One hundred fifty years ago today, the American Civil War began in earnest when Confederate forces fired upon the Federal fort at Fort Sumter that guarded the approaches to Charleston. While the two day battle that led to a Union retreat marks the formal start to the War between the States, fighting had already been raging between pro-slavery and abolitionist forces in Kansas and Missouri on and off beginning as early as 1854. And while formal hostilities would cease in April 1865 after over 600,000 lives lost, the secessionist states would be occupied by Federal troops until 1877. And for some in the South, it sometimes seems that War has not yet ended.

While there are still a few people who first think themselves citizens of a given state, a custom perhaps most egregious in Texas, and then a citizen of the United States second, most Americans now, I would hope, see themselves as Americans first. Before the Civil War, this was certainly not the case. For John C. Calhoun, his country was South Carolina.

The War is no doubt the watershed event in American history. The most fundamental transformation brought forth by the Civil War is that before the War one would say that the United States are essentially defining the country as a collection of independent states but after the War, it became the United States is. In this regard, the War becomes the catalyst for a tightening of the American bond. Our conception of nationality was forged through the course of that bloody conflict. Indeed, the Civil War ushered in the first constitutional definition of US citizenship. How that "are" became an "is" is the defining story of the country and that debate in the minds of some conservatives is not yet settled.

On the other hand, the Civil War left an indelible mark on the South. It scarred the psyche of the southerners where the War is still to this day called the War of Northern Aggression, the War for Southern Independence, or alternatively the Slaveholders' Rebellion. Nor do all southerners considered the War a conflict over the issue of slavery but rather a war over states' rights.

Southerner apologists often go to great lengths to paint the as anything but a conflict over slavery. Southern revisionism remain a cottage industry to this day. Take for example, Llewellyn H. Rockwell, president of the Ludwig van Mises Institute in Auburn, Alabama who writes "the South was being looted to pay for the North's early version of industrial policy." Rockwell isn't even a historian nor an economist but rather a proponent of the Austrian School of Economics. For that matter, he isn't even a southerner but rather from Boston with a degree in English from Tufts. But for free traders, the South is a cause célèbre because the cotton exporting, finished goods importing South was against a high tariff policy. Taxes, then as now, are not a Southern thing.

But no historian views tariffs as the cause for the war in part because in 1857 tariffs were actually lowered in response to the financial panic of that year. If there is a single cause for the dissolution of the Union, and hence, the War it is the prolonged debate over expansion of slavery into the territories. If at independence, the political balance of the country was tilted in favor of the South by 1850 that balance was decisively moving in the North's direction as more free states entered the Union and as the North's population simply exploded. By 1860, the South was headed towards a permanent status as a political minority having failed to elect a southerner to the White House in three successive elections.

There can be no escaping that the South that by 1865 was a defeated country whose culture was shattered. Economically, the region was devastated. The destruction of slavery meant that the entire Southern economy had to be rebuilt. Cotton exports would not match their pre-war high until 1879. Its share of US GDP would fall over the next 75 years as the North and Mid-West industrialized while the South remained an agricultural backwater. Overall, the region did not fully recover until the post World War II boom. To this day, Mississippi remains the poorest state in the Union and lowest socio-economic indicators are most prevalent in the South.

Still politically, the South has held together more than any other region of country giving it an outsized influence in national affairs even if no southerner would be elected to the White House between Zachary Taylor and Lyndon Baines Johnson (Woodrow Wilson was actually born in Virginia but he was elected from New Jersey and Andrew Johnson was from Tennessee but he was an accidental President). Its dominance was most acutely felt in the Senate during periods of Democratic control when southern Senators through use of the committee system effectively controlled that branch of government. And they would use that power to protect a race-based southern culture well into the 20th century.

Here are some collected thoughts of historian Shelby Foote on The Civil War:

This is the second column in a series responding to Stephen Moore's central assaults on regulation and the prosecution of the elite white-collar criminals who cause our recurrent, intensifying financial crises. Last week's column addressed his claim in a recent Wall Street Journal column that all government employees, including the regulatory cops on the beat, are “takers” destroying America.

This column addresses Moore's even more vehement criticism of efforts to prosecute elite white-collar criminals in an earlier column decrying the Sarbanes-Oxley Act's criminal provisions: “White-Collar Witch Hunt: Why do Republicans so easily accept Neobolshevism as a cost of doing business?” [American Spectator September 2005] This column illustrates one of the reasons why elite criminals are able to loot “their” banks with impunity – they have a lobby of exceptionally influential shills. Moore, for example, is the Wall Street Journal's senior economics writer. Somehow, prominent conservatives have become “bleeding hearts” for the most wealthy, powerful, arrogant, and destructive white-collar criminals in the world.

Criminology research has demonstrated the importance of “neutralization.” Criminals don't like to think of themselves as criminals and their actions as criminal. They have to override their societal inhibitions on criminality to commit their crimes. When prominent individuals like Moore call their actions lawful and demonize the regulatory cops on the beat and the prosecutors it becomes more likely that CEOs will successfully neutralize their inhibitions and commit fraud. People like Moore have never studied white-collar crime, have no knowledge of white-collar criminology, do not understand control fraud, and do not understand sophisticated financial fraud mechanisms.

They show no awareness of the economics literature on accounting control fraud, particularly George Akerlof & Paul Romer's famous 1993 article – “Looting: the Economic Underworld of Bankruptcy for Profit.” People like Moore not only spur neutralization, they actively campaign to minimize the destructiveness of elite white-collar crime and to deny the regulators and the prosecutors the resources to prosecute the criminals.

My favorite in this genre was authored by Professor John S. Baker, Jr. and published by Heritage on October 4, 2004.

http://www.heritage.org/Research/Reports/2004/10/The-Sociological-Origins-of-White-Collar-Crime

Baker concludes his article with this passage:

“The origin of the "white-collar crime" concept derives from a socialist, anti-business viewpoint that defines the term by the class of those it stigmatizes. In coining the phrase, Sutherland initiated a political movement within the legal system. This meddling in the law perverts the justice system into a mere tool for achieving narrow political ends. As the movement expands today, those who champion it would be wise to recall its origins. For those origins reflect contemporary misuses made of criminal law--the criminalization of productive social and economic conduct, not because of its wrongful nature but, ultimately, because of fidelity to a long-discredited class-based view of society.”

We “stigmatize” criminals precisely to increase the difficulty potential criminals face in neutralizing restraints against engaging in crime. Stigmatization is an important restraint reducing crime. Indeed, it is likely that stigmatization can be most effective in reducing crime in the context of elite white-collar criminals because such individuals have more valuable reputations that can be harmed by stigma. A violent street criminal may find a reputation for violence useful. Sutherland's research demonstrated that elite white-collar criminals were often able to violate the law with impunity. The corporation they controlled might pay a fine, but the CEO was typically not sanctioned when the corporation violated the law – even when the violations were repeated and egregious. Class proved, empirically, to be a powerful predictor of criminal prosecutions, convictions, and sentencing. Sutherland correctly sought to stigmatize elite white-collar criminals and to get policy-makers, academics, and the criminal justice system to view their crimes as important. Sutherland's partial success in doing so is what enrages people like Moore and Baker. By the way, in order to publish his famous book on white-collar crime, Professor Sutherland was forced to delete his tables setting forth the violations of law by many of America's top corporations – even though it was all public record information. The censorship had the ironic effect of demonstrating the accuracy of Sutherland's observation that class mattered when it came to how we framed and responded to fraud by elite criminals. What aspect of holding fraudulent CEOs criminally responsible for their crimes is “socialist”, “anti-business”, or “neo-Bolshevism”? Baker claims that “class” has long been discredited as an important variable. Baker is not a social scientist and he is flat out wrong about class. There are literally thousands of empirical studies demonstrating the explanatory power of class in a host of settings. Baker is also flat out wrong empirically in claiming that white-collar prosecutions target “productive social and economic conduct.” White-collar prosecutions of elites are overwhelmingly based on fraud. Fraud is one of the most destructive of all social and economic conduct. Consider six forms of economic injury caused by accounting control fraud.

Eroding Trust

The essence of fraud is convincing the victim to trust the perpetrator – and then betraying that trust. The result is that fraud, particularly by elites, is the most destructive acid for eroding trust. Research in economics, political science, psychology, and sociology concurs on the enormous value that trust provides in each of these settings. We have all attended conferences that provided the participants with bottled water. If we knew that one bottle in a hundred were contaminated how many of us would drink our bottle? This dynamic explains why hundreds of markets collapsed during the events leading to the Great Recession – bankers no longer trusted other bankers' representations as to asset quality. Accounting control fraud can cause systemic risk by eroding trust. Bubbles

When bubbles hyper-inflate they can cause catastrophic economic damage and systemic risk. Accounting control fraud can hyper-inflate bubbles. The first two ingredients in the recipe for lenders engaged in accounting control fraud (extreme growth though lending to uncreditworthy borrowers) have the effect of right-shifting the demand curve. Because particular assets are superior devices for accounting fraud and because accounting frauds will tend to cluster in industries in which entry is easier and regulation and supervision are weak, accounting frauds tend to cluster in particular industries and regions. Accounting control frauds drove the Southwest bubble in commercial real estate during the S&L debacle and the U.S. residential real estate bubble in the current crisis. Hyper-inflated bubbles cause catastrophic losses to lenders and (late) owners, trigger severe recessions, and misallocate credit and assets (causing real economic losses).

Misallocation of credit and human talent

Even when accounting control fraud does not lead to a hyper-inflated bubble, it misallocates credit and human and non-human capital. Accounting control fraud substantially inflates individual asset values. Individuals with strong science and mathematics skills – critical shortages in our real economy – are wasted in making models designed to inflate asset values by fraudulently ignoring or minimizing risk. Accounting control fraud commonly produces reverse Pareto optimality – the borrower and the lender on a liar's loan made in 2006 and 2007 typically suffered losses while the unfaithful agents become wealthy by betraying their principals and customers. (It is important to recall that it was the lenders and their agents who normally prompted by false statements in liar's loans.) Fraud makes markets profoundly inefficient.

Gresham's dynamics

“Private market discipline” becomes perverse under accounting control fraud. Capital is allocated in abundance, at progressively lower spreads (despite massively increased risk), to fraudulent firms and professionals. In this form of Gresham's dynamic, bad ethics drives good ethics out of the marketplace. Note that once, for example, a significant number of appraisers are suborned by the fraudulent lenders to inflate appraised value it is more likely that such appraisers will go on to commit other frauds during their career. If cheaters prosper, then honest businesses are placed at a crippling competitive disadvantage. Effective regulation and prosecution is essential to make it possible for honest firms to compete.

“Echo” fraud epidemics

Fraud begets fraud. Or to put it in criminology terminology – accounting control fraud is criminogenic. Fraudulent lenders created perverse incentives that produced endemic fraud (often by generating Gresham's dynamics) in other fields. Fraudulent lenders making liar's loans, for example, created overwhelming financial incentives they knew would lead their loan officers and loan brokers to engage in pervasive fraud. Indeed, fraudulent lenders embraced liar's loans because they facilitated endemic fraud by eviscerating underwriting. Accounting control fraud also leads to the spontaneous generation of criminal profit opportunities, causing opportunistic fraud. Liar's loans, for example, generated a host of fraudulent entrepreneurs offering illicit opportunities to use someone else's credit score to secure a loan. (Austrian school economists should recognize this dynamic.) Undesired frauds arising from control fraud

Lenders engaged in accounting control fraud must suborn or render ineffective their underwriting and internal and external controls. They also select, praise, enrich, and promote the most unethical officers. The real “tone at the top” of a control fraud is pro-fraud – often overlaid with a cynical propaganda campaign extolling the Dear Leader' astonishing virtues. The result is that the firm environment is criminogenic. Some officers may loot the firm through private schemes, e.g., embezzlement at Charles Keating's Lincoln Savings and self-dealing at Enron. White-collar crime prosecutions are overwhelmingly taken against frauds. There is nothing economically productive about fraud. When Heritage and the Wall Street Journal feature odes to elite frauds they are fertilizing the seeds of the destruction of capitalism and its replacement by crony capitalism.

Moore's article has the same tone and themes as Baker's complaints against prosecuting elite white-collar criminals. “[T]he anti-capitalist left … [is] using the criminal law for the endgame purpose of striking down the productive class in American that they so envy and despise….”

Moore decries the passage of “Sarbanes-Oxley and other such laws criminalizing economic behavior….” He claims that prosecuting CEOs leading control frauds will harm shareholders – which he plainly sees as prohibiting criminal liability for corporate officers. Moore's complaints about SOX are confusing because Sarbanes-Oxley does not criminalize honest “economic behavior.” “Economic behavior” is not privileged. It can be honest or dishonest. Only honest economic behavior is potentially productive. Even honest economic behavior may prove unproductive or cause severe negative externalities. Dishonest economic behavior can benefit shareholders. A firm that gains a competitive advantage over its market rivals through fraud will be more profitable and should have a higher share price. That increased profit and share price is bad for the world. It creates a Gresham's dynamic and misallocates capital. It may also maim and kill if the competitive advantage arises from selling harmful products to consumers or firms.

Moore eventually explains that what disturbs him most about white-collar prosecutions is that the CEO of a publicly traded company can be prosecuted for accounting fraud. SEC rules require that registrants comply with GAAP, so material accounting fraud constitutes securities fraud (a felony). Criminologists have long pointed out that accounting is the “weapon of choice” for financial firms. Moore objects to prosecuting the most destructive property crimes committed by elite white-collar criminals. Accounting control fraud drove the second phase of the S&L debacle. The first phase was interest rate risk and ultimately led to roughly $25 billion in losses. The Enron-era frauds prosecuted by the federal government were accounting control frauds. The current crisis was driven by the accounting control frauds – the largest nonprime lenders, Fannie, and Freddie. The officers that were prosecuted during the S&L debacle and the Enron-era frauds were not members of the “productive class.” No one destroyed more wealth, for purposes of personal greed, than these fraudulent elites. Their crimes and the harm they caused, however, pale in comparison to the accounting control frauds that drove the current crisis. That makes it all the more astonishing that not a single fraudulent senior officer at the major nonprime lenders, Fannie, or Freddie has been convicted. The shills for elite white-collar criminals have swept the field. The administration they constantly deride as socialist has continued the Bush administration's policy of de facto decriminalization of accounting control fraud. Moore and Baker have, once more, proven Sutherland correct – we treat elite white-collar criminals in a way that bears no relationship to street criminals. We now bail them out after they loot and cause “their” banks to fail and change the accounting rules at their demand to hide their losses. We even invite them repeatedly to the White House to advise us on what policies we should follow. The anti-regulators got their wish – they took the regulatory cops off the beat. The banking regulatory agencies ceased making criminal referrals, the SEC ceased bringing even their wimpy consent actions against the massive accounting control frauds, and the Justice Department ceased prosecuting the accounting control frauds during the run up to the crisis. The results were multiple echo epidemics of fraud, a hyper-inflated bubble, and the Great Recession. If Baker and Moore think these fraudulent CEOs constitute the “productive class” – then capitalism was killed by the producers. The financial frauds, however, were not productive. They were weapons of mass financial destruction. Their fraudulent CEOs were motivated by the most banal of motivations that every major religion warns against – unlimited greed, ego, and a radical lack of empathy for their victims. The most pathetic figures in the crisis, however, are not the CEOs but their shills. Why aren't the honest bankers leading the charge to prosecute their fraudulent rivals?

Bill Black is the author of The Best Way to Rob a Bank is to Own One and an associate professor of economics and law at the University of Missouri-Kansas City. He spent years working on regulatory policy and fraud prevention as Executive Director of the Institute for Fraud Prevention, Litigation Director of the Federal Home Loan Bank Board and Deputy Director of the National Commission on Financial Institution Reform, Recovery and Enforcement, among other positions.

Bill writes a column for Benzinga every Monday. His other academic articles, congressional testimony, and musings about the financial crisis can be found at his Social Science Research Network author page and at the blog New Economic Perspectives.

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Azerbaijan:

←Older revision		Revision as of 21:45, 9 April 2011
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	International Security Assistance Force (NATO) [http://www.isaf.nato.int/]		International Security Assistance Force (NATO) [http://www.isaf.nato.int/]
		+
		+	B7 Baltic Islands Network [http://www.b7.org/]
	= Afghanistan =		= Afghanistan =
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	Ministry of Foreign Affairs [http://www.mfa.gov.al]		Ministry of Foreign Affairs [http://www.mfa.gov.al]
		+
		+	Institute of Social Security [http://www.issh.gov.al/]
		+
		+	Ministry of Environment, Forestry and Water Administration [http://www.moe.gov.al/en/]
		+
		+	AlbInvest [http://www.albinvest.gov.al/]
		+
		+	National Food Authority [http://www.mbumk.gov.al/]
		+
		+	Regional Directorate of Health - South [http://drshberat.gov.al/]
		+
		+	Municipality of Fier [http://www.qarkufier.gov.al/]
	= Algeria =		= Algeria =
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	Ministry of National Planning [http://www.mate.gov.dz/]		Ministry of National Planning [http://www.mate.gov.dz/]
		+
		+	Directorate of Trade  [http://www.dcommercebba.gov.dz/]
	= Angola =		= Angola =
	Instituto Nacional de Luta Contra a Sida [http://sida.gov.ao]		Instituto Nacional de Luta Contra a Sida [http://sida.gov.ao]
		+
		+	= Antigua and Barbuda =
		+
		+	National Office of Disaster Services [http://www.nods.gov.ag/]
	= Argentina =		= Argentina =
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	Ministry of Health - Government of Entre Rios [http://www.entrerios.gov.ar/salud/]		Ministry of Health - Government of Entre Rios [http://www.entrerios.gov.ar/salud/]
		+
		+	= Aruba =
		+
		+	Department of Economic Affairs [http://www.arubaeconomicaffairs.aw/]
	= Australia =		= Australia =
Line 130:		Line 154:
	QRAA Queensland Government [http://www.qraa.qld.gov.au]		QRAA Queensland Government [http://www.qraa.qld.gov.au]
		+
		+	Business.gov.au SmartForms [http://smartforms.business.gov.au/]
		+
		+	Regional Marine Planning [http://rmp.dec.wa.gov.au/]
		+
		+	Public Health Information Development Unit[http://www.publichealth.gov.au/]
		+
		+	Wimmera Catchment Authority [http://www.wcma.vic.gov.au/]
		+
		+	Cobaw Community Health Service [http://www.cobaw.vic.gov.au/]
		+
		+	Kiama Library [http://www.library.kiama.nsw.gov.au/]
		+
		+	City of Geraldton-Greenough Library [http://www.library.cgg.wa.gov.au/]
		+
		+	Narromine Shire Council [http://www.narromine.nsw.gov.au/]
		+
		+	Devonport City Council [http://www.devonport.tas.gov.au/]
		+
		+	= Austria =
		+
		+	Board of Education of Lower Austria [http://www.lsr-noe.gv.at/]
		+
		+	Advocacy For People With Disabilities [http://www.behindertenanwaltschaft.ktn.gv.at/]
		+
		+	Austrian Association of Cities and Towns [http://www.staedtebund.gv.at/]
		+
		+	Federal Office for Viticulture [http://www.bawb.bmlfuw.gv.at/]
		+
		+
		+	==Municipality ==
		+
		+	Horn [http://www.horn.gv.at/]
		+
		+	Kötschach-Mauthen [http://www.koetschach-mauthen.gv.at/]
		+
		+	Oberwart [http://www.oberwart.gv.at/]
		+
		+	Radenthein [http://www.radenthein.gv.at/]
		+
		+	Sankt Valentin [http://www.st-valentin.gv.at/]
		+
		+	Schwarzach [http://www.schwarzach-pongau.gv.at/]
		+
		+	= Azerbaijan =
		+
		+	Ministry of Foreign Affairs [http://mfa.gov.az/]
		+
		+	Ministry of Economic Development [http://www.economy.gov.az/]
		+
		+	Civil Service Commission [http://dqmk.az/]
		+
		+	Council of State Support to Non-Governmental Organizations [http://www.cssn.gov.az/]
	= Bangladesh =		= Bangladesh =
Line 454:		Line 531:
	Business Trade Investment Board [http://www.btib.gov.ck]		Business Trade Investment Board [http://www.btib.gov.ck]
		+
		+	Office of the Prime Minister [http://www.pmoffice.gov.ck]
	Ministry of Finance and Economic Management [http://www.mfem.gov.ck]		Ministry of Finance and Economic Management [http://www.mfem.gov.ck]
-	Office of the Prime Minister [http://www.pmoffice.gov.ck]	+	Ministry of Foreign Affairs and Immigration [http://www.mfai.gov.ck/]
		+
		+	Ministry of Education [http://www.education.gov.ck/]
		+
		+	Ministry of Cultural Development [http://www.mocd.gov.ck/]
	= Guatemala =		= Guatemala =
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	Department of Immigration [http://www.immigration.gov.fj/]		Department of Immigration [http://www.immigration.gov.fj/]
		+
		+	Ministry of Foreign Affairs & International Cooperation  [http://www.foreignaffairs.gov.fj/]
		+
		+	Fiji Police Force [http://police.gov.fj/]
	= France =		= France =
Line 602:		Line 689:
	Kutaisi City [http://kutaisi.gov.ge/]		Kutaisi City [http://kutaisi.gov.ge/]
		+
		+	Gori Municipality [http://www.gori.gov.ge/]
	Inspection of Environmental Protection [http://iep.gov.ge/]		Inspection of Environmental Protection [http://iep.gov.ge/]
Line 1,748:		Line 1,837:
	Bristol Community Health [http://www.briscomhealth.nhs.uk/]		Bristol Community Health [http://www.briscomhealth.nhs.uk/]
		+
		+	= United Arab Emirates =
		+
		+	General Authority of Youth and Sport Welfare [http://www.uaeyouth.gov.ae/]
		+
		+	Department of Civil Defence [http://www.dcd.gov.ae/]
		+
		+	Ajman Free Zone [http://www.afza.gov.ae/]
		+
		+	Dubai Export Development Corporation [http://www.dedc.gov.ae/]
	= United States of America =		= United States of America =

Aruba

←Older revision		Revision as of 21:33, 9 April 2011
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	Ministry of Foreign Affairs [http://www.mfa.gov.al]		Ministry of Foreign Affairs [http://www.mfa.gov.al]
		+
		+	Institute of Social Security [http://www.issh.gov.al/]
		+
		+	Ministry of Environment, Forestry and Water Administration [http://www.moe.gov.al/en/]
		+
		+	AlbInvest [http://www.albinvest.gov.al/]
		+
		+	National Food Authority [http://www.mbumk.gov.al/]
		+
		+	Regional Directorate of Health - South [http://drshberat.gov.al/]
		+
		+	Municipality of Fier [http://www.qarkufier.gov.al/]
	= Algeria =		= Algeria =
Line 72:		Line 84:
	Ministry of National Planning [http://www.mate.gov.dz/]		Ministry of National Planning [http://www.mate.gov.dz/]
		+
		+	Directorate of Trade  [http://www.dcommercebba.gov.dz/]
	= Angola =		= Angola =
	Instituto Nacional de Luta Contra a Sida [http://sida.gov.ao]		Instituto Nacional de Luta Contra a Sida [http://sida.gov.ao]
		+
		+	= Antigua and Barbuda =
		+
		+	National Office of Disaster Services [http://www.nods.gov.ag/]
	= Argentina =		= Argentina =
Line 112:		Line 130:
	Ministry of Health - Government of Entre Rios [http://www.entrerios.gov.ar/salud/]		Ministry of Health - Government of Entre Rios [http://www.entrerios.gov.ar/salud/]
		+
		+	= Aruba =
	= Australia =		= Australia =
Line 130:		Line 150:
	QRAA Queensland Government [http://www.qraa.qld.gov.au]		QRAA Queensland Government [http://www.qraa.qld.gov.au]
		+
		+	Business.gov.au SmartForms [http://smartforms.business.gov.au/]
		+
		+	Regional Marine Planning [http://rmp.dec.wa.gov.au/]
		+
		+	Public Health Information Development Unit[http://www.publichealth.gov.au/]
		+
		+	Wimmera Catchment Authority [http://www.wcma.vic.gov.au/]
		+
		+	Cobaw Community Health Service [http://www.cobaw.vic.gov.au/]
		+
		+	Kiama Library [http://www.library.kiama.nsw.gov.au/]
		+
		+	City of Geraldton-Greenough Library [http://www.library.cgg.wa.gov.au/]
		+
		+	Narromine Shire Council [http://www.narromine.nsw.gov.au/]
		+
		+	Devonport City Council [http://www.devonport.tas.gov.au/]
		+
		+	= Austria =
		+
		+	Board of Education of Lower Austria [http://www.lsr-noe.gv.at/]
		+
		+	Advocacy For People With Disabilities [http://www.behindertenanwaltschaft.ktn.gv.at/]
		+
		+	Austrian Association of Cities and Towns [http://www.staedtebund.gv.at/]
		+
		+	Federal Office for Viticulture [http://www.bawb.bmlfuw.gv.at/]
		+
		+
		+	==Municipality ==
		+
		+	Horn [http://www.horn.gv.at/]
		+
		+	Kötschach-Mauthen [http://www.koetschach-mauthen.gv.at/]
		+
		+	Oberwart [http://www.oberwart.gv.at/]
		+
		+	Radenthein [http://www.radenthein.gv.at/]
		+
		+	Sankt Valentin [http://www.st-valentin.gv.at/]
		+
		+	Schwarzach [http://www.schwarzach-pongau.gv.at/]
	= Bangladesh =		= Bangladesh =
Line 454:		Line 517:
	Business Trade Investment Board [http://www.btib.gov.ck]		Business Trade Investment Board [http://www.btib.gov.ck]
		+
		+	Office of the Prime Minister [http://www.pmoffice.gov.ck]
	Ministry of Finance and Economic Management [http://www.mfem.gov.ck]		Ministry of Finance and Economic Management [http://www.mfem.gov.ck]
-	Office of the Prime Minister [http://www.pmoffice.gov.ck]	+	Ministry of Foreign Affairs and Immigration [http://www.mfai.gov.ck/]
		+
		+	Ministry of Education [http://www.education.gov.ck/]
		+
		+	Ministry of Cultural Development [http://www.mocd.gov.ck/]
	= Guatemala =		= Guatemala =
Line 546:		Line 615:
	Department of Immigration [http://www.immigration.gov.fj/]		Department of Immigration [http://www.immigration.gov.fj/]
		+
		+	Ministry of Foreign Affairs & International Cooperation  [http://www.foreignaffairs.gov.fj/]
		+
		+	Fiji Police Force [http://police.gov.fj/]
	= France =		= France =
Line 602:		Line 675:
	Kutaisi City [http://kutaisi.gov.ge/]		Kutaisi City [http://kutaisi.gov.ge/]
		+
		+	Gori Municipality [http://www.gori.gov.ge/]
	Inspection of Environmental Protection [http://iep.gov.ge/]		Inspection of Environmental Protection [http://iep.gov.ge/]
Line 1,748:		Line 1,823:
	Bristol Community Health [http://www.briscomhealth.nhs.uk/]		Bristol Community Health [http://www.briscomhealth.nhs.uk/]
		+
		+	= United Arab Emirates =
		+
		+	General Authority of Youth and Sport Welfare [http://www.uaeyouth.gov.ae/]
		+
		+	Department of Civil Defence [http://www.dcd.gov.ae/]
		+
		+	Ajman Free Zone [http://www.afza.gov.ae/]
		+
		+	Dubai Export Development Corporation [http://www.dedc.gov.ae/]
	= United States of America =		= United States of America =

When selecting books for a best libertarian title list, a few narrowing questions come to mind. Do you qualify the list based on the ideas? How well it’s written? The most popular Austrian Economic books?

Well, this list of the best Austrian Economics books is a bit different than most. Rather than focusing solely on my discretion, I have compiled a list of the best libertarian book titles selected by the most important people in the world: customers of Laissez Faire Books.

Now there are many lists containing the likes of Atlas Shrugged (which made it on this list too), Human Action and Man, Economy and State. These are must-reads for any self-respecting free-market guy or gal. What I like about our list is that we have some outliers that give the list a bit more…flavor.

Other sites cater very strictly to the party line. We like to range a bit more widely…entertain opinions that other liberty-minded folks may not deem orthodox.

Our selection includes top economics books by the giants like Ludwig von Mises, Frederic Hayek, Henry Hazlitt and Murray Rothbard, along with the works of Ayn Rand, Ron Paul, Judge Napolitano, Thomas Sowell and P.J. O’Rourke.

You probably would not have left Ayn Rand and Murray Rothbard in the same room together. But they stand side by side here.

There are also books by various other lesser-known authors that take a detailed look at the results of various forms of government intervention—in the housing market, in stocks…and at all the disastrous economic and social effects of prohibitions and subsidies.

The case is made in top books on liberty and economics like Henry Hazlitt’s classic “Economics in One Lesson”, or Murray Rothbard’s “Man, Economy, and State”.

Then there are other essential books on liberty like Ayn Rand’s canonic “Atlas Shrugged,” a paean to capitalism dressed as fiction.

From the Austrian school of economics with books by Mises to Hayek’s warnings about socialism to Milton Friedman’s essays, and hundreds of other authors writing about every economics, liberty, history and the state and its effects on our lives.

Liberty is inseperable from economics so our library covers it all: the effect of every tax, every good and service the government provides with the money they take from their citizens.

Below is a list of our Essential Books on Liberty

1.    Economics in One Lesson by Henry Hazlitt – Probably the very first book everyone with any interest in economic thought should read. Hazlitt challenges the reader to think beyond the immediate benefits of any economic policy.

2.    The Road to Serfdom by F.A. Hayek – This is Hayek’s masterwork, a passionate warning about the dangers of state control of production.

3.    The Vision of Ayn Rand: The Basic Principles of Objectivism by Nathaniel Branden – Collection of lectures by Nathaniel Branden providing a detailed exposition of Ayn Rand’s philosophy.

4.     The Law by Frederic Bastiat – The 1850 classic about government intervention in the economy causing the subversion of life and liberty.

5.    End the Fed by Ron Paul – Congressman Ron Paul’s explanation of the unconstitutionality and danger of the Federal Reserve.

6.    Capitalism and Freedom: Fortieth Anniversary Edition by Milton Friedman – an explanation of why competitive capitalism is the necessary framework for economic and political freedom.

7.    Atlas Shrugged by Ayn Rand – The towering work of fiction that has changed so many lives. With her narrative and dialogue Ayn Rand makes the unassailable case for capitalism and liberty.

8.    The Market for Liberty by Morris and Linda Tannehill – This underappreciated classic persuasively argues for a stateless world where private enterprise provides everything better than government ever could.

9.    The Adventures of Jonathan Gullible by Ken Schooland – A very accessible allegorical tale of all the ills of government intervention.

10.     Applied Economics: Thinking Beyond Stage One by Thomas Sowell – Sowell goes beyond the first stage of a wide range of policies and examines their disastrous effects further down the line. From socialized health care schemes to rent control to government backed mortgages.

Gary Gibson
Whiskey & Gunpowder

P.S. Since 1972 Laissez Faire Books has provided essential books on liberty and freedom in one place. Visit us at www.lfb.org.

Top Libertarian and Austrian Economic Books originally appeared in the Daily Reckoning. Daily Reckoning founder Bill Bonner recently wrote articles on stagflation and introduced his new book Dice Have No Memory: Big Bets & Bad Economics From Paris to the Pampas.

For the latest investing news, visit Money Game. Follow us on Twitter and Facebook.

