect an employee of a government agency to place his employment, retirement, financial well-being and liberty in jeopardy by lying to Congress. On the other hand, politicians readily lie to the press because there are no consequences other than the occasional lapse in credibility -- if the politician values credibility in the first place.

Thus, the logic of the situation favors the government employee. Accordingly, the burden of proof is on Pelosi.

Shame, shame, shame, that she should go to the press to defend herself. Any respectable Congressperson who was lied to by a civil servant under oath should vigorously pursue an indictment -- crunch those who would lie to the people. So let's see -- will Pelosi seek an indictment, or is she posturing (lying) to deflect the truth: that she was aware of waterboarding and, in the context of the times, like everyone else in Washington, overlooked the ethical issues. These clowns are so stupid that they can't see that ethical issues are always contextual. You have principles and you have the contexts in which those principles are applied. Their stupidity will kill us all.

How far a government ought to go in defending its citizens against attack is another question which we shall explore later in this blog. It is not easy to parse morality, legality, defense obligation and necessity. Those who think that bright lines can be drawn are deluding themselves.

Charles Krauthammer has an opinion. http://www.washingtonpost.com/wp-dyn/content/article/2009/04/30/AR2009043003108.html?hpid=opinionsbox1. And he has critics. http://www.alternet.org/bloggers/joshua/139421/charles_krauthammer's_tortured_defense_of_torture/?comments=view&cID=1203881&pID=1203319.

Let's not make light of these issues or politicize them. The Pelosis of the world are clueless and without a foundation in principles that would enable them to make judgments when faced with with real world situations. And judgments, applying principles in factual contexts are what counts.

I am getting very tired of Harry Reid's and Nancy Pelosi's laughable attempts to justify their irrational positions. What's the point? No one believes them anyway. Both are "trivial politicians" (thanks for the apt description, Newt).

Two Criminals Much Worse than Nixon

2009-04-27T14:29:00.009-04:00

You have read on these pages a consistent adherence to civil discourse and reasoned positions. So it should get your attention when I assert that Henry Paulson and Ben Bernanke are criminals much worse than Richard Nixon.

Now I am not making wild assertions like some knee-jerk, attention-getting radical. I am, among many other things, a career corporate and securities lawyer who knows a patent criminal securities law violation when he sees one. Caroline Baum, who is one of most forthright commentators on Bloomberg.com, a respected financial reporter, reports as follows:

The latest example of what happens when the business of government is business was last week’s release of testimony from Bank of America Chief Executive Officer Kenneth Lewis to New York Attorney General Andrew Cuomo. In it, Lewis says he was strong-armed by former Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke to seal the deal to buy Merrill Lynch without telling his shareholders about the brokerage’s mounting fourth-quarter losses, which came to $15.4 billion.

According to the letter Cuomo sent to Congress and regulators, Lewis wanted to invoke the “material adverse event” clause to back out of the merger, but the bazooka-toting Paulson told him to stay mum and threatened to give him and his board the boot.

Paulson said via a statement that while the words were his, the sentiment was “what he knew to be the Fed’s strong opposition to Bank of America” backing out of the deal.

“No one at the Federal Reserve advised Ken Lewis or Bank of America on any questions of disclosure,” said Fed spokeswoman Michelle Smith.

Of course not, not in those terms. Lewis surely never asked Bernanke directly if Bernanke wanted him to conceal the truth from his shareholders and the Fed never directly advised him. But the deal was clear. Hey, folks, put it to a jury in a shareholders' suit and let's see what the people say to the nefarious activities of the Princeton and Goldman pukes. (I'm sorry, but do I sound extremely disgusted?)

It has never been part of our system of justice that any man is above the law, and that includes Treasury Secretaries, Federal Reserve Chairmen and Presidents. According to Bank of America Chairman Lewis in sworn testimony, Paulson and Bernanke solicited him to violate the securities laws by concealing material information from the bank's shareholders and the securities-buying public. He complied. In legal terms that is aiding and abetting and conspiracy to violate the securities laws of the United States. Forget their official positions or national emergencies or crises; they are not legally relevant. Ask any Bank of America shareholder who held or bought shares during the period and they will confirm that they expected to be informed.

Here is what Mike Shedlock has to say http://globaleconomicanalysis.blogspot.com/2009/04/let-criminal-indictments-begin-paulson.html

If Beranke and Paulson -- and for that matter all of the others who ran roughshod over the law to save their bretheren from self-induced financial ruin with government power -- succeed in ducking culpability for their crimes, the politicization of justice in the United States will mark the end of the 200-year American experiment in popular government based on individual rights.

While they may not view themselves as such, these two guys (and others) are criminals who should be accorded the same status in society as child molesters, robbers and rapists who prey upon the innocent and unsuspecting.

If they disagree, they should sue me for libel. Let's go to the mat and see who an American jury will accord the most credibility.

Update June 15, 2009: The Washington Post reports that the House Oversight and Government Reform Committee will be looking at this issue and has subpoenaed the Fed's records. The Associated Press also has a story on the matter. Better late than never guys.

Hyperinflation and Depression

2009-04-04T21:06:00.006-04:00

Jim Sinclair, who has over 50 years international experience in precious metals trading, and whose commentaries are linked at the left, offers the following thoughts:

1. All hyperinflations are currency events, not economic events.

2. All hyperinflations have occurred in what can be called deep deflationary depressions.

3. Quantitative Easing, the wanton printing of money, has been the key to all hyperinflations in history, no exceptions.

4. The recent example of Zimbabwe certainly occurred in the deepest economic doo-doo ever.

5. Don’t mix up hyperinflation with a deflationary business environment as mutually opposed when they are locked in step.

There are now hundreds of billions of dollars in money and credit newly created that are out there sloshing around and ready to move. Hardly anything can bring them back without creating a business downturn or making the present one much worse. So, despite the Fed's lip service to fighting inflation, it won't happen. The Fed has lost its independence from political objectives. We now have a politically driven, short sighted currency. And the politicians are ignoring the inevitable consequences of printing money to reward risky financial behavior, just as the long-term financial consequences of Social Security and Medicare have been ignored.

It would be baffling that they even ignore the timing of their own elections considering that things will be worse two, four and six years from now. But they are counting on demagoguery to pull them through the next election -- lies, scapegoats and demons will be found on which to shift the blame.

The clowns in Washington have no idea what they are doing. Run for cover.

Paying Taxes is "Voluntary"

2009-03-30T13:12:00.007-04:00

You have heard me say on these pages that you are forced by the government to pay your hard-earned money over to other people who are selected by the government, my proof being an invitation to you to experience the consequences of not paying your taxes. The Majority leader of the United States Senate disagrees.

After seeing the following video, I have further concluded that the Senate Majority Leader is either an idiot, a fraud, self-deceptive or a demagogue, or all of the above. But you don’t need to agree with me. Consider Harry Reid’s arguments in his own words. Not merely amazing. Absolutely astounding.

http://www.youtube.com/watch?v=H6q0slMhDw8

George Orwell would enjoy this.

If Harry Reid actually believes that you are voluntarily contributing to all of the expenditures that he and his cronies authorize to perpetuate themselves in office, it explains why they act without restraint or guilt.

The Slippery Slope

2009-02-05T08:14:00.004-05:00

Eric deCarbonnel, who started a blog, MarketSkeptics.com, in 2007, has written an insightful essay on "Ten Major Threats Facing the Dollar in 2009." One of the threats he discusses is the moral hazard effect of bailouts --

The true moral hazard of bailouts

Most commentators misunderstand the true moral hazard of bailouts. While bailouts might have an adverse effect on the future actions of individuals and businesses by encouraging risk taking, the real problem is their effects on future actions of the government. Specifically, each bailouts makes it harder to say no to the next bailout. This pressure to fund future bailouts is made far worse if those receiving bailout money are truly undeserving. After all, If the government is going to give $45 billion to Citigroup (one of the banks responsible for our current mess) and insure $306 billion of its riskiest assets, then how can it say no to bailing out the state of California or South Carolina?

This "me too" phenomenon will get much worse after the treasury market collapses, and the fed starts monetizing the treasuries that were sold to fund the current bailouts. If fed printed money to bailout the banks, why shouldn't it print more money to fund unemployment benefits? Politically speaking, you can't bailout the irresponsible and then let the responsible sink, which means congress isn't going to be saying no to a lot of the bailout requests this year. Unfortunately, these bailouts will become increasingly meaningless because, when you bail out everyone, you bail out no one as you destroy your currency.

While it is an unconventional use of the term, moral hazard, this is a clear and succinct statement of where we are heading that no one wants to face. Read the entire essay, which brings to bear the important factors that will influence the viability of the U.S. currency.

How Bad Is It?

2009-01-31T06:55:00.005-05:00

The Wall Street Journal reports that we just experienced the Worst January on Record for Stocks .

Calculated Risk has posted a series of graphs that depict just how bad various aspects of the economy are. See January Economic Summary in Graphs. Things are bad indeed -- many indicators are the worst on record.

But some of my friends in the banking industry tell me that they see a dim light at the end of the tunnel. Big bankers are looking favorably at the Obama administration's rescue plan insofar as it would decouple the fortunes of the housing market from the assets of the banks.

The plan to take the bad assets off the books of the banks supposedly would diminish the banks' exposure to the unknown risks of many mortgages, mortgage backed securities, and their derivatives, removing some of the uncertainty about the viability of the banks. Conceivably, the same would apply to credit cards, student loans and the rest of the toxic fallout from the credit bubble. What, then, will be left of the banks' portfolios of business (which, when all is said and done, is lending)? And how will the banks rebuild that business? Unemployment above 8% would be bad news for the banks and the rest of us. See Bankers' Fear of Unemployment.

The government's solutions are designed to restart lending. But what they really want is to restart borrowing. But with 40% of the world's wealth having vanished and unemployment rising, the attempts to get people to releverage will not work. Few want to crawl back up that slippery slope.

Look Who's Blaming Capitalism!

2009-01-29T16:05:00.006-05:00

On January 29 the Wall Street Journal Online published an article by Marc Champion in Davos, Switzerland, and Andrew Batson in Bejing entitled "Russia, China Blame Woes on Capitalism." The article and the full text of the speeches of Vladimir Putin and Premier Wen, which are linked in the article, make interesting reading.

