War and Reason

One of the most expensive and wealth-destroying activities of a government is war.  It can wreck the economy of a country and bring sorrow and death to its best people. If we are going to commence a war, it ought to be worth the sacrifice and expense of the soldiers and taxpayers who will bear the burden. That's why the founders made a Declaration of War a Congressional prerogative. http://en.wikipedia.org/wiki/War_Powers_Clause

James Holmes, the Naval Diplomat, had posted "On Syria, Don't Bark Louder Than You Bite."  By continually making threats with the hope that your opponent will change, you leave yourself with no option but to carry out the threat or lose important credibility.  This is ordinary common sense, but common sense in this regard (and others) has eluded every Administration since 1941.

In the cover story of the January/February 2007 issue of The New Individualist magazine, Sherrie Gossett used our involvement in the breakup of Yugoslavia as an example of "The Democrats' Model War:"

Observe that while most liberals (and many conservatives) recoil from any self-interested projection of American military might abroad, they fall all over themselves to demonstrate “pure, selfless motives” by launching military actions like those in Kosovo, where America had no vital interests at risk, but precious lives and treasure to sacrifice.

For such people, the hideous real-world consequences of their altruistic crusades pale in the face of their “idealistic” motives. For them, in truth, “good intentions” are the only reality—with “good” being defined as “selfless.” The logic of the selflessness ethos is inescapable: We should engage in warfare only when we have nothing to gain from it.

The moral self-deception continues to this day. Even as the brutal ethnic cleansing of Kosovo’s minorities by racists and fascists goes on, the Clintons—former president and presidential aspirant alike—continue to tout the military adventure in the Balkans as a victory for “democratic values” of humanitarianism and multicultural tolerance. Their selfless war, they insist, stands as an idealistic model of how a future Democratic administration should and would employ American military power abroad.

Consider that fair warning

Allowing tyrants to arm-up, especially in an unstable area where war is likely, is a risk to regional if not world stability; and there is some merit to ensuring sufficient stability in regions where our oil supplies originate.  But selflessly making war to export "democracy" has never resulted in the kind of democracy we had hoped to benefit us -- witness Iraq, Afghanistan, Egypt, etc.  War for that reason is just plain stupid and it  exposes hypocrisy so patent that it confirms the third world's view that the U.S. has imperialist designs that threaten their independence. That in itself is destabilizing.

If our government is too embarrassed to openly state that it is protecting its oil interests and declines to secure Congressional approval for making war on another country, perhaps it should stop wasting our money on war and start using that money to encourage us to have oil self-sufficiency. Better yet, it should stop impeding our oil self-sufficiency, get out of the way, and use our tax money to return our government to solvency.

Racial Progress and the Welfare State

A few weeks ago, before the trial ended, one of my friends asked me what I thought the verdict would be in the Trevon Martin case. I replied that I hadn't given it much thought and, anyway, the jury in these media circus trials will always have more facts than I do. The friend seemed mystified that I had no strong position one way or the other. I suspect that I was being led into a discussion of the racism exhibited by pundits on both sides as if the trial were about racism rather than homicide. If you were following the case, you would have seen that the incident really had nothing to do with race; but for the media, it was issue number one.

Walter E. Williams and Thomas Sowell are among my favorite intellectuals because they combine a penchant for facts, superior knowledge, reason and common sense. On the subject of race they also have a valuable perspective to communicate and racists don’t intimidate them.

 In "Black Sabotage" Williams cites some startling statistics:

. . .  black female-headed households were just 18 percent of households in 1950, as opposed to about 68 percent today. In fact, from 1890 to 1940, the black marriage rate was slightly higher than that of whites. Even during slavery, when marriage was forbidden for blacks, most black children lived in biological two-parent families. In New York City, in 1925, 85 percent of black households were two-parent households. A study of 1880 family structure in Philadelphia shows that three-quarters of black families were two-parent households.

The poverty rate among blacks is 36 percent. Most black poverty is found in female-headed households. The poverty rate among black married couples has been in single digits since 1994 and is about 8 percent today. The black illegitimacy rate is 75 percent, and in some cities, it's 90 percent. But if that's a legacy of slavery, it must have skipped several generations, because in the 1940s, unwed births hovered around 14 percent.

Each year, roughly 7,000 blacks are murdered. Ninety-four percent of the time, the murderer is another black person. According to the Bureau of Justice Statistics, between 1976 and 2011, there were 279,384 black murder victims. Using the 94 percent figure means that 262,621 were murdered by other blacks. Though blacks are 13 percent of the nation's population, they account for more than 50 percent of homicide victims. Nationally, the black homicide victimization rate is six times that of whites, and in some cities, it's 22 times that of whites.