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The Plight Of The Working Class

Clowns to the left of me, Jokers to the right,
Here I am, stuck in the Muddle Through Middle with you!
–With thanks to Stealers Wheel

I get a lot of email from readers. I recently got an impassioned letter from very-long-time reader Bill K., who asks some very pointed questions about austerity and spending cuts. It is a rather lengthy letter, so I will only quote part of it and use it is the launching pad for this week’s letter, where we look at today’s employment report, but from a little different slant. This letter will no doubt anger a few other long-time readers. I argue this week for the middle, but do so as a survivalist.

While Bill starts out by saying some very nice things about me (thanks), let’s jump to the meat of the letter:

“…. I would like to get something off my chest. I would like to know why you seem to side with those analysts who keep telling us that the only way we can sort out Western economies is by making the average guy suffer through austerity programs… You are a very intelligent guy – obviously. You can see how things work and what is broken. You can also see through the greed and excesses of Wall Street, and you can read the economic data which clearly shows that the wealthy continue to get more wealthy in America whilst the average Joe continues to see his standard of living going in the opposite direction. Capitalism today only works for the 'have gots'. It's been going in that direction for more than 30 years now. You saw the senseless and stupid greed of the derivative scheme which fueled the housing bubble which led to the meltdown which never melted because Bush/Obama handed out a huge welfare check to financial institutions that should have been allowed to fail.

“In the aftermath of all this, politicians in DC, you, and your guest pundits warn us that the world as we know it will end if we don't somehow reduce the average Joe's Social Security, pension, Medicare and Medicaid benefits. Oh and let’s not forget the budget, which is being argued in Washington as I type this. The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life. You're a smart guy. You can recognize what is fair and what is greed and excess. When the nation is as troubled as it is today and yet the wealthy are living even better than they did 30 years ago, what does that say about America? I wonder if we really care about our neighbors anymore? I wonder why such a great country with such great natural resources cannot find a way to be just and generous and a beacon to higher ideals? Ike warned us to be wary of the military-industrial complex. Looks like he was right. We're a nation constantly at war, spending trillions on defense, whilst at home we enrich the already wealthy and tell the average Joe that he has to pay for it. I wonder how you manage to rationalize all this away – if indeed you do?

“Thanks and with respect, Bill”

The Plight of the Working Class

Bill, you ask a very complicated question. There is not a simple black and white answer, but I am going to try and address your concerns. Let’s start with today’s employment numbers. We got a decent non-farm payroll number of 216,000, and 240,000 new jobs in the private sector (governments everywhere are still shedding jobs). That means over the last two months the private sector has added almost 500,000 jobs. If you take the household survey, that number looks even better. So why did all the consumer sentiment numbers in March come out so awful?

Looking deeper into the data we find that wages were once again flat, for the 4^th time in the last five months. We are certainly not keeping up with inflation. The chart below shows real median household income since 1967. It is published in May of each year by the Census Bureau, so we don’t have the data for 2010, but it will not be good. Real median income, when the new data comes out, if I read the chart right, will not have grown for almost 14 years.

But all this has led to what David Rosenberg calls the “Wageless Recovery.” Wage growth just continues to fall.

And given the rise in food and fuel costs (which are now about 23% of the average person’s income), the recent lack of wage growth is even more frustrating.

Although the economy in the US is now producing more “stuff” than it did at its peak in 2007 (fact), we are doing it with 6.8 million fewer people. That means the productivity of the workforce is much better, which is good for corporate profits, but this has not yet translated into higher wages, although in past cycles higher profits have given way to higher wages (eventually, at least).

Can You Say Jobless Recovery?

The following chart is from the St. Louis Fed. It shows the spectacular fall in jobs in the last recession and the painfully slow recovery.

And note that we have gained 30,000,000 more people in the US over the last decade! And negative job growth!

And this next chart is courtesy of my friend Barry Ritholtz of The Big Picture. It is also from the Fed, but it’s one I have never seen.

That is a graph of the last three recessions, with employment indexed at 100, and it shows what employment did from the beginning of the recession, and then from the end of the recession. As Barry said, we don’t want to think about what the next recession will look like, if this is a trend.

The most recent survey from the National Federation of Independent Business shows that small businesses are indeed once again hiring. “The positive job creation observed in February was repeated again in March [sigh of relief here], confirming that the number of net new jobs reported on Main Street was decidedly positive. The March net increase in jobs per firm was .17 workers, a repeat of the February performance. Employment gains have not been this good since 2007.”

But that still begs the question of why wage growth has been so poor. And why do we now have such structural unemployment? Although the headline unemployment number went down to 8.8%, the only way you can get to that number is by not counting the millions who have dropped out of the employment pool, too discouraged to look, but who will take a job if they can get one. If you go back and take the number of people in the labor force just two years ago, the unemployment picture is back over 10% (back-of-my-napkin math).

GDP has recovered, but jobs haven’t. This chart from the NFIB shows the disparity.

Bill, I get it. The average guy is getting squeezed. You can see it in the numbers. For a while, it was masked by growing credit.

Drowning in Debt but Getting No Growth

This is an older chart, but it is relevant. We grew debt in this county in all forms by over 100% of GDP in the last decade. $14 trillion. And what did we get for it? No real job increases, no increase in wages. It was an illusion. In fact, my friend Rob Arnott pointed out to me today that a piece he is working on (which I hope to be able to give you soon!) shows that the only way you can show a positive GDP for the last decade is with government spending.

And that, Bill, is part of the problem. We have become a credit-addicted, credit-fueled economy, which works just fine until you have too much credit driving too little real growth. Without government spending, “real” GDP would be at levels it was over ten years ago. And it is real growth that drives wages and creates jobs.

You write: “The line is that we have to make drastic reductions to spending on domestic programs, on our schools, on our infrastructure, on unemployment entitlements, on all the things that serve to give working people a chance at a dignified life.”

That is not my line. My book calls for a large increase in funded infrastructure spending through a fuels tax (none of it going to the federal coffers!). I am not against unemployment insurance, but at some point it needs to become job training and a path to employment. I am a huge proponent of education, having spent a great deal of money on it over the years, with seven kids (and paid even more in taxes!). But does the current system really work? We have double the educational workers per student we had only a few decades ago, but no improvement in outcomes.

Yes, we have to make cuts to government programs. A 33% growth in federal discretionary spending (not including stimulus money) the last three years alone is not reasonable, given the size of the deficit. The last recession was not caused by too little government.

The Cancer of Debt

The problem is that the debt is like a cancer. The bigger it grows the more threatening it is. Pretty soon it consumes its host (think interest expense).

Bill, I am worried about the survival of the country economically. Another crisis caused by the bond market driving up interest rates, because they become concerned about the size of the debt and deficits, will seriously reduce the choices we have – with none of them being good. Ask Ireland or Greece how it feels. They are in what can only be called a depression, and likely to stay there for some time. You think we have it bad now? Avoid dealing with the debt and see what happens.

To think it cannot happen here is to simply ignore reality. Yes, the US can go longer than we might think, but there is a limit. I think that limit will come before the middle of this decade. Perhaps as early as 2013, if the new incoming President and Congress do not deal with the deficit in a realistic manner. Then Bang! , we have our own Greek moment. I want to avoid that.

In my book and on numerous radio and TV shows, I have made the case that we must get the fiscal deficit below the growth rate of nominal GDP. That means we need to cut, over time, about $1 trillion from the current budget deficit.

And that means entitlement spending has to be on the table, as well as tax increases. The polls clearly show that people want to keep Medicare and also are against tax increases (close to 70% in both cases). Those are not compatible objectives.

We have to have a national conversation about how much Medicare we want and how we want to pay for it. Writing the words tax and increase in the same sentence is difficult for me. Tax increases taken from private producers do nothing for economic growth, which is where we get new jobs. But I would rather have higher taxes than for deficits to be at a level where they threaten the economic survival of the republic. (And I make the case that if conservatives give in on tax increases, that means there needs to be a complete structural change to the tax system, gearing it more to encouraging growth, real Medicare reform, and even larger spending cuts, etc., that are linked to real, measurable metrics!)

I am just as frustrated as you about the bailout of banks, that we still have banks too big to fail, that credit default swaps are not on an exchange, that Fannie and Freddie still even exist in their current forms, and a host of other problems you mention. (Frank-Dodd was a disaster! It almost guarantees another crisis.)

I have become all too familiar with cancer of late. It tends to focus the minds of those who are suffering, and their families, on survival. Chemotherapy is nasty. It means putting a toxic drug into your body. That is something you don’t want to do under normal circumstances, but when your survival is the issue, you do it.

It is no less than economic survival we are talking about. Oh, the US has been through worse. Civil war, depressions, panics. We will survive as a nation, but the pain we will endure is simply more than most people can comprehend, Bill. Whole generations of savings and investment will be wiped out. Think the cuts I am talking about are serious? Wait until interest payments are eating up 25-30% of revenues in a 12%+ unemployment world. Think the underfunded pension problems are bad now? Let’s have a REAL bear market, with inflation.

I have some friends who think that is what it will take to get government smaller. They relish the thought, as they also think their gold portfolios will go through the roof. I am not in that camp. That is not a world I want for my kids and grandkids, Bill, most of whom are (for now) your average person. (Well, except for my exceptional grandkids.)

I want us to find that middle path, to cure the cancer of debt. Yes, I want smaller government and lower taxes, but survival is now my fixation. The cure for too much debt is not more debt. We can get it under control, but it is going to mean compromises, a word that I hate – but I also hate chemotherapy.

I get that we need to do things to make government more efficient. And we need to provide safety nets. We need a lot of things.

But most of all we need an adult conversation about what it is that we need, and what we can afford. The American people have to understand that the path back to a sustainable economy will not be easy. As I have written many times, cutting government spending will mean lower GDP numbers in the short term, but survival in the longer term. This is not a typical business cycle. We cannot simply grow out of our problem. We haven’t really grown, except for government spending, for ten years. Yes, there are numerous steps we can take that will make it better and easier and quicker than if we wait until we are forced by a crisis to act. But there are no “Easy” buttons.

Gentle readers, I promise you we get through this, one way or another. The 2020s are going to be a heck of a lot of fun!

New York, Portland, and La Jolla

I worry that I may have to go into hiding after this letter, as the middle is a lonely place. Oh well, I leave Sunday for New York. I had to cancel Utah at the last minute to go on a secret mission, but will be doing the media rounds in NYC next week to promote the book. Fast Money on Monday, Bloomberg on Tuesday morning, a guest host spot with the lovely Liz Claman on Fox Business on Wednesday, and videos with Yahoo Tech Ticker, thestreet.com, the Wall Street Journal, and with Steve Forbes himself. Lots of meetings with cool people, so should be a fast and fun week.

Korea has been postponed, which gives me more time at home in May, which I need. I am already starting to work on my presentation for my Strategic Investment Conference, April 28-30. There are only a few spots left. Best speaker line-up of any conference anywhere. You can learn more at https://hedge-fund-conference.com/2011/invitation.aspx?ref=mauldin.

Endgame has now been on the New York Times best-seller list for three weeks. And this week, if you have not yet bought your copy, let me commend you to my friends at Laissez Faire Books. I have been buying books from them for nearly 30 years. They are the best source for Austrian economics and libertarian books, along with the usual offering of investment books current in the market. They have matched the Amazon price for Endgame; but if you are interested, move around their website and pick up a few other things along with my book. http://www.lfb.org/product_info.php?products_id=1014&PromoCode=L401M301

It is time to hit the send button. Daughter Amanda and her husband are in town. I didn’t know it when I gave him permission to marry my daughter, but he is a Red Sox fan, and as they open the year with the Texas Rangers at the Ballpark, he finally decided to bring my daughter back to Dallas for a long overdue visit. At least we won the opener today. I see margaritas and talk of baseball and family for the next few hours, with no mention of the worries of the Endgame and deficits. Have a great week!

Your hoping I don’t lose too many friends with this letter analyst,

John Mauldin
John@FrontlineThoughts.com

Copyright 2011 John Mauldin. All Rights Reserved

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See Also:

• 23 Charts On The Amazing History Of Human Progress
• Alan Greenspan Just Cemented His Reputation As The Worst Ex-Fed Chairman In History
• In A Stunning Turnabout, The US Government Announces That It Will Act In The Best Interests Of The Country

Below is the second half of the fourth and final installment of Takuan Seiyo’s latest series of essays. Previously: Part 1, Part 2, Part 3, and Part 4.


Philippe Teuwen, The Great Wave off San Francisco (2007),
after The Great Wave off Kanagawa (1830) by Katsushika Hokusai
The Art of Strategic Citizenship
Part 4(b) — Monodelphia

By Takuan Seiyo

A day in the country of approaching tsunami

Consider the incremental developments that transpired in the Snatcher-ruled United States on a single day, 23 March 2011:

• The NATO coalition of the Unwilling fell apart after its massive military operation on behalf of Al Qaeda, the Muslim Brotherhood and other jihad forces in Libya twice as crazy as the dangerous weirdo Qaddafi. This is the third unwinnable war that America’s ruling geniuses — in this case three BHO administration yentas pushing a metrosexual — have put on the debit side of the surrealist national ledger and on the estrogen-pumped (females and gays) American military simultaneously. Add a 5th Cloward-Piven to the four iterated in Part 4.
   
  
• Two male Marines are shown kissing in a vignette that’s part of the indoctrination campaign the US Military has launched to prepare its 2.2 million active and reserve troops for full scale gayization. It’s unknown whether the US Military has run simulation scenarios showing the facial expressions of the top honchos of China’s People’s Liberation Army upon learning of this Gay Paree (Parris?) wonder.
   
  
• 13 illegal aliens were arrested in California in a van with government license plates, wearing US Marine uniforms.
   
  
• The BHO administration has shortlisted Jamie Gorelick for next director of the FBI. Gorelick, whom Web journalist Doug Ross named “Mistress of Disaster”, has a permanent perch at the apex of Snatcherocracy and a string of titles at WilmerHale that approximate medieval aristocracy: “Partner; Chair, Defense, National Security and Government Contracts Practice Group; Chair, Public Policy and Strategy Practice Group; Member, Litigation/Controversy Department.” She built the 1995 “Gorelick’s Wall” that proscribed the interchange of information between intelligence and criminal investigation agencies and so facilitated the sneaking of the 9/11 plotters through the large lacunae. The Loon & Crook Club then appointed her as a key member of the 9/11 Commission, so that she could investigate herself. After that triumph, Gorelick, as vice chairman of Fannie Mae 1997 to 2003, co-led that Loon State appurtenance to the subprime bundling disaster that precipitated the global financial tsunami, bankrupted Fannie Mae, and cost the American taxpayer $91.2 billion in bailouts to Fannie Mae alone, so far — and more coming with an unlimited government guarantee. For that effort, Gorelick earned over $26 million in compensation. And now the FBI. So count this as the 6th Cloward-Piven: deluging the system with Loon incompetence, more Yin atop Yin, and congenital inability to process Reality.
   
  
• U.S. Congressman Michael Burgess, a medical doctor, explained that Community Organizer-in-Chief Barack Obama and the Loon & Looter Party intentionally designed the healthcare reform law to crash the American healthcare system so that they could then impose federal socialized medicine. Count this as the 7th Cloward-Piven in this humongous ju-jitsu mugging of a somnolent White population.
   
  
• The U.S. Justice Department under Eric “My People” Holder sued on behalf of a Muslim teacher denied a 3-week vacation to visit Mecca. The U.S. Senate Judiciary scheduled a hearing on protecting Muslims’ civil rights. No one scheduled a hearing as to why America needs and allows in Muslims.
   
  
• African-Americans were fleeing from themselves, i.e. from Detroit to the suburbs, and a Drudge headline read, “Mass exodus of couples with children from San Francisco.”
   
  
• A new report informs that “Hispanics” now account for the majority of students in Texas schools. In Arizona, Lori Klein, a Republican state senator, read on the floor a letter from a constituent teacher that described his (Hispanic and mostly illegal) pupils: “They hate America and are determined to reclaim this area for Mexico.” The reading drew an “impassioned rebuke” from a state senator from the Loon & Looter Party, and the Anti-Defamation League’s regional director called Klein’s reading “a disgrace.”^[1]. The Supreme Loon Court ruled in a “landmark decision” in 1982 that immigration status may not serve as a basis for denying K-12 education to illegal aliens at the taxpayer’s expense.
   
  
• Oil closed at $105, gold highest in living memory, and silver highest in 31 years.
   
  
• George Soros will hold a “major economic conference” on April 8, to discuss rearranging “the entire financial order.”
   
  
• In the day’s only positive news as far as this author is concerned, the blog Philstockworld informed its readers:
  “Brandon Smith [snip] has launched a new website called Alt-Market.com [snip] to facilitate barter networking and the exchange of knowledge and ideas for thriving in a faltering monetary environment. Alt-Market’s developers would like to de-centralize and de-globalize our system of commerce and help us re-localize our economy, in order to insulate cities and states from a possible (and ever more likely) collapse of the dollar.”
   
  
• One day later, it would transpire that Nekiva Vonte Hardy, alias Kinesa Smith, unmarried mother of four (probably not by the same impregnator) and a self-described “first-time spring breaker”, broke spring at a Panama Beach Burger King in this fashion.
   
  “There are more and more videos of people, mostly kids, going nuts in stores. Whether it’s a free-for-all brawl or a deliberate mob robbery, seems like there is more of it going on” was the comment at the “conservative” website FreeRepublic.com.
   
  Except those are not kids wilding everywhere, every day. They are Black young adults, of middle class material means, behaving like the savage barbarians they are. There is no hope for the West if its Whites continue with this level of cowardice in matters of race, politics of looting, and the continuous trail of treason and imbecility by their elected leaders. Since you cannot change others but can change yourself, it’s time to look past all that Free Republic and tea-dumping posturing. It’s time to prepare the boats, and the oar crews. But the issues of destination and destiny are by no means clear, yet.

The City of Monodelphia

Communities thrive in cities. Culture and creativity thrive in cities. Social and intellectual ferment thrives in cities. Freedom and direct democracy thrive in cities, or at least used to. Human potential is maximized in cities. Science advances in cities: MIT is in Boston, Caltech in Pasadena, the Swiss Institute of Technology — Einstein’s alma mater — is in the heart of Zurich, and the University of Heidelberg is called so for a reason.

The city — as long as it was White, not too big or too small and possessing some natural advantages^[2] — was a self-multiplying incubator of new ideas, new technologies, art and craftsmanship of superior level, and wealth; great wealth. Individuals of exceptional ability had an environment interacting with their peers and creating a symbiotic effect that raised the entire plane of their respective fields.

Meanwhile, America’s Whites have abandoned the cities for subdivision Whitopias. Of America’s founding stock, only the rich with pathologies of guilt and decadence, Crooks, and Loons still live in cities. And also their servant White middle class in such service sectors as protect the higher status Eloi from depredations by “Visible Minority” Morlocks^[3]. Freedomians take this farther, individually opting out of the broken social contract with Leviathan — broken by the latter — in order to move to remote areas where prole caps are the haute couture, and you won’t find a Chopin recital, a Czech film, a slice of Camembert or a Cézanne original within a radius of 100 miles. It’s a tragic error.

In “Leaving the Reservation” the blogger Daphne described a breed of middle-aged men who are severing their ties to middle class life and transplanting their families into small rural holdings in conservative counties in order to live on their own terms.

“These men don’t show up at Tea Party rallies, march on Washington or join militias,” writes Daphne. “They go to work, love their wives, pay their never-ending taxes, fees, surcharges and diligently raise [their children]. Politics have become meaningless to this breed, they’re done, disgusted, fed up with whole cesspool. These men are looking at American life in a whole new way. [snip] They reasonably stocked up on guns and ammunition with no intention of ever sparking an insurrection. Flying under the radar, getting out from under the yoke, becoming free men, rather than shackled dogs or besuited grey ghosts, is the juice fueling their passion. These men don’t want to argue politics and they have no interest in fighting, not anymore.”

Tragic error, again. Political, cultural and economic power emanates from cities. Whites who quit the cities have abandoned their claim on power; they had better listen to wiser men. Pericles is believed to have said, “Just because you do not take an interest in politics does not mean politics won’t take an interest in you.” And apocryphal tradition maintains that Franklin said at the signing of the Declaration of Independence on 4 July 1776: “We must, indeed, all hang together, or assuredly we shall all hang separately.”

Freedom and self-determination cannot be defended individually from an increasingly totalitarian government. However big your gun, Leviathan has a bigger gun, and it will do almost anything to maintain its grip on power. For defense against Leviathan you don’t need a six-shooter. You need a few thousand women and children standing arms locked between you and the federales who came to arrest you because you failed to genuflect at the 9-meter statue of Martin Luther King that will soon hulk over Washington, DC, one third larger than the statues of Jefferson and Lincoln. And you need your own television crew to be on site filming it, and your own samizdat media channels that will disseminate such news worldwide.

Violent criminals or rioting mobs do not take kindly to lone wolves either. Once the fraying seams holding America’s society, finances, industry, and endless military commitments have really come apart and civic order has broken down, swarms of bad or terminally desperate people will be roaming in search of prey. Safety will not be in your Winchester and a mile distance to your nearest neighbor, but in numbers and in coordinated and endogenously altruistic action of a community standing for itself. Examples of what an organized urban militia can do to the strongest foe abound in European history, starting with the Greeks and notable in Western and Central Europe because it’s the trade guilds of upright, hard-working burghers that yielded those fighting units^[4].

Until 1970, Cleveland, built by Central European immigrants, was a thriving industrial city that supported one of the finest symphonic orchestras in the world under the baton of the great George Szell. The Cleveland Museum of Art, founded by European-origin benefactors in 1913 “for the benefit of all the people forever” was world class. But then the Loons, Crooks and Looters got to the city.

In the last 50 years, Cleveland’s population has declined from 918,000 to 440,000. Concomitantly, American industry was shutting down and moving to foreign lands, pulling the rug from under this city and its state and country. As Blacks and (primarily “Hispanic”) immigrants were streaming in, Whites were leaving. Cleveland’s White population ratio decreased from 69% in 1960 to 50% in 1990 to 35.8% now. It now ranks #8 in the list of top crime American cities [pdf], the seven cities ahead of it sharing its demographic profile.

In Sperling’s Best Places entry for Cleveland, typical resident opinions (from 2009) are like Renee’s: “Run!! Run as far away as fast as you can! I have lived in this cesspool of a town all my life, if I could make enough money I would be out asap. There is absolutely nothing to want to bring people here. Horrific economy and joblessness. Public schools are a disaster. Crime is awful. [snip] Our politicians are currently being raided by the FBI, they are all scheming money.”

The symphonic orchestra that once thrilled the world, now records videos sucking up to someone named LeBron, said LeBron being apparently as prominent an individual in a Black cultural activity, basketball, as Szell was in a White cultural activity, classical music. But then, if you are a voluntary White dhimmi minority, you have accepted a deal that includes a massive jizya tax — fiscally, culturally, and in other ways. The orchestra’s annual budget reported in 2009 was $43.7 million. That’s for 110 musicians. LeBron’s reported annual compensation in Cleveland was $15.7 million; it’s now $18 million in Miami. His Wikipedia entry is 20 times as long as that of the Cleveland Philharmonic.

The Museum that in a White-dominant city had managed to acquire Caravaggio’s The Crucifixion of Saint Andrew, Frans Hals’s Portrait of Tieleman Roosterman, and a large collection of works by the greatest names in modern European painting, now pays its dues in the Black ethnic vehicles of Nia Coffee House and Karamu — with multiculti agitprop, hip hop “poetry,” juneteenth celebrations and so on. Which is okay — Blacks deserve their cities and their culture — but Cleveland is no longer fit for habitation by Whites who care to be counted under the umbrella of Western civilization.

Non-brain-altered Whites need their own cities, in states hospitable for that purpose, where Leonidas (Sparta), Leonardo (Italy), Leibniz (Germany), Lewis (C.S., Ireland) or LeTourneau (USA^[5]), are closer to the hearts of the people than LeBron. The first such a city is the strategic Schwerpunkt from which the rays of American Renaissance^[6] can expand to the rest of the state, then the adjacent states. I’ll refer to that initial seed city as Monodelphia. Mono, for the Greek word omonoia: oneness of mind, and Delphia, like in Philadelphia, for delphos: brother. The City of Brotherly Minds — for the City of Brotherly Love did not work out in the end. It’s called Killadelphia now, and since David Axelrod bamboozled its voters as of 1998 to twice elect a corrupt, incompetent Black man for mayor, it’s been a continuous, sorry example of Paul Kersey’s BRA: Black-run America.

Freedomia must be based on industry, agriculture, and sustainable harvesting of natural resources, but the countryside communities supporting this ought to relate to the city the way the spokes of a wheel relate to the hub. As to Monodelphia, you must be able to imagine White reactionary rightwingers, properly dressed as descendants of Europe should and filling a provincial city to bursting with quality manufacturing, rock-solid banks lending to locals only, science, advanced medicine, spectacular, human-scaled architecture, literature, philosophy, music, opera, famed gastronomy, wise governance and K-12 low-budget schools that are the envy of the world. Or else, you must resign yourself to marginal existence in Blade Runner Multiamerica^[7] forever.

Reader jeppo, in extensive comments to Part 4, recommended Minneapolis-St Paul (81.9% W) as the target site for a future Monodelphia. Minneapolis-St Paul has a central location nationally, wrote jeppo, and is in the middle of the largely Germanic and Lutheran Upper Midwest: the heartland of the heartland. The harsh climate makes it less attractive to colonizers from warmer climates. Reader Zenster added that the access of the city to the Mississippi River, and of the State of Minnesota to the Great Lakes make both particularly attractive.

Maybe, but I have my doubts. First, the population of Minneapolis-St Paul is 668,000. It’s too large for any conceivable influx of Freedomians to tilt the balance quickly. Second, that population, though White, is also Progressive^[8]. It carries its Whiteness like a shameful stigma, striving ceaselessly to get itself more of that wonderful Diversity. There are already over-50% minority suburbs there, and electing Keith Ellison — Black and Muslim: a twofer — to represent it in the U.S. Congress must have been Twin Cities’ pride and joy. Third, the Lutheran North feels an endemic, welcoming compassion for its worst enemies, including obvious jihadi material — as long as they be “refugees” and “immigrants.” Twin Cities have the largest population of Somalis in North America. Fourth, Minnesota is too close to the eastern Loonie-Lootistan, the westernmost citadel of which is Illinois. It’s also too far from the ocean — the only ocean that Freedomians can dream to access: the Pacific one.

For the same effort, it might be easier to alter the destiny of Portland (78.7% W, pop. 566,000) — another attractive city with a Loon White population, two navigable rivers, a river port close to the Pacific, and a Blue exception in almost all-Red Oregon. From there, freedom, prosperity and self determination could radiate eastward, and to the north and south^[9] rather than, as would be the case with Twin Cities, mainly westward.

At any rate, it’s not an issue that can be decided here and now. Perhaps no place can be considered except in a state that’s not only White but also has a consistent commitment to freedom. You start a business and hire employees in Minnesota or Oregon, and fail to comply with the racist-sexist federal employment laws, when your persecution by Leviathan ensues you are on your own. But as a Freedomian, you cannot possibly comply with such laws, or with hundreds of others that are a shameful Loon or Crook-rigged travesty. There is something to be said, therefore, for a state like Wyoming, that might challenge the federal government on your behalf in this and other freedom issues. The semi-Wild West may be the only place where freedom can find shelter during the years of Leviathan’s autogenic decomposition. But that is feasible only if the indigenous population resolves to accept sophisticated, urban Freedomians from the cities and burbs of Equalitania, and the Culture, intellect and dynamism they would be bringing.

First Principles

Reality-based economics

Freedomia must de-link. De-link from the global economy, from Leviathan’s Fed and its inflatable dollars, from the Wall Street con, the big banks’ con, the borrow-and-spend con, the Neo con, the grievance industry’s con, the unions’ ex-cons, and from every other pathology of the Loon, Crook & Looter state.

Bailout, stimulus, quantitative easing, deficit debt financing, manipulated interest rates and tax-and-spend are the main economic con. Freedomia must skirt this con by issuing its own money, quite per Article 1 of the U.S. Constitution: “No State shall coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender of Payment.” Moreover, Leviathan’s money grabbing can be minimized by a barter system of exchange substituting partially for monetary transactions, and by steering the fiscal policies of Freedomia toward low taxes and high civic involvement with almost all aspects of community management and services^[10].

To propagate healthy capitalism, it will be useful to graft the shoots of Freedomia onto a state with more German-Nordic stock than Anglo-Saxon-Celtic one. The latter, while giving America its great founders, founding principles and civic culture, has derailed in matters of practical economics. It’s no coincidence that America’s main business is financial sleight-of-hand, inventing clever ways to profit by moving fictitious money from the right pocket to the left one, lawfare, corporate paper shenanigans, mergers and acquisitions rather then creation, marketing rather than engineering, and a foreign labor force — domestically too — rather than an American one. Nor is it by chance that Austrian Economics is Austrian, a German Detroit looks like this, a German chap with a Bachelors in Engineering is Herr Diplom Ingenieur while in the U.S. the peddler in a suit is the status guy, and Switzerland and Norway are economically the healthiest countries in the West, with Sweden and Finland not far behind.

Freedomia must make things; things that reflect Freedomian values, that are visionary, superlative in quality, unique and therefore exportable. Take the clothes you wear. At the low end, it’s Asian or Mayan-made cheap junk, with inferior cloth, uneven seams, buttons not sewn-through and capricious sizing. In the middle, it’s the same junk except some marketing shyster has rented for a fee the likeness of a little polo pony or a famous couturier’s name and slapped it onto the garment, and the zillion empty fools are paying for it twice its intrinsic value. At the top, you drape yourself in the ugly though well-crafted expectorations of megalomaniac homosexuals, busting your trust fund anew every single fall with new fashion — the new always sicker and uglier than the old but of a different color palette.

What kind of morons have we become that we buy into this kind of crap? Be the Change. If you believe that at least part of America could revert to 1959, dress like 1959. Better yet, start a clothing company in Monodelphia that will turn out well-made 1950s clothing, like on Mad Men: a Ralph Lauren without Ralph Lauren, better quality and no outsourcing to Asian factories. No supermodels, MBA brand managers and all that manipulative Snatcher goo either. Somehow the Amish manage to consume what they produce — and sell it widely outside — without a TV ad budget or naked tarts sitting on top of Amish appliances in magazine ads.

You can’t compete with the Chinese, you say? There are not enough skilled seamstresses? There is no need to compete with the Chinese. There is a need to educate the Freedomian population that buying and consuming a lot of cheap imported junk is a capital crime against the nation, against Mother Earth, and against your children’s future. The Loons keep crying crocodile tears over Gaia, while allowing their Crook allies to ply the Looters with tens of millions of tons of garbage merchandise from overseas, cheap enough to buy with free Uncle Sam tickets and shoddy enough to end after one year on some Mt. Everest of Junk, leaking toxins into the environment. But one well-made article has the lifespan of eight shoddy ones. And that goes for bicycles and DVD players like it does for shirts. It translates into smaller mountains of toxic trash. And if you can’t find enough skilled Americans in this trade, start a tailor craft school and import some European tailors too; plenty of them still in Eastern Europe. In a few years, the entire North Asian upper-middle class will be wearing what you make somewhere in Middle America.

A people that becomes inured to badly designed, cheap junk, loses its appreciation of workmanship and beauty — but workmanship translates at the end into a rain of gold, and beauty translates into the bliss that comes from the recognition of God’s work on earth. It’s not in vain that those connoisseurs of beauty, the Greeks, had a word, kalokagatia that combined the words for “beauty” (kalos) and “good.” If English had a word combining “workmanship,” “beauty” and “good,” the history of the last 50 years and the 50 future ones would have unspooled differently.