One thing you might overlook is that the word "capitalism" does not appear in the remarks of either Mr. Wen or Mr. Putin. Nor does it appear in the text of the article itself. The application of the word to the title of the article was no doubt the figment of the imagination of the Wall Street Journal's editorial staff. The word no doubt was selected as a headline shorthand for the U.S. economic system but it is a misnomer. The U.S. economic system is not capitalism. It is "state corporatism," economic fascism or a "mixed economy." They are all a mixture of government ownership of enterprise and privately owned enterprise that is government controlled. Capitalism, by contrast, is an economic system in which private enterprise is neither owned nor controlled by government -- i.e., laissez faire. See The Myth That Laissez Faire is Responsible for Our Financial Crisis . Also see The Credit Crisis and Moral Hazards.

The main stream press, yes even the Wall Street Journal, wittingly or not, continue to poison the public mind by corrupting definitions and equating the concepts of freedom with the concepts of slavery. George Orwell is spinning in his grave.

The remarks by the two world leaders exhibit a deeper understanding of the current worldwide economic crisis than most leaders in the U.S. exhibit, and possibly have a some decent advice to offer. Consider the following remarks of Mr. Putin --

There is a certain concept, called the perfect storm, which denotes a situation when Nature's forces converge in one point of the ocean and increase their destructive potential many times over. It appears that the present-day crisis resembles such a perfect storm.

Responsible and knowledgeable people must prepare for it. Nevertheless, it always flares up unexpectedly.

The current situation is no exception either. Although the crisis was simply hanging in the air, the majority strove to get their share of the pie, be it one dollar or a billion, and did not want to notice the rising wave.

In the last few months, virtually every speech on this subject started with criticism of the United States. But I will do nothing of the kind.

I just want to remind you that, just a year ago, American delegates speaking from this rostrum emphasised the US economy's fundamental stability and its cloudless prospects. Today, investment banks, the pride of Wall Street, have virtually ceased to exist. In just 12 months, they have posted losses exceeding the profits they made in the last 25 years. This example alone reflects the real situation better than any criticism.

The time for enlightenment has come. We must calmly, and without gloating, assess the root causes of this situation and try to peek into the future.

* * *

Esteemed colleagues, one is sorely tempted to make simple and popular decisions in times of crisis. However, we could face far greater complications if we merely treat the symptoms of the disease.

Naturally, all national governments and business leaders must take resolute actions. Nevertheless, it is important to avoid making decisions, even in such force majeure circumstances, that we will regret in the future.

This is why I would first like to mention specific measures which should be avoided and which will not be implemented by Russia.

We must not revert to isolationism and unrestrained economic egotism. The leaders of the world's largest economies agreed during the November 2008 G20 summit not to create barriers hindering global trade and capital flows. Russia shares these principles.

Although additional protectionism will prove inevitable during the crisis, all of us must display a sense of proportion.

Excessive intervention in economic activity and blind faith in the state's omnipotence is another possible mistake.

True, the state's increased role in times of crisis is a natural reaction to market setbacks. Instead of streamlining market mechanisms, some are tempted to expand state economic intervention to the greatest possible extent.

The concentration of surplus assets in the hands of the state is a negative aspect of anti-crisis measures in virtually every nation.

In the 20th century, the Soviet Union made the state's role absolute. In the long run, this made the Soviet economy totally uncompetitive. This lesson cost us dearly. I am sure nobody wants to see it repeated.

Nor should we turn a blind eye to the fact that the spirit of free enterprise, including the principle of personal responsibility of businesspeople, investors and shareholders for their decisions, is being eroded in the last few months. There is no reason to believe that we can achieve better results by shifting responsibility onto the state.

And one more point: anti-crisis measures should not escalate into financial populism and a refusal to implement responsible macroeconomic policies. The unjustified swelling of the budgetary deficit and the accumulation of public debts are just as destructive as adventurous stock-jobbing.

* * *

Ladies and gentlemen, unfortunately, we have so far failed to comprehend the true scale of the ongoing crisis. But one thing is obvious: the extent of the recession and its scale will largely depend on specific high-precision measures, due to be charted by governments and business communities and on our coordinated and professional efforts.

In our opinion, we must first atone for the past and open our cards, so to speak.

This means we must assess the real situation and write off all hopeless debts and "bad" assets.

True, this will be an extremely painful and unpleasant process. Far from everyone can accept such measures, fearing for their capitalisation, bonuses or reputation. However, we would "conserve" and prolong the crisis, unless we clean up our balance sheets. I believe financial authorities must work out the required mechanism for writing off debts that corresponds to today's needs.

Second. Apart from cleaning up our balance sheets, it is high time we got rid of virtual money, exaggerated reports and dubious ratings. We must not harbour any illusions while assessing the state of the global economy and the real corporate standing, even if such assessments are made by major auditors and analysts.

In effect, our proposal implies that the audit, accounting and ratings system reform must be based on a reversion to the fundamental asset value concept. In other words, assessments of each individual business must be based on its ability to generate added value, rather than on subjective concepts. In our opinion, the economy of the future must become an economy of real values. How to achieve this is not so clear-cut. Let us think about it together.

Third. Excessive dependence on a single reserve currency is dangerous for the global economy. Consequently, it would be sensible to encourage the objective process of creating several strong reserve currencies in the future. It is high time we launched a detailed discussion of methods to facilitate a smooth and irreversible switchover to the new model.

Fourth. Most nations convert their international reserves into foreign currencies and must therefore be convinced that they are reliable. Those issuing reserve and accounting currencies are objectively interested in their use by other states.

This highlights mutual interests and interdependence.

Consequently, it is important that reserve currency issuers must implement more open monetary policies. Moreover, these nations must pledge to abide by internationally recognised rules of macroeconomic and financial discipline. In our opinion, this demand is not excessive.

Clearly, Mr. Putin is no capitalist. But having read that, ask yourself, who is closer to being a capitalist - the people who presume to be controlling the U.S. economy, or Mr. Putin?

Scientology, Seizures and Science

2009-01-14T13:02:00.003-05:00

Dr. Edward L. Hudgins has posted an insightful editorial entitled, Scientology, Seizures and Science. While taking care not to suggest that the Travolta's tragedy can be laid at the feet of Scientology, he takes the occasion to shine the light of day on one of the more bizzare "religions." For those who have never been exposed to the "theology" underlying Scientology, the editorial is educational and worthy of your consideration. Hudgins continues to illustrate how social commentary can be forthright but civil, rather than nasty and strident. The approach is a good way to persuade people to want to listen to what else you have to say.

The Prescience of Ayn Rand

2009-01-10T09:38:00.004-05:00

Yesterday, Stephen Moore, economics editor for the Wall Street Journal, published an editorial entitled, "'Atlas Shrugged': From Fiction to Fact in 52 Years." At the end of the piece, he addressed the planned movie of this cautionary tale by Ayn Rand:

David Kelley, the president of the Atlas Society, which is dedicated to promoting Rand's ideas, explains that "the older the book gets, the more timely its message." He tells me that there are plans to make "Atlas Shrugged" into a major motion picture -- it is the only classic novel of recent decades that was never made into a movie. "We don't need to make a movie out of the book," Mr. Kelley jokes. "We are living it right now."

Those of you who are having trouble understanding why "what you are living right now" is incomprehensible should read the book.

(Update 1/21/08) The Journal editorial has been wildly popular. Watch the video interview of its author.

Are We There Yet?

2009-01-07T21:02:00.006-05:00

In a word, no.

There is no point in repeating what qualified and proven analysts such as Meredith Whitney and Nouriel Roubini have said and is obvious from the news, some of which is linked below. Roubini, known for his accurate predictions, thinks the contraction will be global and will last two years or longer. See Warning: More Doom Ahead

The Obama administration will be counting on consumer spending to again elevate us from a recession. Consumers’ $10 trillion in annual spending currently represents 70% of the GDP. Government deficit spending will be added to the $3 trillion in current government spending, which represents 20% of GDP. While the government might follow through on its promises to increase spending by $1-3 trillion, from the economy’s greater dependence on consumer spending it is apparent that the key to any recovery will turn on consumer confidence and whether consumers will spend the new-found money they will enjoy from a promised 3 million new jobs and a revived economy. But it will take quite some time from the passage of a new stimulus package and federal programs to “create” those jobs and for any money from them to filter into the economy. We have learned that putting cash directly into consumer pockets might provide some immediate but little long term effect on the economy.

Consumer confidence is not high at the moment and it is hard to see it improving significantly until the economic fundamentals improve generally – certainly not while unemployment is rising at an unexpectedly greater pace.

Additionally, the solutions offered by the Federal Reserve are based on the assumptions that if everyone borrowed more, they would spend more. That is not happening. And it may never happen. The economy will have to adapt to a paradigm shift. See Op-Ed: Social Mood Changes Forever
http://www.minyanville.com/articles/C-citigroup-jpm-RATE-oil-recession/index/a/20504

The credit crisis among the large financial institutions continues to serve as the core drag on the economy. The huge volume of over-the-counter credit default swaps outstanding represent contingent liabilities that are, as a group, three to four times the GDP and ten times the size of their underlying credit obligations. And many remain undisclosed on the books of banks, investment houses, hedge funds, insurance companies and others who sold or bought that form of insurance, which was backed by nothing but promises and the financial wherewithal of the counterparties. The downgrading of financial instruments and institutions will continue to grow the counter-party risk in the financial system.

A counterparty default would mean that an obligation, such as paying interest and principal on a bond, would no longer be insured – so that if a municipality or homeowner, for example, defaulted on bond or mortgage payments, the municipal bonds or mortgage-backed securities, and other financial instruments derived from them, would lose significant market value. That could cascade into downgrades of corporate or bank assets that would affect the creditworthiness of the institutions and their ability to raise capital. To date the solution has been for the Fed to take some of the assets at risk onto its own balance sheet and to conceal and minimize the extent of the problem in the hope that no one will see that the emperor has no clothes and the counterparties will come through when called-upon. The Fed has not explained adequately why they think that this will work – they apparently have no hard data on how many credit default swaps are backed by counterparties who have the financial wherewithal to deliver on their promises. That has contributed to a credibility problem among the banks themselves. No one knows who is really solvent.