Williams says that “having a conversation [with white people] about race . . . is beyond useless." Blacks need to fix their own problems:

Disgustingly, black politicians, civil rights leaders, liberals and the president are talking nonsense about "having a conversation about race." That's beyond useless. Tell me how a conversation with white people is going to stop black predators from preying on blacks. How is such a conversation going to eliminate the 75 percent illegitimacy rate? What will such a conversation do about the breakdown of the black family (though "breakdown" is not the correct word, as the family doesn't form in the first place)? Only black people can solve our problems.

In "Who is Racist?" Sowell places part of the blame for deterioration of the black family on black "leaders:"

Over the generations, black leaders have ranged from noble souls to shameless charlatans. After the success of the civil rights insurgency, the latter have come into their own, gaining money, power and fame by promoting racial attitudes and actions that are counterproductive to the interests of those they lead.

 A position I have maintained for decades is that the rise in illegitimacy and deterioration of families, especially black families (see statistics at http://www.census.gov/newsroom/releases/archives/american_community_survey_acs/cb13-80.html), has coincided with the growth of the welfare state. Indeed, it likely was a principal cause. Discover The Networks.org describes the connection well in "How the Welfare State Has Devastated African Americans."

As Williams and Sowell point out, it was not always this way. As demonstrated by at least one prominent public figure, America began the 20th Century with optimism and hope -- among both blacks and whites -- that blacks could realize the American Dream.  Booker T. Washington’s autobiography Up from Slavery (free pdf here) is an inspiring story of a one-time slave who became a nationally respected educator, author and orator. In inspiring speeches around the country Washington advocated mutually beneficial relations among the races and black progress through traditional American values – working hard and striving for excellence. In an address before the National Education Association in Madison, Wisconsin, he advised:

 . . . that the policy to be pursued with references to the races was, by every honourable means, to bring them together and to encourage the cultivation of friendly relations, instead of doing that which would embitter. I further contended that, in relation to his vote, the Negro should more and more consider the interests of the community in which he lived, rather than seek alone to please some one who lived a thousand miles away from him and from his interests. . . . the whole future of the Negro rested largely upon the question as to whether or not he should make himself, through his skill, intelligence, and character, of such undeniable value to the community in which he lived that the community could not dispense with his presence. I said that any individual who learned to do something better than anybody else—learned to do a common thing in an uncommon manner—had solved his problem, regardless of the colour of his skin, and that in proportion as the Negro learned to produce what other people wanted and must have, in the same proportion would he be respected.

Later in his widely distributed address at the Atlanta Cotton States and International Exposition in 1895 he spoke of his own spiritual growth, which stands in stark contrast to the divisive messages we see in the media today

In my early life I used to cherish a feeling of ill will toward any one who spoke in bitter terms against the Negro, or who advocated measures that tended to oppress the black man or take from him opportunities for growth in the most complete manner. Now, whenever I hear any one advocating measures that are meant to curtail the development of another, I pity the individual who would do this. I know that the one who makes this mistake does so because of his own lack of opportunity for the highest kind of growth. I pity him because I know that he is trying to stop the progress of the world, and because I know that in time the development and the ceaseless advance of humanity will make him ashamed of his weak and narrow position. One might as well try to stop the progress of a mighty railroad train by throwing his body across the track, as to try to stop the growth of the world in the direction of giving mankind more intelligence, more culture, more skill, more liberty, and in the direction of extending more sympathy and more brotherly kindness.

How tragic it is that the magnanimity of Booker T. Washington is no longer the ideal being widely pursued both by many self-appointed black leaders and by white leaders who espouse economic progress, equality and justice for blacks.

The Atlas Question

The fate of the European economy matters because it will affect us.  Europe is teetering on the edge of a cliff over which it is likely to fall, the only question being how deep is the chasm.  To decide how to defend yourself you need to understand what is going on.

For those with a thirst for detail, the following provides a summary of current events and asks the telling questions, including the rhetorical question, "Is Atlas about to shrug and topple the entire oh so heavy house of cards?"   http://www.zerohedge.com/news/germany-cries-europe-coming-our-money-greece-promptly-obliges  For the rest of you, read on.