This Mother Earth thing, economics, and the profound spiritual sickness of the West are tied in more ways than one. People who see the harm that NWO (New World Order) and globalism have inflicted on America, who see how many Pandora’s boxes the Loons-in-charge have opened up all over the world, have to envision life in a post-tsunami landscape, and prepare for it now. James Kunstler and Dmitri Orlov have, for years, preached the gospel of Peak Oil and its aftermath. Kunstler’s novel World Made by Hand indicates eponymously where we are going. Peak Oil is another argument for an urban environment in a colder zone. Try living in a suburb of Las Vegas or Tucson with oil too scarce or too expensive to drive or to air-condition your home.

Alas, even if Peak Oil proves to be unfounded, the trashing of the dollar is certain, Leviathan’s thrashing in Muzlands for the sake of democracy is certain, and a steep rise in the future price of oil is certain in consequence. When that happens, the China-based juggernaut is likely to end as well, and with it, the entire disposable junk economy. Walmart and Target will be out, and the village butcher, baker and candlestick maker will be in. But in Freedomia, they ought to prevail now, even as box-stores pollute the landscape everywhere and cheaper alternatives abound.

Bread ought not to have the feel and taste of squares of toilet paper, or come as frozen dough mixed 2000 miles away three days ago. Furniture ought not to be made of melamine and particle board, come disassembled in boxes, and pollute your home with formaldehyde during its useful lifespan of 12 months. Appliances ought to be made with superior mechanics and durability, not a few silicon chips grafted onto shoddy plastic and bent tin. Appliances, cars, hand tools ought to work or at least be home-repairable even if a Black Swan disables every chip in the world. Natural materials, durability, repairability and a small footprint on the ecosystem ought to become a Freedomian specialty.

The Western (+Japan) world is run by a managerial elite of high-IQ, credentialed people who are also stupid, shallow and conceited. Wise leaders do not build an economy based on gutting domestic industry and borrowing and spending, nor build large financial institutions on the premise that real estate always rises in value. They do not build nuclear reactors on a tsunami and earthquake-prone sea-shore with reserve power generators in the basement and the plant designed to withstand maximum earthquake force of 7.9, when Reality can assert itself with 9.9, and just has with a 9.

Rebuilding the core

The problem with conservatives is that they don’t know what to conserve, what to discard, and what to dig out from under 3,000 years of history that’s no longer a part of our mental landscape but should be. Many cling to formalistic Christianity without a thought as to how Christianity itself, having derailed so many times far inside Yang territory^[11] is responsible for much of the Yin deluge now, pushed as though by the pendulum of the eternal Tao toward a cosmic balance.

The very fact that many a Western reader will scratch his head upon encountering Chinese concepts like Tao, Yin and Yang, is a symptom of cultural derailment. Western Renaissance occurred before when new concepts, technologies and goods absorbed from the Far East caused a quantum cultural leap. But now, the West has gone into a stupor of smug imbecility, behaving as though history and destiny are linear and what was until 1990 on top will always remain on top, no matter how stagnant and desiccated its basic precepts (e.g. “democracy,” “social justice,” “progress”), or decadent its ways. Instead of strengthening itself with the highest that only the other high civilization — the Northeast Asian one — can offer, the West has infused itself with the most backward cultures it could import: those of the Muslim Near East/ North Africa, and of Black Africa morphed as Afro-American gangsta and hip hop moronism.

We will all soon be wood choppers and water drawers for the Chinese, and we continue like a windup toy bunny, smug in our superiority, straight to and over the edge, as though nothing needs rethinking and no new ideas need to be borrowed or resurrected. Meanwhile, the Chinese rule the world. Commercially for now, and militarily too from about 2040 on. All by shrewdly borrowing ideas and cultural elements from the West, stealing what they could not borrow, then playing to and taking advantage of Western weaknesses while not sacrificing one iota of what it means to be Chinese.

Confucius is all about societal wisdom and wise personal conduct. So is the Japanese Tsurezuregusa — 700 years old and taught in every elementary school in Japan. Their foreign relations are conducted according to Sun Tzu and the 36 Stratagems. Our foreign relations are conducted by “liberated” menopausal women and utopian male drones with narcissistic personality disorder, the whole +2 Sigma (i.e. “smart”) lot of them possessing the wisdom of a door knob.

There was a time when the West knew and valued wisdom. The Bible is a depository of wisdom, as are ancient Aesop’s fables. Every Indo-European language has a rich trove of folk tales and aphorisms that transmit wisdom. The men who served in the Nordic things 1000 years ago were chosen based on their wisdom and standing in the community, not as per how long they could keep a fake smile on their faces and hug strangers’ soiled babies.

To have a future, Freedomia must restore and understand the difference between smarts and wisdom, and choose the latter, in every instance. It must tear down and completely replace what passes for “education” in Snatcher-ruled America, going back at least to John Dewey. Teaching kids Ben Franklin’s “Poor Richard’s Almanac” will prepare them for success in the 21st or 28th century far more than teaching virtual reality protocols or multiculti dogma possibly can.

Alas, the West has forgotten its own indigenous cultures that are worth knowing. Western politicians, even the “good” ones like Geert Wilders, keep invoking “our Judeo-Christian culture.” But if we adopted what’s worth resurrecting from proto-European pantheism, the Taoist-like veneration of the Universe and its manifestations on Earth is there, and the deep spiritual fulfillment of finding the sacred in Nature is there, and the fierce particularity of protecting our forests, our rivers, our ancestors’ lands. Right there is the penicillin for Christianity’s maudlin universality and Yin entropy^[12].

To save and regenerate it, the entire footprint of Western civilization has to be shifted from its current Judeo-Christian squatting to its historical and more organic outline encompassing the pre-Christian roots, the Greek and Roman trunk, and only then the Judeo-Christian branches. This way, the Yang will be restored to what is currently a Yin-overloaded, sickly shrub. Reverence for nature and love of beauty must be restored, a taste for a spiritual and aesthetic apprehension of the natural world that has nothing to do with the cancers of perpetual “progress,” “growth,” “justice,” or Platonic sophistry.

Education has to be based on teaching manly virtues to men-in-training and feminine virtues to women-in-training. Equality being a partial euphemism brought forth by unmistakably (and deservedly) superior Virginia aristocrats and Yankee geniuses, it’s time for the common sense of old to make its reappearance. There is supreme wisdom in Charles Murray’s three-part series published in the Wall Street Journal, January 2007: “Intelligence in the Classroom,” “What’s wrong with vocational school?” and “Aztecs vs. Greeks”^[13]. Murray stressed that we don’t live in Lake Wobegon where everyone is above average, and that we ought to identify and properly nurture a Praetorian Guard class and a worker bee class.

If we had schools integrating Judeo-Christian humanistic values with Greco-Roman elitist ones, the kind of scum that constitutes our Ruling Class now would never get a hearing even in a local tavern, let alone in the halls of Congress and in corporate boardrooms. Werner Jaeger’s Paideia is what prospective K-12 teachers in Freedomia will be examined on, not Dewey, Zinn, Freire and the rest of the Body Snatcher landing party.

Ideas matter. Core values matter. The ideas and core values of the United States, and the West as a whole, have reached the end of their useful life expectancy. Everything needs to be rethought from the ground up. It’s Freedomia’s job, and it’s not a job for the faint of heart or the lame of brain.

Coda

You have to live what you believe. You have to be, not talk. A reactionary Freedomian constitutionalist does not buy cheap imported junk, serve in the military with gays under the command of women, or allow his children to get pierced and tattooed on the skin via needles or on the brain via cretin pop culture. A Freedomian does not, cannot live in New York, Chicago or Oakland — except if he must and there is no other way.

Freedomians who are stuck and cannot move from whatever Snatcher territory they inhabit, ought to at least relocate to the same neighborhood. If there aren’t enough of them to fill a neighborhood, let it be a single street. Let it have at least a bookstore where Freedomian books are sold and Freedomians can have coffee together.

A Freedomian takes his son out of softball practice and puts him into pankration practice. This is a far harsher world than the genius of the Founding Fathers and America’s luck of isolation from the main predator nations has enabled Americans to believe. The lucky hand has been badly played for two generations now; Reality cannot but revert to the global mean. Besides, Freedomia will not force school bonds on its residents for the sake of lavish school football programs. Teaching Homer, calculus and boxing is much cheaper — and better for the young.

One important notion to absorb from Sun Tzu is that you must first realize the conditions for victory, and only then seek it. The outcome of the Battle of Gettysburg and world history with it would have been quite different had Robert E. Lee not lapsed in his judgment and ordered General Pickett to charge uphill against the Union’s fortified positions on Cemetery Ridge. You never run uphill, let alone against a hail of bullets.

Snatcher State is doing itself in on its own; there is no need for Freedomians to run uphill. It’s enough to gather and prepare the ground to save as much of America as will be possible after the Loons, Crooks and Looters collapse upon each other. But a formal break and the founding of an independent republic has to be considered inevitable in the future, just as the eventual formation of La Republica del Norte is inevitable. Demography is destiny, and no amount of Snatcher talk will change that. War can change that, but that is a topic for war professionals that we shall skirt here.

Between America’s two founding documents, the Declaration of Independence is, by far, the more unique and remarkable. What greater prose than this can be conceived that expresses the anguish in the necessity of rending a nation asunder:

“When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.”

How much longer and graver the list of the offenses, depredations and treasons that America’s Loons, Crooks and Looters have committed against the American people than the long list of King George’s transgressions iterated in the Declaration! What follows in that document and is apposite in the future one as well is a list of the attempts that the breakaway group has made to bring its grievances before the proper authorities and to seek conciliatory resolutions — in order to get in return only lawfare, trickery, brush-offs, rebuffs, assaults, and imported predators. With but slight changes (in italics), these words from 1776 could sound fresh 250 years later:

“In every stage of these oppressions we have shown our disapproval in lawful ways: our repeated votes, plebiscites, petitions and demonstrations have been answered only by repeated injury. A democratic government of a Republic, whose character is thus marked by every act which may define a tyrant, is unfit to be the ruler of a free people.”

When the hour comes, it would behoove Freedomians to stress that separation was not an option until none other was left; that since 1964 they have been doing all in their power to keep the whole together. There is a poignant expression of that in Jefferson’s draft of the Declaration that was redacted by either Franklin or Adams. These were the words that flowed from the quill pen of an Anglo-American genius in rented rooms at Market and Seventh in what was then Monodelphia:

“We might have been a free and great people together; but a communication of grandeur and of freedom it seems is below their dignity. Be it so, since they will have it; the road to glory and happiness is open to us too; we will climb it in a separate state, and acquiesce in the necessity which pronounces our everlasting Adieu!”

Notes:

1.		Are there any Jews out there protesting publicly, proclaiming “Not in Our Name,” when Jewish organizations like the ADL work day and night to turn America into an antisemitic country? For there are Blacks pulling no punches with respect to the profile of the Black community, e.g. the Rev. James Manning .
2.		This topic was discussed more extensively in the essay “Cities and Accomplishment” by Fjordman, and in its comments section. The attribute “White” is used in the sense of demographic and cultural predominance of European-origin people, rather than in the sense of ethnic exclusivity. Many of the most successful cities in Europe had highly contributive Jewish minorities (e.g. Amsterdam, Lwow), booming medieval cities in ex-Russia Slavic Europe had similarly beneficial German minorities etc. —but the governance and culture of each such place always reflected the majority people. And the few larger and more international and multinational cities, e.g. Rome, Samarkand and Victorian London in the past, or Singapore now, have thrived only because of a dominant, higher-IQ group, imposing its values and governance as binding on all.
3.		“Visible Minority’ is the official Canadian Snatcher Government term for what I call here Black and Brown. Morlock and Eloi are a race of predatory troglodytes and the race of human victims respectively in H.G. Wells’s The Time Machine.
4.		The Battle of the Golden Spurs is a particularly compelling example of this type of war. This man, the commandant of Warsaw in the 1794 Kosciusko uprising against Russian occupiers was a working cobbler and activist in his trade guild.
5.		The life of American originals like Robert. G. LeTourneau — a man who had no college education yet became a holder of 300 patents, a titan of industry, a business tycoon and a major philanthropist devoted to Christian principles — is particularly valuable in these days of rampant cretinism, degrees inflation, predatory financial capitalism and propositionism concerning the American identity.
6.		No one toiling in this area ought to use the term American Renaissance without a hat tip to American Renaissance: a pioneering enterprise of a dedicated man, Jared Taylor, who’d given up much for it. For 21 years now it has stood like a lone and unwanted Cassandra, imparting data and news stories documenting that racial differences exist, that the construction of Newamerica on the false premise that they do not is a path to perdition, and that in response to that path’s calamity Whites must start defining themselves in terms of their group interest, just as Blacks and immigrant groups do.
7.		Blade Runner, directed by Ridley Scott, presented in 1982 a visionary picture of the Los Angeles of 2019 that, demographically at least, Los Angeles already resembles. MultiAmerica is the multicultural propositional nation of New America, and the opposite of Monodelphia.
8.		See connection between White city demographics and Loonism here.
9.		From 100 miles north of San Francisco up to Eugene, Oregon it’s all Red country. For hundreds of miles north beyond Eugene, and well into Washington State, it’s all patchy Red too, except for Portland.
10.		See The Voluntary City: Choice, Community and Civil Society,
11.		Examples of Christianity’s past excesses: Constantine’s Sword, crusades against Europeans (Albigensians, Balts and other Euro-pagans), the Teutonic Knights of the Cross, persecutions of Jews and heretics, oppression of women, stifling of sexuality — of joie de vivre even, ceaseless internecine religious wars, corrupt power-mad popes, the Inquisition, fostering of bigotry and fanaticism, lust for gold and treasure, etc.
12.		Readers may be happy to know that Augustana College — "Lutheran expression of the Christian faith" — hosted a "White Privilege Summit" on March 30 (hat tip, American Renaissance)
13.		These appear to be behind a paywall now, but are probably retrievable elsewhere.

Previous posts by Takuan Seiyo:

2008		Oct		14		The Real Mark-to-Market
		Dec		1		You Say Mumbai, I Say Bombay
2009		Apr		8		The Deadly Jive of Jiverly Diversity
		Jun		2		The American Press: The Unbearable Lightness of Treason
				12		Critique of the Culture of Kevin MacDonald
		Jul		31		Sons of Onan
		Sep		2		Be the Change
		Dec		15		F Street
2010		Apr		25		Vast Canyon of Gas and Dust, Inshallah
		Jul		7		Vast Canyon of Gas and Dust — Progressive Progress Report
		Dec		12		The Art of Strategic Citizenship, Part 1
2011		Jan		7		The Art of Strategic Citizenship, Part 2
				31		The Art of Strategic Citizenship, Part 3
		Mar		20		The Art of Strategic Citizenship, Part 4

Gary North in his Reality Check newsletter penned the essay “Gold vs. Guns and Badges,” wherein he notes that “There are only two conceptual options in monetary theory: a full gold coin standard in which the citizens hold the golden hammers or a system of economic planning in which elite members of the planning bureaucracy hold the digital hammers. There is no third choice.”

Not only is he perfectly correct, but we on the lunatic fringe are indebted to Mr. North for making sure that we get some guns and badges on our side, so next time perhaps he will write “Gold, Mogambo Junior Ranger (JMR) badges, and Large-Caliber Weapons vs. Guns and Badges,” which will make it a little more even.

I am personally indebted for teaching me something clever said by Ludwig von Mises, who, when asked what the government should do to overcome a recession, said, “Nothing. Earlier.” Hahaha! Excellent!

And to show you that there are new depths of profound meaning all the way through those two little words “Nothing. Earlier,” let me also say that I have reconstructed, entirely from memory, the subsequent sentence fragment that was destroyed by, as they say, unseen hands, unwittingly creating this masterpiece of economics and wit.

The quote of Mises should correctly go, if I understand both him and the Austrian school of economics correctly, “Nothing. Earlier, you should have rounded up every moron economist advocating for more government spending and/or more creation of money by the Federal Reserve, and lock up the ones for whom you can get enough evidence for a confession or an easy conviction, and persecute the rest of their fellow-traveler academic and government scum, like when they hatch plots against me, like just yesterday, when the glass coffee pot mysteriously developed a crack near the bottom!

Continuing, commenting on this, Mises would have surely said, “So sometimes, a small drop or two would leak out of the glass carafe, and it would make a little sizzle on the heated part of the drip-coffee maker, so that every time you went by the pot, it would make a little sizzling noise, and you think to yourself ‘The last person to use this pot to pour themselves a cup of coffee was a real slob and dripped it down the side, and now it is boiling away on that heating element, probably as part of a plan to burn the place down and kill me in the blaze, which I now see is their nefarious plan, those rotten, murderous, backstabbing bastards! I’ll get my revenge!”

Well, now that I re-read that, I’m not sure Mr. Mises would have really said those EXACT words, but you get the drift, even though I was planning on using this as a springboard to segue to a discussion of whether I am irritating because I am loud, or am I loud because I am irritating, which I am required to be because you ignore me when I am not loud and don’t get right in your face and say, “Hey! Moron! Go out and buy gold, silver and oil as a save-your-butt defense against a catastrophic economic collapse because of the Federal Reserve creating so much excess money, which they do to commit the horrifying economic sin of monetizing government debt so that the government can borrow the money, thus increasing the national debt, and then spend the money, increasing the money supply, and thus increasing the penalty we will pay in terrifying price inflation for committing such fiscal and monetary arrogance and stupidity, felt most keenly among those who have little or no income to start with, and thus cannot afford higher prices, and who have nothing to lose by rioting and just taking what they want, making the dollar a bigger piece of crap than it is, making gold and silver prices soar.”

Of course, I was going to use the phrase, “Whee! This investing stuff is easy!” at the end, and I am just waiting until I figure out how to do it.

The Mogambo Guru
for The Daily Reckoning

When the Government Should Do Nothing originally appeared in the Daily Reckoning. Daily Reckoning founder Bill Bonner recently wrote articles on stagflation and the great correction.

Join the conversation about this story »

On 14 May 1955, the treaty that came to be known as the Warsaw Pact was signed in Warsaw. There were 7 signatories to the document’s eleven articles and preamble: Albania, Bulgaria, Poland, Romania, USSR and Czechoslovakia. The German Democratic Republic (GDR) joined in 1956; Albania ceased cooperation in 1962, eventually abandoning the Pact in 1968 in light of the invasion of Czechoslovakia.

The Warsaw Treaty Organisation was, put simply, the Soviet Union’s “external empire” throughout the second half of the twentieth century. At the height of its powers, it aimed to occupy the whole continent. Crucially, the only campaign ever undertaken by the armies of “fraternal countries” was not mounted to the west, against an external enemy: it was instead the punitive expedition to crush the “Prague Spring” in 1968.

135 years earlier, the Russian Empire built the Warsaw Fortress in response to the 1830 (November) Polish uprising. It was unique in that it was not built to protect the city from an external enemy, but against the city itself. A chance coincidence, of course, but particularly symbolic.

The Warsaw Pact was an alliance formed by the Soviet Union and its Eastern bloc allies. The treaty was signed on May 14, 1955 in the Polish capital, Warsaw.

1940s: A challenge that went without an answer

By the end of the 1940s, not only loyal, but completely subservient regimes had been established in practically all Central and Eastern European countries (the one exception to this was Austria, where there were Soviet occupying forces). Here, civil and political life was to exclude all elements of independence – whether it was the remains of pre-war political life (like Jan Masaryk in Czechslovakia) or of the anti-Hitler resistance of WWII times (like the Krajowa army [loyal to the Polish government in exile in London] in Poland). There were ideological purges and show trials in all the fraternal countries. 

The Warsaw Treaty Organisation was, put simply, the Soviet Union’s “external empire” throughout the second half of the twentieth century.

From the beginning, the legitimacy of the new governments was vested in the power of the “bayonet”. There were various “bayonets”: the Soviet occupying administration, the security services set up with the help of “advisers” from the USSR Ministry of State Security, and the reconstituted armies, also controlled by Soviet “advisers”. Probably the best example of such “advisers” was Marshal K.K. Rokossovsky, the first Commander of the Northern Group of Forces stationed in Poland, who was appointed Polish Minister of Defence. Stalin micromanaged the “people's democracy countries” – he didn't seem to consider that they were independent entities or that he should work on building a complex system of interrelationships, even if they only had a semblance of equality.

Behind the Iron Curtain the expectation was that the Cold War would develop into the Third World War. The Soviet Army would have fought alone, regarding Eastern Europe exclusively as a theatre of military operations without any independent entities.

There was no matching response to the creation of the North Atlantic Alliance (NATO) on 4 April 1949 because there was absolutely no one to set up a coalition with. True, there were the economic interests: first, the remains of the advanced German military technology had to be gathered up and equipment shipped back to the USSR as part of Germany's reparation; Czechoslovakia's remaining industrial potential had to be used and enterprises had to be created to mine uranium in Germany, Czechoslovakia and Romania etc. In the interests of (primarily) the military-industrial complex all that was needed to integrate Eastern European economies into the Soviet economy was the Council of Mutual Economic Assistance, which was set up that same year.

The main problem, however, was the incompatibility of the component parts: levels of loyalty were too varied. Soon after Stalin's death [5 March 1953] it became apparent that the “social engineering” tried and tested in the USSR – mass repression, collectivisation etc. – produced the opposite result in Europe. The first signs of this were the mass protests in Berlin on 17 June 1953: they were put down with Soviet tanks, but Poland and Hungary were still to come.

The Soviet response to NATO came not at the height of the Cold War, or during the late Stalin years, but six years later when the Krushchev “thaw” was in full swing.  Why was this?

1950s: the asymmetrical response

The Krushchev thaw didn't just bring new problems, but windows of opportunity too. At that time, however, the Soviet leadership did not seem united in their opinion on the fate of Europe. In 1953, for example, Lavrenty Beria proposed to the Politburo that Germany should be permitted to unite in exchange for its neutrality (this was subsequently used as a black mark against him following his arrest).

The received wisdom is that the Warsaw Pact was formed as a reaction to the Federal Republic of Germany becoming a member of NATO on 6 May 1955. But there is another no less significant “coincidence”: on 15 May 1955, the day after the Warsaw Pact was signed, the Allied Powers signed the Austrian State Treaty and the occupying forces withdrew from Austria. After the enactment of the treaty, Austria declared itself permanently neutral.

On 19 October 1956, the Japan-Soviet Joint Declaration was signed. Under the terms of this Declaration, the USSR and Japan would work towards the signing of a peace treaty, in which case Japan would receive two islands of the Small Kuril Chain [Habomai and Shikotan] in consideration of her subsequent neutrality. In recent years this agreement is occasionally remembered, although considerably less frequently that the Kuril Question is discussed.

Nikita Khrushchev used to reminisce that originally the Warsaw Pact's most important goal was its dissolution, in exchange for NATO doing the same thing. Then, it didn't then seem so impossible. But the NATO bloc refused to disband and 3 years later refused the Warsaw Pact Organisation  proposal of a non-aggression pact.

As a result, the Warsaw Pact existed for over 30 years, gradually filling what had been an empty shell with quite specific and lethal content: the readiness to occupy Western Europe and strangle freedom in Eastern Europe.

The poster honoring 35th anniversary of the Warsaw Pact. Only one year on the pact was disbanded.

1960s – implosion

• On 4 November 1956 Soviet forces crushed the Hungarian Uprising. The new status of the Southern Group of Forces was formalised in the agreement of 28 May 1957 between the USSR and Hungary. Special Corps units had been deployed here from Austria in 1955.
• On 21 August 1968 the armies of five Warsaw Pact countries invaded Czechslovakia. By 16 October the agreement between Czechslovakia and the USSR had formalised the status of the Central Group of Forces.
• On 13 December 1981 martial law was introduced in Poland – with no external intervention or involvement of the Soviet Northern Group of Forces which had been stationed in the country since 1945.

In the West this was called the Brezhnev Doctrine:  Eastern European countries were no longer to be micromanaged by the USSR, which was building its security system based on the concept of “limited sovereignty”. The importance of reciprocal commitments as part of the pan-European confrontation was the cause often cited at the time. To my mind, another explanation would seem more logical, and that is that non-elected regimes were simply afraid of the “domino effect”, and were obliged to depend on each other. It was only the “bayonets” that kept them in power, because in all the “people's democracy” countries the police and state security service were more numerous than the rather small armies. But the home army under the control of the home state security service was, it turned out, not enough on its own – the regimes depended on the presence of Soviet troops.

Over the years, the “discipline and order” sections of the various barracks in the Socialist Camp showed themselves ready to do what the others did. The only serious, non-training operation of Warsaw Pact troops took place nowhere near Western Europe. On the night of 20/21 August 1968 the Combined Forces (a name echoing to this day in Chechnya) started their invasion of Czechoslovakia. General I.G. Pavlovsky commanded a force of 500,000 men and up to 5,000 units of armoured vehicles. In Prague, the operation was coordinated by USSR Central Committee member K.T. Mazurov. The Prague Spring so scared the “older brother” and its allies that the planning of the operation codenamed Danube had started as early as April 1968.

The Warsaw Treaty was a convenient tool in the preparation of an attack. Under cover of the “Šumava” training exercises (20-30 June), 16,000 soldiers were able to enter Czechoslovakia. The “Neman” exercises (23 July – 10 August) meanwhile enabled the USSR, GDR and Poland to redeploy forces and concentrate them on the northern and eastern borders of Czechoslovakia.

In the West this was called the Brezhnev Doctrine:  Eastern European countries were no longer to be micromanaged by the USSR, which was building its security system based on the concept of “limited sovereignty”.

The Pricarpathian (USSR and Poland) and Central (Poland and GDR) fronts were established on the main axes. In the first few hours, two Soviet airborne divisions captured Prague Airport and other important sites. Then the advance echelon of 170,000 Soviet, 40,000 Polish, 15,000 Hungarian and 2,000 Bulgarian soldiers took control of the city. The total fatality rate for Czechoslovakia was 100, with more than 500 injured. The invading armies lost approximately 100, mainly non-combatants. At the start of September  the troops left the cities and withdrew to their garrisons; and on 17 October troops began pulling out altogether.

The only serious, non-training operation of Warsaw Pact troops took place nowhere near Western Europe. On the night of 20/21 August 1968 the Combined Forces started their invasion of Czechoslovakia.

Then began the process of normalisation i.e. the conservation of the regime. The repression of the Prague Spring made any reconsideration of the unequal relations between the Soviet Union and the countries of the socialist camp impossible. It was a demonstration of strength in face of possible internal opposition in all the Warsaw Pact countries. It told people a few simple truths: change and evolution was impossible, and only those able to adapt themselves to the system would be allowed to live.

On 25 February 1991, the remaining Warsaw Pact member states signed the so-called “Budapest Declaration”. With this, they declared themselves “liberated from the heritage of the past, the age of confrontation and the break-up of the continent”. On 31 March, twenty years ago to this day, the military and organisational structures of the organisation were disbanded.

Sideboxes

Sidebox: 

All the comrades have read the communiqué that was published in the press. I must say that the decision to hold a meeting among leading officials from the Warsaw Pact member-states was extremely timely. The meeting featured a very thorough exchange of views. Representatives of the states—that is, the first secretaries of the Communist and workers' parties—offered thorough presentations. I should say that the speech by Comrade Kania was impressive overall. Of course he might have dealt with certain matters a bit more pointedly. However, if you generally compare the speech by Comrade Kania with the statement he made to his Politburo and at the plenum back in Poland, he was more self-critical, more vibrant, and more incisive. The most important thing is that the Polish comrades understand the great danger hanging over Poland, and that they are aware of the great damage done by antisocialist elements and the grave threat posed to the socialist gains of the Polish people....

Speech of Leonid Brezhnev at the Warsaw Pact Member-States Meeting, Moscow, 5 December 1980

Related stories: 

Gorbachev: history will be a fairer judge

Gorbachev at eighty: evaluating his achievements

Gorbachev: the wrong man for Andropov’s reforms

A national museum to the victims of Stalinist repression: words not deeds?

Latest on Ukraine’s history wars: Orange fighter down

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How Russia’s human rights movement began

I keep pounding, pounding, pounding the table that silver is the biggest bargain out there, for, at last count, a jillion reasons, and that anybody who does not buy silver Right Freaking Now (RFN) is making the mistake of a lifetime, and the family is all, like, “Will you please stop pounding the table? It is irritating and is making things spill, aside from the fact that we don’t have any money with which to buy silver, and you know that!” which devolved into a lengthy discussion about who among them was the most irritated with me and everything I say or do.

So, to make these idiots happy, I stopped pounding, losing a lot of my spark of emphasis in the process.  It just wasn’t the same, and my breakfast cereal was getting soggy, too, so without using my trademark pounding to buttress my arguments, I decided to just let Jason Hommel, of the Silver Stock Report newsletter, highlight my “Buy silver or you are a moron!” theme with notices of a few serious delivery problems in the silver market, indicating shortages, to which he surmises that “the futures market is about to default on silver and gold deliveries. There is a growing market awareness that the banks have sold short over $200 billion to $400 billion in silver, while all the world’s silver mines only produce about $30 billion of silver annually.”

The lesson seems to be that there is shark-infested water everywhere, and “Market participants are now taking on the cornered banks, putting them into an epic short squeeze of having to deliver silver that does not exist in quantity even remotely compared to the amount of money that exists that can buy silver.”

Now, as a cynical, paranoid ordinary trader/investor kind of guy who has been around long enough to have been eaten by financial sharks a few times, I am sure that they exist, and even today, baby sharks nibble at me, eating me, bite by bite, taking 1.5% of assets in fees and expenses every freaking year!

On the other hand, I never thought that I could be on the side of the sharks, and prove that “what goes around comes around” to my advantage, for a change!

And the good news from a “buy silver and prosper from inflation, Pilgrim!” standpoint, inflation and money-inspired growth ain’t a-gonna stop, neither, as I was reading a Bloomberg.com article that brought up the Federal Reserve perhaps ending their long series of monetary stimulus programs one day soon.

It ain’t a-gonna be, because but “While the Fed hasn’t committed to the specific methods it will use to exit, or in what order, it has been releasing details about its progress in building new programs and expanding its ability to drain reserves.”

Making a little joke of this, I note that this is, of course, akin to the fire department buying fire extinguishers instead of putting out the fire, so that in the future, if they do decide to put out the fire, they will be able to put out the fire! Hahaha!

Of course, I know this is not a fair analogy, and it’s not very funny, either, despite my pathetic use of “Hahaha!” to try and convince you otherwise.

To try to correct that serious shortcoming, and to perhaps make it more apt, let me expand to say that first the volunteer firefighters would have to set a lot of houses on fire so that there would be both a demand for a permanent fire department paying high incomes to full-time employees, and there would be a big need for new housing to replace all the charred rubble, both seemingly stimulating the economy, but, alas, as the Austrian School of economics shows, not, although they end up accumulating a lot of fire extinguishers.

Okay, I can see that it’s more apt, but still not funny, and getting un-funnier all the time, a deplorable condition that will undoubtedly be made worse when I continue to expand the analogy to the corrupt city council counterfeiting money to pay the firefighters and themselves, and pay for that spiffy new firehouse and City Hall, and pay for all that shiny new government gear and programs, thus creating a continual addition of money to the economy that drives prices up, drives the riffraff like me out, and drives the economy into the toilet.

With a start, I recoiled in horror, showing what a wussy coward I am about inflation, as the analogy became all too frightening when it included the inflation in prices that an inflation in the money supply brings!