The only permanent solution to this impasse is a level of forthrightness and transparency that would inspire confidence in the soundness of the financial institutions. But the largest banks are not sound and many suspect that public knowledge of the full extent of their exposure would crash the entire financial system. See Reggie Middleton’s analysis at http://boombustblog.com/index2.php?option=com_content&task=view&id=743&pop=1&page=0&Itemid=34 The banks are going to need more investment capital, period. And few are willing to invest in them. See http://www.bloomberg.com/apps/news?pid=newsarchive&sid=am_PuPZeNRQk

There is not a way to reverse the damage to banks’ balance sheets caused by the bursting of the housing bubble except to run the movie backwards – undoing defaults and foreclosures, reflating the value of each house mortgaged, fulfilling the unrealistic expectations of defrauded consumers, assuring that housing values will keep going up forever, and fixing it so that no one will ever need to call upon a counterparty in a credit default swap. It just ain’t gonna happen, folks. Moreover, the potential remains for still more mortgage defaults and foreclosures. See http://boombustblog.com/index.php/20090102740/The-banking-backdrop-for-2009.html
And home sales are not likely to rise until the employment picture improves – not any time soon. http://www.marketwatch.com/news/story/This-year-a-bad-time/story.aspx?guid={7FDA1504-8F8D-4795-B8F0-B4EA17FDDFF4}

The War of All Against All -- Reductio ad absurdum

2009-01-07T19:31:00.009-05:00

Delicious.

Michael Shedlock reports that the porn industry is seeking a $ 5 billion bailout. While they are not losing money, they point out that their social value is essential as it serves a vital public health function.

Listen to me people. A whole host of supplicants can propose to serve socially useful functions with your money. While the porn industry might argue that it is socially useful, some might disagree; and the same reasoning could apply to others who want to tap into your taxpayer money. Who should decide? If your money is taken from you by force (taxation) or stealth (inflation), the decision is not yours. It is the decision of central planners and politicians, the same people who have led us to our present circumstances.

Larry Flynt and Joe Francis, with tongue in cheek, are emphasizing the absurdity of what Dr. Edward Hudgins has regularly termed the "war of all against all." To make government and its coercive powers the ultimate arbiter of what ought to be a free market decision is to create a vicious scramble for an access to your pocketbook that is beyond your control. You then become a resource, a slave to whatever objective that the politicians deem socially useful, or worse, in their own political interest. The answer to this very dark prospect is limited government and a monetary system that is beyond political control.

Aside from the subject matter in which he deals, Larry Flynt has proved himself to be a pioneer in staking out the boundaries of our First Amendment rights. Boundaries are important to our protections. Even though we might not go there, those boundaries keep the forces of government coercion far away from our private lives and assure that we need never worry that the government will storm our bedrooms.

Planning for Industry Life Cycles

2008-12-12T08:12:00.013-05:00

The auto industry bailout failed to obtain Congressional approval this week although news reports indicate that a few tweaks to the bill might have brought aboard enough Senators to secure passage. But, true to form, the U.S. Treasury holds out the possibility that it still will give some of your money to help the auto makers. It sounds like an end run to me.

All of these bailouts are making people mad. Mish Shedlock says,"Bankruptcy is the best possible result. I am sick and tired of taxpayer money funding corporate ineptitude. Nonetheless I am fearful that Bush and Pelosi will try one more time to revive the dead." Let's hope that the effort will not be resurrected. The industry has had 3 decades to restructure in the obvious face of global competition and innovation and, supported by easy credit, has not prepared adequately for the inevitable.

A couple of decades ago I read an article in the editorial section of the Wall Street Journal describing the demise of the British Steel industry at the end of the 19th century. In 1875 the British had 40% of the world production of steel and exported 40% of their output to the U.S. By 1896 their share of the world steel market had dropped to 22.5% and they exported little to the U.S. The Journal article attributed the demise in part to the industry's reluctance to ignore their sunk cost in the aging Bessemer process and reinvest in the more efficient open-hearth process. A history of the steel industry concurs: "[Etsuo] Abé explores the record of iron and steel firms in Victorian England by analyzing Bolckow Vaughan & Company. The leading problem of the company was its focus on the wrong technology, not switching to the open hearth furnace method until long after the technology was developed. It is apparent that the company was not focused on long-term decision-making."

Long-term decision-making in business is not only about developing a 3-year strategic plan to sell cars and compete in the existing market with existing resources. In a major corporation, it is not even limited to a 5-year investment plan. It also includes careful evaluation of product life-cycles and planning, at least tentatively, decades out, for the long term health and survivability of the corporation. There are established methodologies for doing that, which are well-known by sophisticated business people and which are regularly revisited by the best companies. Different strategies, such as grow, harvest, or exit, apply at different points in the life-cycle; and those strategies have different implications for investment and marketing. I have experienced such planning and seen it work quite well in a variety of industries from vacuum tubes to hard rubber. Whether or not there is planning for it, change happens (see, e.g. The End of the U. S. Piano Industry). It will either happen for you -- or to you.

I suspect that many company executives are reluctant to face the prospect of radical reorientation of their business when they have become emotionally and professionally committed to a product or a technology, or a location for that matter. It is not easy for an executive to step outside the day to day, or year to year, and think about the demise of a business that he and his employees have struggled for a lifetime to build. But that's what an executive and his staff need to do. And they need to do it well because choosing the wrong path can lead to unnecessary collateral damage -- negligent damage to people.

After the Japanese consumer electronics manufacturers overtook the American television industry in the early 1970s, they moved the fast-maturing manufacture of picture tubes and television sets to Taiwan and Korea and upgraded their home capabilities to higher technologies. It was not by accident -- and this in a culture that was committed to lifetime employment.

Peter Drucker wrote an excellent little book, The Effective Executive, in which he noted the importance of an executive's taking time off from day-to-day management to close his door and contemplate the future of the business. That is a tough thing to manage, but it is a key to developing an objective view of the business and the corporation's ultimate viability. And the CEO's resulting foresight should move the organization to understand and plan for the realities of a dynamic marketplace.

I don't know what kind of process the auto-makers undertook to address the long term rise and fall of automobile manufacturing in the U.S. As an outsider, I don't see individual transportation disappearing in the next 50 years. I expect that to be around. But, like 19th Century British steel, U.S. auto maker tardiness in adopting new technologies has lowered their sales potential; and their fixed costs, including union contracts, have left them unprofitable.

Let's Hope the Auto Bailout has Failed for Good . It will not be the end of the world as we know it. Bankruptcy just might provide the industry an opportunity to consider all options, including some that will allow a future in the United States.

Stiglitz: Monday Morning Quarterback

2008-12-10T07:57:00.018-05:00

Nobel Prize winning economist Joseph Stiglitz has written a critique of the financial crisis in Vanity Fair (see “Capitalist Fools”). But the critique is limited to an evaluation of where and how the “system” failed. And consequently any suggestions for avoiding future crises that he might have made or implied are limited to fixing his problems with the system – namely, elimination of the barriers between investment and commercial banking, non-existent or lax regulation, appointing as Chairman of the Fed, “a devotee of the objectivist philosopher and free-market zealot Ayn Rand” (a falsehood), tax cuts, opaque accounting practices, flawed incentive structures, and mismanagement of the bailouts. Having completed the critique, Stiglitz ends his piece with a conclusion that was not supported anywhere in his evaluation.

The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, “I have found a flaw.” Congressman Henry Waxman pushed him, responding, “In other words, you found that your view of the world, your ideology, was not right; it was not working.” “Absolutely, precisely,” Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.

Ipse dixit.

A free market is self-adjusting. But when government interferes in the market to eliminate the incentives, whether positive or negative, the market’s adjustments become distorted. The market then becomes moved, not by the invisible hand, but by an iron fist.

Had Dr. Stiglitz critiqued free market economic philosophy in his article, we might have been able to identify some specific point to debate, but alas, Dr. Stiglitz provides no statement of economic philosophy except the bare assertion that markets are not self-adjusting and that the role of government should not be minimal.

Oh yes, he does make an ad hominem argument against capitalist “ideology” – “a flawed economic philosophy” – by playing the Ayn Rand card. Such sophistry is certainly not beneath the likes of Henry Waxman, but you would think that it should be beneath the intellectual stature of a Nobel Prize-winning economist.

I guess not.

Stiglitz wants to perfect a system that itself is flawed to the core and cannot be perfected. He could have addressed the problem at the core – that the century-long experiment in central planning (the Federal Reserve System) has reached its logical conclusion. He might have engaged in a constructive discussion about how to establish a medium of exchange that is not subject to the whim of politicians or the coercive monopoly of a cartel of banks that are insulated from risk and indulge in moral hazards. See "Credit Crisis and Moral Hazards."

Instead, Stiglitz has revealed himself to be just another second-rate Monday morning quarterback.

P.S. The "flaw" in Greenspan's thinking was that he was attempting to apply free market principles to a system based on government control. If he were a "devotee" of Ayn Rand, he would have recognized the contradiction immediately and understood that one of his premises was wrong.

Kant and the Mindless Sheeple

2008-12-04T08:06:00.011-05:00

As a younger person, I found it mystifying that an advanced, educated German population in the 1930s could be duped into allowing themselves and others to be sacrificed for the "good" of the group, the collective, the state. Then I learned about Immanuel Kant, Georg Hegel, Frederich Nietzsche and Martin Heidigger, the philosophers whose theories were used by demagogues to justify genocide and oppress a willing and docile population that had been conditioned by the intelligencia into rejecting the evidence of their own minds and blindly following evil people down the path of aggression and tyranny. Stephen Hicks has an excellent DVD, Nietzsche and the Nazis, about how this historic tragedy developed.

John Tate has written a succinct and readable summary of Kant's core premises. Check it out. You will detect the familiar ring of the relativism and the self doubt that plagues the humanities, political science and journalism departments of many of today's institutions of "higher" learning. These notions, which have been advanced, refined and blended with the ideas of Rousseau, have permeated the main stream media and, through them, the less educated population who, it appears, represent the majority of voters. Of those who recognize the origins of such distortions of reality, few stand up and speak out against the assault on common sense.