Realists have already written much about the many trial balloons floated by European "leaders" but their proposals for the most part are ways to avoid the real problems they face, which are more government than they can afford and unsustainable debt.  If there were a solution acceptable to the insolvent countries, they would have implemented it already. But they continue to maintain that they should borrow more money and not restructure their economies to be self-sustaining. It just doesn't compute without massive money-printing.

As a solution (and a way to preserve the Eurozone as is), the "leaders" of Europe propose to have a European superstate which will control absolutely the finances of its member countries and which will be able to force any country to tighten its belt, even severely (envision some outside entity summarily raising the retirement age by 15 years).  They also propose as part of the same package to launch another bailout fund (The European Stability fund -- "ESM") with a blank checkbook/unlimited call for more funding from the member states, the practical effect of which will be to place Germany on the hook for forking over 32 to 56% of its GDP to bail out profligate spenders whenever bureaucrats in Brussels require it.  The same "leaders" propose to effect this scheme without securing approval from their countries' voters, which, fearing rejection, the "leaders" have studiously avoided.

The truth is that the proposed scheme is probably the only economic solution that could work if all of the countries make nice and the German people are all altruistic.  But they are not. Only 4 of 17 countries needed have approved the treaty required for the ESM. Putting it to the voters, especially in Germany, where the people have realized that they are being victimized, is problematic (they might vote it down) and not putting it to the voters is problematic (as in defiance and/or civil unrest).  Moreover, as the past two years demonstrate, as long as the insolvent countries can borrow money, they will postpone the day of reckoning.

This will not end well.  The markets are (slowly) beginning to realize that the frenetic posturing of Europe's "leaders" is just whistling in the dark.  No solution is forthcoming soon.

I have always recommended that you remain alert, nimble and quick but have avoided giving investment advice.  Since 2008 when I began writing this blog, the Dow-Jones index dropped 4,000 points to below 8,000 and rebounded back to over 12,000.  I warned that the drop was coming but I expected a slow recovery as businesses worked through a recession, which is only now beginning to end.  Little did I imagine that the Fed would take the unprecedented step of pumping up the the stock market, which it now freely admits as Fed policy, to influence investor perceptions and restore confidence.  The unintended consequence of implementing its policy was to destroy the market as a useful predictor of stock values and business and economic health.  Consequently, many investment professionals have become Fed watchers, relying less on balance sheets and business prospects of private enterprises and more on the public pronouncements of government bureaucrats and politicians.

And the professionals have become short time traders, gambling on government policy, rather than long term investors who hope to share in the real wealth created by productive businesses. There will come a time when the less sophisticated investing public finally realizes that they have been playing in a casino and that the cards have been stacked against them by the house.  How big a market drop will that realization trigger -- when and how fast?  I do not know but it could be soon -- or not, if they can find another can to kick.

Are We Following the Republics That Failed?

I was reminded lately of the Commentaries on the Constitution of the United States, a treatise  written by Justice Joseph Story and published in 1833.  A quote from this work appeared as the preamble to a commentary (http://www.zerohedge.com/news/guest-post-china-will-blink-and-gold-will-soar) on Zero Hedge: 

Republics are created by the virtue, public spirit, and intelligence of the citizens. They fall, when the wise are banished from the public councils because they dare to be honest and the profligate are rewarded because they flatter the people in order to betray them.

We are heirs to the wisdom of the ages from many quarters -- and who is listening?

Being aware of Justice Story's scholarly tome, which was the seminal work on our Constitution for many decades, I resolved to find it on the Internet and identify more of his words of wisdom.  

The entire work appears at http://www.constitution.org/js/js_005.htm

His Concluding Remarks, the final short chapter of the three-volume treatise, are well worth reading; but the first and last paragraphs, which end with the above-quote, are especially pertinent to our political environment today:

§ 1903. We have now reviewed all the provisions of the original constitution of the United States, and all the amendments, which have been incorporated into it. And, here, the task originally proposed in these Commentaries is brought to a close. Many reflections naturally crowd upon the mind at such a moment; many grateful recollections of the past; and many anxious thoughts of the future. The past is secure. It is unalterable. The seal of eternity is upon it. The wisdom, which it has displayed, and the blessings, which it has bestowed, cannot be obscured; neither can they be debased by human folly, or human infirmity. The future is that which may well awaken the most earnest solicitude, both for the virtue and the permanence of our republic. The fate of other republics, their rise, their progress, their decline, and their fall, are written but too legibly on the pages of history, if indeed they were not continually before us in the startling fragments of their ruins. They have perished; and perished by their own hands. Prosperity has enervated them, corruption has debased them, and a venal populace has consummated their destruction. Alternately the prey of military chieftains at home, and of ambitious invaders from abroad, they have been some cheated out of their liberties by servile demagogues; sometimes betrayed into a surrender of them by false patriots; and sometimes they have willingly sold them for a price to the despot, who has bidden highest for his victims. They have disregarded the warning voice of their best statesmen; and have persecuted, and driven from office their truest friends. They have listened to the fawning sycophant, and the base calumniator of the wise and the good. They have reverenced power more in its high abuses and summary movements, than in its calm and constitutional energy, when it dispensed blessings with an unseen, but liberal hand. They have surrendered to faction, what belonged to the country. Patronage and party, the triumph of a leader, and the discontents of a day, have outweighed all solid principles and institutions of government. Such are the melancholy lessons of the past history of republics down to our own.