That was, however, not the actual part that made my eyes open wide and the skin on my head draw back in fear, although I must warn you that it doesn’t look that way when it happens, as I ruefully noted when the kids said to each other “Hey, look! Dad’s ears are wiggling!”

This, of course, started the predictable domino effect from, “Why do you need ears when you never hear anything we say?”, to “We keep saying that we need you to give us more money!”, to “You’re a cheap, horrible person!”, to “I hate you! I hate you! I hate you!”

No, the part that really, really REALLY scared me was when the Journal followed that up with the sentence “This includes increasing the number of its counterparties.” Gaaaahhhh!

It’s the idea of derivatives all over again!  “Spreading the risk”! Yikes! Run for it! We’re Freaking Doomed (WFD)!

If you are NOT running in fear, then you are either stupid (and thus you cannot learn that you should be buying gold and silver when the Federal Reserve is creating so monstrously much money) or it means that you are smart (and thus you already have a lot of gold and silver).

It’s just that easy to distinguish between the two! Whee!

The Mogambo Guru
for The Daily Reckoning

Buying Silver and Avoiding the Sharks originally appeared in the Daily Reckoning. Daily Reckoning founder Bill Bonner recently wrote articles on stagflation and the great correction.

Join the conversation about this story »

There are two ways of looking at the impact of the new tax bill (The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010). One is that giving workers more money via the payroll tax holiday will increase spending in the economy and thus create more economic activity and revive the economy. This is the Keynesian view. Another way of looking at it is that it will have little or no short-term impact on economic growth but it will increase unemployment. This would be the Austrian view.

First, let's look at the actual amount of "stimulus" that will be available. I created the chart below from the CBO estimate of the impact of the Bill on the Federal budget. Their assumption is that what isn't taken by the government is left in our pockets to spend. They claim there will be $780.4 billion of new stimulus. But the reality is that is not quite accurate.

The Texas congressman has travelled a lonely path in politics. But now he has a promising platform for another presidential run

The Revolution is here! Searching for leadership, congressional Republicans have finally turned to Ron Paul. Well, to chair the House subcommittee on domestic monetary policy, at least. But that does put Congress's leading critic of the Federal Reserve in charge of the panel that oversees the central bank.

Ben Bernanke, beware. The 12-term libertarian-leaning congressman from Texas has written a book-length manifesto – titled simply End the Fed – calling for the Federal Reserve's abolition. He will likely call leading Austrian economists affiliated with the Ludwig von Mises Institute to Capitol Hill to testify alongside staid mainstream economists. Fortune magazine recently asked, "Will the Fed be able to survive Ron Paul?"

For years, Paul laboured in obscurity. He ended his first stint in Congress with an unsuccessful run for US Senate in 1984 (he lost to eventual Senator Phil Gramm in the Republican primary). Before returning to the House 13 years later, in order to join the stalled government-shrinking "Republican Revolution", Paul was the Libertarian party's presidential nominee in 1988.

But it was Paul's first Republican presidential campaign in 2008 that really put him on the map. Debating alongside John McCain, Rudy Giuliani and Mitt Romney, Paul stood out as a voice for peace and civil liberties. Unlike all the other Republicans on stage, he opposed the Iraq war and the Patriot Act. A strict constitutionalist, he was also more consistent than the rest of them in his rejection of debts, deficits and runaway government spending.

Paul's views on war and peace remain deeply controversial within the Republican party. When Paul defended Wikileaks founder Julian Assange, for instance, the conservative blog RedState denounced him as "al-Qaida's favourite member of Congress". But when it comes to economics and the requirement that federal legislation be explicitly based on the Constitution, Paul's philosophy is starting to resonate.

Republicans leaders resisted pressure from the banking industry to block him from his new subcommittee chairmanship. Every GOP member of Congress, and a not insignificant number of Democrats, co-sponsor his bill to audit the Fed. His son Rand was elected to the Senate from Kentucky in November. According to a Paul profile in the New York Times, "others are beginning to credit him with some wisdom – or at least acknowledging his passionate following."

Now comes the hard part: Paul says he is split "50-50" over whether to make another presidential run in 2012. A serious legislator, Paul didn't skip congressional votes during his last race for the White House. Would his work as a subcommittee chairman make the next campaign less likely? The chairmanship also gives Republican leaders a bit more leverage, in the event that Paul considers bolting the GOP for another third-party bid.

Although Paul doesn't seem in a hurry to make up his mind, events could force his hand. An April Politico poll found the Tea Party split between Paul and Sarah Palin. While imprecise, this survey highlighted the tensions among the Tea Partiers between the more conventional Republicans who believe the problems with big government started under Barack Obama and the libertarian-constitutionalist wing that had serious misgivings about George W Bush.

The latter is Paul's base, which he may need to move swiftly to consolidate since former New Mexico Governor Gary Johnson might also get into the presidential race. Johnson endorsed Paul in 2008 and the two have similar views. But Johnson is to Paul's left on the hot-button issues of immigration and abortion, potentially splitting the Paul coalition. The ex-governor also told the Weekly Standard that he favoured humanitarian warfare in some cases, something which could turn off the Paulian faithful (though his revelations about pot-smoking might be of greater concern to run-of-the-mill Republican primary voters).

Paul would probably be fine chairing his subcommittee and handing the baton off to Johnson. "I can't imagine endorsing anybody else," the congressman told the New Republic. But Johnson would have to start building support almost from scratch. And despite his superior executive resume, it isn't clear he has the political skills to be a step forward for the Paul movement.

In any event, this looks like Ron Paul's moment. Whether that moment is spent in subcommittee hearings or on the campaign trail remains to be seen.

In Keynesian Psychology With Austrian Tails, I detailed a personal trading transition above and beyond Austrian economics.

In short, while believing the Austrian school to be more or less correct — especially in respect to human nature — when it comes to real world implications (and trading decisions), there is a human psychology standoff that involves a time element.

The Keynesian approach — which advocates government stepping into the breach — essentially overlooks the corrupt, inefficient nature of public policy, and also promises something for nothing.

But people like promises of something for nothing… that’s practically a foundational principle of politics… and persistent delusions can go on for a very long time.

To put it another way, the market can be like an emotional spouse: For extended periods of time, “facts” don’t matter so much as “feelings.”

Keynesians call these feelings “animal spirits,” and there have been entire books (written by Keynesian acolytes) on how important it is to revive animal spirits for the sake of the economy.

 

In capturing the tendency of markets to doggedly embrace Keynesianism — even when such a track seems delusional — Emanuel Derman nails it in his book My Life as a Quant:

In physics you’re playing against God, and he doesn’t change his laws very often. In finance you’re playing against God’s creatures, agents who value assets based on their ephemeral opinions. They don’t know when they’ve lost, so they keep trying.

To wit: In the same way that you can’t “win” an argument with your overly emotional wife (or husband), nor can you “win” an argument with a persistently delusion-embracing market.

Except, of course, by 1) going with the flow in the near term, and 2) waiting for the longer-term “facts” to actually pan out…

The Von Mises Prophecy

Despite very long interims, reality (and gravity) tends to eventually reassert itself. This is why the Austrian school will always have relevance.

In that respect, there is something I think of as “the Von Mises prophecy,” which is a sort of one paragraph summation of Austrian thought — anchored to a prediction — as put forth by Ludwig Von Mises himself:

There is no means of avoiding the final collapse of a boom expansion brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

The Von Mises prophecy can further be understood in the context of “exploding debt dynamics” (a highly useful term coined by an IMF staffer).

To wit, your debt dynamics become explosive when debt service costs overtake your ability to arrange new financing. “A rolling loan gathers no loss,” as the Wall Street wags say, but once that loan stops rolling? Game over man.

The “boom expansion brought about by credit expansion” Von Mises refers to sits atop a mass pyramid scheme of leverage and debt.

As credit expands, more and more unproductive debt is taken on in pursuit of marginal return investments. This process can play out over years, or even decades (as we have seen in the U.S. via a 25-year leverage and debt supercycle).

The prophecy’s “final and total catastrophe of the currency system” comes from last ditch emergency measures in the face of a debt avalanche.

An economy that is lightly (reasonably) leveraged can handle a slowdown without imploding. An economy that is leveraged to its eyeballs cannot. A catch-22 is thus created, in which the taking on of excess leverage requires the application of even more leverage (via the authorities) to save the system from itself. This feedback loop is, of course, unsustainable, barring the economy’s ability to “grow its way out” of the problem.

So the process by which the Von Mises prophecy is fulfilled can be generalized like this:

• The economy has an upswing.
• The upwsing starts to falter, as is natural to the business cycle.
• Politicians say “Hey, let’s keep this thing going.”
• The system is juiced with leverage-enhancing liquidity.
• Via stimulative reinforcements, a boom mentality takes hold.
• The boom continues, now in an unnatural state.
• The “can’t lose” mentality sets in. Greed and hubris run amok.
• Via risky marginal investments, unproductive debt accumulates.
• After a period of years (or even decades), cracks reappear.
• The “mountain of debt” now casts a long cold shadow.
• That same mountain threatens to topple and collapse.
• The authorities panic. They know the debt will crush them.
• To circumvent the avalanche, the debt is monetized.
• Via monetization, the economy experiences temporary relief.
• But the relief is not enough… the problems persist…
• …and so more monetization is applied.
• As alternative to full collapse, the currency is destroyed.

The pattern as described above is now in full swing in the United States and Europe, and coming to potentially spectacular fruition in Japan.

While there is heavy emphasis on the Fed and the $USD, the eurozone’s sovereign debt crisis is perhaps an even clearer example of the “mountain of debt” phenomenon. Over a period of many years the peripheral eurozone countries were allowed to spend borrowed funds (on a borrowed credit rating) they could never pay back.

Now there will likely prove no final option in saving the eurozone, other than monetizing the non-serviceable debt (i.e. the ECB will eventually have to disavow its Bundesbank roots and print, taking up local debt issuances with fiat paper and massively devaluing the euro).

The United States too, of course, is on a similar path. This is why U.S. yields have been rising, not falling, even as the Bernanke Fed has promised to keep rates low. As we wrote in the 12-2 Global Macro Notes:

In short, the Federal Reserve has made clear its intentions to utterly trash America’s finances, as it seeks to paper over the excess leverage and debt sins of the entire planet.

Delayed Payback

The dynamics of the Von Mises prophecy also help clarify why we have rough waters ahead. The problems of the “debt mountain” have not been dealt with — which means they will continue to press in future.

Understand that the majority of market participants (as represented by CNBC and the like) do not actually understand economics. Worse still, they do not actually CARE about understanding economics.

This is what makes it all too easy for misplaced optimism to take hold (with talking heads and banking house strategists cheering it on). When one’s entire focus is on straining to see “green shoots,” and one’s psychological orientation is towards justifying optimism whenever possible (rather than developing as realistic a worldview as possible), every extended period of temporary Keynesian relief becomes reason to believe that all is coming up roses and the worst has passed.

Are the Bond Vigilantes Returning?

Above is a chart of 30 year t-bond interest rates, dating back to the mid-1990s.

Though the actual trend goes back farther, you can see the key point illustrated here — interest rates have been falling for decades. The aberrational low point came at the height of the 2008 financial crisis, when seemingly the whole world piled into USTs.

In respect to this long, long trend, Fall 2010 represents a potential inflection point of great magnitude. Why? Because this is when two things happened:

• The Federal Reserve made an unprecedented “QE2″ commitment.
• The explicit goal of this commitment: To keep U.S. interest rates low.
• Interest rates rose, not fell, in response to the Fed’s actions!

In short: The bond vigilantes, long in Rip Van Winkle slumber, may now be waking up.

The Von Mises prophecy, remember, involves panic fears of being crushed under a mountain of long-accumulated debt. As the authorities seek to alleviate pressure by monetizing that debt (turning it into paper currency), faith in the system on the whole (currency and debt) is eroded, and investor preference for holding said debt (or currency) shifts at the margins in favor of something else.

There are, of course, other explanations for why bonds are falling (and rates rising) in the face of the Fed. Optimistic bulls will argue that rising rates are a function of a U.S. economy returning to health, and may go even further in arguing that rising rates will not derail a sustainable recovery.

That is one possible interpretation of the future path. Another is that:

• The bond market is repudiating the actions of the Fed;
• Rising interest rates will put a stranglehold on anemic recovery;
• Recovery failure (new signs of sickness) will beget more QE;
• More QE will erode faith in the system further;
• Repeat cycle from step 1 until the currency is toast.

Of course, with all three of the major currencies ($USD, euro, yen) in various stages of this same cycle — just wait until Japan hits a loss of faith patch! — it’s little wonder that forex forecasters are calling for “Super Volatility” in 2011.

It’s a great time to be a trader…

JS

This post was published at Mercenary Trader >

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Bruce Bartlett: >Tax Deal Puts Economy between a Rock and a Hard Place: given the economic situation, Obama had no choice but to do what he did. The question is, will it work?... The liberal theory is that the economy is suffering from a sharp falloff in aggregate demand. In short, people reduced spending and increased their saving to rebuild wealth lost to the collapse of the housing bubble and decline in the stock market. As sales fell, businesses laid off workers, which led to a further decline in spending as the unemployed tightened their belts and downsized their standard of living. The obvious response, if one accepts this theory, is for the federal government to step in and replace the lost private consumption with public spending on goods and services. Ideally, that would take the form of what economists call “public goods” that would contribute to the nation’s long-term productivity, while also providing short-run stimulus.... >Keep in mind that one important constraint is the way people inevitably react to government tax or spending programs. Programs that just put money in their pockets don’t always encourage consumption because people tend to save windfalls.... >In contrast to liberals, conservatives have never had a coherent theory of what caused the recession or a program designed to deal with its specific characteristics. In part, that is because there is no single school of conservative economics. Members of the so-called Austrian School, such as Congressman Ron Paul, basically oppose any stimulus. They think that economic imbalances caused by past government intervention in the economy are what caused the recession in the first place. Stimulus, in their view, will only make matters worse. The best thing is for government to get out of the way and allow the economy to readjust, no matter how painfully, which it will do faster without government interference. >Even most conservative economists view the Austrians as eccentric. Most would consider themselves to be monetarists to one degree or another. Monetarists, who follow the late economist Milton Friedman, think that fiscal policy (taxing and spending) is pretty much worthless. What really matters is monetary policy, which is under the independent control of the Federal Reserve. Following Friedman’s analysis of the Great Depression, monetarists thought that if the Fed just kept the money supply from declining then the economy would turn around relatively quickly by itself. Fed chairman Ben Bernanke considers himself to be a follower of Friedman and he moved heaven and earth to make sure that the money supply did not contract, as it did in the early 1930s. And because the banking system is the essential conduit for monetary policy, he threw out the rule book in late 2008, when the financial crisis was at its worst, to keep it afloat, lending vast quantities of money to prevent a financial implosion. And it worked. Without Bernanke’s quick, decisive action, it is very likely that we would have suffered the equivalent of another Great Depression. Unfortunately, it now seems clear...

As European unity is tested, five readers from the continent share their thoughts about what the EU project means to them

As Ireland faces an EU bailout and rumours about other countries grow, many are questioning the solidity of the European project. As part of our people's panel series, we have asked Cif readers who come from continental Europe to tell us how they feel about it.

Because of the personal nature of the debate, moderation will be strict.

Alexandra Skwara aka SocalAlex

I'm Austrian and, while I was born in the US and grew up there, I've always felt primarily European. At home, my parents emphasised the fact that we were European, not American. We all applied for new passports the day Austria joined the EU in 1995 – not because our old ones had expired, but because my father couldn't wait to exchange them for European ones.

I was raised bilingual in English and German, learned French at school and have worked hard to achieve a conversational level in Spanish and Portuguese. I rely on media sources in all these languages to ensure my perspective is a European one. By the standards of university-educated Europeans of my generation, this makes me pretty average. I also chose to study in Britain and without my EU citizenship, I would never have been able to afford to do so. I spent my third year doing Erasmus in Germany, before moving to Vienna, where I've been for the past six years.

I am a passionate and unashamed supporter of the European political project and the goal of "ever-closer" union. In Austria, in less than a decade, public sentiment has changed from being enthusiastically pro to largely anti, so it often feels like a thankless position to take. I don't agree with everything the EU does, but I still believe it deserves enormous credit for what it has achieved. The truth is the vast majority of EU decisions are made by our elected representatives. As a citizen of a country where the far right is increasing in political power, I feel like my freedoms and democracy here rest on a safer foundation because of our membership.

I accept that I speak for a privileged minority with the education and skills to take advantage of the mobility EU membership offers. But many of us are concerned about how to sell and, more importantly, extend, these benefits to everyone else. There are no easy answers. We need to encourage a factual debate, which argues with politics and economics rather than nationalist fears and tabloid myths.

For most young people the age of border controls is a distant memory, and we've never been paid in anything but Euros: debates about "before" must sound historic. Not even the Austrian and Slovakian teenagers who vote for the far right really want to have to show their passport again when they hop on the train to go clubbing in Bratislava or Vienna. Many will tell you they're anti-EU, but in fact they're quite comfortable with the status quo.

Marco Federighi aka mfederighi

When I was in Italy, I always thought of myself as an Italian rather than a European. This was partly because I was very aware of Italy's diversity – Klemens von Metternich said, not altogether incorrectly, that Italy was merely "a geographical term". If anything, I saw myself more as a Livornese than an Italian, let alone a European.

Moving to the UK gave me a different perspective. I had always thought well of the British, or rather I had always admired certain qualities that they were expected to have: stoicism, self-control, a taste for understatement, pragmatism and diffidence towards abstract ideas. Living here for 25 years has given me a much more nuanced view. I lack certain characteristics of the English: my sense of humour, my way of socialising and my sense of fairness are all radically different. I think this is only natural – even among English people there are wide differences of character and outlook.

I have developed a certain attachment to England. I get somewhat annoyed when foreigners criticise England or the English, even when what is criticised is something that I myself find objectionable: criticism from outsiders is less acceptable than criticism from insiders. I react in the same way when foreigners criticise Italy and the Italians. I suspect that I would feel annoyed if American friends criticise Europe, too. In an emotional sense, I am thus Italian, English and European – at least to some extent.

I have benefited significantly from the EU and particularly from its policies about the free circulation of capitals, goods and people; however, I think that many people have not benefited as much as I have – which is normal whenever significant change takes place. As far as the euro is concerned, I don't think it will work in the long run. The US is very diverse and has a single currency, but it also has a federal government and, much more importantly, one single language. Educated people can circulate across Europe, and unskilled people can, too, but generally people in the middle are stuck – which makes a single market much less fluid here than in the US. I think we Europeans should help each other, without forgetting that our diversity may well be the source of the success of our civilisation. As an engineer, I believe in trial and error more than in planning, and a diverse Europe will permit more experimentation and more opportunities to learn from failure than a Europe with uniform rules.

Liliana Bajger aka justsimpleme

For most of ordinary people from Poland, EU membership offered hope for a better future. I am 50 and have been working in a call centre in Staffordshire for three years. Before that, I worked as a cleaner in a hotel in London. I had previously worked as an English literature teacher in a high school in Poland. I was deeply rooted in my own culture, but also had an extensive knowledge of and love for English.

Identity loss, identity theft, identity confusion: these are ramifications of joining the EU. Those who left their country are in a constant state of confusion. Their adaptation is superficial. They do not identify with or understand societies whose members they are assumed to be – yet they no longer identify with their own culture, either. I am talking especially about young people, who did not manage to recognise and appreciate their own heritage before they rushed towards "Europe". Those people, motivated mainly by a vague perspective of a financially better life, cannot belong: they are uprooted, have no sense of identity and no basis to compare and respond accordingly. Consequently, they desperately try to imitate the behaviour and lifestyle of those surrounding them. This phenomenon has inaugurated a very disquieting process of forming the next generations of English society, unaware of any identity.

My decision to leave my homeland was stimulated by an overwhelming desire for freedom, and for the possibility to share values different than those offered in my country. What I found turned out to be slightly different. English people seem to be unable to truly consider people on an individual basis, and inadvertently interpret their representatives as one. Despite this, I feel I can belong to English society, to which I contribute because I know where I am from and why I did not stay in Poland. I am currently working on a project to set up a senior citizens' theatre group, and present Romeo and Juliet performed by 60-somethings. This, also, will be about belonging and recognition in a much broader sense. Wish me luck.

Berend ter Borg aka Berend

I am a Dutch citizen. From childhood onwards, I have been enthusiastic about the European project, to the extent that I turn instinctively against any politician, from any country, who expresses Eurosceptic views of any kind, regardless of the merit of their argument.

When I moved to Germany two years ago, it felt like a release. The two countries where I had lived previously, the Netherlands and the UK, were both possessed by a subtle but ubiquitous sense of their own righteousness. People in both countries were convinced that they were more well-organised and harder working and that the world would do well to sit up and heed their example. Germans were blissfully free of this sentiment, presumably due to self-awareness because of the war. At least, that was the case when I arrived.

The debate in Germany has taken a distinct turn for the worse. The nationalist pedantry that one would encounter in both the Dutch and British press was virtually unknown here as little as two years ago. In spite of being a wealthy and well-organised country, Germans evinced little sense of superiority. The revival of the German economy, coupled with the misery in countries like Greece and Ireland, has awoken the beast.

The Germans now boast about having their house in order, and have ever decreasing sympathy for poorer members of the EU. Like the Dutch, they refuse to acknowledge that the euro is the only thing that has kept their export sector competitive. The Germans have no need to suppress their currency's exchange rate, as the Chinese do. They have created a system in which a smaller member of the eurozone will destroy investor confidence once every couple of months: a natural way of keeping the value of the currency in check, which cannot reasonably be criticised. Presumably, the system was not set up that way on purpose – not even German politicians are that clever.

Two weeks ago, the euro climbed to a rate of $1.40, trend rising, a horror scenario for the export-oriented German economy. Then the Irish catastrophe began to unfold, and the exchange rate of the euro started falling again. Germany's spectacular economic growth will continue. Seeing how the Germans (and the Dutch) have benefited from the euro, often at the expense of the economies of weaker countries, they would do well to create incentives for those more vulnerable economies to hang on, and convince them that one day they too will share in the success of the euro.

Mihail Krepchev aka GoAsYouPlease

As a Bulgarian from the first post-socialist generation, the EU holds a very special appeal to me. Growing up in a country that was recovering – and still is – from the ravages of a particular form of socialism, we looked at the west as an embodiment of social mobility, justice and freedom. In many ways, the struggle of Bulgarians to achieve some sort of international recognition was fulfilled in our accession to the European Union. So on a purely emotional level, we still hold that concept of an association of free nations very dearly.

But the EU has not been merely an idea, it has had very substantial positive effects on our generation. I would have never come to study in England were I required to pay international fees of over 10,000 per year. More importantly, for my parents, not to mention for their parents, it is still slightly bewildering how I was able to visit almost all major European countries before I was 20. For them, when growing up, the world might as well have ended at the western border of East Germany, so inconceivable was travelling beyond that other than in very limited circumstances. Don't you dare tell me the EU has failed.

Paging South Carolina Barista Alvin McEwen...wtf is this about?

How do you expect South Carolina to move forward when you have people who want to go backwards - literally? There's no positive answer. GOP control in the state allows such talk, rhetoric and hysteria to grow.

A group named Third Palmetto Republic is pushing the "independence movement" throughout the state, announcing an inaugural Charleston chapter meeting tonight. The group insists S.C. has been a full-fledged nation since 1776.

Politics USA quotes the blog's author:

I was born and raised in Bluffton, SC and my family history runs back to before the Revolution. I'm a student of the Austrian school of economics, I hold a BS degree in Computer Engineering and an MBA, and I read any book I can find about free markets, anti-federalists, liberty, and Aristotelian philosophy (among other things.) I want to see the people of South Carolina regain control of their government through the process of peaceful secession.

Well as soon as SC gets off of the federal teat, it can show the other 49 states how it's done when it becomes an economic powerhouse.

The last secessionist group that made the news in that state was the failed Christian Exodus movement. That laff-fest set a goal of moving in evangelicals, taking over all aspects of government through running for elected office, and creating a Christian Nation with no homos, no booze, and probably no dancing either.

My retirement plan was to open a t*tty bar right on the NC/SC border and watch the cash flow in on Friday and Saturday nights, and watch the clientele drive back over the border to pray away the sin in church on Sunday.

Last week, in between leading a graduate seminar on Proust and delivering a long-scheduled lecture on mass spectrometry, former Alaska Governor Sarah Palin ventured a few ticks beyond her acknowledged area of expertise and reflected on monetary policy at a convention in Phoenix. The occasion for her unexpected soliloquy—I’m actually serious about the economics speech—was the Fed’s decision to buy some $600 billion in long-term government securities, a practice known as quantitative easing. “We shouldn’t be playing around with inflation,” Palin said, in a typically Delphic pronouncement. She helpfully added that “everyone who ever goes out shopping for groceries knows that prices have risen significantly over the past year or so.”

Alas, as if to prove the rule that no nuanced utterance goes unpunished in our 24/7-Internet-cable culture, these reflections promptly landed Palin in a nasty he said/she said spat. The “he” in this case was Wall Street Journal reporter Sudeep Reddy, who promptly observed that food and beverage prices had risen by a meager 0.6 percent through September, the slowest rate since the Labor Department began tracking such data in 1968. In response, the self-described “former governor and current housewife” took to Facebook to flag a recent piece in Reddy’s own publication noting that supermarkets and restaurants were beginning to worry about rising costs. That the very first sentence of the piece conceded the “tamest year of food pricing in nearly two decades” did not appear to deter her.

Over the past two years, as the Fed has come under increasing fire from outraged Tea Party activists, it’s been tempting to impute a principled conservatism to all their fulminating. In surveying last week’s economic developments, for example, Washington Post columnist Steve Pearlstein highlighted the “criticism of the Federal Reserve's plan to pump additional money into the economy” by “Sarah Palin and other hard-money conservatives.”

But the truth is that, while “hard-money conservatives” certainly exist, they have little in common with Palin and her supporters. These conservatives have historically been economic elites, whereas the Palinites have a much more populist bent—“humble folks like me,” as Palin describes her ilk. Still, Pearlstein is right that these two groups have somehow ended up on the same team in their fight against the Fed. How this happened has a lot less to do with economics than with politics, and it should be deeply troubling for the rest of us.

 

Let’s be clear: Even with the help of what was presumably a pricey speechwriting team, Palin’s ignorance of monetary policy is difficult to repress. The recent path of food prices was hardly the only curious claim in her Phoenix speech. There was, for example, her discussion of quantitative easing as though it were sorcery. “And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air,” she complained. True-ish. But, as Ben Bernanke explained shortly after the Fed announcement, that’s pretty much how all of monetary policy works. Whenever the Fed wants to lower the standard, short-term interest rate—as it has done repeatedly over the decades—it effectively creates money to buy up short-term Treasury securities. Somehow, Palin never previously felt the need to dwell on this.

Then there’s my favorite passage of the speech, which displayed Palin’s solicitude for European policymaking sensibilities. “The German finance minister called the Fed’s proposals ‘clueless,’” she said. “When Germany, a country that knows a thing or two about the dangers of inflation, warns us to think again, maybe it’s time for Chairman Bernanke to cease and desist.” But the starchy Germans always worry about inflation, even when it’s not remotely a threat. (In the same way, my Jewish mother always worries that I’m starving, but I don’t take that as a reason to gorge myself.) If, on the other hand, Zimbabwe started lecturing us on out-of-control inflation, that might get my attention.

What Palin is after here, of course, isn’t a debate over the finer points of interest-rate setting. It’s just the latest instance of her lashing out against meritocrats and intellectuals, whom she feels talk down to her and her fellow repositories of homespun wisdom. Palin has always practiced a kind of identity politics in which one’s views deserve privileged status by virtue of they’re not being informed by any specialized knowledge. Hers is a politics of resentment—resentment at being led by the sort of snobs who think governing requires expertise. She betrays herself by getting so defensive in her exchange with Reddy, whom she sneeringly labels a “prestigious reporter for The Wall Street Journal”—another pointy-head, in other words.

In this way, Palin is a near-perfect symbol of a certain type of Tea Partier—the people who’ve had enough of the government’s arrogant scheming, even if their worldview falls a bit short of cohering. When The New York Times surveyed Tea Party supporters earlier this year, it conducted follow-up interviews to gauge respondents’ thoughts on Medicare and Social Security. Most resisted cuts to either program. “That’s a conundrum, isn’t it?” a woman named Jodine White told the paper. “I don’t know what to say. … I guess I want smaller government and my Social Security.” Like Palin, White’s opposition to government isn’t logical; it’s visceral.

 

By contrast, there’s another species of Tea Partier that invokes a tightly wrapped logic in its attacks on government. These would be the hard-money conservatives Pearlstein alluded to, of which Ron and Rand Paul are probably the most famous. The Pauls trace most of the country’s problems back to the government’s monopoly on minting money, which it then debases so as to expropriate wealth from its citizens. As Ron Paul has evocatively put it:

An emperor, a king, or a dictator might mint coins with half an ounce of gold and force merchants, under pain of death, to accept them as though they contained one ounce of gold. Each ounce of the king's gold could now be minted into two coins instead of one, so the king now had twice as much “money” to spend on building castles and raising armies.

And, of course, the ultimate symbol of the government’s money-creation power is the Fed. Unlike Palin, the Pauls have long understood that the Fed’s “printing press” is the channel through which it conducts basic monetary policy, not just quantitative easing. (Though the phrasing isn’t literally true: The Fed doesn’t actually print money, it just credits banks with additional reserves.) That’s precisely what they’ve always found so objectionable about the central bank. “[W]e badger the Federal Reserve and the markets say we need more money, so they crank it out,” Ron Paul said in a speech that brought down the house at the Conservative Political Action Conference in February 2008. “You can’t lower interest rates unless you print more money. So they lower interest rates dramatically, like never before!”

The Pauls’ views may be a bit medieval and needlessly cruel—a growing economy requires a growing money supply; relying on gold or silver, as the Pauls propose, would condemn us to periodic deflations and depressions. But they’re nothing if not coherent. And, unlike the Palinites, they embrace ideas (albeit some pretty loopy ones) rather than scorn them. Stumping for his son last winter, Ron Paul announced his hope of leading an “intellectual revolution.” Both Pauls are steeped in the work of the Austrian economist F.A. Hayek; they lean heavily on the Hayekian idea that a small group of central planners (i.e., the Fed), no matter how sophisticated, can’t synthesize the vast amount of knowledge that’s diffused throughout the economy, leading to inefficient (or, worse, corrupt) decisions.

But more than anything else, the Pauls represent the interest of the affluent and educated. After all, the people most worried about the debasement of the currency are the people who, well, have a lot of currency. On the other hand, the working class, who typically have more in the way of debt than assets, actually benefit from inflation, since it eats away at the value of their mortgages and credit card bills. Likewise, when the Pauls rail against Social Security and Medicare, they’re being perfectly true to their class, since the two programs downwardly redistribute income. It’s part of the reason Ron Paul’s presidential campaign took off on college campuses and online, two places where the affluent and educated congregate. (By contrast, unpublished data from this recent Washington Post poll shows that college grads are much more likely than non-college grads to have an unfavorable view of Palin and to believe she’s unqualified to be president.) One of Ron Paul’s most indispensable online activists was an early Google employee who sold his stock at the peak of the market.

 

Throughout American history, the affluent Pauls and the working-class Palinites have been blood enemies. The achievement of the modern conservative movement was to unite them in a general hostility to government—mostly by convincing the latter that government was transferring their tax dollars to undeserving minorities and the poor. But the divide between creditors and debtors on monetary policy had never really been bridged (with the possible exception of the late ’70s, when everyone bemoaned high inflation). The Pauls would rail against debasement of the currency and the Palinites … mostly didn’t care.