For more, read David Kelley's Evidence of the Senses and Stephen Hicks' Explaining Postmodernism.

A country populated by people who doubt their own minds and believe that one morality is just as good as any other will be easily (mis)led by power hungry and avaricious men who, while pretending morality, care nothing about it.

More important to the advancement of civilization than the current economic crisis (although largely responsible for it) is the crisis of philosophy. The conventional wisdom that philosophy is for impractical people with their heads in the stratosphere is a myth. If you want to consider yourself educated, you need to understand and adopt a philosophy. Develop a conviction, progressively, about what is real (metaphysics), the validity of your knowledge (epistemology), how to reason (logic), what is right and what is wrong (ethics), and how to live with other people in a mutually beneficial society (politics).

Why the Continued Panic?

2008-12-03T08:56:00.003-05:00

There are those who, pursuing the contrarian viewpoint, are suggesting that the market might have bottomed. For example, the well-respected Aden Sisters have published Some Positive Signs. Carl Swelling in Very Oversold Market thinks that there might have been at least a temporary bottom. Why, then, if things are beginning to turn around, are the authorities continuing to dump a historic volume of greenbacks on what appears to be a garden variety recession. Well, it's because their solutions are not producing results but are making matters worse and they fear, not a recession, but a deflationary depression. Drake Bennett in the Boston Globe describes "Depression 2009: What Would It Look Like?" It seems that this vision has panicked those who feel that they have the responsibility to Do Something. Not that they have distinguished themselves by their economic acumen, but their apparent fear ought to give you a reason to consider your personal situation with this prospect as one of the realistic alternative futures before you.

Citibank Bailout

2008-11-24T08:29:00.009-05:00

Mike Shedlock continues to be prompt and insightful in reporting developments in the financial crisis. Here he reports the summary of the terms of the Citibank bailout this past weekend (it always happens on a weekend). In an earlier post he had the following to say about the bailout.

I am not in favor of this bailout of course, but it is a far better scheme on the surface than blowing another $350 billion. The pertinent question is just how bad those $300 billion in assets will be. I doubt the Fed will disclose the assets it is guaranteeing.

One of the main causes of the downward spiral in the markets is that no one knows (not even the banks) what the value of their intangible assets and off-balance sheet obligations of the banks are. And the Financial Accounting Standards Board has postponed a rule requiring their disclosure. The markets and the government operatives are driven by fear of the unknown and, not knowing, they must assume the worst case consequences of telling the truth.

Philip Davis in "Options Trader:Monday Outlook" says

90-95% of [Citibank's troubled assets being guaranteed] are part of C’s $Tn in assets that are "on balance sheet." The bank has another $1.2Tn of assets that are not reflected in their books, many of which are tied to mortgages that will still need to be addressed down the road. The assets affected under the government plan are largely loans and securities backed by residential and commercial real estate. "With these transactions, the U.S. government is taking the actions necessary to strengthen the financial system and protect U.S. taxpayers and the U.S. economy," the Treasury Department, Fed and FDIC said in a joint statement issued late Sunday.

Whether this is enough to inspire long-term confidence in US financials or whether it leads to panics out of banks that are not given $300Bn by the government remains to be seen, but the immediate upshot of this is it is finally occurring to investors how far the US is willing to go to save the markets. Just looking at the mechanism put in place on the C deal, we can now see that $300Bn in TARP money can be leveraged by the Fed and Treasury into $4.5Tn of bailout funding WITHOUT further Congressional approval. The net effect of this is that gold is flying up in pre-markets as global investors are finally seeing how wet this flood of dollars might make us all (have I mentioned I like gold lately?).

If you are an ardent follower of market developments and are interested in keeping current, return here frequently and check the Recommended Commentaries at the left of this page.

Reggie Middleton's BoomBustBlog has a good comment on the Citibank bailout-- "It's the government version of 3 card Monte - Betcha 'ya can't guess which company the cash is under"
So does Naked Capitalism -- "US Agrees to Bail Out Citi"
And Seeking Alpha -- "Citi's Underwhelming Bailout"

Are Bernanke's Pants on Fire? I hope so.

2008-11-20T07:43:00.012-05:00

Recently Congressman Ron Paul cross-examined Ben Bernanke on a new currency regime and the Gold Standard:

Ron Paul: Just last week there was a report that Iran purchased 75 billion dollars worth of gold, took their reserves out of Europe, bought gold and put it in Asia. So is that a sign of the times, is that moving on?

My question is, in your meetings, and you had a meeting just recently with other central bankers, does this thought come up about a new international world reserve currency, and if so, does the subject of gold ever come up?

How do you restore the confidence? Have you recently had conversations with any central banker, and is there a move on to replace the dollar system, because the dollar system is essentially declared dead, because it’s not working, but this indeed was predictable because of these tremendous imbalances that were never allowed to be corrected, and they were always patched up. We always came in. We’d spend, we’d inflate, we would run up deficits, and since ‘71 we’ve been able to correct these problems.

Could you tell me what kind of conversations you’ve had regarding a new reserve currency?

Ben Bernanke: Yes, Congressman. I don’t think the dollar system is dead. I think the dollar remains the premier international currency. We’ve seen a good deal of appreciation in the dollar recently during the crisis precisely because there’s been a lot of interest in the safe haven and the liquidity of dollar markets.

And the Federal Reserve has been engaged in swap agreements to make sure there’s enough dollar liquidity in other countries because the need for dollars is so strong. So I think the dollar system remains quite strong.

I do agree with you very much on one point, which is about the current accounts. The current account imbalances have proved to a very serious problem. It was in fact the large capital inflows in those current accounts which created a lot of the financial imbalances we saw and have led to some of the problems we are seeing, and one of the silver linings in this huge gray cloud is that we’re seeing some improvement and greater balance in our current account deficits.

Ron Paul: But does the subject of a new regime ever come up?

Ben Bernanke: No, it doesn’t.

Ron Paul: And does the subject of gold ever come up in any of your conversations?

Ben Bernanke: Only in terms of the sales that the central banks are planning.

I am not going to beat a dead horse by repeating explanations of why we need some kind of monetary standard tied to gold; but the bottom line is this: Either Bernanke is lying to the Congress (liar, liar, pants on fire) or we are doomed. We might escape a cataclysm greater than the Great Depression this time. We shall see. But there is no way to sustain a monetary system that is not tied to objective value and is run by politicians and bankers who reap the benefits of inflation and bubbles and pass the losses on to the little old ladies on fixed incomes and taxpayers.

The Republican/Conservative Loss -- What went Wrong?

2008-11-17T14:25:00.014-05:00

The Republicans debate what went wrong. The obvious answer is that they did not have a message that resonated with the majority of voters. While Obama’s message (Change, Hope) was exceptionally vague, people were dissatisfied with the status quo and the message resonated. Countering that message with the “maverick” image apparently was not good enough. The Republican position on the issues to a great many people was indistinguishable from the Democrats and the Republicans did not appear to propose any significant change from the Bush policies. And the conservatives are too fragmented in their approach to the ill-defined “conservatism” to present any clear political philosophy that gives the voters an alternative, more optimistic view of the world. McCain was unable to distinguish himself from Bush and the Republicans were unable to distinguish themselves from the Democrats.

Last year Robert Bidinotto published an award winning article dissecting conservatism and identifying its fragments. His analysis is helpful in understanding why these people are having a hard time developing a unified approach. See “Up from Conservatism” linked here under Good Web Posts in the left-hand column.

The article below, Let's have some Real Change for a Change, explains why the Republicans are not able to distinguish themselves from Democrats.

In the U.S. we are in a Republic where the majority rules, limited only by the Constitution. If you can’t persuade the majority, your ideas -- even your ideas about the constitutional limitations on government -- can’t set the direction for the government because, as a practical matter, those limitations are only as good as majority support for them.

If you think that the ideas (or lack thereof) of the majority have begun to change the nature of the Republic, you need to become active and speak out in a way that will persuade other people to adopt your point of view. Either become vocal and politically active or stop grumbling, join the silent minority and suffer.

You are the Enemy of the State

2008-11-13T09:43:00.016-05:00

There has been a raging debate about whether we have inflation or deflation. Likely, we have both. It depends on whether you define inflation as monetary inflation or price inflation. It is confusing because the press commonly uses inflation to mean prices going up and economists use it as meaning the money supply is going up (which eventually causes a bubble or prices generally to go up). For a more detailed explanation read Inflation, Deflation and Chaos.

The controversy centers around whether the Fed’s many actions to add liquidity to banks and restart the credit markets are inflationary. Those who say the actions are not inflationary say that the Fed is not increasing the supply of money and credit because the fed is taking collateral of equal value from the banks and, in any event, the loans are temporary. Those who say that it is inflationary include those who point out that the loans are proving not to be temporary and the collateral given to the Fed by the banks is garbage – so the banks are getting more than they are giving up. That means that the Fed is supporting the inflated values of paper held over from the credit bubble or they are adding new, good money to the system, which is an increase in value over the garbage it replaces. So it would seem to be important to know whether the collateral taken by the fed is worth the money loaned on it or whether the collateral is garbage as some allege.

Bloomberg, the financial news service, submitted a Freedom of Information Act request to the Fed to disclose information about the collateral it has taken from the banks. The Fed refused because much of its activity was undertaken using the Federal Reserve Bank of New York. So Bloomberg sued to get the information. It is noteworthy that the Fed argues that the Federal Reserve Bank of New York is not subject to the FOIA because the New York Fed is not a government agency. This is another official confirmation that the Federal Reserve System is a cartel of private banks, as I reported to you in March. Bloomberg is not giving up and political pressure is building for them to disclose the information.

The Fed is refusing to reveal information vital to us all – we need to know whether to be alert for and plan for the inflation that is going to be caused by the Fed’s actions. It is also refusing to allow the public to know whether taxpayers’ money is being poured down a black hole by taking clearly inadequate collateral from entities that under any rational accounting rules are already serious financial risks if not bankrupt.