****

§ 1907. If these Commentaries shall but inspire in the rising generation a more ardent love of their country, an unquenchable thirst for liberty, and a profound reverence for the constitution and the Union, then they will have accomplished all, that their author ought to desire. Let the American youth never forget, that they possess a noble inheritance, bought by the toils, and sufferings, and blood of their ancestors; and capable, if wisely improved, and faithfully guarded, of transmitting to their latest posterity all the substantial blessings of life, the peaceful enjoyment of liberty, property, religion, and independence. The structure has been erected by architects of consummate skill and fidelity; its foundations are solid; its compartments are beautiful, as well as useful; its arrangements are full of wisdom and order; and its defences are impregnable from without. It has been reared for immortality, if the work of man may justly aspire to such a title. It may, nevertheless, perish in an hour by the folly, or corruption, or negligence of its only keepers, THE PEOPLE. Republics are created by the virtue, public spirit, and intelligence of the citizens. They fall when the wise are banished from the public councils, because they dare to be honest, and the profligate are rewarded because they flatter the people in order to betray them.

How do we measure up after 180 years? Are we living up to the principles bequeathed to us by the Founders or are we following the republics which failed?

A Fence to Keep People Inside

Not so long ago, when someone criticized the USA, I would ask why people were beating down the doors to immigrate here, so much so that we had a massive illegal immigration problem and needed a fence to keep people out. It probably was the case, and still is, that the individual liberty we enjoy is a magnet for those foreigners who cannot succeed economically in their home countries.  So I find it strange that our political leaders would want to pass laws to inhibit people from renouncing their citizenship and moving away. 

The Brazilian-born co-founder of Facebook, who was raised in Miami, has renounced his U.S. citizenship and is moving to a more tax-friendly country.  Senator Schumer is outraged that someone who used the advantage of freedom that the U.S. provides to make billions is now moving away to avoid paying more taxes.  The Senator has introduced a bill designed to punish people who relinquish their U.S. citizenship and inhibit citizens from leaving. See  Why the Ex-Patriot Act is a Creepy Law.   Senator Schumer's bill is not unique or unprecedented.  We have had such laws since the Clinton administration. See U.S. Citizens One Step Closer to Becoming Tax Slaves.

Freedom is not a gift or privilege granted by the government.  There is no foundation for the argument that the freedom you enjoy obligates you stay here and pay the government for the privilege.  And that is not because you have already paid taxes for the time you were here -- although you have.  It is because freedom is an inalienable right that transcends government, a principle that is routinely  ignored, or has been forgotten, or was never learned. Isn't is interesting that the departure of productive people from the United States to such an extent that the government needs to force you to stay has begun relatively recently with the explosion of government and its assumption of omnipotence.

The Invisible Hand vs. The Heavy Hand

The field of political economy interested me at an early age and I have been immersed in for almost 50 years, studying economic regulation (L.L.M.) and practicing law in Washington before a number of the alphabet soup of administrative agencies there.   From the outset I was opposed to the notion of a political economy. --  i.e., a politically controlled economy -- similar to the lawyer who enjoys practicing criminal law but doesn't think crime is good idea.  Law school gave me an enriched opportunity to evaluate the the theory and practice of U.S. economic regulation and compare it to my carefully studied political and economic philosophy.   That evaluation confirmed my worst fears.

Now that the financial crisis has publicly exposed corruption,  crony capitalism and government overreaching, to the greatest extent in history, many people are outraged .  Some are even beginning to understand that giving politicians the power to control and influence the economy, is not a good idea. They are mad and are blaming the politicians and bureaucrats for running the country into the ground.  And they are protesting, loudly.  The mass media brush off the Tea Party movement and Oppose Wall Street as insignificant.  But they are symptomatic of a national disgust with the corrupt deficiencies and ineptitude of the Federal government and politicians' arrogant assumption of powers over people that the Constitution forbids.