Now, the Tea Party is generating a formidable attack on the Fed’s monetary-policy prerogatives by fusing longstanding critics of easy money (the Pauls) with the people who just want to rail against elites. If you look, for example, at the Times poll of Tea Partiers in April, you see that the movement draws heavily from two distinct socioeconomic groups: those with family incomes between $50,000 and $75,000 (which includes many working class whites) and those with family incomes over $100,000. When asked about his own support among Tea Partiers, Rand Paul estimated that about 25 percent were his father’s diehards and the other 75 percent came to him independently of his father.

The meshing of these two groups hasn’t always been easy. Rand Paul inspired endless hand-wringing on a blog of hard-core supporters last November after saying he’d welcome Palin’s help on the campaign trail. “Sarah Palin is an idiot and we don't like her representing Rand Paul. But it's his choice. We don't have to support everything he does,” went one typical comment. But, as a candidate, Paul worked furiously to achieve his fusion—ditching some of his father’s baroque detours into monetary history and playing up the argument’s populist appeal, often disingenuously. “[M]any of the people who have been gravitating to the Democrat Party are working class,” he said at an October 2009 event. “And I think our message can resonate with them. Because … the rising prices at the pump and in the grocery store. Who’s hurt worst by those? People on fixed incomes and those on the lower part of the socio-economic ladder.” As Paul’s Senate victory shows, the project is succeeding beyond expectation.

That’s alarming for two reasons. First, the level of anger that must exist before poorly informed voters work themselves into a frenzy over interest-rate decisions intended to benefit them has to be pretty intense—so much so as to be politically destabilizing. Second, this turns out to be the latest, most audacious step in a decades-long effort by conservative elites to enlist the working class in undermining institutions that were previously insulated from politics, and which can only really function outside the political realm. Under the Bush administration, this coalition did lasting damage to our ability to competently fight wars, defuse existential climate threats, and generally advance scientific knowledge. Now, it’s coming after the most basic functions of the Fed.

Don’t get me wrong: I think criticizing the Fed is an entirely healthy thing. I, for one, am sympathetic to the Pauls’ concern that periods of excessively low interest rates can lead to bubbles, and I do worry that quantitative easing may create similar problems. (Though I don’t see many great alternatives.) Likewise, the Fed didn’t exactly cover itself in glory in the run-up to the crisis, and its bailout of AIG was unsavory even to those involved. But what Palin and likeminded politicians are doing now isn’t good-faith criticism. That requires a baseline understanding of what the Fed does, and grappling with it honestly. What’s going on now is a political campaign intended to de-legitimize technocracy. (As exhibit A, I’d direct you to the presence of the esteemed monetary economist William Kristol at the center of the anti-Fed movement.) And it’s reaching further into the government than ever before.

After all, even the avowedly anti-expert Bushies appointed a highly skilled technocrat as Federal Reserve chairman, the single most important economic policymaker in the world. If present trends continue, though, it will be hard to imagine the next Republican president making a similar appointment. By a long shot.

Noam Scheiber is a senior editor for The New Republic and a Schwartz Fellow at The New America Foundation.

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For your Sunday night reading pleasure, there's a new Ambrose Evans-Pritchard arguing that it's the ECB, not the US Federal Reserve, that really needs to crank up the government bond buying.

The Telegraph:

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Rand Paul is promoting the same policy of Austrian economics. This form of economics is extreme. Rand Paul and his ilk is trying to force Barack Obama to cut much of the social safety and get rid of federal spending across the world. This policy will cause people to die literally. Rand Paul loves the CATO Institute's "Downsizing the Federal Government" by neo-con Chris Edwards and the evil...

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Sen. Olympia Snowe is proud of her moderation. So proud, in fact, that she thinks it'll protect her relection chances in 2012. And looking at her approvals in Maine, her 56-34 are among the best (if not the best) for 2012 incumbents.

Problem is, her fellow Republicans aren't the source of much of that approval.

Last November, right after she supported the health care bill in committee, we found that 59% of Maine Republicans wanted to replace Olympia Snowe with someone more conservative while only 31% said they would support her again in 2012.

The passage of 10 months hasn't done much to soften the ill will toward Snowe with members of her own party. Now 63% of them say they would support a more conservative alternative with only 29% saying they're committed to Snowe.

Moderate Republicans love Snowe. They give her a 70% approval rating and a strong majority say they'd vote to nominate her for another term. But those folks make up only 30% of the GOP electorate in Maine. It's now dominated by conservatives and they're particularly negative toward her, giving her just a 26% approval rating and saying by a 78-15 margin they'd like to trade her out for someone to the right.

Remember, the Maine GOP has become one of the most radical in the country. Their party platform is an absurd collection of Beckian conspiracy theories>

The document calls for the elimination of the Department of Education and the Federal Reserve, demands an investigation of "collusion between government and industry in the global warming myth," suggests the adoption of "Austrian Economics," declares that "'Freedom of Religion' does not mean 'freedom from religion'" (which I guess makes atheism illegal), insists that "healthcare is not a right," calls for the abrogation of the "UN Treaty on Rights of the Child" and the "Law Of The Sea Treaty" and declares that we must resist "efforts to create a one world government."

The new governor of Maine, Paul LePage, is an unabashed teabagger.

"[A]s your governor, you're going to be seeing a lot of me on the front page saying: 'Governor LePage Tells Obama to Go to Hell,'" he told a group of local fisherman in late September, in an exchange that was captured on video.

He may have squeaked in with just 38 percent in a fragmented four-way governor's race, but he's now literally the head of the Maine GOP. Republicans now control both the governorship and legislature for the first time in 40 years. The GOP wave hit Maine hard, and swept in a new generation of teabagger legislators.

These Republicans aren't cut from the same cloth as Sens. Susan Collins and Olympia Snowe. And given they'll dominate the primary process, they're an existential threat to Snowe.

The incumbent isn't sanguine about her party. Last year she lamented its rightward drift, and that was before the incoming class of wackos were even announced candidates:

"I've always been a Republican for the traditional principles that have been associated with the Republican party since I became a Republican, when I registered to vote. And that is limited government, individual opportunities, fiscal responsibility, and a strong national defense. So I think those principles have always been a part of the Republican party heritage. And I believe that I reflect those views and I haven't changed as a Republican. I think more that my party has changed.

So Snowe now has a decision to make. She stays a Republican and goes down with that ship, she goes independent, still caucusing with the Republicans, and hopes to pull a Lisa Murkowski -- getting the votes of Democrats so fearful of the alternative that they enable Mitch McConnell, or she goes full fledged Democratic. The key would be to make the switch early, to avoid the stench of opportunism that bedeviled Arlen Specter and Charlie Crist. To that end, Senate Dems seem to be wooing her:

We hear that Dems are making new overtures to Republican Sen. Olympia Snowe of Maine to switch teams. They've tried before, but Snowe's 2012 primary prospects make taking another run at her now seem worth it.

If Harry Reid really wants her to switch, he should ask Jim DeMint to give her a call!

For real Dems, the best option is for Snowe to stick with the GOP and go down in flames, giving a real Democrat a shot in an open seat against whatever teabagger neanderthal they throw at the race. It's not as if vote #54 will get us much further in a dysfunctional Senate, even if Democrats make progress on reforming the filibuster.

But it's not our call to make. But count on it -- Snowe won't be a Republican by the time her primary is finished. The only question is whether she's leaving her party voluntarily, on her own terms, or whether she gets the boot from the crazed Maine GOP.

With the tea party getting increasing attention, perhaps it's time for a closer examination of just what it stands for.

The movement has formulated virtually no positions on national defense and foreign policy and is simply for smaller government, lower taxes, upholding the Constitution and taking back our country (whatever that means).

Some of the radical proposals championed in tea party circles include complete repeal of the health care legislation (with no real plan to replace it), the elimination of Social Security as we know it and the return to the gold standard.

Individual tea party candidates (those closely associated with and backed by the movement) have called for the abolition of the departments of Education, Labor, Transportation, Health and Human Services, Energy and Homeland Security, as well as several named agencies, including the Environmental Protection Agency and Occupational Safety and Health Administration.

Abolishing those departments and agencies would throw the country into chaos.

People who pursue quick solutions to our country's problems are engaged in the politics of make-believe, as so many of the tea partiers seem to be.

Once the federal giant is brought low, it will be sort of like chasing the tiger, catching it and then wondering what to do now!

Friedrich Hayek, the well-known Austrian economist and philosopher, is often cited by the movement's followers for his argument that a government that intervenes in the economy will inevitably intervene in every aspect of its citizen's lives.

We can now appreciate the fact that the economy of the United States, during the 1950s, happily supported tobacco companies and industrial polluters who were imposing then unseen and long-term health costs on the population. The regulation of tobacco products by the federal government and the passage of the Clean Water Act and the Clean Air Act constituted significant restrictions upon the free choices of market participants.

Abundant evidence suggests that we are much better off because of earlier government interventions. Would a similar result have occurred, without such legislation, had we left it to the various industries and companies to self-police?

JOSEPH B. STEINMAN,

retired finance professor,

Ponte Vedra Beach

We had Peter Schiff on TechTicker today. He's not changing his tune...

 

Aaron Task:

As expected, Ben Bernanke provided a rational for more quantitative easing Friday, declaring: "Inflation is running at rates that are too low relative to the levels the [FOMC] judges to be most consistent with the Federal Reserve's dual mandate" of price stability and full employment.

Predictably, Euro Pacific Capital president Peter Schiff wholeheartedly disagrees with that - and just about everything else Bernanke says.

"It's scary how clueless Bernanke is," Schiff says, noting the dollar is at or near record lows vs. several major currencies and commodities from agriculture to zinc are soaring.

"That is inflation," he says, dismissing this morning's tame CPI data as hedonically adjusted government fiction. "As money loses value prices are going to rise because you need more diminished dollars to buy goods and services."

Moreover, Bernanke's suggestion that more inflation will spur employment growth is the really "crazy thing" in today's speech, Schiff says. "You don't create jobs by creating inflation," he says. "You create jobs by reducing regulation and lowering taxes."

A pure libertarian and devote of the Austrian school of economics, Schiff expressed two main concern about Bernanke's policies:

One, the government is trying to prop up an economy based on debt-fueled consumption, rather than letting it "restructure," albeit from much lower levels.

Two, more quantitative easing will lead to more big government.

"What Ben Bernanke is saying to Congress is ‘run up the deficits because I'm going to monetize it for you,'" Schiff says. "He is enabling the government to get bigger, which is going to make employment worse, not better. He's throwing gasoline on a fire."

Join the conversation about this story »

RON PAUL LED the annual Fourth of July parade through Friendswood, Texas, from the back of a gleaming pickup truck that inched along behind a replica of the Liberty Bell and just ahead of Lady Liberty herself, who was sitting in a Corvette and seemed to have wilted under the oppressive noonday sun. Or perhaps the oppressive policies of Barack Obama—it was hard to tell which. Along the parade route, the Stars and Stripes vied for prominence with STOP OBAMA signs.

Friendswood lies just south of Houston, in a district that voted 2-to-1 for John McCain, and for George W. Bush before him. But the distinctive flavor of the local conservatism is most vividly conveyed by Paul, the 75-year-old arch-libertarian congressman and sometime presidential candidate whose disdain for federal power is so severe that he once voted to deny Mother Teresa the Congressional Gold Medal because the Constitution does not expressly authorize such an expenditure. Paul thinks the government ought to be doing a whole lot less, and his constituents seem to agree. They’ve been returning him to Congress since the 1970s by growing margins.

Lately a lot of people, not just in Texas, are coming around to this view. “I’m so confident in my philosophy that I think I could run a pretty good race in San Francisco,” he told me in his Washington office recently. “What I’d talk about there wouldn’t be so much about deficit spending as about personal liberties, military engagement overseas, and the financial crisis. That used to help more in conservative districts. But everybody’s worried about it now.”

Paul is a wisp of a man, with hardscrabble features like a Dust Bowl farmer’s. He has the kindly manner of a small-town doctor, which he was, and an old-fashioned sense of propriety to go with it—he doesn’t travel alone with women who aren’t his wife. But when he gets caught up explaining his philosophy, especially his unorthodox ideas about economics, his eyes widen and his insistent, high-pitched voice makes him seem—there’s no way of putting this gently—slightly unhinged.

At the parade, the proximate cause of anger was Obama’s decision to end the manned-spaceflight program at the nearby Johnson Space Center, a major employer, and to retire the space shuttle. But the sentiment had been building. Recently, the White House had ordered a freeze on offshore oil drilling after the BP blowout, which further disrupted the local economy. Things were looking bleak. A community that Money magazine had only recently named one of America’s “best places to live” suddenly felt robbed of its economic vitality—and by a government that had not hesitated to rescue Wall Street banks and Detroit automakers. To an aggrieved citizen of Friendswood and the many places like it, the accusation that the federal government has broken faith in some fundamental way with the Founding Fathers sounds not just right but righteous. And therefore so does Paul, since this is the message he has preached for 40 years.

IN CONGRESS, PAUL usually stands alone. This is a natural consequence of voting against Mother Teresa and the countless other bills on seemingly unobjectionable matters to which only he has objected. For much of his career, his own party routinely blocked him. His notoriety peaked three years ago during a presidential-primary debate in South Carolina when, alone among the 10 candidates, Paul, an isolationist, questioned the U.S. presence in the Middle East and seemed to suggest that it had prompted the September 11 attacks. Rudy Giuliani immediately demanded he withdraw the statement (he refused), and afterward Paul tussled with Sean Hannity of Fox News, which derided him mercilessly for the rest of the campaign. When Republicans convened in Minneapolis to nominate John McCain, Paul was so far out of favor that he and his supporters held their own convention across town.

Paul is also a loner because his ambitions lie mostly beyond Washington. He wants to inspire a national movement, but from the outside. Demonstrating purity of conviction is more conducive to that goal than acceding to ordinary political compromises. Paul’s presidential campaign drew a large grassroots following, even while he was being dismissed as a kook, and it made better use of the Internet than any campaign besides Obama’s. Like Obama, Paul inspires people of widely varying beliefs to see him as the vessel of their desires. His opposition to the Iraq War, strident criticism of the Federal Reserve, and early warnings of financial collapse, which he derived from the theories of semi-obscure Austrian economists, brought all sorts of people into the fold.

But it’s what has happened since the election that has carried Paul from the fringe of American politics toward the center—or, really, carried the center toward him. Two years of economic trauma have fed a nationwide resentment. The clearest sign of this is the loose affiliation of angry conservatives, disaffected independents, Glenn Beck disciples, strict constitutionalists, and assorted malcontents who gather under the Tea Party banner. This heterodox mass distrusts the political establishment and believes the federal government has grown dangerously large. Some believe that it has usurped powers rightfully reserved for the states, rendering many of its actions illegitimate (the Constitution is the sacred Tea Party text). Above all, Tea Party followers share a profound objection to unchecked spending and expanding credit, as successive administrations and the Federal Reserve have done to the tune of trillions of dollars. This effort to stimulate the economy, they believe, has not only failed to end the recession but made it worse.

http://www.theatlantic.com/magazine/archive/2010/11/ron-paul-tea-party/8280

• added by: Radical_Centrist  
• 5 comments

The End of Oil As We Know It

The Association for the Study of Peak Oil and Gas (ASPO-USA) asserted today that the world is facing a significant energy crisis, as the rate of oil production cannot keep pace with demand. The world is consuming four barrels of oil for every one discovered, more than 80 million barrels of oil per day. After 150 years of oil extraction, most major oil exporting nations are well past their supply peaks, defined by scientists as "Peak Oil."

"We are at the point of no return," stated Jim Baldauf, President of ASPO-USA. "While global demand is accelerating, worldwide oil supplies have reached a plateau and are now in decline. The era of low-cost, easy-to-get oil has come to an end, a moment of historic significance and one fraught with danger. The Gulf of Mexico disaster occurred because the quest for new supplies requires that we drill miles beneath the ocean surface. Without affordable energy to drive our economy, we can expect price spikes and economic crisis to be the new normal. The debate about Peak Oil is over; it is time for bold action. If we do not change our current approach, we will see tremendous global repercussions."

Peak oil study group's Baldauf discusses policy options

Should Congress address peak oil in its next energy package? What are the policy options for minimizing the impact of a potentially shrinking supply of oil? During today's OnPoint, Jim Baldauf, co-founder and president of the Association for the Study of Peak Oil and Gas, discusses the economic and geopolitical impacts of peak oil. He gives his take on the United States' policy options for addressing a peak and weighs in on the ongoing debate over production numbers.

Peak Oil Is Here: What Should We Do?

Predictions about peak oil are dispiriting, to say the least. The Hirsch Report, commissioned by the Department of Energy in 2005, said peak oil would be abrupt, soon and catastrophic for world economies, particularly the United States.

But, as environmental blog Treehugger points out, predictions of peak oil don't need to be portraits of famine and chaos. M. King Hubbert, the man who originally, and accurately, predicted that oil production would peak in the U.S. in 1965, didn't see peak oil as a necessary apocalypse, just the point when we would have to transition to more sustainable forms of energy, like solar.

Bianca Jagger: Now Is the Time to Move Beyond Petroleum

Our addiction to oil is dangerous and unsustainable. Our oil supply is finite, and the dwindling reserves simply cannot cope with our ever increasing demand. To compensate for the diminishing supply, oil companies have been attempting to reach reserves in deeper and more dangerous waters - often with environmentally catastrophic consequences.

Professor: Less oil could affect life quality

Arthur Winer, professor of environmental health services at UCLA, briefed the council on the implications of the peak oil production for Laguna Beach. He also briefed San Diego Gas & Electric spokesman Duane Cave on smart electric meters that will be installed by the utility.

Winer, speaking on behalf of the Environmental Committee, said oil production is starting to decline in the United States and in 90% of all other oil-producing countries.

The drop may threaten residents' quality of life, essential services and the tourist industry, which is an economic necessity for Laguna to thrive, Winer said.

Crude Futures Fall, Head for Weekly Decline, Before U.S. Payroll Report

Oil declined as the dollar advanced against the euro, recovering from yesterday’s nine-month low, before a report today that may show unemployment in the U.S. increased last month.

Futures headed for their first weekly decline in three weeks. A government report today may show the U.S. jobless rate rose for a second consecutive month in September, according to a Bloomberg News survey.

“The dollar has strengthened since early morning and this is keeping the downtrend in oil going,” said Alexander Ridgers, head of commodities at London-based CMC Markets, which handles more than $150 million a day in U.S. crude contracts.

Oil May Fall as U.S. Inventories Climb, Consumption Drops, Survey Shows

“Inventories are higher than a year ago, even when adjusting for demand, yet prices are a good $10 higher,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “There’s just not the demand to justify the recent rally in prices.”

Price, Yen Access May Hit Japan's Iran Oil Imports -Cosmo

TOKYO -(Dow Jones)- The relatively high price of Iran's crude oil may be a reason for reduced sales in Japan, and volumes could fall even further if Japanese banks reduce credit lines for companies doing business with Iran, a senior Japanese refining company official said Friday.

"What we are worried about is Japanese banks' possible scaling down of credit lines," Masayoshi Ishino, an executive officer at Cosmo Oil Co. (5007.TO), said.

U.K. Gas to Fall From Double U.S. Price on Qatar

U.K. natural gas may be poised to lose its biggest premium in 19 months against New York-traded supplies as Qatar begins projects to export liquefied fuel.

The Middle East emirate, the world’s biggest liquefied natural gas producer, said Oct. 6 it plans to start two plants by February, boosting export capacity by 15.6 million metric tons, or about 25 percent of annual U.K. consumption. Qatar also restarted as many as six units that were shut earlier this year for maintenance amid a glut of the fuel.

Kuwait Petroleum Reaches Price Agreement With Some Contract Naphtha Buyers

Kuwait Petroleum Corp., the biggest Middle East exporter of oil products to Asia, reached a price agreement with some buyers for its one-year naphtha supply contract, two traders said today.

Barclays Hires Ex-Goldman Sachs Energy Banker for Japan Hedging

Barclays Plc hired former Goldman Sachs Group Inc. oil banker Yumi Hiramoto to meet demand from Japanese refiners and trading houses for hedging commodities.

Hiramoto, 27, joined Barclays Capital Japan Ltd.’s commodities division yesterday, Tokyo-based spokeswoman Marina Totsuka said. She takes charge of oil and natural gas derivatives sales, said two people with direct knowledge of the matter, declining to be identified because her job specification hasn’t been made public.

Brazilian president inaugurates Petrobras' oil platform

Brazil's President Luiz Inacio Lula da Silva inaugurated a new floating platform of state-controlled oil and gas giant Petrobras on Thursday.

Essar Energy May Buy Overseas Oil Refinery, Terminal to Boost Fuel Exports

Essar Energy Plc, India’s second- largest non-state refiner, may buy a refinery or storage facilities overseas to help boost exports of cleaner-burning fuels to be produced when its west coast plant is expanded.

Norway’s output dives in September

Norway's oil production fell to a preliminary 1.572 million barrels per day on average in September from actual production of about 1.603 million barrels in August.

Production of natural gas fell to a preliminary 5.7 billion cubic metres in September from about 6 billion cubic metres in August.

Paris Oil Drillers Target 100 Billion Barrels Near Brie, Wine

Pierre Henry farms wheat and corn east of Paris in an area famous for its Brie cheese. The next big hit might be crude oil.

Henry’s farm, 78 kilometers (49 miles) from the French capital, sits atop what geologists call the Paris Basin, an area bordering Champagne and Chablis vineyards that struck oil in 1958. Henry leased a field to Exxon Mobil Corp. in 1985, which drilled wells that have pumped for a quarter century.

These days Vermilion Energy Inc., Toreador Resources Corp. and partner Hess Corp. are targeting a bigger prize, oil trapped in Paris Basin shale rock that was previously too hard to tap. Techniques developed to pulverize rock and release petroleum have revolutionized exploration and boosted U.S. natural gas production 20 percent since 2006. Vermilion said it has had “positive” results so far in the area.

Marseille Strike May Force French Refineries to Start Closing This Weekend

At least four French refineries may be forced to start shutting down operations from this weekend because of a strike at the oil terminals at the port of Marseille.

Yemen attacks show al-Qaeda shift

SANA'A, Yemen - Militants fired a rocket-propelled grenade at a British Embassy vehicle on Wednesday and a Frenchman working for an Austrian Oil company was shot dead by a security guard in a pair of attacks that have heightened security fears in a country facing a growing insurgency.

Blackout alert

South Africa will face rolling blackouts from 2011 until 2016 -- like those seen in 2008 -- if drastic action is not taken to introduce independent power producers and rapidly increase energy efficiency.

100s evacuate downtown South Bend after gas leak

SOUTH BEND, Ind. – Authorities have shut off a gas leak almost four hours after a break in a high-pressure natural gas line forced hundreds of people to evacuate buildings in downtown South Bend.

Stricken Chemical Tanker in Atlantic Will Be Towed Into Port

The YM Uranus, a chemical tanker that took on water off northwestern France, will be towed to port, France’s maritime agency for the Atlantic Ocean said.

“The ship is about to be towed and teams on board have started” removing water from the vessel, Magali Chaillou, a spokeswoman for the Prefecture Maritime, said by phone. Towing lines have been attached and the operation should start shortly, she said at 10:50 a.m. London time. The exact cargo and its risk to the environment are being investigated, she added.

EU energy chief plans deepwater drilling ban

BRUSSELS (Reuters) – Europe's energy chief will next week call for a temporary ban on new deepwater drilling for oil until a probe is completed into the causes of BP's spill in the Gulf of Mexico, a draft document shows.

Oil-drilling countries questioned whether Brussels authorities should intrude for the first time in a sector that has traditionally been controlled at a national level.

Oil spill report sketches anatomy of a flawed US response in Gulf

The Obama administration lagged in its initial response to the BP oil spill, played down spill projections, ultimately overreacted, and injected politics into the spill response, according to a report by President Obama's own oil spill commission.

Doubts Raised About BP Study

HOUSTON—BP PLC's lawyers helped prepare its internal investigation into its Gulf of Mexico drilling disaster, according to the report's lead author, raising questions about the study's impartiality.

The report, led by Mark Bly, was presented by BP as an impartial investigation into what caused the April 20 explosion, which killed 11 workers and caused the worst offshore oil spill in U.S. history. But outside experts have been skeptical, saying its conclusions seemed convenient for BP's legal position.

Russian "scallop garden" will monitor pollution

(Reuters) - Some prefer them grilled or steamed, but Russian scientists will now use sea scallops to monitor pollution levels at a Pacific oil terminal.

An enormous sea scallop garden will be set up at the end of this month in Russia's Far East Kozmino Bay, eight time zones east of Moscow. It will be the first Russian port to use mollusks as a water-monitoring instrument.

Site in Hungary Was Listed as Risky

BUDAPEST — The storage pond filled with caustic alumina-processing waste that burst and inundated several Hungarian villages this week was on a 2006 watch list of more than 150 industrial sites that were at risk for accidents that could contaminate the Danube River, according to an environmental group.

Premier: China won't block rare earth exports

SHANGHAI – China is not using its control over supplies of rare earth — exotic metals crucial in advanced manufacturing — as a diplomatic "bargaining chip," state media quoted Premier Wen Jiabao as saying during a visit to Europe.

Recent reports that Beijing had temporarily suspended shipments to Japan of the metallic elements, used in computer disk drives, hybrid car components and other high-tech products, has drawn attention to China's near monopoly on the materials.

France, Japan and the USA to cooperate on fast reactor demos

The Japan Atomic Energy Agency (JAEA), the French Atomic Energy Commission (CEA), and the US Department of Energy (DOE) have signed a memorandum of understanding to cooperate on the development of prototype/demonstration sodium-cooled fast reactors (SFRs).

New Study Names Honda as the Greenest Automaker

Honda has the greenest vehicles in the United States, with Toyota and Hyundai tying for second place, according to a study released on Thursday by the Union of Concerned Scientists, a nonprofit advocacy group.

The results were calculated using the predicted impact of the automakers’ fleets on global warming — based largely on miles per gallon -– as well as the smog-forming emissions of the engines.

A sparky new motor

The first mass-market electric cars are arriving in showrooms. They represent a big gamble for carmakers.

Beacon tracks ice island off Canadian coast

The Canadian Ice Service, the federal agency that monitors the state of the Northwest Passage and other Arctic shipping lanes, has successfully deposited a satellite beacon on an ice island that broke away from Greenland in August and is now drifting in two pieces in waters off Nunavut's Ellesmere Island.

The glacier break created Petermann Ice Island 2010 -- launching a journey expected to last years and one that could menace offshore oil platforms in Atlantic Canada.

Africa: Unclean Development Mechanism

Funding of climate change-related projects has led to the further commoditisation of Africa's land and natural resources while exploiting African labour to extract the surplus for Western accumulation. Proponents of this development paradigm have introduced a discourse that views Africa's land as degraded, marginal and of limited economic value. To facilitate 'economic use by foreign firms', thousands of hectares of land are being leased (in some cases sold) in the name of ensuring lasting land regeneration and conservation of natural resources, therefore deriving economic benefit.

Maldives President Installs Solar Roof

Maldivian leaders have long been out front on climate, and, in the case of Nasheed, on non-polluting energy choices, mainly because the nation, with hardly any land more than eight feet above sea level, is particularly vulnerable should seas rise several feet by the end of the century.

Waste pickers offer climate change solution

There are about 15 million people in cities across the developing world who survive by collecting rubbish, according to the Global Anti-Incinerator Alliance (GAIA), a non-government organisation that brought Khodave to China.

People such as Khodave can play an important role in combating climate change because they cheaply and efficiently gather materials such as paper, metal and organic waste, then sort them and send them off for recycling.

Japan revives push for climate bill, outlook unclear

(Reuters) - Japan's government agreed on Friday to resurrect a climate bill calling for an emissions trading system and an environment tax, but it remains unclear if the legislation will be enacted in a divided parliament.

Poor Prospects for New Climate Meeting

WASHINGTON — With wounds still raw from the chaotic United Nations climate conference in Copenhagen last December, negotiators are making final preparations for next month’s meeting in Cancún, Mexico, in a surly mood and with little hope for progress.

There is no chance of completing a binding global treaty to reduce emissions of climate-altering gases, few if any heads of state are planning to attend, and there are no major new initiatives on the agenda. Copenhagen was crippled by an excess of expectation. Cancún is suffering from the opposite.

Warmer, wetter weather has crops on the move

DES MOINES, IA (AP) - Experts say warmer and wetter weather in parts of the Midwest and Northeast have helped farmers grow corn, soybeans and other crops in regions that once were too dry or cold.

Bruce Babcock, an Iowa State University agriculture economist, says in the Midwest, soybean production is expanding north and the cornbelt is expanding north and west because of earlier planting dates and later fall freezes.

Climate Change Threatens Global Rice

Climate change is cutting deeply into yields from so-called Miracle Rice, which is credited with keeping millions from starvation across Asia, according to Dr Shaobing Peng, a research scientist with the International Rice Research Institute in Los Banos, Philippines.

Yields from IR8, which was developed in the 1960s by the IRRI, have dropped by about 15 percent, according to a research team led by Dr Peng whose study was printed in the current edition of Field Crops Research.

Food prices may soar due to global warming

LONDON: Large-scale crop failures are likely to become more common in the wake of climate change and lead to spiralling prices.

Rising temperatures could trigger events such as the wheat crisis in Russia this summer which pushed up food prices, researchers from the Universities of Leeds, Exter and the Met Office said.

Scientists warned that rising temperatures would make crops mature more quickly, reducing their yield, while extreme temperatures could also significantly reduce yields, according to the journal Environmental Research Letters.

The Pakistani government has publicly condemned the United States’ use of unmanned drones in its north-western provinces, after an attack in North Waziristan killed four people today, highlighting the difficult relationship between the two allies.

A spokesman from the foreign ministry, Abdul Basit, described the use of drones as counter-productive and a violation of Pakistan’s national sovereignty, adding that “We [the Pakistani government] hope that the US will revisit its policy.” 

Drone attacks, always a controversial tactic, have killed over 150 people this month alone, but there is little clarity over what proportion of these were militants or civilians.

The openSecurity verdict: Islamabad’s condemnation of the use of drones comes just one week after a Nato airstrike on Pakistan’s northern border with Afghanistan left two border guards dead. The ensuing row led Pakistan to close a key border crossing at Torkham, which Nato forces in Afghanistan reportedly rely upon for 80% of their supplies.  

The closure has stranded hundreds of lorries between the Afghan and Pakistani borders, and led to traffic jams at the remaining border crossings. Taliban militants have seized this opportunity to launch attacks on Nato convoys, with up to seventy fuel tankers set alight over the past week.

Nato continues to supply troops using more southerly and inconvenient border crossings, and insists the closure has “not impeded” its operational capabilities in Afghanistan. Both the US and Nato have formally apologised for the attack last week. Pakistan, however, has announced that it will keep borders closed, pending a review.

Although Pakistan has called for an end to drone attacks several times, it is the first time Pakistan has used such strident language to condemn US military operations on its territory. The statement issued by the foreign ministry gives voice to an increasingly strong public outcry about the terms of cooperation between Islamabad and Washington.

Relations between the states have come under added pressure this week after the release of a White House report to Congress that questions Pakistan’s willingness to tackle militants in its north-western regions, where a lack of government control provides a safe haven for militant groups fighting in Afghanistan. The report also claims that agents of Pakistan’s secret intelligence agency, the infamous ISI, are encouraging attacks on Nato troops.