As if granting a monopoly over money and credit to a cartel of private banks were not bad enough, allowing the national deficit to explode in one year and taking your money and giving it away in secret (part of which funds the bonuses of the clowns responsible for this mess) is beyond outrageous.

Secrecy is important when the enemy is a hostile foreign power. However, the enemy here is you -- they don't want you to know because you would act rationally to defend yourself and demonstrate that they are not acting upon your behalf but on behalf of their twisted concept of the greater good. In other words, the information is important to your financial well-being, which the government has placed in peril, and they don't want you to know it.

Making the citizenry the enemy is not unprecedented. When gold was confiscated in the 1930s, the World War I vintage Trading with the Enemy Act was amended to declare domestic gold “hoarders” enemies of the state when the President declared a “national emergency,” a term which is left undefined. Note the consistent position of the government that the current financial crisis is a national emergency.

As a general proposition, the politicians are learning that they can always get more power in an atmosphere of crisis. So the power-hungry will seek out and elevate crises before they seek more power. There are a great many potential crises out there, and there are a great many people promoting their special issue as an emergency. Just yesterday, former Vice President Gore said that President Obama “must make this January to begin an emergency rescue of human civilization from the imminent and rapidly growing threat posed by the climate crisis.” When someone cries emergency and crisis, it is a signal for you to look out. Once they frighten the population into giving the government more power and impairing the freedoms citizens once enjoyed, they never give them back.

Same Old Same Old

2008-11-12T08:08:00.003-05:00

The solution to campaign finance, lobbyists, cronyism and the like is not to constrain your political rights to contribute as much as you like to your candidate or your right to try to influence legislation. The solution is to have a Constitution that limits what the government can do so that government will not become a magnet for the corrupt. (What? I thought we already had that. Maybe not. Apparently the magnet is still there.)

Let's Have Some Real Change for a Change

2008-11-11T16:50:00.024-05:00

For decades, contemporary liberals have stopped conservatives dead in their tracks by claiming ownership of the moral high ground. The liberals are the self-declared defenders of the children, the poor, the infirmed, the handicapped, the aged. They want to give a hand up to the unfortunate and the victims of discrimination and greed. Liberals will change the era where the rich and powerful exploited the weak and powerless and give them hope. To oppose such lofty goals is to be stingy, greedy, corrupt, and just plain mean. And that is how they present conservatives and Republicans to the voters.

It works because many conservatives have accepted the premises that greed is bad and that “society” has a moral obligation to help the children, et al. Then they proceed to counter the liberals' political programs by arguing that liberals need to temper their idealism with fiscal responsibility and recognize that they could wreck the engine of prosperity by excessive taxation and deficit spending. They also argue that too much paternalism will destroy individual incentives to work hard and create taxable wealth. In other words, they concede that the liberals own the moral high ground but argue that they need to be practical.

The left will always own the high ground under these circumstances and the political battles will continue to be fought only over how to keep from killing the goose that lays golden eggs.

The Christian right argues that life, liberty and pursuit of happiness are God given rights recognized in the Declaration of Independence and because they come from God those rights have moral superiority over others. These rights include the exclusive right to the fruits of one's labors. However, their arguments are inconsistent with the religious ethics of self-sacrifice and selflessness, to which many Christians subscribe and which should make them eager to support altruistic government programs. And the notion that property rights is a principle that is morally superior to self-sacrifice is not necessarily seen by all Christians as sanctioned by God. Even the Pope is a socialist.

Libertarians (including some self-styled conservatives) have much better arguments about limited government, property rights and individual freedom, but they stop short of supporting “greed is good” with an ethical philosophy. They argue simply that the political principle of freedom allows people to be greedy as long as they to not coerce others. Libertarians lose the moral argument because they do not make it.

The opponents of the left will never own the moral high ground unless they win it on the merits of their moral arguments. And unless they own it, they will fail progressively to defend your right to earn as much as possible and to keep your property and the fruits of your labors.

How can they persuade the majority of voters that their moral and political positions are superior to those of the left? First of all, they need to subscribe to a morality that accepts rational self-interest as one of the foundations of ethics and morality. The logical consequences of a failure to do so will keep us on the road to serfdom and cede the political system to those who wish to pretend that it is moral to redistribute your wealth (i.e., to take your property and give it to their political favorites, whether they be poor people or Wall Street investment banks).

Libertarians and conservatives need to change attitudes and shine the light of day on the unstated false assumption that people who are less fortunate than you have a right to your property and your life. And that change starts with you. Changing popular understanding begins in your neighborhood, in your business circles and in your associations. It is a daunting undertaking, but it most certainly will not be accomplished if those who understand its importance shrink from the task or retreat into cynicism.

Here are some suggestions:

Start using the word “force” when referring to the government and its actions. Make a point of noting that whatever the government mandates involves coercion. Taxation, especially taxation to pay for something that could be accomplished by private individuals, is money extracted from you at the point of a gun that would not otherwise be given voluntarily. To understand what “point of a gun” means, consider what would happen if you did not pay your taxes or obey government mandates.

Because the government holds a legal monopoly over force in order to defend your individual rights to be free from force, taxation is one way to fund the police and military. But taxes should be a way to raise revenue to cover the cost of that legitimate function, not a way to achieve a social agenda. Social trends should be left to the spontaneity of free individuals.

Avoid collective, anonymous abstractions like “public” and “society” when you can communicate your message better with more specific words like “government” and “individuals” – as, for example, in government schools rather than public schools, “the individuals in charge of the government” instead of “government.” Always use the most specific term appropriate.

Point out that there is no positive morality where there is no choice. Even if one assumes that giving to the poor is an act of moral virtue, there is nothing virtuous about giving to the poor at the point of a gun. That is not sacrifice. It is being sacrificed. The morality of undertaking to be your brother’s keeper is irrelevant when you are forced to do it. So the left has no moral argument – none, none – upon which to base the government’s claim to your property to support the children, the poor, the sick, homeowners, the banks or anyone else.

Challenge the morality of redistribution of wealth. It is not some abstract notion. “Wealth” is not a natural resource owned by the government. Government “benefits” represent money taken from you and your neighbor’s children by force and given to someone else (or given back to you less a huge fee for administration). Rush Limbaugh has come close to making that argument -- but he does not go far enough and explain why our right to our own property is more than a political principle. Rights is a moral principle deriving from our nature as individual entities. (See, e.g., “Is there a Right to HealthCare?").

A complete challenge to the left requires an ability to debate the nature of morality because that is their claimed source of their power over you. And understanding the nature of morality is fundamental to the political system that you want. By what moral principle do they justify laying claim to the money that you earned to support yourself and your family? What are their premises – that you are the property of the state, that the unfortunate have a claim on your property merely because they are unfortunate? The burden of proof of their moral superiority ought to be on those who propose to take your earnings and property.

Make people define the term “greed” every time you hear it. Use their attempt at a definition (or their attempt to evade defining it) to initiate an argument about a person’s right to keep the fruits of his honest labors, no matter how intently he pursues them. Why, you should ask, is it wrong to seek to profit from a voluntary exchange – even a huge profit if the other party is willing? (Of course, if he is not willing, that is his choice. If he is not able, then there will not be a huge profit.)

Defend every person’s right to be self-interested, even greedy. Why are you complaining about executive salaries and bonuses (unless you are paying for them)? What business is it of yours what terms strangers have agreed to in their private transactions? Don’t allow the left to appeal to your envy of others to justify their efforts to take money from the wealthy. Envy is for losers – ambition is for winners.

Be ready to distinguish coercion from voluntary transactions. For example, the antitrust laws are justified in part using the theory that a seller can “force” a buyer to purchase something simply because the seller has it and the buyer wants it. That’s absurd. The government can "force" an exchange because it has the guns. A commercial seller can’t. This is a major left-wing argument: that economic power is the equivalent of a gun, that need gives someone a right to your property, that your refusal to turn it over is coercion and justifies the application of a superior force (more guns) to make you give it up at the price the needy want to pay. It is simply not true that someone who possesses goods and wants to charge his own price is the equivalent of a thug with a gun. The proponents should bear the burden of proving the morality of why need justifies the use of force.

Demonstrate the foolishness of the “but what about . . ., who is going to take care of . . .” argument: “But what about the retarded and mentally ill?” The answer is, well, what about them? “But who is going to take care of them?” The answer is, well, whom do you suggest – me? “No, the government will do it?” Then you mean me; you mean my tax money. What if I don’t want to? What if I refuse to pay? “But you can’t” And why is that? (Silence. Silence because the answer is “we will force you to.”) Don’t get me wrong. I have spent over 30 years working with private nonprofit organizations that take care of the retarded and mentally ill but I have done it voluntarily, and that is how it should be done. And there is a similar answer for every group of victims that the left wants to force you to support.

Stop advocating government solutions to social problems by suggesting that your neighbor needs to be coerced. "There ought to be a law" is a bad idea. There are already sufficient criminal laws. All other laws are suspect.

The foregoing certainly requires a change in perspective for most people. But unless the majority of people change their perspective, the politicians will continue to have the ability to fool them into believing that it is moral to exploit and victimize you and your neighbors.

Inflation, Deflation and Chaos

2008-11-04T12:29:00.009-05:00

Too many pundits are confused about the condition of the economy. It’s no wonder. The economy – the global market – is a chaotic system. Those of you who have read James Gleick’s Chaos understand that when multi-quadrillions of individual decisions and transactions are occurring, patterns develop, evincing a form of order that becomes predictable, sort of.

The science of chaos began when scientist Edward Lorenz was attempting to develop a computer model for weather. One phenomenon he observed was that when a tiny individual variation occurred, it could cause a huge reaction somewhere else in the system. It was called the “butterfly effect” after the idea that a butterfly flapping its wings in Tokyo could eventually cause a hurricane in the Caribbean. The problem is figuring out which butterfly is going to influence what kind of result. The scientists are still working on that one – there are too many butterflies, birds, sneezes and every sort of variable imaginable to contribute to the cause of who knows what. If it were possible to take into account every variable, accurate prediction would be possible. Alas, it is not. We still can only make educated guesses.