Attempts by government to control an economy cannot happen if it is opposed by the people (who are, in fact, the economy).  And control is much easier if the people know of no reason to oppose it.  Even if that control is misguided and destructive, if no one knows about it or its negative effects, there ought to be little opposition -- or at least so the thinking goes.  So part and parcel of running a political economy (be it the USSR or the USA) is maintaining a firm grip on the information received by the people, and suppressing bad news and the people who spread it.  Thus the connection between political and economic freedom. Political freedom and economic freedom are interdependent.  Erosion of one is accompanied by erosion of the other.

For the above reason, while I mostly report about economic matters, I occasionally identify and report threats to our civil liberties,  especially those threats that can apply to people who want to speak out about against the government's actions in the realm of political economy.  Those threats have been around almost since the founding of the Republic (e.g., Google the Alien and Sedition Acts).  While many of them have been neutralized (primarily by the Supreme Court), some laws nevertheless have been placed on the books over the past two centuries that can be used and have been used to suppress and punish mere vocal opposition to government policies and actions.

Congress periodically proposes more such laws when a pretext arises that causes popular support for them.  Typically,  the argument for such laws is that a sufficiently sizable emergency exists that requires that people sacrifice personal liberty for more security.  Domestic crises and all wars provide such a pretext.  Examples of such crises are the recent financial crisis, Cold War, the War on Poverty, the War on Drugs and the War on Terror (Note that the term "war" is now being used as an action against a concept as distinguished from action against another nation.  A war against a concept is less specific and can cover a wider range of government activity. It also gives the President broad executive powers over domestic matters, powers that are more appropriate to a hot war.)  The passage of laws that threaten civil liberties has mushroomed in recent years as the powers that be ("TPTB)") have learned how to create a continuing crisis to frighten people into acquiescing to more government control and intrusion.  We are now experiencing a "forever war" and a continuing "national emergency."

I have been collecting articles about recent laws and government activity that threaten our civil liberties and economic freedom.  But because many of the articles are burdened with speculation, I have refrained from posting links to them, preferring to extract the facts and produce an objective study.  But the continuous stream of relevant articles has slowed the process. Here is the most recent, from USA Today: "Government Smears Journalists Who Investigate Government Corruption" The details in the article are more ominous than the title implies.   The alleged activities fly in the face of the Federal Government's own published information regarding the First Amendment, which makes worthwhile reading.

 

Too Long Without a Post?

The past 15 years have seen a good number of blogs develop from small beginnings into influential media powerhouses that took their creators from their "real jobs" to become professional bloggers. Sites like Breitbart.com, The Drudge Report, Pajamas Media, ZeroHedge and Global Economic Trend Analysis are now established sources of news and opinion visited daily by vast numbers of people.  Mike Shedlock discussed what it takes for commercial blogging success in New Economic Model for Bloggers, where he listed the why some blogs do not generate enough traffic for commercial success:

• Inconsistency in posting quality
• Inconsistency in posting frequency
• Content too similar to what the top few blogs post
• Site too new to attract a large following
• Blog author gives up

You will note that it has been over a year since my last post.  Clearly I have paid no attention to posting frequency and apparently am not interested in building traffic for commercial success.

This blog has limited objectives.  The first is to to provide the reader with a perspective that he might not find elsewhere by synthesizing a number of disparate opinions and news reports and making observations that might educate and enlighten readers, or to point out reports on the internet that the reader might overlook.

The other objective is to serve as a handy launching point for daily reading of the blogs and news sources which provide a useful understanding of economic events and social trends -- events and trends the understanding of which is important to your economic well-being.  If this site is used as a launching point, the reader will occasionally find my own contribution.  Many bloggers, even some of my favorites, post news and opinion that appear elsewhere and contribute little more of substance to their post.  I hope not to do that and remain content to defer to others who can devote their full time and attention to blogging.  As a retiree, I do not have a real job, but I have a real life.

The reports you can find in the links shown here in the right-hand column have, over the past year, quite adequately followed important events, trends and opinions, which include the unraveling of the European Monetary Union, the tragic potential of a global fiat monetary system, the rampant corruption in high places, the folly of unsustainable debt, and the continued slow conversion of the United States from a government that protects and respects liberty and achievement to one controlled by an elite political class and their cronies and which promotes government dependency and a servile population.

The Century-Old Secretive Banking Elite

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

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.


---------------------------------------------------------------

*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.