These increasingly fraught relations are unlikely to improve until a mutually acceptable and – crucially – effective strategy is used to tackle militant activity in north-western Pakistan. Talks that began today between the Afghan Quetta Shura Taliban and the Afghan government offer a glimmer of hope for the region only insofar as Pakistan does not feel excluded from the negotiations. It has been suggested that raids against high-ranking Taliban in Pakistan last February were designed to disrupt negotiations with Kabul.

As the US and Nato work towards winding down their commitments in Afghanistan, a breach with Pakistan jeopardises the ability of ISAF forces to continue operations in Afghanistan.  

Attacks on Europeans show Islamic militants still strong in Yemen

A rocket-propelled grenade attack on a British embassy convoy in the Yemeni capital yesterday, left one member of staff and an unknown number of bystanders injured. It is the second attack on European targets in Yemen in less than a week. An earlier, unrelated incident saw a French contractor killed after a security guard opened fire at an Austrian gas company just outside the capital. Yesterday’s attack came just 24 hours after police tightened security after a warning about increased militant activity in the capital.

The attacks have focused media attention once again on this impoverished Gulf state, where the weak central government is not only facing international pressure to neutralise an active al-Qaeda presence, but also battling an array of resource conflicts in its remote regions.

These and the approximately thirty other terrorist attacks, many directed at foreigners, which have rocked Yemen this year, indicate mounting public hostility to high profile cooperation between Sana’a, Washington and London. Since a Nigerian al-Qaeda militant, trained in Yemen, attempted to blow up an American passenger plane in December 2009, the US has been quick to increase military and financial backing to Yemen’s struggle against al-Qaeda. Although the Yemeni government was equally quick to accept such offers, animosity to strengthened ties with the US and Europe suggests that the government’s popular legitimacy must be strengthened if al-Qaeda is to be beaten there.

Many analysts agree that the security situation has deteriorated since the beginning of the year when this security cooperation began. The situation also looks set to worsen, with a top leader of Al-Qaeda in the Arabian Peninsula (AQAP), the group responsible for the Christmas bomb plot, releasing a video earlier this year, that warned of "an army of 12,000 fighters are being prepared in Aden and Abyan,” which will be used to “establish an Islamic Caliphate.”

Museveni offers 20,000 peacekeepers to UN in Somalia

Ugandan president Yoweri Museveni has said his country is willing to send up to 20,000 Ugandan troops into Somalia, to bolster the struggling 7,000-strong African Union force currently carrying out a United Nations’ peacekeeping mission. The UN is said to be considering Museveni’s request to fund the additional peacekeepers.

“The number is not a big deal, we can provide any number," said Museveni of his offer. He warned that “Somalia should not be taken over by terrorists. That's the bottom line."

The Ugandan president also yesterday called for a no-fly zone to be imposed over Somalia, as well as the closing of Somalia’s ports, in an effort to clamp down on militant movement across east Africa.  

There are currently 6,000 Ugandan and Burundian peacekeepers in AMISOM, the African Union Mission in Somalia, there to bolster the Transitional Federal Government of Sheikh Sharif Shekih Ahmed. AMISOM forces are battling against a number of militant Islamist groups bent on destroying the government, which is widely accepted to have control of just a few strategic blocks in the Somali capital, Mogadishu.

Ugandan concern about militant Islamists in Somalia has intensified dramatically since terrorist bombings hit the Ugandan capital in July, leaving nearly eighty dead. Al-Shabab, one of Somalia’s biggest Islamist groups, claimed responsibility for the attack, in a vivid demonstration of the danger this struggling east African state poses to the region.

Analysts remains divided over whether more AMISOM troops would bolster or undermine the government. Some argue that the presence of foreign troops merely enhances the militants’ cause, whilst others believe that a troop ‘surge’ might give the government the breathing space it needs to strengthen its grip on the country.

Guinea run-off date set for 24 October

Guinea’s run-off presidential election will be held on 24 October after almost a month’s delay, the interim military ruler, Sekouba Conate, has announced. The hope is that the vote will end weeks of uncertainty, which saw periodic violence between rival supporters of the two presidential front runners.

The fraud conviction of Ben Sekou Sylla, former electoral commission chief,  and another senior electoral official last month provoked violence on the streets of Conakry. Arguments over a replacement for Sylla, who died in France of unrelated causes just days after the verdict was announced, have also heightened tensions between the two sides.

Presidential favourite, Cellou Dalein Diallo, a former prime minister who secured 44% of the vote in the first round, accused the ruling military junta of stalling for time to favour opponent, Alpha Conde.  Cone, a long-time opposition candidate, achieved an 18% share of the vote in June’s first round. Diallo and his supporters remain unhappy about Sylla’s replacement, Louceny Camara.  "It's all very well to have set a date but for us it is out of question that this Louceny Camara should lead the process to the end," a spokesman for the presidential hopeful told Reuters. However, there have been no suggestions that Diallo will refuse to stand in the second round. Conde’s supporters are upbeat about their prospects, arguing that their share of the vote in the first round was undermined by electoral irregularities.

Some observers have suggested that September’s violence stems from Guinea’s ethnic divisions, with Conde and Diallo belonging to rival ethnic groups. It is unclear, however, how far these suspicions are borne out.

The vote, Guinea’s first democratic elections since its independence from France in 1958, is intended to return Guinea to civilian rule after years of military rule and regular coups.

'Like WWIII on global currency markets'; America's march to protectionism; Worgl money; Dilbert

Here are my Top 10 links from around the Internet at 10 past 8pm, brought to you in association with New Zealand Mint for your reading pleasure.

I welcome your additions and comments below, or please send suggestions for Monday's Top 10 at 10 via email to bernard.hickey@interest.co.nz.

I'll pop any surplus suggestions I get into the comment stream.

1. The biggest news all week - America's Congress and its President are gearing up for big lash out at the big foreign scapegoat -- China.

Congress pass a law this week giving Barack Obama the authority to impose tariffs on all Chinese imports, the NYTimes reports.

While tariffs have been placed on specific products, like steel and tires, because of evidence of unfair export subsidies, the threat of putting sizable tariffs on a country’s entire line of exports to the United States is highly unusual — and, some argue, of dubious legality under international trade law. It reflects both election-year politics over a loss of American jobs and great frustration over unfulfilled promises by China to allow its currency to rise in value, which would make Chinese goods less competitive in the United States.

Eswar S. Prasad, a professor of trade policy at Cornell, called the legislation “a shot across the bow that indicates a clear escalation from overheated rhetoric about Chinese currency policy to more substantive action.” While it is unlikely there will be a trade war, he said, “there is now a real risk that a cycle of tit-for-tat trade sanctions could spin out of control and cause some real, if not lasting, damage.”  

2. A scarcity of suckers? - The always excellent Michael 'The Big Short' Lewis writes at Bloomberg that US banks seem to be dropping their proprietary trading desks despite having fought hard and successfully to keep them in the latest US financial reforms. What gives? Lewis has a few ideas. Firstly, he reckons the suckers, including a few big institutions, have finally cottoned  on to what the banks and hedgies are up to.

The big Wall Street firms have looked anew at proprietary trading and seen a dying business. For a start, their proprietary traders, put off by subpoenas and government inquiries and the new internal aversion to short-term pain on big trading positions, are fleeing for the privacy of hedge funds. But the exodus of trading talent is only part of the problem. A general malaise has come over the world of big time financial risk taking. Everywhere you look hedge funds are either closing or shedding employees or, most shockingly, cutting their fees. At the bottom of this depressing new trend lies a deeper problem: a scarcity of suckers.

The proprietary trading business turns in part on one’s ability to find the fool -- to find people willing to take the stupid side of the smart bets you are placing. One of the side effects of our seemingly endless financial crisis is to wash a lot of fools, many of them German, out of the game.

It’s as if a casino owner awakened one morning to find the tourists had all gone, and the only remaining patrons are pros counting cards at his blackjack tables. As he looked around his casino, for the first time in his life, he couldn’t find the fool. And the first rule of the casino business is: if you don’t know who the fool is, it’s probably you.  

Secondly,  he wonders if the banks are just moving their risk taking and client ripping activities to their regular trading desks that deal directly with customers.

What’s really striking is how little ability the outside world retains to find out what is going on inside these places -- even after we have learned that what we don’t know about them can kill us. It would be nice to know, for instance, if the big banks are making these moves with the tacit understanding that the regulators, going forward, won’t be looking too closely at the activities of the “Client Facing Group.”

And yet news of the death of the Wall Street prop trader has been greeted with hardly a peep. And I wonder: is this the nature of our new financial order? Big decisions, in which the public has a clear interest, being made outside public view, with little public discussion or understanding. If so, it isn’t a future at all. It’s just the past, repeating itself.

3. And you thought I was downbeat - Jim Quinn over at TheBurningPlatform has painted a picture of the next decade or so in America that is less than cheery. He backs it up with a lot of charts and such about the coming deleveraging and the scale of the problem. At least have a look if you're a sceptic. HTKiwidave via email.

The GDP of the country is $14.5 trillion. Over the next decade consumer expenditures as a percentage of GDP will fall from 70% to 65% because it must. With stocks destined to return 5%, bonds yielding 2.5% and no equity left in their houses, consumers have no choice. The annual reduction in consumer expenditures will be north of $700 billion. The annual disposable personal income of Americans is $11.3 trillion. The savings rate is 6%. It will rise to 10% over the next few years. This would be $450 billion more savings and $450 billion less spending. This will not happen overnight. It will take at least a decade. Mass delusion wears off slowly and one person at a time.

Charles McKay summed up the last 30 years in two quotes from his book Extraordinary Delusions and the Madness of Crowds, written in 1841. “Money, again, has often been a cause of the delusion of the multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper.” “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

Does this paint a picture of an economy roaring ahead? We have at least a decade of low or no growth ahead. Deleveraging after the biggest debt party in history is really a bitch. The industry which is about to be dealt a mortal blow is the retail industry.  

4. 'They always seem to win' - Ian Cowie has done a nice job at The Telegraph of highlighting how fund managers, and hedge fund managers in particular, always seem to do very well out of their funds and often much better than the investors in these funds. How long before investors lose confidence in fund managers generally. It's happening in the United States where the  investors have piled into Exchange Traded Funds, which allow investors to circumvent fund managers and cheaply buy access to a market or index.

There is growing resentment among investors about high charges and low returns. Earlier this year, The Daily Telegraph revealed how fund managers pocket more than £7bn a year from charges despite a decade of falling share prices.

Mr Miller, a founder of Spencer Churchill Miller Private said: “The time is right for exposure of various elements of the industry. “It is riddled with blatant self-interest and conflicts of interest that would never be tolerated elsewhere. Investors have become victims as the charges they have to pay have risen and risen while the returns they get have been consistently below par and the actual cost of managing their money has continued to fall.”

Data from Morningstar, a research company, shows the average investment fund has an annual charge of 1.25 per cent. But lesser known administrative fees amount to 0.45 per cent. And trading costs total another 1.35 per cent, according to the Financial Services Authority and Financial Express. When this 1.8 per cent is deducted from the total £406 billion invested, that amounts to £7.3bn being “skimmed off” each year.  

5. Currency Wars bulletin board - Ambrose Evans Pritchard has a nice lap around the various skirmishes in the currency wars.

Brazil, Mexico, Peru, Colombia, Korea, Taiwan, South Africa, Russia and even Poland are either intervening directly in the exchange markets to prevent their currencies rising too far, or examining what options they have to stem disruptive inflows.

Peter Attard Montalto from Nomura said quantitative easing by the US Federal Reserve and other central banks is incubating serious conflict. "It is forcing money into emerging market bond funds, and to a lesser extent equity funds. There has truly been a wall of money entering many countries," he said.

"I worry that we are on the cusp of a competitive race to the bottom as country after country feels they need to keep up."  

6. Currency Wars  bulletin board - Pheonix Capital Research writes at Zerohedge about how the Japanese and the Swiss are intervening in the currency wars to protect the Yen and the Swiss franc. The detail is ominous. It starts off looking at the Yen intervention in the last couple of weeks, the first done since 2004 and first done openly and nakedly.

The Japanese Yen is one of the primary carry trade currencies to borrow in (the US Dollar being the other). It marks a major turning point in the financial crisis. Going forward, the key issue for the financial markets will be currency interventions.

Japan’s move can, in a sense, be seen as an open declaration of war between the BoJ, the Federal Reserve, and other Central Bankers. Indeed, we can’t leave the European Central Banks out of this. Indeed, the most noted currency intervention prior came from the Swiss Nation Bank which bought Euros by the billions in an attempt to keep the Swiss France/ Euro trade low. And Germany and other European countries want the Euro low to boost their exports. In plain terms, the currency war has officially begun.

Since Japan’s announcement, numerous other countries have begun intervening in the currency markets including Brazil, Colombia, Peru, Russia, South Korea, Serbia, Romania, and Thailand.

In plain terms, WWIII is already being staged in the currency markets. Predicting exactly how this will all play out is impossible, but the clear result is that market volatility will be increasing and we are absolutely guaranteed heading for a Crash.

7. Currency Wars bulletin board - The type of currency intervention is also ramping up. Tyler Durden at ZH points to Mexico's latest move, which effectively is betting on a lower dollar. HT Troy.

The FX war recently launched by every central bank in the world, just entered its modern warfare stage: we have learned that the Mexican Central Bank has just sold $600 million worth of USD options. That's right - the central bank of our southern neighbor has moved beyond merely pedestrian cash interventions and has entered the derivatives game, in their attempt to raise the US peso and lower its Mexican equivalent.

Either way, the incremental systemic complexity introduced by this action will make plain vanilla interventions increasingly more unpredictable, and it is a likely validation that many other central banks also engage in this kind of synthetic trading. Also, who is to stop the counterparty on such trades to suddenly ramp up colletaral requests, very much in the fashion that Goldman and JPM destroyed AIG and Lehman, respectively?

8. The next landmine - Meredith Whitney, the analyst that picked the banking implosion in 2007 and 2008, reckons the US government will have to bail out bankrupt state governments within the next year to stop the implosion of the US$2.8 trillion municipal bond market.

While saying a bailout might not be politically viable, Whitney joined investor Warren Buffett in raising alarm bells about the potential for widespread defaults in the $2.8 trillion municipal bond market. She said state and local issuers have taken on too much debt and that the gap between public spending and revenue is unsustainable.

“People will think the federal government will bail these states out,” Whitney, 40, the founder of Meredith Whitney Advisory Group Inc., said in an interview on Bloomberg Television’s “In the Loop.” “It’s going to be an incredibly divisive issue.”

9. Worgl money - This is a fascinating story of a town in Austria in 1932 that invented their own money to solve the problems of the depression. It worked, until the Austrian central bank shut it down. Then the depression came back then a short man with a small moustache took over. Remember him? HT Les via email.

Worgl money was a stamp script money. The Worgl Bills would depreciate 1% of their nominal value monthly. To prevent this devaluation the owner of the Bill must affix a stamp the value of which is the devaluation on the last day of the month. Stamps were purchased at the parish hall.

Because nobody wanted to pay a devaluation (hoarding) fee the Bills were spent as fast as possible. The reverse side of the Bills were printed with the following declaration: “To all whom it may concern ! Sluggishly circulating money has provoked an unprecedented trade depression and plunged millions into utter misery. Economically considered, the destruction of the world has started.

- It is time, through determined and intelligent action, to endeavour to arrest the downward plunge of the trade machine and thereby to save mankind from fratricidal wars, chaos, and dissolution. Human beings live by exchanging their services. Sluggish circulation has largely stopped this exchange and thrown millions of willing workers out of employment.

- We must therefore revive this exchange of services and by its means bring the unemployed back to the ranks of the producers. Such is the object of the labour certificate issued by the market town of Wörgl : it softens sufferings dread; it offers work and bread.”

The Central Bank panicked, and decided to assert its monopoly rights by banning complimentary currencies. The case was brought in front of the Austrian Supreme Court, which upheld the Central Banks monopoly over issuing currency. It then became a criminal offence to issue “emergency currency”. Worgl quickly returned to 30% unemployment. Social unrest spread rapidly across Austria. In 1938 Hitler annexed Austria and many people welcomed Hitler as their economic and political savior.  

10. Totally irrelevant video - Jon Stewart makes jokes about Belgians and waffles.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
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Video:  Ron Paul Texas Straight Talk -- The Banks Still Win In Washington

This is a difficult issue and I understand why Congressman Paul and others from the Austrian School do not support the CFPB.  He has no confidence the agency won't eventually be captured by the industry it regulates -- the banks.

--

 

Congressman Ron Paul

The Banks Still Win In Washington

This past week the administration announced its choice for the first credit czar at the new Consumer Financial Protection Bureau. This bureau was created as part of the supposed Wall Street reform bill recently passed by Congress. This new bureau, which represents nothing more than another layer of useless Washington bureaucracy, will be housed within the Federal Reserve -- one of the most anti-consumer institutions in Washington.

The appointee named to run the bureau is an Ivy League professor. By her own admission she is an academic, not a business person. She has very little real world business experience with the highly complex financial instruments she will oversee. The administration has done nothing to refute her characterization by some in the financial press as an anti-business, ivory tower leftist with an aversion to free market principles.

She also admits to being told, or warned, that the big banks always win in Washington - yet she trumpeted the creation of this new agency as a win against those banks. I would caution her against declaring victory too soon.

Outrageously, she has been appointed as a "special advisor" to design and lead the bureau, but the administration has not disclosed the exact length of her term. There will be no Senate confirmation hearings, nor will the public or the financial industry be allowed to comment on her appointment. We simply are expected to accept the appointment of an enormously powerful regulator without question, and without regard to the constitutional requirement that the Senate advise and consent with regard to her appointment. This means you, as a voter and citizen, effectively have no say whatsoever for the duration of her appointment. In the meantime, she has unprecedented new powers over private business decisions.

The truth is that this new bureau is just more of the same ineffective and damaging regulation we typically get from a crisis. Just as the FDA serves big pharmaceutical companies, not patients, and just as the SEC serves Wall Street, not investors, this agency will end up serving the banks. All regulatory agencies eventually become co-opted by the industries they regulate, and they become chiefly concerned with restricting the entry of new competitors and protecting market share for the big players. This new bureau is not likely to straighten out Wall Street, so much as it will instill a false sense of security in the public about banking and investing again.

No bureaucrat, no federal agency, and no ivory tower academic can replace the regulatory powers of the free market. "Caveat emptor" remains the rule for intelligent investors and depositors. Buyers always need to beware, especially when politicians say they have it all under control.

Real reform starts with transparency and an adherence to the rule of law. The administration would do well to adhere to the law, rather than shoving a new economic czar down our throats without congressional involvement. Real reform would mean taking steps toward restoring sound money and getting back to the Constitution. The Constitution does not allow for favors to special interests, or handing out public money to keep private businesses afloat. The Constitution necessitates a small, impartial government that first and foremost, protects liberty, and sees all citizens as equal. It does not recognize a special banking class.  The fact that measures to achieve these ends are still quashed tells me that indeed, the banks do still win in Washington.

##

 

 

I don't put Paul in this class, as he's obviously no fan of the banking lobby:

• Who's Afraid Of Elizabeth Warren, And Why? Examining Her Opposition (Ultimate Viewers Guide)

 

 

Must See:

• Bill Maher interviews Texas Congressman Ron Paul

 

 

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Screenshot

Important to hear both sides.  Transcript included.

 

 

The Austrian take on where we are on the monetary inflation front and what’s next… Where We Are The money supply aggregates based on the Austrian definition of the money supply (TMS) surged in August, with broad TMS2, THE CONTRARIAN TAKE [1]’s preferred money supply metric, up an annualized 9.5%.  The more important year over year growth rate on TMS2 was once again sporting a double digit rate, posting a rate of 10.7% in August, up from July’s 10.3% rate.  This makes the 20th consecutive month that TMS2 has posted double digit year over year growth, a cumulative increase of 19% over those 20 months.  To put those figures into perspective, the run-up to the now infamous housing bubble turn credit implosion turn Great Recession saw a string of 36 months of double digit growth for a cumulative increase of 48%.  So yes, today’s inflationary largesse may be only 40% of that which brought on the Great Recession, but this one’s still in process. As has been the case throughout 2010, M2, the mainstream’s favorite monetary aggregate, continues to show anemic growth, in July posting a year over year growth of just 2.7%.  As readers of this column are aware, in the opinion of THE CONTRARIAN TAKE, M2 is a grossly misleading measure of the money supply, meaning the gap between the true and the perceived rate of monetary inflation is a hefty 8 percentage points. [2] Combine this anemic rate of monetary inflation as measured by M2 with the widespread aghast over historically low “core” rates of price inflation as measured by mainstream price level aggregates such as CPI,  PPI and PCE and, contrary to the facts, you can see why deflationary concerns are currently all the rage. To an Austrian though, inflation is the increase in the supply of money.  One of its consequences, though not nearly the most important, is the lagged impact an increase in the supply of money has on the general level of goods and services prices.  Indeed, far more important are the distortions and dislocations such monetary largesse wrecks on the economy and financial markets - in Austrian terms, the boom turn inevitable bust - the latest one being the housing bubble turn credit implosion turn Great Recession. So, to the FOMC and mainstream economists and investors alike, deflation remains right around the corner.  To an Austrian, inflation is alive and well. A Look at TMS2 Internals In THE CONTRARIAN TAKE’s August Monetary Watch [3], we had a look at the source of today’s monetary inflation, making the case that it’s the Federal Reserve via the issuance of base money, namely currency plus bank reserves (the bulk of which springs directly from the Federal Reserve’s power to monetize assets by writing checks on itself), that has provided the majority of the monetary largesse over the past 2 years.  Private banks, historically responsible for the lion’s share of inflation via the issuance of uncovered money substitutes (which springs from the ability of those banks to pyramid deposits on top of base money when making loans or purchasing assets), have largely stood aside. Well, recent trends suggest that while private banks may not yet be ready to reassert their more dominant role in the monetary inflation process, they are certainly beginning to make a contribution.  Uncovered money substitutes increased an annualized 13.4% in August and are now up 8.6% annualized over the last three months and 8.3% over the last twelve.  There relative size in TMS2 is shown below: [4] Note the recent trend, with uncovered money substitutes rising from a low of 68% of TMS2 in February to August’s 71%. To repeat, this is not to say that private banks are about to turn on the monetary spigots and let it rip.  Indeed, while bank loan and investment aggregates have seen some life of late, recent trends in the credit aggregates suggest that the growth in uncovered money substitutes is more the result of depositors liquidating time deposits and other term bank deposits in favor of instantly redeemable demand deposits, other checkable deposits and savings accounts.  In Austrian speak, bank creditors are liquidating credit claims, raising cash, then depositing and holding that cash in money substitute form with those same banks. That said, if in fact these currently risk averse private banks, that sit on top of $1 trillion plus in reserves, are ready to multiply those reserves into credit and deposits, that plus another round of quantitative easing could create one heck of an inflation party, possibly to the tune of trillions of dollars.  Certainly no guarantee, but something clearly worth watching, especially if a deflation wary Federal Reserve is prepared to give the banks a bit of a “push.”  Say, by reducing the rate it pays those banks on their excess reserves?  As discussed below, not mere speculation, but by the Federal Reserve’s own admission something that could very well be at hand. What’s Next In a word, QE II. Let’s begin with Chairman Bernanke’s speech at Jackson Hole [5] on August 27th: … the pace of recovery in output and employment has slowed somewhat in recent months, in part because of slower-than-expected growth in consumer spending, as well as continued weakness in residential and nonresidential construction. Despite this recent slowing, however, it is reasonable to expect some pickup in growth in 2011 and in subsequent years… And as the expansion strengthens, firms should become more willing to hire. Inflation should remain subdued for some time, with low risks of either a significant increase or decrease from current levels. Although what I have just described is, I believe, the most plausible outcome, macroeconomic projections are inherently uncertain, and the economy remains vulnerable to unexpected developments. The Federal Reserve is already supporting the economic recovery by maintaining an extraordinarily accommodative monetary policy, using multiple tools. Should further action prove necessary, policy options are available to provide additional stimulus… Indeed, as Chairman Bernanke continually reminds us, the Federal Reserve is compelled to provide that stimulus, for it is not only charged with providing stable prices but with promoting economic growth and full employment.  And as luck would have it, it appears, at least in Bernanke’s mind, that the current setup for that said stimulus couldn’t be better: First, the FOMC will strongly resist deviations from price stability in the downward direction. Falling into deflation is not a significant risk for the United States at this time, but that is true in part because the public understands that the Federal Reserve will be vigilant and proactive in addressing significant further disinflation. It is worthwhile to note that, if deflation risks were to increase, the benefit-cost tradeoffs of some of our policy tools could become significantly more favorable. Second, regardless of the risks of deflation, the FOMC will do all that it can to ensure continuation of the economic recovery. Consistent with our mandate, the Federal Reserve is committed to promoting growth in employment and reducing resource slack more generally. Because a further significant weakening in the economic outlook would likely be associated with further disinflation, in the current environment there is little or no potential conflict between the goals of supporting growth and employment and of maintaining price stability. In other words, if the economy continues to weaken, Bernanke will be a man on a mission.  With price inflation expected to be of no concern, its Katy bar the door - the Federal Reserve will be free to roll out whatever tools necessary to pump the money supply and save the economy. So, what are those tools?  Back to Bernanke’s Jackson Hole speech: Notwithstanding the fact that the policy rate is near its zero lower bound, the Federal Reserve retains a number of tools and strategies for providing additional stimulus. I will focus here on three that have been part of recent staff analyses and discussion at FOMC meetings: (1) conducting additional purchases of longer-term securities, (2) modifying the Committee's communication, and (3) reducing the interest paid on excess reserves. The first tool - conducting additional purchases of longer-term securities means another round of asset monetization, another round of base money and therefore a guaranteed dollar for dollar expansion in the money supply. The second tool - modifying the Committee's communication is simply, when all is said it done, the FOMC telling the market it plans on implementing the first tool - asset monetization - whenever and for however long it deems appropriate. The third and final tool - reducing the interest paid on excess reserves, that’s the mother load, and “liquidity trap” concerns notwithstanding, perhaps all that is needed to push private banks into liquidating their $1 trillion plus reserve stash and pyramiding up the money supply through a multiple expansion of loans and investments.  You see, if private banks, the same banks that have been hoarding reserves in fear of their solvency (at 25 bps, 15bps over one-month Treasuries and about the same as one-year Treasuries, thank you very much), choose not to impair their liquidity position by making risky loans or purchasing risky assets, or if private borrowers, those same borrowers many of whom are currently up to their necks in debt, choose not to borrow, there’s always that swelling supply of “super safe” U.S. Treasury and agency securities to fill the bill.  For the U.S. government is currently more than willing to be both the borrower and spender of first and last resort.  And what better way to push banks in that direction than to pay little to nothing on excess reserves. So there’s the QE II playbook.  The only questions remaining are - if and when. Well, in the opinion of THE CONTRARIAN TAKE, there is no if.  It’s simply a matter of when.  Here’s why… To an Austrian, easy money and managed interest rates are the source of, not the solution to the things Chairman Bernanke fears most – a weak economy, high rate of unemployment and yes, even deflation.  Such monetary interventions in the economy always and everywhere create artificial booms, bubbles in popular parlance, with their inevitable consequence always and everywhere being busts - credit crises, recessions and depressions.  You see, by artificially lowering interest rates and creating money and credit out of thin air, a central bank, aided and embedded by its too big too fail private bank partners, create economic and financial distortions - malinvestments, which eventually must be liquidated.  And once the central bank ceases its easy money policies, by halting the further issuance of money and money substitutes, or even slowing its rate of increase, the boom soon comes to an end and the bust ensues.  Sooner or later, free market forces prevail.  Sooner or later, the central bank induced boom REQUIRES a bust. So then, what has Chairman Bernanke given us, so far?  Double digit money supply growth and zero interest rates, right.  He’s given us a boom (an anemic one at that) that at some point MUST give us a bust.  Combine this certainty with the repeal of the Bush tax cuts, the likely crippling impact of Obamacare and Fin Reg, and what seems a never ending parade of intrusive government programs as far as the eye can see, all against a still debt-laden private sector, and it’s easy to see why the economy is in a heap of trouble. And in time, and by extension, it’s equally easy to see the near certain implementation of Bernanke’s QE II tool set. Now, while a 10.7% year over year rate of growth in TMS2 is highly inflationary, it is down from the high of 16.5% posted back in November of 2009.  That fact plus the economically debilitating effects of the pending tax increases, as well as the plethora of forthcoming government interventions into the economy, suggest that our current anemic boom could very well be close to turning bust.  And with that, it should go without saying that with Ben Bernanke at the helm of the Federal Reserve, another round of Federal Reserve engineered inflation could be right around the corner. Based on the monetary insights of the Austrian school of economics, THE CONTRARIAN TAKE [1] offers up the latest monthly money supply metrics for the U.S., Eurozone and Japan currency blocks. To see the entire monthly series offering – the latest money supply data for all three currency blocks, with full historical data and chart work, as well as supporting definitions, sources, notes and references – click here on Austrian Money Supply [7]. For a quick link to money supply definitions, sources, notes and references, click here on Austrian Money Supply Definitions, Sources, Notes and References [8]. For the logic behind the formulation of Austrian money supply, read Money Supply Metrics, the Austrian Take [9]. [1] http://trueslant.com/michaelpollaro/ [2] http://trueslant.com/michaelpollaro/files/2010/09/TMS-Template.gif [3] http://trueslant.com/michaelpollaro/2010/08/17/monetary-trends-august-2010-the-fed-exists-its-exit-strategy/ [4] http://trueslant.com/michaelpollaro/files/2010/09/RTMSGlobal_23412_image001.gif [5] http://www.federalreserve.gov/newsevents/speech/bernanke20100827a.htm [6] http://trueslant.com/michaelpollaro/ [7] http://trueslant.com/michaelpollaro/austrian-money-supply/ [8] http://trueslant.com/michaelpollaro/austrian-money-supply-definitions-sources-notes-and-references/ [9] http://trueslant.com/michaelpollaro/2010/04/19/money-supply-metrics-the-austrian-take/

Here is one bit: But the 50-year-old professor of economics at George Mason University in Virginia is emerging as the intellectual standard-bearer for the Austrian school of economics that opposes government intervention in markets and decries federal spending to prop...

When Hans Dichand died on 17 June 2010 at the age of 89, an era in  the relationship between media and politics in Austria ended. Dichand, who founded the Neue Kronen-Zeitung in 1959, was more than the publisher of Austria’s biggest-selling daily newspaper. In its best days, the Krone reached 40% of Austria’s readers. Dichand’s flagship made Austria’s media-market the most concentrated in the European Union: in no other country does one daily paper dominate to the same extent.

Dichand ruled over his empire in the style of William Randolph Hearst, who controlled a rather similar empire in the United States in the first half of the 20th century; and of Axel Springer in (West) Germany in the 1960s-80s. All three combined significant business success with a specific political message.

Dichand, like Hearst and Springer, was both a brilliant entrepreneur and a political missionary. His success as a publisher was based on a kind of catch-all strategy: giving everybody something. His paper had a huge sports segment. Animal protection was always a prominent issue. The different local editions catered to specific interests in the particular area. The Krone published regularly the pastoral views of prominent Catholic bishops - and at the same time, every edition included Playboy-like pictures of semi-nude girls.

The shaping figure

In political terms, the Krone did not follow a specific party line. On the contrary, Dichand seemed to expect the parties to follow his line. The Krone staff consisted of a number of prominent journalists with personal links to political parties - especially to the Social Democrats (SPÖ). The connections Dichand had established with Austrian politics were used to influence political decisions - not to be influenced by them.