A butterfly flapped its wings in March with the bailout of Bear Sterns, setting in motion a chain of events the results of which remain to be seen. Those who warned of a moral hazard were correct. And the failure to go with the flow and bail out Lehman Brothers was another variable that changed the direction of the result, whatever that might have been or may be. (See http://216.157.72.249/index.php/2008/11/03/pandoras-box-is-open/) You might call that event a “tipping point” – much like the final grain of sand that causes an avalanche.

One variable influencing the economy is the supply of money and credit. Another variable is the aggregate view of businessmen regarding the direction of the economy and the investment choices they make based on that view. Another variable is consumers’ aggregate views about their own personal situations and futures. Another variable is the scarcity of natural resources. And there are many more, each of which can influence the other. Even the propagation of popular misconceptions is a variable because, notwithstanding the truth, those misconceptions can influence other variables.

One popular misconception is the definition of inflation. The popular understanding is that inflation is a general rise in the price levels of goods and services. That definition leaves one to wonder what caused the prices to rise and it allows demagogues to lay the blame on their favorite scapegoats. But when one understands inflation as monetary inflation, it is easier to identify one cause for a general increase in prices – an increase in the supply of money and credit, which is the Austrian economists’ definition of inflation and the one to which I subscribe.

Inflation does not necessarily cause a general increase in prices. There could be other, countervailing influences that keep the prices of goods and services down in an economy. And an increase in money and credit does not necessarily result in a runup in prices of consumer goods such as it did in the 1970s. In the past decade the prices of many (but not all) consumer goods in the U.S. were kept low by foreign imports while excessive credit caused a massive runup of prices in the real estate market. In the 1920s, consumer price levels remained low while there was a stock market boom fueled by inflation. So prices can increase in one segment of the market while they remain stable, or even decrease in another.

Deflation is the reverse of inflation. It is a contraction in the supply of money and credit. Today, we are experiencing a contraction of credit in a wide variety of areas. That contraction has originated within the banking system and it is affecting real estate prices and vice versa. Bank contraction of credit will also affect credit cards, commercial loans, municipal loans, student loans, etc., which in turn will affect consumer demand for goods and services, business investment, local and state taxes, university finances, etc., which eventually will influence the prices and business activity in the areas affected. They will be lower that they otherwise would have been.

“They will be lower that they otherwise would have been.” That is another concept that you need to get your arms (mind) around. Inflation does not cause prices to go up. It ultimately causes prices to be higher that they otherwise would have been. How do you tell, then, if there is inflation when the prices are stable? The answer is that you watch the supply of money and credit and you do not define inflation as prices going up. Otherwise, you could fail to be on the lookout for where the consequences of inflation will show up (as in – another bubble).

Another point of confusion is the fact that it takes months and sometimes years for an increase in the money supply to work its way through the economy and affect the general price levels. Thus an increase today may appear to have no effect. Indeed, some analysts predict that price inflation is a long way off because the countervailing deflation from the unwinding of the credit markets will take a very long time. As demonstrated over the past few months, however, the consequences of a decrease in the supply of money and credit can happen relatively quickly and be immediately visible.

We are in the middle of a deflation caused by a contraction of bank lending at the same time the Federal Reserve is inflating by pumping money into the system, trying unsuccessfully to get the banks to lend. (Check out these commentaries for more information: http://www.gold-eagle.com/editorials_08/ash110308.html and http://www.gold-eagle.com/editorials_08/degraaf110308.html and http://www.gold-eagle.com/editorials_08/captainhook110308.html .)

The pundits have been busy debating whether we have inflation or deflation. Those who fear the consequences of inflation argue that the Fed needs to stop pushing money and credit onto the banks, worrying that once the banks do begin to lend, the money will hit the market causing price to be higher than they otherwise would have been and/or creating another bubble somewhere. Those who fear the consequences of deflation argue that prices are not going up and they support the Fed’s efforts to unfreeze the credit markets to forestall a recession or, worse, a depression. Deflation is clearly occurring with the consequences visible in the near term. Inflation is also occurring with the consequences to come. Investors need to worry about both – how far down the current deflation will take the economy and, at the same time, where the inflation that is occurring simultaneously will take us in the longer term. It is confusing, but that’s chaos for you. You need to look for patterns.

Deflation historically has caused recessions and even depressions, stock market declines and crashes, bank and business failures. It also is an era of relatively low interest rates as the authorities attempt to forestall market corrections for the mal investments that resulted from the preceding inflation and get business activity moving.

Inflation historically has generated the boom and bust cycle, which tends to get progressively worse with each cycle – first inflation, then deflation, then inflation, etc. until inflation cannot be brought down. The “crack up boom” occurs, the currency is destroyed and with it the middle class, and a depression occurs. The aftermath of hyperinflation and currency destruction is a time ripe for a man on horseback.

A deflation brought on by market forces and allowed to return to equilibrium through the market, even if it causes a depression, is always preferable to resisting the deflation with inflation, which can end in a crack-up boom, hyperinflation and a depression. In the former case, the depression is painful but short-lived. In the latter, society as we know it could be over and, at a minimum, many things will be influenced in a direction that you will not like.

The Fed's attempts to forestall deflation by inflating are beginning to take effect. Banks are starting to lend again although demand for credit has been dampened. This might signal the end of the deflation scare that has panicked Washington. At some point down the road we should begin to see evidence of the consequences of the inflation in the prices of commodities and other assets and in an increase in market interest rates. If a public inflationary mentality develops, that would be the time to be alert to the signs of a crackup boom.

Those with a thirst for knowledge should read an account of Germany’s 1923 inflation and follow its consequences through the 1930’s. The Great Inflation is a great, concise book but it is out of print. Maybe it’s in your library.

What’s So Bad About Socialism?

2008-10-30T12:38:00.007-04:00

Barack Obama is offended that John McCain called him a socialist, as if the term were some kind of epithet. What’s so bad about socialism that politicians don’t want to be characterized as being in favor of it? Isn’t socialism about caring for the disadvantaged and being your brother’s keeper?

The conventional definition of socialism is in economic terms. It is an economic system in which the state controls and administers the means of production and distribution with a view to creating an egalitarian society. (Wikipedia) It is to be distinguished from capitalism. According to Wikipedia, “Capitalism is the economic system in which the means of production are distributed to openly competing profit-seeking private persons and where investments, distribution, income, production and pricing of goods and services are predominantly determined through the operation of a market economy in which anyone can participate in supply and demand and form contracts with each other, rather than by central economic planning.” The difference, then, is that in a socialist system the state controls the economy theoretically to produce an egalitarian society (in which those with the ability to produce support those who produce less) and in a capitalist system the state has no control and individuals are left free to pursue their own interests – state control versus freedom, and the goal of egalitarianism versus allowing the risks and rewards attendant to individual differences. In other words, socialists would force the more productive and affluent individuals (through taxation and regulation) to support those who are less productive and affluent. Capitalists would allow both the productive and the less productive to support themselves from their own efforts, abilities and conditions.

When controlling the activities of the state, the voters need to consider what kind of government they want – not only for their short term benefit (e.g., a government that allows me to vote money out of my neighbor’s pocket into my own) but also for their long term benefit (e.g., a government that does not inhibit achievement or reward dependency). And they also need to consider the morality of their choice. The Christian ethic preaches that one should be his brother’s keeper. Does that mean you should choose to be your brother’s keeper, or does it mean that you should coerce (tax and force) your neighbor to be his brother’s keeper?

In a recent article on the credit crisis in The New Individualist magazine, Eugene C. Holloway discussed moral hazard and the morality of the welfare state:

Alexis de Tocqueville warned that democracy would last only until Congress learned how to bribe the people with their own money. In the promises of the political candidates of the two major political parties, we see that this practice has now become ingrained. Beginning early in the history of the Republic, but exploding into the welfare state launched in response to the last great world financial crisis (also spawned by the Federal Reserve’s mismanagement), the federal government has pursued policies intended to relieve people of their personal responsibility to exercise due care, and has tried to eliminate reality’s harsh incentives, which train people to raise themselves from poverty. Not only has this not worked as intended and created a moral hazard among the beneficiaries; it has also preempted charity, good will, and benevolence. It has substituted inflation, taxation, bureaucratic control, government mandates, and political power for the work of voluntary organizations, cooperative associations, and philanthropists, causing people to resent being forced to become their brothers’ keeper. Where coercion is substituted for the freedom to choose, the morality of benevolence, charity, and good will is rendered irrelevant.

The ultimate moral hazard is the growing expectation that it is the role of government to bail people out of every sort of misfortune, stupidity, and vice—which, in logic, does nothing but encourage the growth of misfortune, stupidity, and vice. Correspondingly, it diminishes the role of virtue, morality, and benevolence in our culture.

Socialism would substitute government coercion for individual virtue, morality and benevolence. History has shown that it does not work. It is the tool of demagogues, power seekers and tyrants. And that is why Mr. Obama, who is more a socialist than Mr. McCain, protests being labeled a socialist.

Consider the definitions and judge for yourself who is a socialist. In fact, you can find few politicians who are not. Control is their stock in trade. Leaving people alone is not what they do.

Blame Capitalism?

2008-10-15T14:16:00.006-04:00

When the bailout of Bear Stearns took place, Hank Paulson, Secretary of the Treasury, pointedly stated that he was aware of the problem of "moral hazard," the notion that bailouts just encourage risky behavior with other people's money. And he warned the market that no one was "too big to fail." He implied that he just might let someone fail to demonstrate that the Administration was not creating a moral hazard. To prove his point, Lehman Brothers was allowed to go under when that problem could have been handled just like Bear Stearns, notwithstanding Chairman Bernanke's statements to the contrary.

The pundits are now all pointing out, perhaps correctly, that it is fallout from the failure of Lehman Brothers that has resulted in the present seizing of the banking system. And they are blaming Paulson's wooden allegiance to free market principles (i.e., Capitalism) that caused the Administration to turn it's back on Lehman Brothers.

Wait a minute, folks! This is not Capitalism. None of it. It's economic fascism.

In the context of our corporativist/fascist economy -- which was constructed over the past century by the populists, collectivists, welfare statists, pro-fascist bankers and self-dealing big government politicians -- the appropriate short-term action for Paulson to have taken in mid-September 2008 would have been to bail out Lehman Brothers, moral hazard or no. Moral hazard started long, long ago. And Paulson's misguided token action has backfired.

It will take decades, maybe longer, and much popular and political will to deconstruct the impediments to free markets, to allow people to rise or fall on their own abilities without exploiting their neighbors, and to return to limited government. I will not live to see it. Nor will my children, nor yours. But you can make sure that the ideal lives on and that at least the trends show a popular understanding of the moral and practical efficacy of Capitalism, still an Unknown Ideal.

The "Leaders" are Clueless

2008-10-11T17:18:00.004-04:00

The more and more the “leaders” of the country and the world assume that it is their role to decide how to “fix things,” the crazier and crazier it makes me. Plato was wrong. There is no man or group of men wise enough and knowledgeable enough to command an economy to work effectively. They should just get out of the way. Recovering from their past mistakes will be painful but short-lived and humanity will be better off in the long run.

Now George Reisman is a wise and knowledgeable man. He has written a huge tome entitled “Capitalism: A Treatise on Economics” and he understands how it all fits together. But he would be the first to laugh at you if you asked him to fix the economy. He has a blog on which he occasionally posts his comments. I invite you to read his August 30 entry, “Barack Obama and Sarah Palin on Taxing Oil Companies and Giving the Money to Others.”

The younger folks with a thirst for knowledge and understanding ought to read Reisman’s treatise and take his course on the Theory and Political Philosophy of Capitalism.

How To Go On Vacation

2008-10-09T17:17:00.011-04:00

In February (2008) after six months of watching the financial markets, I began to warn my family and friends about a coming downdraft in the markets. The decline in real estate and banks had already begun but I held my tongue until I knew I would feel guilty if I didn’t speak out and let them know that it was only a small precursor to what seemed inevitable.

After I began my warnings, I learned that I was going to need some major surgery – under the knife for 5 hours and out for 8. So I called my broker and said, “I really don’t need to be worried about this kind of market with surgery and recovery and the like going on. So put me into cash.” “You mean sell everything?” “Yup. Everything” “We’ll put it into our money market fund at 2.5%.” “No, I would feel better if we just put it into greenbacks. I don’t know how your money market fund makes its interest and I don’t have time to find out.” “OK, how about we just send you a check?” “Great! A check would work.” And so, my good friend at Lehman Brothers sent me a check, which I spread around to a few sound banks.

The surgery was successful. But about that time a brigade of geniuses armed with Band-Aids to apply to the jugular of the financial system, which was spurting and gushing its life’s blood in the streets, rushed on to the scene, like the Keystone Kops, eliminating any possibility that I would even think about investing in equities until the panic was over. So I just sat on it.

Possibly spooked by the surgery, my wonderful spouse was ready with an alternative to preoccupation with markets and the like. She took the opportunity of my semi-retirement from the corporate world of 12 hour days and truncated vacations to force me into weeks at the lake, extended tours, class reunions, weeks of visiting the children and grandchildren, and holidays at the relatives’. We are having a worry-free time but are scheduled to be home less than half of the remainder of the year. And I have committed that remaining time to my former employer and a few clients. How in the world will I find time to evaluate markets and companies in which to invest that cash?

Well, maybe it’s not so bad after all. The Dow closed today at 8,579.19, a nasty drop from February and 40% below last year’s all-time high. But yesterday, one of the financial newsletters suggested that a short term bottom is near, calling it a “dead bull bounce,” which I guess goes up a bit higher than a dead cat bounce. Short term bounces still don’t sound good. I guess I’ll keep my powder dry until January and have a Merry Christmas and a Happy New Year.

Windfall Profits -- Demagoguery or Worse?

2008-08-06T09:12:00.006-04:00

The Wall Street Journal in an August 4 article entitled What is a 'Windfall' Profit? exposes the economic lunacy of imposing a windfall profits tax on oil companies. Although it had huge revenues in 2007, Exxon's profit margin in 2007 was only 10% -- less than the average margins in the chemicals, computers, electronics, and pharmaceuticals industries.

The Journal implies that Senator Obama's proposal for such a tax is demagoguery rather than rank economic ignorance. Although the proposal is clearly politically motivated and economically counterproductive, there is a deeper, darker problem with it: It is founded on the unspoken premises that Exxon's investors are not entitled, exclusively, to whatever profits the company's efforts produce and that society has a claim on the fruits of their labor and capital.

These politicians have no understanding of why the Soviet Union failed and why the United States by following the same philosophy risks going down the same path to oblivion. If they adopt "to each according to his need," they will have to identify where the "from each" will be expropriated. If the ideals of freedom, including the right to property, that formed the original uniqueness of the United States are dismissed as obsolete, the productive people will find another home. The loss of Budweiser is just one example.

Political Predators

2008-08-04T09:42:00.004-04:00

Paul Gigot, head of the Wall Street Journal's editorial page, has written a hair-raising piece describing the government's attempts, for years, to silence the Journal regarding the Fannie/Freddie mess. You need to read it. See http://online.wsj.com/article/SB121677050160675397.html.

A history of the Journal's articles on the subject appears at http://online.wsj.com/article/SB121599777668249845.html?mod=rss_opinion_main

How Can they Do This??!!

2008-07-21T18:41:00.011-04:00

There was once a move to create a new punctuation mark called the interabang. It was the combination of an exclamation mark superimposed over a question mark and was intended to be the punctuational equivalent of an exclamatory question such as WHAT THE HECK??!!

The question of the day needs to be punctuated with an interabang.

In a former life I was company counsel to middle market manufacturers. Honest capitalists. In-the-trenches sales guys. Make-a-profit or die people. Periodically, one of them would come into my office with some burdensome government regulation in hand that made no sense and would ask, "How can they do this to us??!!" Doing my best not to weep, in my most professional manner, I would respond, "For thousands of years it has been the same, and it is no different now: the government is the group of guys with the most guns, or spears, or rocks. They can do it because they can and in our democracy they can because we let them." Then I would get on my soap box and preach about laissez faire capitalism, limited government and the ethical value of trade, and the freedom to trade versus government coercion – and how the ideals of the Declaration of Independence (which I kept hanging on my wall) had been corrupted. Not that it did much good.

You might ask today, knowing that you will foot the bill through taxes or inflation for every bailout that the government and Federal Reserve undertakes, "How can they do this to us??!!" After all, you were taught in your civics classes in the 1950s (they didn't teach it much later) that we are supposed to have a limited government that protects and respects our rights to life, liberty and equal treatment under the law. The answer is that they can do it because we (meaning the electorate) let them.

James Grant has written a great article in the Wall Street Journal entitled, "Why No Outrage?" You should read it in its entirety but the following comments jumped out at me:

Wall Street is off the political agenda in 2008 for reasons we may only guess about. Possibly, in this time of widespread public participation in the stock market, "Wall Street" is really "Main Street." Or maybe Wall Street, its old self, owns both major political parties and their candidates. Or, possibly, the $4.50 gasoline price has absorbed every available erg of populist anger, or -- yet another possibility -- today's financial failures are too complex to stick in everyman's craw.

I have another theory, and that is that the old populists actually won. This is their financial system. They had demanded paper money, federally insured bank deposits and a heavy governmental hand in the distribution of credit, and now they have them. The Populist Party might have lost the elections in the hard times of the 1890s. But it won the future.

The Congressional Budget Office estimates that the Fannie/Freddie bailout will cost $25 billion. Others, who question the CBO's assumptions, put the top number at $1 trillion.

It is depressing to think that you might not complain loudly, visibly and bitterly that the "heavy governmental hand" will now extract from you the cost, the great cost, of the failures of other people -- some poor and some very rich -- in order to preserve a fascist economic model that exploits you and has proved itself to be morally flawed. Unless you complain, you will continue to be a professional victim, one of the "sheeple."

In his essay, "Alienation" in Capitalism: The Unknown Ideal, Dr. Nathaniel Branden ended with a pointed comment on a poem by A. E. Housman:

“The proper answer to the question—

And how am I to face the odds
of Man’s bedevilment and God’s?
I, a stranger and afraid
in a world I never made.

—is: Why didn’t you?”

The essay (and the book, which also includes Alan Greenspan's now famous article on the gold standard) is well worth reading in its entirety.

If you carefully evaluate what the politicians in charge of the government have done, you will see that they will always take the power that you have given them, line the pockets of their friends, and find new ways to control the masses. And this time they very well may have ruined us all. (Henry C K Liu has written an excellent, detailed, fact-filled article on the Fannie/Freddie debacle, for example.) In the 20th Century, the USA had begun to develop a strong, stable middle class that was growing in affluence and size. That positive socioeconomic development, to say the least, is at risk if not over, having given way to the politics of envy and avarice.

Don't be the kind of populist that uses the government to control and take money from your neighbors. Identify and follow the philosophy that understands such abuse to be morally corrupt. Be the kind of "populist" that wants the government to get out of the people's way, to protect them from fraud and violence, and otherwise to leave them to make it on their own.

Inflation?

2008-06-29T17:11:00.009-04:00

In 1929, with a $20 bill, you could buy a very nice tailor-made suit, a fine dress shirt and tie, a good pair of shoes and a belt. You could also take the bill to the bank and exchange it for a double-eagle, a $20 coin containing one ounce of gold. The bill stated on its face, “This certifies that there have been deposited in The Treasury of the UNITED STATES OF AMERICA Twenty Dollars in Gold Coin Payable to the Bearer on Demand.” Take a look at today’s $20 bill. It is a Federal Reserve note. You can take it to the bank and exchange it for, well, another $20 Federal Reserve Note. Today, a very nice tailor-made suit, a fine dress shirt and tie, a good pair of shoes and a belt could easily cost you around $900, or about forty-five $20 Federal Reserve Notes. Or you could go to a coin dealer or the U.S. mint and buy a one-ounce gold coin for the same forty five $20 bills. In gold money, the price of a suit and such has stayed roughly the same. But the value of the dollar has shrunk. And it continues to shrink.