Hans Dichand’s political beliefs did not fit easily into any traditional dimension. In the decades under Dichand’s control, the Krone followed only a small number of topics with any consistency. The most controversial was a combative stance on issues related to the second world war; in his early 20s, Hans Dichand was a member of the Greater Germany submarine fleet, and was always willing to defend the “honour” of what he called the “war generation” - meaning the German Wehrmacht.

But Dichand was neither a Nazi nor a neo-Nazi (and he badly wanted to be recognised as a friend of the state of Israel). When his prominent columnist Richard Nimmerrichter (writing under the Nestroy-era based pseudonym “Staberl”) used anti-semitic rhetoric, Dichand - albeit after hesitating for a long period - had him fired. At the same time, when he defended Kurt Waldheim, who as Austria’s president (1986-92) had somewhat obfuscated his record as a Wehrmacht officer, he also opened all the gates of hate-speech  - against everybody who dared to criticise Waldheim.

This was the Hearst- and the Springer-like approach that Hans Dichand used. When he decided it was time for a political campaign, the whole paper - everything from the editorials and the daily poetry to the carefully edited letters to the editor - acted like an ensemble of armies under a single command. However his publishing-style may be described, it could never be called internal pluralism.

His final campaigns were directed against Austria’s membership of the European Union. When Ursula Plassnik, foreign minister from 2004-08, seemed to be too much of a Europeanist, the Krone used any kind of weapon to destroy her politically. And it won; Plassnik’s party, the conservative People’s Party (ÖVP), was cowed, and Plassnik herself lost her cabinet post after the 2008 election.

An even more impressive gesture of political subjugation happened in the same year, when both Austria’s social-democratic chancellor Alfred Gusenbauer and his designated successor Werner Faymann promised Dichand - in an personal, open letter - never again to violate Dichand’s iron rule regarding EU policies; namely, that an agreement equivalent to the Lisbon treaty must be put to a referendum (even though this is not constitutionally required in Austria).

The last campaign

The king is dead. Who will become the new king? But also: will there be a new king? The post-Dichand era has to face the consequences of a rather diffuse ownership structure. Hans Dichand was the paper’s only publisher, but he owned only 50% of the Krone; the other owner is the Westdeutsche Allgemeine Zeitung (WAZ).

The most important question is whether Hans Dichand’s personal heir, his son Christoph, and the WAZ will be able to develop a modus operandi. The WAZ was never happy with Hans Dichand’s personal style. The Germans were interested more or less only in the profit the Krone was able to produce - and not at all in Dichand’s politics. One solution would be a buy-out that would give either the Dichand family or the WAZ sole ownership. 

It is difficult to imagine that Christoph Dichand (assuming that he is the eventual winner in the potential conflict with the WAZ) will be able to have the same kind of prestige his father enjoyed; difficult too to expect that the success-story of the Krone will go on and on.

The paper’s readership reveals a structural problem. The readers are disproportionally old and without higher education; younger, better educated Austrians regard the Krone as primitive and outdated. And it is at least possible that the politicians of Austria’s establishment parties, the SPÖ and ÖVP, will gradually realise that a paper’s circulation is not the only indicator of its ability to shape political attitudes.

The last figure who tested this proposition was Heinz Fischer, the Austrian president. When running for re-election in 2010, he was opposed by Hans Dichand from the very beginning of his campaign - for the sole reason that he had dared to ignore Dichand’s advice not to sign the Lisbon treaty after its parliamentary ratification. Fischer won the election easily - even against the Krone. Perhaps other politicians will learn to see this as a lesson. Now that the great and myth-laden patriarch no longer runs Austria’s most successful daily paper, there is every reason to break the spell. 

Sideboxes

'Read On' Sidebox: 

Anton Pelinka, The Haider Phenomenon in Austria (Transaction, 2002)

Profil

Neue Kronen-Zeitung

Anton Pelinka

Austria - federal government

Austrian Times

David Art, The Politics of the Nazi Past in Germany and Austria (Cambridge University Press, 2005)

Austrian Independent

Steven Beller, A Concise History of Austria (Cambridge University Press, 2006)

Sidebox: 

Anton Pelinka is a professor of political science and nationalism studies at the Central European University. His books include Politics of the Lesser Evil: Leadership, Democracy, and Jaruzelski's Poland (Transaction, 1999); (co-ed, with Ruth Wodak) The Haider Phenomenon in Austria (Transaction, 2002); and Democracy Indian Style: Subhas Chandra Bose and the Creation of India's Political Culture (Transaction, 2003)

Also by Anton Pelinka in openDemocracy:

"Austria's sour victory" (5 October 2006)

"Austria's democratic wound" (2 October 2008)

"Jörg Haider, the polariser" (16 October 2008)

"Hungary's election, and Viktor Orbán's choice" (15 April 2010)

Related stories: 

Jörg Haider, the polariser

Hungary: history's battleground

The Other’s new face: Austria, the Habsburg empire and Islam

Hungary's 1956, central Europe's 2006: beyond illusion

Hungary’s election, and Viktor Orbán’s choice

Slovakia’s surprising election

Italy’s creeping fascism

Austria’s democratic wound

The Geert Wilders enigma

Austria's sour victory

This is a shocker, but the three-year-long decline in bank lending may be at an end.

As Northern Trust economists Paul Kasriel and Asha Bangalore observe, bank lending actually increased in July, for only the second time in the past 21 months.

Most of the increase came from the purchase of Treasury and other government securities (banks love making a nice spread while taking next to no risk), but some of the increase also came from "other" securities.

As Paul and Asha explain below, the expansion of bank credit is often followed by increases in final demand, as consumers and businesses have more money to buy stuff with.  The July data, combined with yesterday's Senior Loan Officer Survey (which showed that banks have finally started to ease lending standards again), gives the economists more confidence in their 2011 GDP recovery forecast.  Alas, as bank credit takes a while to work its magic, growth for the rest of this year is likely to be only 1%-2%.

Paul Kasriel and Asha Bangalore, Northern Trust:

In July, for only the second time in the past 21 months, U.S. commercial bank total credit
(loans and securities) increased (see Chart 1). And it was a healthy increase at 8.3%
annualized. Obviously, we do not know whether this is the beginning of an upward trend in
bank credit. But if it is, then we feel a lot more confident about our 2011 real GDP forecast,
which has the economy’s growth rate picking up. The primary assumption underlying our
forecast of faster real GDP growth in 2011 is a resumption in the growth of bank credit.

Why do we place such an emphasis on bank credit as a causal factor with regard to the
aggregate demand for goods and services? Because we believe that increases in bank credit
unambiguously allow those entities borrowing from the banking system to increase their
purchases of goods, services and assets without requiring any other entity to simultaneously
reduce its current purchases.

In the nomenclature of the Austrian economic school, the banking system creates purchasing power for its borrowers, whereas nonbank grantors of credit merely transfer their purchasing power to their borrowers. Growth in price-adjusted bank credit, excluding commercial & industrial (C&I) loans, has a relatively high correlation (0.62) with growth in real domestic demand for final goods and services, as shown in Chart 2. The reason we exclude C&I loans is that their behavior tends to lag the business cycle. The reason C&I loans tend to lag the business cycle is that a large part of C&I loans are used to
finance business inventories, especially near business expansion peaks, when inventories are
accumulating faster than business sales are increasing.

The increase in July bank credit was dominated by an increase in securities acquisitions rather
than an increase in loans, noting that the rate of contraction in bank-issued loans and leases
slowed (see Chart 3). Although the July increase in the banking system’s acquisition of
securities was concentrated in Treasury and agency securities, the July increase in “other”
securities was the largest since February 2009 (see Chart 4). The significance of an increase in
the acquisition of these “other” securities by commercial banks is that the addition of these
assets incurs a charge to risk-based capital of commercial banks. Despite being more-than-
adequately capitalized in the aggregate, banks have been hoarding their capital in the past year
rather than committing it to new loans and securities. The fact that the banking system was
willing to commit some risk-based capital in July is an encouraging sign that banks may
finally be confident enough about their future capital positions to start currently increasing
their earning assets.

There is some other evidence that would suggest that the July increase in bank credit was
more than just a one-off event. The recently-released Federal Reserve Senior Loan Officer
Lending Practices Survey indicated some actual easing in commercial bank lending terms to
small businesses in July and easing in lending terms to consumers for the second survey in a
row (see Chart 5). If lending terms continue to ease, this will be a very positive sign for bank
credit growth going forward and for aggregate demand growth in 2011.

However, given the lags between growth in real bank credit and growth in real aggregate
demand, the prior quarters of contraction in real bank credit imply very weak growth in real
aggregate demand over the remainder of this year. In our July update, we made significant
downward revisions to our real GDP growth forecast for the second half of this year. In this
August update, we have revised down our Q3:2010 real GDP annualized-growth forecast from
1.8% to 1.4%. The principal factor driving this downward revision is weaker-than-previously
projected real consumer spending. The soft July retail sales data are what motivated this
downward revision. 

Join the conversation about this story »

Inquiring minds are once again digging deep into money supply questions. They are intrigued by the fact that money supply measures M2 and TMS1 are plunging towards zero, while TMS2 is still sporting a hefty 10+% year-over-year growth.

TMS stands for "True Money Supply". The suffix (1 or 2) stands for alternate measures, one including savings accounts and the other not. M2 is a widely used Fed aggregate for money.

This looks technical (and it is), but please bear with me. I can and will explain in easy to understand terms exactly what is happening and why, along with what it all means.

TMS1 vs. TMS2 vs. M2 Growth

The above chart courtesy of Michael Pollaro - Austrian Money Supply. Annotations and arrows on chart by me.

The idea behind TMS1 and TMS2 is to sort credit transactions from actual money available on demand.

For all practical purposes, TMS1 consists of currency in circulation + checking accounts, + sweeps of checking accounts. There is no dispute by anyone that the components of TMS1 represent money on demand.

Think of it this way: Cash in your pocket and cash in your checking account are there whenever you want, on demand. Indeed, the banking industry refers to checking accounts as "DDA" accounts, Demand Deposit Accounts.

Others want to include savings accounts, time deposits (CDs), and money market accounts in money supply measures.

TMS1 vs. TMS2. vs M2 Aggregates

Notes 1-3 from Pollaro

(1) To clarify any confusion for those readers familiar with Frank Shostak’s AMS metric, note that (a) as is the case with AMS, TMS1 excludes savings deposits but adds back bank deposit sweep programs, and (b) in contrast to AMS, TMS1 does not include the SFP account.

(2) Time and Savings Deposits due Foreign Accounts and US Government Time and Savings Deposits at Banks have been excluded from TMS2 owing to fact that Savings
Deposits are not separately reported by the Federal Reserve Board and, given the fact that Time Deposits are not money, it was deemed the more conservative formulation

(3) Sweeps of Transaction Deposits into MMDAs are included in TMS2 by virtue of fact that those deposits are included; i.e., a component part of the Savings Deposits, including MMDAs FRB aggregate

Comparison Analysis

M2 includes savings accounts + small time deposits (CDs) + money market accounts.

TMS2 includes TMS1 + savings accounts but not money market accounts or small time deposits.

With the exception of sweeps, the rest of the components have little effect.

The main dispute between the TMS1 and TMS2 camps is in regards to what to do with savings accounts. Proponents of TMS2 claim savings accounts represent money available on demand, while proponents of TMS1 take the tact that savings accounts are "credit transactions" and should not be included in strict monetary aggregates.

I have sided with TMS1 along with Austrian economist Frank Shostak on this point.

We will return to the debate later but first let's first explore why M2 and TMS1 are dropping rapidly while TMS2 is not.

Part of the discrepancy can be explained by close analysis of Small Time Deposits and Savings Deposits.

Small time deposits are Certificates of Deposit - CDs under $100,000. For comparison purposes, "Large Time Deposits" include "Jumbo CDs", amounts above $100,000.

Total Savings Deposits at all Depository Institutions

The chart shows Savings Deposits have been rising rapidly since the mid-1990's.

One reason is Sweep Account Programs.

In simple English: Savings accounts have no reserves while checking accounts do. Greenspan allowed banks to sweep money from checking accounts into savings accounts (unbeknown to customers) so that banks could lend out more of those deposits.

Because of sweeps, reported M1 figures have been grossly distorted since 1995. Since M2 and TMS2 include savings accounts, neither has been affected by sweeps.

TMS1 corrects the M1 problem by adding back in sweeps.

In addition to sweeps, there has been a pronounced shift in the attitudes of retail consumers saving money in Small Time Deposits (CDs). Let's take a look.

Small Time Deposits at Thrifts

Small Time Deposits at Commercial Banks

Period 1 Analysis

Period 1 represents two different factors:

1. Massive consolidation in thrifts
2. Decreased time preference for money in light of the stock market boom and productivity increases associated with the internet revolution.

To understand period 1, one needs to add both charts for a composite. Taking the 1991 recession as the starting point and the 2001 recession as the ending point, and adding both charts together, the net result was huge decrease in demand for money (a decrease in the savings rate).

People felt no need to save money in banks and regarded CDs as fodder for fools. Stock market speculation was the preferred method of saving.

This period is part of what Ben Bernanke calls the "Great Moderation".

What actually happened is increased productivity (primarily via the internet revolution) masked huge monetary inflation. As a result, corporate profits soared as did demand for equities, especially internet stocks.

This culminated in the "dotcom" internet bubble and subsequent crash.

Period 2 Analysis

Period 2 represents the aftermath of the internet crash with a Fed hellbent on bailing out banks massively underwater on bad loans made to failed dotcom companies and hopeless loans to Latin American countries starting to default.

To bail out the banks, Greenspan slashed interest rates, holding them too low, too long. The result was an enormous housing bubble, unprecedented in world history.

In practical terms, the result was a further decrease in demand for money accompanied by the widespread belief "my house is my savings and retirement plan".

The phrase "decrease in demand for money" means people did not want to hold cash. Instead they wanted to buy houses, cars, boats, and things for their houses. The savings rate went negative for the first time in history (recently revised to just above zero).

Most thought home prices would rise forever and many took out loans against their homes to buy boats and cars or to take vacations. Others added rooms or remodeled comfortable they would get the money back and then some. People did not realize it, but they were playing the "greater fool" game never bothering to do the math or ask "who would be able to buy?"

Inflation in period 2 was masked because the Fed and the CPI ignore housing prices in their analysis. Ironically, popular hyperinflationist sites such as Shadowstats probably underestimated price inflation in this period as well.

Period 3 Analysis

Period 3 is quite interesting. Notice how a sharp upturn in demand for CDs preceded the popping of the housing bubble.

Period 3 culminated with the Fed slashing short-term rates to near-zero percent. As a result CD rates plunged.

Price inflation in this period was hugely overstated because crashing home prices were not properly factored in.

Period 4 Analysis

Let's kick off the discussion with a question: Is this period like the "internet bubble" or the "Housing Bubble" where there was a decreased desire for saving and the economy (and inflation) is off to the races?

In one word "No!"

Consumers have no demand for equities having been burnt twice badly already, first in the internet crash, then in the housing (financial), crash. Moreover, there have been recent and massive equity fund withdrawals.

Moreover, massive numbers of boomers now in retirement or soon heading that way need (or will soon need) to drawn down those savings to live on. Boomers are now scared to death of further drawdowns, and in my estimation rightfully so.

With plans to buy houses at all time lows, this is certainly not reflective of another housing boom.

Why The Decline In CDs?

For the answer, let's Compare CD Rates with Savings Deposit Rates.

The above tables all courtesy of Bankrate.Com, a good place to visit for such comparisons.

Consumer Saving Question

The question consumers face is whether to lock up deposits for a year at 1.5% or shift money to savings accounts at 1.3% as CDs expire. Is the .2% difference commensurate with the risk?

I do not think so even though I sit squarely on the deflation side. So, what's the average person to think?

Moreover, the same analysis holds true for 5 year CDs. Does anyone want to tie up money for 5 years at 3%?

Most don't. So instead of rolling over CDs the money goes into savings accounts hoping for better rates down the road.

Bernanke, like Greenspan before him, is crucifying savers in an attempt to bail out banks via a steep yield curve. Unfortunately, for those getting screwed by Bernanke's scheme, better rates are likely not coming. There is no housing or internet bubble to blow this go around.

TMS1 vs. TMS2 Theory

Returning to the money supply debate, the difference between TMS1, TMS2, and M2 comes down to a question as to what constitutes money on demand vs. what is a credit transactions.

Savings accounts are without a doubt credit transactions. People deposit money in savings accounts in return for interest. Banks lend that money out. People know that banks lend the money out. That is why they receive interest. There are no reserves on savings accounts.

I worked in the industry for years. Savings accounts are TDA accounts - Time Deposit Accounts. The difference between savings accounts and CDs is CDs are type of time deposit with a fixed term and a guaranteed rate, while savings accounts are time deposits with a flexible term and in general no guaranteed rate.

In contrast, checking accounts are demand deposit accounts (DDA accounts) where money is available on demand.

Proponents of TMS2 maintain that savings accounts are flexible and can be withdrawn without notice and thus reflect money on demand. The debate even gets down to esoteric discussions as to whether or not savings account terms that commonly stipulate 30 days notice before withdrawal will ever be enforced.

The latter point is essentially a sideshow because the real issue is not how quickly something can be converted to cash but whether or not the transaction is a credit transaction.

One can pay a penalty and cash in a CD equally as well. One can write a limited number of checks on some kinds of money market accounts as well. On that basis, if one is going to include credit transactions in the aggregates, one may as well include other types of credit transactions as well. Indeed that is exactly what the flawed measure MZM (money at zero maturity does).

Walking too Fine a Line

TMS2 attempts to draw a fine line differentiating between types of credit transactions. It fails by rigorous definition (ignoring the fact that savings accounts are credit transactions) while instead focusing on the issue of presumed immediate availability, even though one has to transfer money from savings to checking or withdraw it to make it truly available.

TMS2 also fails by practical application. From a practical standpoint, there is essentially no difference between money sitting in savings accounts vs. CDs if the intent in either case is to save and not to spend.

From that standpoint, please consider Consumption Inflection Point - No One Wants Credit; Consumer Spending Plans Plunge

A tip of the hat to the Contrary Investor for explicit permission for the above snip.

Consumers have no intention of spending. Instead, people are letting CDs expire with the money likely headed for savings accounts. It is silly to propose this is meaningful.

An increase in the personal saving rate is another reason for the recent increase in savings accounts.

Rising Savings Rate

Having reached a secular low, the savings rate now appears headed up.

Indeed, the internet bubble and the housing bubble were associated with periods when the savings rate crashed!

The rising savings rate, some of which is making its way into savings accounts, is a deflationary phenomenon. This is in contrast to other periods where M2, TMS2, or savings accounts rose in conjunction with a rapidly expanding economy.

Thus, one must not only look at what is happening but why it something is happening to draw proper conclusions.

TMS2 Fatally Flawed

Savings accounts rose by over $1 trillion in period 4 on the above charts, while CDs shrunk by about $460 billion. The rest of the difference is easily accounted for by sweeps, increased liquidity preferences, and a rise in the savings rate.

By attempting to split hairs with what does or does not constitute "money available on demand" while ignoring the more important issue that savings accounts are credit transactions, TMS2 creates a misleading distortion out of thin air.

Moreover, please remember that savings accounts do not represent money about to be lent out. Given there are no reserves on savings accounts, banks have already lent the money out (or it sits as excess reserves on deposit with the Fed).

The topic of "excess reserves" inevitably brings up a discussion of Money Multiplier Theory.

Money Multiplier Theory Is Wrong

Most proponents of TMS2 (and in fact most people in general) adhere to a falsehood that sideline cash and excess reserves are ready to come flooding into the market at any time causing prices to rise.

In regards to excess reserves, the reality as Steve Keen and I have pointed out is "lending comes first and bank reserves come second". Please see Fictional Reserve Lending And The Myth Of Excess Reserves and also Fiat World Mathematical Model for a complete discussion.

Putting it All Together

The widely touted discrepancy between TMS1 and TMS2 consists of three things:

1. A meaningless shift from one credit transaction bucket to another (from CDs to Savings Accounts)
2. An increase in liquidity preference
3. An increase in the savings rate that has turned up in savings accounts as opposed to checking accounts.

Those are deflationary, not inflationary phenomena.

By attempting to split hairs as to what is considered a credit transaction, TMS2 introduces a huge distortion that takes a great deal of analysis to properly sort out.

Unsurprisingly, most TMS2 proponents have drawn invalid conclusions as to what the discrepancy between TMS1 and TMS2 actually means. Careful analysis shows the spread between TMS1 and TMS2 represents deflationary phenomena, the very opposite of what most TMS2 proponents suggest!

By the way, things are so distorted by the Fed because of sweeps and because of fractional reserve lending that checking account deposits that are supposed to be available on demand really aren't. For proof, think of what would happen if everyone were to attempt to pull all their checking account deposits at once.

Indeed, things are so screwed up that it is easy to make a case that percentagewise, very little is truly available on demand. Nonetheless, all we can do is pick the best measure of money available. From a theoretical and practical standpoint, that measure is TMS1.

Addendum:

I received several questions as to why savings accounts and CDs are "credit transactions". Here is a simple explanation.

CDs and Savings Accounts are credit transactions because you voluntarily relinquish control of money to banks. You lend it to them.

You do not lend checking accounts to banks. Instead, you deposit money with the idea that it is yours, available immediately on demand by writing checks.

Some get hung up on the notion that savings accounts are immediately available. That is not technically true, as there is typically a 30 day waiting period specified in the deposit.

More importantly, whether or not that waiting period is enforced or even if it exists at all (and this is where TMS2 proponents split hairs), does not alter the simple fact that savings accounts are credit transactions where control of the deposit is voluntarily handed over to the bank in return for interest, so banks in turn can lend the money out at an even higher interest rate.

It is the relinquishment of ownership of the funds (however temporary - even for so long as to have to transfer money from savings accounts to checking accounts to make use of it) that makes CDs and Savings Accounts credit transactions. By splitting hairs between various types of credit transactions, primarily based on how fast control of money can be regained by the depositor, TMS2 distorts the picture of what is really happening and what it all means.

Bear in mind, the Fed has so distorted the system that "It's all credit". There is nothing backing any of this, including checking accounts. The fact that "It's all credit" should not stop us from making the best theoretical case we can for what should be considered credit transactions vs. non-credit transactions.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

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By Scott Lazarowitz

Originally published at Lew Rockwell

---

"Politics or Principle" was the theme of Congressman Ron Paul’s farewell speech in 1984 and of his two presidential campaigns. Advocating the principle of Liberty is the theme of those in the libertarian school of thought, including the American Revolutionaries and Founders, who advocated individual freedom, private property rights, and freedom of association and voluntary contract. Throughout history, the State has been Liberty’s most egregious violator.

As sociologist and economist Franz Oppenheimer noted in his book, The State, there are two forms of sustenance: first, through one’s honest productive activity and voluntary exchange with others, or the economic means; and second, through theft and violence, the force and coercion of the State, or the political means. For that is what politics is: the aggression of the State, which is why the State’s actions can never be principled.

The Founders’ Declaration of Independence is probably one of the most succinct documents declaring that the rights to life, liberty and property are inherent among all individuals. The Constitution, however, assigned to a federal government one monopolistic power after another, and gave to centralized bureaucrats in Washington the power of compulsion over their fellow Americans. Such a restrictive monopoly and that power of compulsion contradicted the very rights recognized by the Declaration of Independence. The Declaration declares the principles of Liberty, but the Constitution is the politics and power of the aggressive, parasitic State.

One thing I don’t understand is how the Tea Party movement, which supposedly supports limited government and moral values, nevertheless supports the U.S. government’s Leviathan bureaucratic military socialism, its foreign interventionism, and wars with indiscriminate murder of innocent human beings and destruction of whole societies abroad. Unfortunately, the Tea Party movement includes those military interventionist conservatives who partake in the mysticism of the State as a god, and cannot see that State interventionism into foreign lands is just as immoral as domestic State interventionism.

But any form of theft, trespass and murder, is immoral, period.

The Constitutionally mandated dependence of Americans on the socialist planning of centralized federal bureaucracy with a monopoly of territorial protection has turned the principle of self-defense into a parasitic political phenomenon. Such a monopoly has enabled politicians and bureaucrats to further a career in bureaucracy and power at the expense of Liberty, and has caused deterioration in quality of territorial protection.

But there is something about human nature that causes so many people to abandon principle when given a position of State power. The State is the only institution with the power to be above the Rule of Law. Agents of the State may commit theft and robbery through taxation, and may trespass and there is nothing any individual can do about it. It’s not what the Founding Fathers had in mind for America.

Two examples of how people who may have had potential in advancing Liberty and helping their fellow Americans through voluntary means, but instead have chosen the path of politics and the coercive apparatus of the State, are former Massachusetts Gov. Mitt Romney and former Alaska Gov. Sarah Palin.

During the earlier part of his pre-political career as a capital investment executive, Romney was extremely frugal with funds and careful not to take big risks "with other people’s money," to such an extent that his firm Bain Capital hardly made any investments. He would seem to be the ideal candidate for many Americans, particularly conservatives, to help solve the nation’s financial crises. But not unlike most politicians, former business executives and otherwise, Romney seemed to change as shown by his decisions as governor of Massachusetts.

Perhaps Romney’s worst deed was RomneyCare, the health care bureaucracy and mandates he installed in his last year as governor. Given his expertise as an entrepreneur and capital investor, and his knowledge of how markets work, one would think that Romney would instinctively know that more government intrusions are the cause of our medical system’s dysfunction and not the cure.

Or perhaps he did know. Politicians oftentimes compromise principle for the sake of political strategy. At the time of his signing RomneyCare into law, mid-2006, it was widely speculated that then-U.S. Senator Hillary Clinton would be running for president in 2008, as well as Romney. Clinton’s own 1993 proposals for nationalized health care would be quite useful to compare to a Republican’s own proposals or policies.

For perhaps a better explanation of his record of government expansion and apparent attraction to the power of the State, it needs to be noted that Mitt Romney grew up in a very political family. His mother Lenore Romney had been a candidate for public office, and his father George Romney was a lobbyist in Washington for the aluminum industry and the automobile industry, and, as governor of Michigan for 8 years, George was credited (or blamed) for his instituting the state’s first state income tax, and greatly expanding state government. George Romney bitterly opposed Barry Goldwater for the Republican nomination for president in 1964. Mitt Romney seemed to follow in his father’s footsteps in advocating more government interventions and intrusions, not fewer, into private economic affairs.

During his last 365 days as governor until January 2007, Romney spent over 200 of those days traveling outside of Massachusetts, "testing the waters" for a 2008 presidential bid. During that last year of Romney’s gubernatorial tenure, many of the duties of governor were taken up by Lt. Gov. Kerry Healey, who was running her own failed campaign for governor. You would think that Romney would resign as governor to run his presidential campaign, but this is politics, after all. The political "public sector" inherently discourages its employees from maintaining a consistent job attendance.

And what does it say about someone such as Romney who spends $40 million of his own wealth on a presidential campaign, only to lose to the competition? It is doubtful that he or anyone would spend so much money to be hired as a CEO of even the most prestigious private firm. But that just shows the extent to which some people will go to achieve political power.

Sarah Palin is one of the leaders of the Tea Party movement, but her endorsements in 2010 have not all been for Tea Party conservatives. Palin, who supposedly advocates small, less intrusive government, low taxes and low government spending, and traditional moral values, endorsed for reelection Big Government Republican Senator John McCain, over his opponent, conservative J.D. Hayworth, probably more out of personal loyalty than of loyalty to those conservative principles. Granted, McCain gave Palin a huge advance in her career by choosing her as his 2008 presidential campaign running mate. But McCain is actually one of those inside-the-beltway politicians responsible for the very problems with the federal government that have been the stimulus for rebellion by Sarah Palin’s own Tea Party movement.

Palin also endorsed moderate Republican Terry Branstad over 2 conservatives for governor of Iowa. As conservative pundit Pat Buchanan observed,

The endorsement of Branstad suggests Palin, a politician of principle, has a pragmatic streak. She acts not only out of instinct but cold calculation. How else to explain the Branstad endorsement over a social conservative than a decision to befriend a future GOP governor in the first battleground state of 2012?

And Palin is somewhat similar to Mitt Romney, having grown up in a family with very close ties to the State apparatus.

Palin endorsed Texas Gov. Rick Perry for reelection over Sen. Kay Bailey Hutchison and the actual Tea Party candidate, Debra Medina. Some Texas Tea Partiers were surprised, but understood that Medina was not well known. But given Sarah Palin’s anti-Establishment agenda in Alaska politics, one would think that Palin would not endorse a ten-year governor for reelection, and instead would choose a genuine private citizen and businesswoman such as Medina who was also challenging Establishment politicians. Medina’s single-digit polling numbers nevertheless rose following the Palin-Perry endorsement, but Medina’s candidacy was derailed by her interview with Glenn Beck. Some people believe that the interview was a set-up, and that Beck was in cahoots with Gov. Rick Perry.

And that brings me to the role of journalists, intellectuals and the news media who, as a group, developed – or devolved – from the principled tellers of truth and exposers of corruption, such as Tom Paine, Lysander Spooner, H.L. Mencken, Murray Rothbard and Daniel Ellsberg, to the current propagandists and stenographers for the State.

Salon.com’s Glenn Greenwald has been doing a terrific job covering such a decadence of the journalism guild and their enthusiasm as State propagandists here, here, here, and especially here and here. And Judge Andrew Napolitano has excelled in his exposing of the State’s deceit and Orwellian newspeak on his FoxNews TV show Freedom Watch with the Judge, and his recent book, Lies the Government Told You: Myth, Power, and Deception in American History.

Both Greenwald and Napolitano have discussed extensively the principles of civil liberties and due process, especially in the context of the Bush Administration’s War on Terrorism, and have thoroughly covered how the left and right propagandists disseminate their evangelism promoting the State and its extended powers.

And Jacob Hornberger of the Future of Freedom Foundation is another principled and uncompromising modern day advocate of individual liberty, private property and civil rights.

The Bush Administration enacted policies based on political considerations that were favorable to expanding State power, rather than upholding the principles of Liberty and individual rights our American Founders strongly believed in, and the Obama Administration has been expanding such unconstitutional powers, all being cheered on by the left and right mouthpieces for the State. However, now that the Obama Administration is in charge, Sarah Palin and many other conservative Tea Partiers who have supported the Bush-initiated policies may eventually regret such support.

Unfortunately, the modern movement to restore Liberty by dismantling the Leviathan State has been maligned by not only those on both the left and the right whose parasitic livelihoods are dependent on that destructive State, but also by some libertarians, particularly those "regime libertarians," some of whom work with the Cato Institute and write for Reason Magazine. Some organizations, while having done much to promote some aspects of Liberty, have tended to advance the libertarian philosophy more as a "lifestyle" issue rather than the moral principle of freedom from State intrusions. Too many people just seem to be attracted to the addictive power of the State, and tend to join in the popular witch hunts against those who advocate a society of actual independence under the Rule of Law. As Murray Rothbard noted,

We have seen clearly why the State needs the intellectuals; but why do the intellectuals need the State? Put simply, it is because intellectuals, whose services are often not very intensively desired by the mass of consumers, can find a more secure "market" for their abilities in the arms of the State. The State can provide them with a power, status, and wealth which they often cannot obtain in voluntary exchange.