In a 2002 address to the Economic Club of New York City Alan Greenspan said something he knew very well when he first became Chairman of the Federal Reserve two decades ago:

Although the gold standard could hardly be portrayed as having produced a period of price tranquility, it was the case that the price level in 1929 was not much different, on net, from what it had been in 1800. But, in the two decades following the abandonment of the gold standard in 1933, the consumer price index in the United States nearly doubled. And, in the four decades after that, prices quintupled. Monetary policy, unleashed from the constraint of domestic gold convertibility, had allowed a persistent overissuance of money. As recently as a decade ago, central bankers, having witnessed more than a half-century of chronic inflation, appeared to confirm that a fiat currency was inherently subject to excess.

Do you remember when your father called you aside and tried to explain the value of compound interest? Well, here is a picture that will bring the image back to you. It is an inverse picture of what the government has allowed to happen to the value of your money. Mostly mild increases in prices year over year, but the cumulative picture is startling. In later posts I will show you some other startling, even hair raising, pictures.

Rising price levels might be tolerable if the value of all things in dollar terms rose together and in the same proportions – in other words, if it were just an accounting issue. But folks, that’s not the name of the game. Some things keep up with rising prices and some things don’t. The name of the game is to be in line to benefit first. Be an oil producer, a defense contractor, a bank pumping out CDOs and SIVs, a hedge fund dealing in credit default swaps, or a mortgage broker pushing easy money on someone who can’t afford it. Don’t be the person who is behind the curve, or under it – a retiree or a little old lady on a fixed income or someone down the line who needs to run a trucking company or airline. And don't be someone whose dollars are just sitting in a bank account. Inflation is a zero sum game of redistribution of wealth from those in the back of the line to those in the front.

Unfortunately, when one hears about the decline of the dollar today, it is a reference to the Dollar’s value relative Euros or some other paper currency, not to the value of tailor-made suits or groceries or gold. Euros, Dollars, Yen and the like are all going down in relation to tangible value, so today’s talk about the decline of the dollar merely means that the Dollar is dropping in real value faster than the other currencies. Neither is good.

The mainstream media are only recently beginning to worry about inflation and, generally clueless, they are looking for a cause, seeking to blame greedy oil companies, speculators, etc. All the while they are ignoring the simple fact that all currencies are now fiat (i.e., not redeemable in gold or anything else – backed by no more than the promise of the government that you can use the paper to pay your bills) – and that such a system, in Greenspan’s words, is “inherently subject to excess.” Most MSM reporters implicitly adopt “an increase in prices” as the definition of inflation. So they miss the point – and the culpable party.

Austrian school economists define inflation as an increase in the supply of money and credit. That increase eventually, but not always immediately, results in prices being higher than they otherwise would have been. Tinkering with the supply of money and credit to achieve government policy goals is a very dangerous game that throughout history without exception has been lost.

Lord William Rees-Mogg wrote an interesting article on inflation last week entitled “Inflation: ‘Destroying Governments Since 1789’” giving a concise history of inflation in the West since the French Revolution. Murray Rothbard wrote a simple explanation in his monograph, “What has the Government Done to Our Money?” I commend it to your reading. Alan Greenspan also described the problem quite well in his essay, “Gold and Economic Freedom” in Capitalism the Unknown Ideal. It’s tragic that Greenspan did not use his last position and the bully pulpit to bring a renewed education on the topic to the public. His squandered opportunity may very well have been the last clear chance for economic freedom and stable growth to gain a foothold in today’s world.

In any event, you will be totally bumfuzzled if you think of inflation as price increases. The latest inflation was the vast increase in the amount of money and credit that fueled the real estate bubble. The consequential rise in the price of real estate assets provided a phantom base for other credit and a false impression of wealth, both of which fueled a home-equity line of credit (HELOC)/credit card consumer economy based on borrowed money secured by something that wasn’t secure at all.

It’s over. And we are now suffering the consequences.

Why are people only now screaming so loud about higher prices when the price of food and energy have been going up for a few years. It’s because the false impression of wealth has now disappeared, HELOCs are drying up, and credit cards are getting ugly.

Without credit one normally would pay as you go. If fuel prices go up, you drive less or find a cheaper mode of transportation. You fly less or not at all. If the cost of groceries goes up, you try to shop smarter and eat cheaper, cut out the soda and paper towels entirely. And you start to look everywhere for ways to not spend. This will take its toll on prices. The supply/demand curve loses a certain amount of price elasticity without freely available credit. When a seller’s price increases cause people to stop buying, the market is telling him it’s time to stop raising prices. If the supply of money and credit is not there, the rising prices will ultimately stop.

Unless, that is, someone makes money and credit freely available again. Fed Chairman Dr. Ben Bernanke is an academic expert on the mistakes the Fed made following the crash in 1929 that (in his view) prolonged the last great depression. Here is how he proposed in 2002 to address the threat of a deflation:

“The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

Unfortunately, increasing the number of dollars in circulation or credit available to banks will not and is not doing the trick. The Fed has made the money available to the banks, but they are running scared. They are not lending. A massive deflation is now underway in the credit and financial markets. (Read Michael “Mish” Shedlock’s “Is the Inflation Scare Over Yet?” Almost everything he writes is well worth reading.) The credit and credit derivatives markets are so huge that they dwarf the capability of the Federal Reserve or United States to control them. The bursting of the real-estate bubble and resulting deflation in those markets has caused credit and real estate asset prices to nosedive. And the financial markets and consumer economy built on home equity lines of credit, credit cards, and misperceptions of wealth are going down with them. If the Federal Reserve makes new injections of money and credit, they could create yet another bubble somewhere else and will likely sustain the continued “elasticity” (increases) in the prices of food and energy.

Each person’s financial situation is unique and it doesn’t work very well for me to offer advice to other people without knowing their circumstances. But here is what I do for myself that I would recommend anyone do.

Try to stay out of debt. Anything more than an 80% mortgage and a car loan is a risk; and, these days it is better to have a 50-75% mortgage or none at all. Too many people are now faced with owing the bank lots of money if they want to sell their home.

Live frugally and don’t waste money. This is going to be very hard for the X Box/iPod generation. Figure out a process for determining how to decide whether it’s something you want or something you need, and use the process in every purchasing decision you make. And, I can't say it more simply: don't spend more than you can ever hope to pay off.

Strive for personal excellence: work hard at your job and be the best at what you do. A rise in unemployment is a strong possibility and you want to be the last person out the door. If you are an entrepreneur, know that investment capital is scarce and investors will put their money behind only the best.

Be very aware of where your savings and investments are. In coming posts I will describe how fragile the banking system is and will identify some types of securities that were thought to be safe and liquid but are no longer.

Educate yourself two ways. Gather as much knowledge about the economy and the markets as you possibly can – and do not stop, because they change and develop every minute. If you are young, invest in yourself and pursue as much higher education as you can use in your chosen career. Government mismanagement and misfortune cannot take that away from you.

More to come . . .

Crash in the Stock and Credit Markets?

2008-06-28T14:34:00.008-04:00

This past week (the last full week in June 2008) the stock market was described as having its worst June since 1930. The week before, London Telegraph reported that the Royal Bank of Scotland “advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. … ‘A very nasty period is soon to be upon us - be prepared,’ said Bob Janjuah, the bank's credit strategist.”

The RBS statement was only one of the latest pronouncements from a cacophony of doomsayers. That is not to say that these people don’t have anything useful to say. They are sounding an alarm that at a minimum should make you curious about something that could affect you personally. And you owe it to yourself to try to understand what is going on.

In the posts that follow, I will attempt to educate you in the history, the philosophy and the economic developments that brought us to the point where responsible institutions have become so strident in their warnings. Meanwhile, consider these facts about commodity price increases in the past year, compliments of Jim Sinclair:

Crude oil up 42.5%
Ethanol up 20.7%
Heating oil up 43.9%
Natural gas up 76.5%
Unleaded gas up 39.5%
Cattle up 1.0%
Corn up 58.8%
Soy beans up; 26.4%
Coffee up 5.9%
Aluminum up 32.7%
Copper up 25.7%
Platinum up 33.4%
Gold up 6.0%
Silver up 13.4%.

You can see that the cattlemen must be suffering from rising feed prices. Here is more from the Cattle Network. Are you feeling anything when you pay $70 to fill up your SUV? How about at the grocery checkout counter? But of course your employer has upped your salary to compensate for these breathtaking increases. And your Social Security is indexed to the CPI (Oops, I forgot. The index for Social Security excludes food and energy!)

Pollyanna versus Chicken Little

2008-06-28T09:56:00.010-04:00

The meltdown in the financial markets that became manifest in earnest last summer has generated an incredible variety of commentary -- from Pollyanna to Chicken Little. Where the economy is headed is important to all of us. I will devote extensive space in the coming months to all sides and all aspects of the raging debate, and I will contribute my own evaluation. But it is important to study how these opinions are developed: what are the facts (actual occurrences and things) and are all relevant facts included, what is the context, what is the logic (the validity of the reasoning), and are the conclusions warranted in light of the foregoing?

The economic news and commentary is fast and furious, coming at a rate and volume that is almost impossible to digest. Furthermore, most commentators speak from their own perspectives and are rarely self-critical. Those who own gold mines obviously would like to see the price of gold rise. Financial advisers would like to sell you their services. Newspeople want to improve their stature in their corner of the news industry. Stockbrokers want you to buy stocks and bonds. Et Cetera. So it is all the more important to be skeptical and study the facts to verify any conclusions that are presented to you.

As for myself, I am retired, own my modest home outright and have retirement savings that probably are not near enough to sustain my pre-retirement standard of living to the end of my life expectancy. So my financial self-interest is not much different from the ordinary prudent middle class retiree.

While economics itself is fairly simple, the economic superstructure is extraordinarily complex. For example, one of the largest threats to your personal economic well-being is the stability of the multi-trillion dollar market in over-the-counter credit derivatives that is larger than the annual gross domestic product of the United States. Even more complex are the strictures that governments have placed on the free markets. These strictures distort rather than eliminate market forces, making it difficult to forecast the short term direction of the economy. I will attempt to make these complexities somewhat understandable.