In his 2006 Mises Institute article, Natural Elites, Intellectuals and the State, Hans-Hermann Hoppe notes that the "natural elites" of earlier times achieved status and success through their own natural abilities and talents, were characterized by wisdom, bravery and farsightedness, and acted as "judges and peacemakers" out of a genuine sense of duty to others, and often without financial compensation. But their status changed as democracies evolved:

The fortunes of the great families have dissipated through confiscatory taxes, during life and at the time of death. These families’ tradition of economic independence, intellectual farsightedness, and moral and spiritual leadership have been lost and forgotten. Rich men exist today, but more frequently than not they owe their fortunes directly or indirectly to the state. Hence, they are often more dependent on the state’s continued favors than many people of far-lesser wealth. They are typically no longer the heads of long-established leading families, but "nouveaux riches." Their conduct is not characterized by virtue, wisdom, dignity, or taste, but is a reflection of the same proletarian mass-culture of present-orientation, opportunism, and hedonism that the rich and famous now share with everyone else.

Because of the monopolization of law and justice in modern democracies, Hoppe argues, the role of the "natural elites" was taken over by the State apparatchiks as the expanding power of the State was further encouraged by the intellectuals.

On the other hand, while the natural elites were being destroyed, intellectuals assumed a more prominent and powerful position in society. Indeed, to a large extent they have achieved their goal and have become the ruling class, controlling the state and functioning as monopolistic judge.

This is not to say that democratically elected politicians are all intellectuals (although there are certainly more intellectuals nowadays who become president than there were intellectuals who became king.) After all, it requires somewhat different skills and talents to be an intellectual than it does to have mass-appeal and be a successful fundraiser. But even the non-intellectuals are the products of indoctrination by tax-funded schools, universities, and publicly employed intellectuals, and almost all of their advisors are drawn from this pool.

Prof. Hoppe recently wrote about the first five years of his Property and Freedom Society, which he and others established to promote Austrian School economics Libertarianism, and the sound moral principles of justly acquired private property, freedom of contract and freedom of association:

…The goal of "limited" – or "constitutional" – government, which Friedrich Hayek, Milton Friedman, James Buchanan and other Mont Pelerin Society grandees had tried to promote and that every "free-market" think-tank today proclaims as its goal, is an impossible goal, much as it is an impossible goal to try squaring the circle. You cannot first establish a territorial monopoly of law and order and then expect that this monopolist will not make use of this awesome privilege of legislating in its own favor. Likewise: You cannot establish a territorial monopoly of paper money production and expect the monopolist not to use its power of printing up ever more money.

Limiting the power of the state, once it has been granted a territorial monopoly of legislation, is impossible, a self-contradictory goal. To believe that it is possible to limit government power – other than by subjecting it to competition, i.e., by not allowing monopoly privileges of any kind to arise in the first place – is to assume that the nature of Man changes as the result of the establishment of government (very much like the miraculous transformation of Man that socialists believe to happen with the onset of socialism)….

… …Thus, I concluded that the property and freedom society not only had to exclude all politicians and government agents and propagandists as objects of ridicule and contempt, as emperors without clothes and the butt of all jokes rather than objects of admiration and emulation, but it also had to exclude all economic ignoramuses.

I couldn’t agree more. It is inherent in an institution with the power of compulsion over others and a territorial monopoly of anything to naturally usurp the rights of all the inhabitants within that territory. The Founders’ original intent was for the individual states to retain their independence and sovereignty within the framework of the newly organized union of the states, the United States of America. But the skeptical Anti-Federalists knew instinctively that giving any monopolistic powers to a federal government would spell the end of freedom for the territory’s inhabitants.

The way for Americans to save our freedom is not through politics, but through principle – being uncompromising advocates of the sanctity of private property, freedom of association and individual rights. In practical terms, it may be necessary to practice secession, nullification and, as Hans-Hermann Hoppe has written, particularly in his book, Democracy: The God That Failed, through mass peaceful "passive non-cooperation."

 

 

 

Inquiring minds are once again digging deep into money supply questions. They are intrigued by the fact that money supply measures M2 and TMS1 are plunging towards zero, while TMS2 is still sporting a hefty 10+% year-over-year growth.

TMS stands for "True Money Supply". The suffix (1 or 2) stands for alternate measures, one including savings accounts and the other not. M2 is a widely used Fed aggregate for money.

This looks technical (and it is), but please bear with me. I can and will explain in easy to understand terms exactly what is happening and why, along with what it all means.

TMS1 vs. TMS2 vs. M2 Growth



The above chart courtesy of Michael Pollaro - Austrian Money Supply. Annotations and arrows on chart by me.

The idea behind TMS1 and TMS2 is to sort credit transactions from actual money available on demand.

For all practical purposes, TMS1 consists of currency in circulation + checking accounts, + sweeps of checking accounts. There is no dispute by anyone that the components of TMS1 represent money on demand.

Think of it this way: Cash in your pocket and cash in your checking account are there whenever you want, on demand. Indeed, the banking industry refers to checking accounts as "DDA" accounts, Demand Deposit Accounts.

Others want to include savings accounts, time deposits (CDs), and money market accounts in money supply measures.

TMS1 vs. TMS2. vs M2 Aggregates



Notes:
(1) To clarify any confusion for those readers familiar with Frank Shostak’s AMS metric, note that (a) as is the case with AMS, TMS1 excludes savings deposits but adds back bank deposit sweep programs, and (b) in contrast to AMS, TMS1 does not include the SFP account.

(2) Time and Savings Deposits due Foreign Accounts and US Government Time and Savings Deposits at Banks have been excluded from TMS2 owing to fact that Savings
Deposits are not separately reported by the Federal Reserve Board and, given the fact that Time Deposits are not money, it was deemed the more conservative formulation

(3) Sweeps of Transaction Deposits into MMDAs are included in TMS2 by virtue of fact that those deposits are included; i.e., a component part of the Savings Deposits, including MMDAs FRB aggregate

Comparison Analysis

M2 includes savings accounts + small time deposits (CDs) + money market accounts.

TMS2 includes TMS1 + savings accounts but not money market accounts or small time deposits.

With the exception of sweeps, the rest of the components have little effect.

The main dispute between the TMS1 and TMS2 camps is in regards to what to do with savings accounts. Proponents of TMS2 claim savings accounts represent money available on demand, while proponents of TMS1 take the tact that savings accounts are "credit transactions" and should not be included in strict monetary aggregates.

I have sided with TMS1 along with Austrian economist Frank Shostak on this point.

We will return to the debate later but first let's first explore why M2 and TMS1 are dropping rapidly while TMS2 is not.

Part of the discrepancy can be explained by close analysis of Small Time Deposits and Savings Deposits.

Small time deposits are Certificates of Deposit - CDs under $100,000. For comparison purposes, "Large Time Deposits" include "Jumbo CDs", amounts above $100,000.

Total Savings Deposits at all Depository Institutions



The chart shows Savings Deposits have been rising rapidly since the mid-1990's.

One reason is Sweep Account Programs.

Since January 1994, hundreds of banks and other depository financial institutions have implemented automated computer programs that reduce their required reserves by analyzing customers' use of checkable deposits (demand deposits, ATS, NOW, and other checkable deposits) and "sweeping" such deposits into savings deposits (specifically, MMDA, or money market deposit accounts). Under the Federal Reserve's Regulation D, MMDA accounts are personal saving deposits and, hence, have a zero statutory reserve requirement.

Retail sweep programs have substantially distorted the growth of M1, total reserves and the monetary base, as Chairman Greenspan noted in his July 1995 Humphrey-Hawkins Act testimony to the Congress. ..... The initiation of a sweep program of any importance sharply decreases a depository's reported checkable deposits and increases its reported savings deposits.

In simple English: Savings accounts have no reserves while checking accounts do. Greenspan allowed banks to sweep money from checking accounts into savings accounts (unbeknown to customers) so that banks could lend out more of those deposits.

Because of sweeps, reported M1 figures have been grossly distorted since 1995. Since M2 and TMS2 include savings accounts, neither has been affected by sweeps.

TMS1 corrects the M1 problem by adding back in sweeps.

In addition to sweeps, there has been a pronounced shift in the attitudes of retail consumers saving money in Small Time Deposits (CDs). Let's take a look.

Small Time Deposits at Thrifts



Small Time Deposits at Commercial Banks



Period 1 Analysis

Period 1 represents two different factors:

1. Massive consolidation in thrifts
2. Decreased time preference for money in light of the stock market boom and productivity increases associated with the internet revolution.

To understand period 1, one needs to add both charts for a composite. Taking the 1991 recession as the starting point and the 2001 recession as the ending point, and adding both charts together, the net result was huge decrease in demand for money (a decrease in the savings rate).

People felt no need to save money in banks and regarded CDs as fodder for fools. Stock market speculation was the preferred method of saving.

This period is part of what Ben Bernanke calls the "Great Moderation".

What actually happened is increased productivity (primarily via the internet revolution) masked huge monetary inflation. As a result, corporate profits soared as did demand for equities, especially internet stocks.

This culminated in the "dotcom" internet bubble and subsequent crash.

Period 2 Analysis

Period 2 represents the aftermath of the internet crash with a Fed hellbent on bailing out banks massively underwater on bad loans made to failed dotcom companies and hopeless loans to Latin American countries starting to default.

To bail out the banks, Greenspan slashed interest rates, holding them too low, too long. The result was an enormous housing bubble, unprecedented in world history.

In practical terms, the result was a further decrease in demand for money accompanied by the widespread belief "my house is my savings and retirement plan".

The phrase "decrease in demand for money" means people did not want to hold cash. Instead they wanted to buy houses, cars, boats, and things for their houses. The savings rate went negative for the first time in history (recently revised to just above zero).

Most thought home prices would rise forever and many took out loans against their homes to buy boats and cars or to take vacations. Others added rooms or remodeled comfortable they would get the money back and then some. People did not realize it, but they were playing the "greater fool" game never bothering to do the math or ask "who would be able to buy?"

Inflation in period 2 was masked because the Fed and the CPI ignore housing prices in their analysis. Ironically, popular hyperinflationist sites such as Shadowstats probably underestimated price inflation in this period as well.

Period 3 Analysis

Period 3 is quite interesting. Notice how a sharp upturn in demand for CDs preceded the popping of the housing bubble.

Period 3 culminated with the Fed slashing short-term rates to near-zero percent. As a result CD rates plunged.

Price inflation in this period was hugely overstated because crashing home prices were not properly factored in.

Period 4 Analysis

Let's kick off the discussion with a question: Is this period like the "internet bubble" or the "Housing Bubble" where there was a decreased desire for saving and the economy (and inflation) is off to the races?

In one word "No!"

Consumers have no demand for equities having been burnt twice badly already, first in the internet crash, then in the housing (financial), crash. Moreover, there have been recent and massive equity fund withdrawals.

Moreover, massive numbers of boomers now in retirement or soon heading that way need (or will soon need) to drawn down those savings to live on. Boomers are now scared to death of further drawdowns, and in my estimation rightfully so.

With plans to buy houses at all time lows, this is certainly not reflective of another housing boom.

Why The Decline In CDs?

For the answer, let's Compare CD Rates with Savings Deposit Rates.

1-Year CD Rates



5-Year CD Rates



Savings Deposit Rates



The above tables all courtesy of Bankrate.Com, a good place to visit for such comparisons.

Consumer Saving Question

The question consumers face is whether to lock up deposits for a year at 1.5% or shift money to savings accounts at 1.3% as CDs expire. Is the .2% difference commensurate with the risk?

I do not think so even though I sit squarely on the deflation side. So, what's the average person to think?

Moreover, the same analysis holds true for 5 year CDs. Does anyone want to tie up money for 5 years at 3%?

Most don't. So instead of rolling over CDs the money goes into savings accounts hoping for better rates down the road.

Bernanke, like Greenspan before him, is crucifying savers in an attempt to bail out banks via a steep yield curve. Unfortunately, for those getting screwed by Bernanke's scheme, better rates are likely not coming. There is no housing or internet bubble to blow this go around.

TMS1 vs. TMS2 Theory

Returning to the money supply debate, the difference between TMS1, TMS2, and M2 comes down to a question as to what constitutes money on demand vs. what is a credit transactions.

Savings accounts are without a doubt credit transactions. People deposit money in savings accounts in return for interest. Banks lend that money out. People know that banks lend the money out. That is why they receive interest. There are no reserves on savings accounts.

I worked in the industry for years. Savings accounts are TDA accounts - Time Deposit Accounts. The difference between savings accounts and CDs is CDs are type of time deposit with a fixed term and a guaranteed rate, while savings accounts are time deposits with a flexible term and in general no guaranteed rate.

In contrast, checking accounts are demand deposit accounts (DDA accounts) where money is available on demand.

Proponents of TMS2 maintain that savings accounts are flexible and can be withdrawn without notice and thus reflect money on demand. The debate even gets down to esoteric discussions as to whether or not savings account terms that commonly stipulate 30 days notice before withdrawal will ever be enforced.

The latter point is essentially a sideshow because the real issue is not how quickly something can be converted to cash but whether or not the transaction is a credit transaction.

One can pay a penalty and cash in a CD equally as well. One can write a limited number of checks on some kinds of money market accounts as well. On that basis, if one is going to include credit transactions in the aggregates, one may as well include other types of credit transactions as well. Indeed that is exactly what the flawed measure MZM (money at zero maturity does).

Walking too Fine a Line

TMS2 attempts to draw a fine line differentiating between types of credit transactions. It fails by rigorous definition (ignoring the fact that savings accounts are credit transactions) while instead focusing on the issue of presumed immediate availability, even though one has to transfer money from savings to checking or withdraw it to make it truly available.

TMS2 also fails by practical application. From a practical standpoint, there is essentially no difference between money sitting in savings accounts vs. CDs if the intent in either case is to save and not to spend.

From that standpoint, please consider Consumption Inflection Point - No One Wants Credit; Consumer Spending Plans Plunge

Maybe putting a bit of a tiny exclamation point behind the need of business spending to indeed pick up is data we saw in the consumer confidence report concerning consumer spending plans. We have not updated the following chart in some time, so here it is in all its glory.



As per the report last Tuesday, consumer plans to buy major appliances and autos hit new lows. And yes, as you'd expect post the expiration of the tax credits for home buying, plans to buy homes has retreated. Wildly surprising? Not really. But it does reinforce the message of business spending importance both in 2H 2010 and into 2011.

A tip of the hat to the Contrary Investor for explicit permission for the above snip.

Consumers have no intention of spending. Instead, people are letting CDs expire with the money likely headed for savings accounts. It is silly to propose this is meaningful.

An increase in the personal saving rate is another reason for the recent increase in savings accounts.

Rising Savings Rate



Having reached a secular low, the savings rate now appears headed up.

Indeed, the internet bubble and the housing bubble were associated with periods when the savings rate crashed!

The rising savings rate, some of which is making its way into savings accounts, is a deflationary phenomenon. This is in contrast to other periods where M2, TMS2, or savings accounts rose in conjunction with a rapidly expanding economy.

Thus, one must not only look at what is happening but why it something is happening to draw proper conclusions.

TMS2 Fatally Flawed

Savings accounts rose by over $1 trillion in period 4 on the above charts, while CDs shrunk by about $460 billion. The rest of the difference is easily accounted for by sweeps, increased liquidity preferences, and a rise in the savings rate.

By attempting to split hairs with what does or does not constitute "money available on demand" while ignoring the more important issue that savings accounts are credit transactions, TMS2 creates a misleading distortion out of thin air.

Moreover, please remember that savings accounts do not represent money about to be lent out. Given there are no reserves on savings accounts, banks have already lent the money out (or it sits as excess reserves on deposit with the Fed).

The topic of "excess reserves" inevitably brings up a discussion of Money Multiplier Theory.

Money Multiplier Theory Is Wrong

Most proponents of TMS2 (and in fact most people in general) adhere to a falsehood that sideline cash and excess reserves are ready to come flooding into the market at any time causing prices to rise.

In regards to excess reserves, the reality as Steve Keen and I have pointed out is "lending comes first and bank reserves come second". Please see Fictional Reserve Lending And The Myth Of Excess Reserves and also Fiat World Mathematical Model for a complete discussion.

Putting it All Together

The widely touted discrepancy between TMS1 and TMS2 consists of three things:

1. A meaningless shift from one credit transaction bucket to another (from CDs to Savings Accounts)
2. An increase in liquidity preference
3. An increase in the savings rate that has turned up in savings accounts as opposed to checking accounts.

Those are deflationary, not inflationary phenomena.

By attempting to split hairs as to what is considered a credit transaction, TMS2 introduces a huge distortion that takes a great deal of analysis to properly sort out.

Unsurprisingly, most TMS2 proponents have drawn invalid conclusions as to what the discrepancy between TMS1 and TMS2 actually means. Careful analysis shows the spread between TMS1 and TMS2 represents deflationary phenomena, the very opposite of what most TMS2 proponents suggest!

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

This is good news for heirs of Holocaust victims and a measure of justice.  It also gives a flavor of just how tainted the Leopold Collection is.  Congratulations to all - the courtroom battle started in 1999 has finally ended.

A very nice touch is that Portrait of Wally will be displayed at the Museum of Jewish Heritage in Battery Park City.   This is a very nice vindication for Robert Morgenthau's 1999 seizure of Portrait of Wally at the MoMA.

Dead City III, stolen from Fritz Grunbaum, is still hanging in the Leopold Museum.  For more information on Dead City III, go here.   My posts on Egon Schiele here.

If you have an interest in the topic of Nazi art looting, go here.   There is an incredible amount of stolen art remaining in U.S. museums.  Learn about Nazi agent and art dealer Curt Valentin here.

A really huge scandal and breathtaking example of Holocaust denial in the American museum community, the sad story of Alfred Flechtheim here.

I have copied the text of the press release below:

The United States of America, the Estate of Lea Bondi Jaray and the Leopold Museum Settle the Long-Standing Case Involving “Portrait of Wally” by Egon Schiele


New York, NY (July 20, 2010) -- The Estate of Lea Bondi Jaray (the “Estate”) announced today that the United States Government, the Estate and the Leopold Museum Privat-Stiftung (the “Leopold Museum”) have agreed to settle the long-pending case of United States of America v. Portrait of Wally, which was about to go to trial before Chief Judge Loretta Preska in federal court in Manhattan on July 26, 2010.
The case involves Portrait of Wally, a painting by Egon Schiele (the “Painting”), stolen from a Jewish art dealer and collector by a Nazi agent in the late 1930’s in Vienna. The major terms of the settlement agreement, which has been approved by Judge Preska, are as follows:
(a) the Leopold Museum pays the Estate $19 Million;
(b) the Estate releases its claim to the Painting;
(c) the United States Government dismisses the civil forfeiture action it brought against the Leopold Museum and releases the Painting to the Leopold Museum;
(d) the Leopold Museum will permanently display signage next to the Painting at the Leopold Museum, and at all future displays of the Painting of any kind that the Leopold Museum authorizes or allows anywhere in the world, that sets forth the true provenance of the Painting, including Lea Bondi Jaray’s prior ownership of the Painting and its theft from her by a Nazi agent before she fled to London in 1939; and
(e) before it is transported to the Leopold Museum in Vienna, the Painting will be publicly exhibited at the Museum of Jewish Heritage -- A Living Memorial to the Holocaust, in New York, beginning with a ceremony commemorating the legacy of Lea Bondi Jaray and the successful resolution of the lawsuit.

The Painting was the personal property of Lea Bondi Jaray, a Jewish art dealer in Vienna, who fled in 1939 to London, where she died in 1969. The Painting became the subject of court proceedings in New York City, after it was loaned in late 1997 and early 1998 to the Museum of Modern Art in New York by the Leopold Museum as part of an exhibition of Schieles from the Leopold Museum’s collection. In 1998, Robert Morgenthau, Manhattan District Attorney, subpeonaed the Painting in connection with his investigation into whether the Painting was stolen property. After the State Court of Appeals ruled in 1999 that such “seizure” of an artwork loaned for exhibition was prohibited under New York State law, the United States Government immediately commenced a civil forfeiture action in New York, alleging that the Painting was stolen from Lea Bondi Jaray during the Nazi era by a Nazi named Friedrich Welz, and was imported into the United States in 1997 by the Leopold Museum in violation of U.S. law. The Customs Service seized the Painting in connection with that action. The Estate of Lea Bondi Jaray asserted a claim to the Painting in the action, and the U.S. agreed that upon forfeiture of the Painting, it would transfer to the Estate all right and title to the Painting.

Based on the evidence presented during the case, Judge Preska ruled last fall that the Painting was the personal property of Lea Bondi Jaray and that it was stolen from her in Vienna in the late 1930's by Friedrich Welz, who was a member and collaborator of the Nazi party. The Court found that the Painting had been seized from Welz by U.S. Forces in Austria after World War II and delivered in 1947 to the Austrian Federal Office for the Preservation of Historical Monuments (the “Bundesdenkmalamt”), along with paintings Welz had acquired from Dr. Heinrich Rieger, a Jewish art collector who had perished during the Holocaust. In 1950, the Bundesdenkmalamt delivered artworks to an agent for the Rieger heirs and included the Painting in the delivery. Later that year, the Rieger heirs sold their works to the Austrian National Gallery (the “Belvedere”), and the Painting was included in the delivery of the artworks to the Belvedere. In 1954, the Belvedere traded the Painting to Dr. Rudolf Leopold. In 1994, Dr. Leopold transferred the Painting to the Leopold Museum.

In a statement, representatives of the Estate expressed their appreciation at reaching this historic settlement, which reflects the true value of the Painting, and acknowledges Lea Bondi Jaray’s ownership of the Painting and her and her family’s long quest for justice. In addition, they underscored that the public display of the Painting at the Museum of Jewish Heritage in New York will mean that visitors will be able to view the Painting in a setting that memorializes the sufferings of so many in the Holocaust and the resilience and resolve of those who escaped and/or survived. They added that the permanent signage reflecting the Painting’s true provenance will ensure that future generations are told the real story of the Painting’s theft from Lea Bondi Jaray during the Nazi era.

In conclusion, the Estate representatives said: “Justice has been served. Finally, after more than 70 years, the wrongs suffered by Lea Bondi Jaray are at last being acknowledged and, to some degree, corrected. We are grateful to the many people who helped Lea and her family during these many years. We especially thank our attorneys at Herrick, Feinstein, and all the members of the Asset Forfeiture Unit team of the U.S. Attorney’s Office, led by Assistant U.S. Attorney Sharon Cohen Levin, for their unstinting dedication to the pursuit of justice during the long course of this litigation.”


Purchase Copyright Litigation Handbook from West here

Nouriel Roubini appears to be sticking with his "U-Shaped Recession" call, at least for now. However, his stance seems much more cautious than before.

Please consider Double-Dip Days by Nouriel Roubini.

The global slowdown – already evident in second-quarter data for 2010 – will accelerate in the second half of the year. Fiscal stimulus will disappear as austerity programs take hold in most countries. Inventory adjustments, which boosted growth for a few quarters, will run their course. The effects of tax policies that stole demand from the future – such as incentives for buyers of cars and homes – will diminish as programs expire. Labor-market conditions remain weak, with little job creation and a spreading sense of malaise among consumers.

The likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double dip. In the US, annual growth was already below trend in the first half of 2010 (2.7% in the first quarter and estimated at a mediocre 2.2% in April-June). Growth is set to slow further, to 1.5% in the second half of this year and into 2011.

Whatever letter of the alphabet US economic performance ultimately resembles, what is coming will feel like a recession. Mediocre job creation and a further rise in unemployment, larger cyclical budget deficits, a fresh fall in home prices, larger losses by banks on mortgages, consumer credit, and other loans, and the risk that Congress will adopt protectionist measures against China will see to that.

In the eurozone, the outlook is worse. Growth may be close to zero by the end of this year, as fiscal austerity kicks in and stock markets fall. Sharp rises in sovereign, corporate, and interbank liquidity spreads will increase the cost of capital, and increases in risk aversion, volatility, and sovereign risk will undermine business, investor, and consumer confidence further. The weakening of the euro will help Europe’s external balance, but the benefits will be more than offset by the damage to export and growth prospects in the US, China, and emerging Asia.

And one cannot exclude the possibility of an Israeli military strike on Iran in the next 12 months. If that happens, oil prices could rapidly spike and, as in the summer of 2008, trigger a global recession.

Finally, policymakers are running out of tools. Additional monetary quantitative easing will make little difference, there is little room for further fiscal stimulus in most advanced economies, and the ability to bail out financial institutions that are too big to fail – but also too big to be saved – will be sharply constrained.

So, as the optimists’ delusional hopes for a rapid V-shaped recovery evaporate, the advanced world will be at best in a long U-shaped recovery, which in some cases – the eurozone and Japan – may be long enough to stretch into an L-shaped near-depression. Avoiding double dip recession will be difficult.

In such a world, recovery in the stronger emerging markets – the great hope for the global economy – will suffer, because no country is an island economically. Indeed, growth in many emerging-market economies – starting with China – is highly dependent on retrenching advanced economies.

Fasten your seat belts for a very bumpy ride.

Shape of Things to Come

There is much more in the article, including a discussion on China, Japan, and more analysis of Europe. Inquiring minds will give the article a closer look.

The only puzzling thing to me is Roubini's statement "The likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double dip."

Remove the word "even" and the sentence makes perfect sense.

Indeed, Roubini goes on to say "So, as the optimists’ delusional hopes for a rapid V-shaped recovery evaporate, the advanced world will be at best in a long U-shaped recovery, which in some cases – the eurozone and Japan – may be long enough to stretch into an L-shaped near-depression. Avoiding double dip recession will be difficult."

Case for an "L" Shaped Recession

Thus, Roubini now appears to be leaning towards (or at least considering) my point of view as expressed on Tuesday, April 08, 2008 in Case for an "L" Shaped Recession

Now that it's clear we are in a recession, the question has arisen as to what shape it will take: "V", "U", "L", or "W".

Nouriel Roubini proposed the question in The US Recession: V or U or W or L-Shaped? and came up with "U".

[Roubini] : My view is closer to a U-shaped recession as I expect that the economic contraction will last at least 12 months and possibly as long as 18 months through the middle of 2009. This view is based on the fact that the last two recessions – in 1990-91 and 2001 – lasted 8 months each and today the macro and financial conditions are worse – relative to those two previous recessions - in at least three dimensions: ....

[Mish] : More likely to me is something like an "L" or a "WW" kind of scenario with the U.S. slipping in and out of recession for a prolonged period of time, perhaps 3-4 years or more.

Roubini nailed three reasons for a severe recession but dismisses "L" because the U.S. acted faster than Japan. I do not buy that argument for these reasons.

• U.S consumers are in much worse debt shape than Japan.
• There is global wage arbitrage now that did not exist to a huge degree in the mid to late 1990's. Even white collar jobs are increasingly at risk.
  
• The savings rate in the US is in far more need of repair than what Japan faced. This will be a huge drag on future spending and slow any recovery attempts.
  
• Japan faced a huge asset bubble (valuation) problem. The US faces both a valuation problem (what debt on the books is worth) and a rampant overcapacity issue as well.
• Japan had an internet boom to help smooth things out. There is no tech revolution on the horizon that will provide a huge source of jobs.

....
If the Fed and Congress drag this out, which at this point seems likely, we will see a severe "L" or "WW" shaped recession playing out over several (or more) years.

Please bear in mind that flashback is not a criticism of predictions anyone made in 2008.

Moreover, the fat lady still has not sung. Perhaps by some miracle we have a weak U-shaped recession that looks and feels much worse.

Finally, I believe Roubini laid out a recession case as to how this would play out nearly as good as anyone.

Where to from Here?

As always, the key question I keep asking and more importantly addressing is: "Where to from here?"

I wholeheartedly endorse this statement from Roubini.

"as the optimists’ delusional hopes for a rapid V-shaped recovery evaporate, the advanced world will be at best in a long U-shaped recovery..."

Indeed, I have made similar, if not even more dire sounding statements many times, some of them recently. For example:

• Wednesday, July 14, 2010: Expect Second-Half Housing and Durable Goods Crash
• 
  
• Tuesday, July 13, 2010: Are we "Trending Towards Deflation" or in It?

Tax and Stimulate is No Solution

My sole criticism of Roubini does not concern his statements regarding the recession or the severity of it, but rather his Keynesian tax-and-spend solutions for curing it.

With that backdrop, please consider Roubini Says Obama Should Address Nation as Adults

“We have to recognize that Americans are adults,” Roubini said during a radio interview with Tom Keene on Bloomberg Surveillance. “Then we have to speak to them straightforward about the risks and challenges that we have, rather than kicking the can down the road.”

Had Roubini stopped right there I would have been applauding loudly. Unfortunately the article goes on to say ...

In the short run, Roubini said, the economy needs to maintain federal fiscal stimulus to rescue indebted households and state and local governments from bankruptcy. Failure to provide debt relief will reduce consumption and force essential cuts on spending in areas such as education and public safety, according to Roubini.

When the domestic economy gains footing from federal spending, Roubini said, the government will have to reverse course, reducing the debt through fiscal austerity for the next three to seven years.

“At the same time, it’s not enough to do it on the spending side,” said Roubini, favoring a value-added sales tax. “The deficit cap is so large in the U.S. that eventually we need to have raises in revenues, and we have to do that in non- distortionary ways.”

I simply do not accept tax-and-spend approaches. Instead, I favor the common sense approaches: stop wasting money and stop digging deeper holes.

Things that Need to Happen

Absurd levels of military spending MUST stop before we bankrupt ourselves. The US is wasting Trillions of dollars attempting to be the world's policeman.

We MUST do something about public union wages and pension promises that cannot be met.

Moreover, as I have pointed out on many occasions, US Tax policy allows deferral of taxes on corporate profits held overseas. That tax policy, in conjunction with global wage arbitrage, practically begs corporations to move jobs and profits overseas.

Please see Bleak Outlook for Small Businesses and Job Creation; Where Obama Went Wrong, and What to do About It for details.

In regards to public spending, Davis-Bacon, prevailing wage laws MUST go. (Please see Thoughts on the Davis Bacon Act for more on the insanity of prevailing wage laws).

Government needs to provide the most services at the least cost, not rape taxpayers for the sole benefit of public unions and corrupt politicians.

There are many structural defects but those are a few of the obvious ones. We cannot possibly begin to "recover" until we first address those major structural problems.

VAT?!

Interestingly, I support the idea of a VAT (in theory) but not for raising revenue. Rather, I support policies that encourage saving. A low flat tax in conjunction with a low VAT (except on medicine and grocery store food), would do just that.

My fear is that once unleashed, VAT would be punitive. The remedy is a balanced budget amendment.

If people had to pay for the war in Iraq and Afghanistan with increased taxes, there would not have been a war. Both wars were blatantly stupid policies that increased US enemies while wasting money.

If we want to increase stimulus or social safety net spending as Roubini seems to want and Krugman definitely wants, I could accept that IF two-for-one we reduce military spending, AND we revoke Davis-Bacon.

Simply put, I would gladly settle out of court for any policies that reduced insane levels of military spending, reduced the massive budget deficit, and simultaneously helped cities and states get out of their hole, even if there were some temporary safety-net provisions Austrian types like myself do not particularly care for.

What I want to see is a net major step in the right direction, because the ideal approach will never fly.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Getting carded      I seem to have this conversation around twice a week:

Store assistant: That’ll be $6.95. Do you have our Rewards Card?
JD: No.
SA: Would you like to have one?
JD: No thanks.
SA: You sure? Ten percent off selected items.
JD: I’d rather have my pancreas removed with a pair of pinking shears.

Well, no, I haven’t actually said that last sentence yet, but I’m getting close.

Look, pal: If you want to reduce prices 10 percent, just reduce them for crying out loud. Since you’re willing to give your damn fool card to absolutely anyone, what difference does it make?

I guess the answer to that is, that the purpose of these cards is to rope us in to some data-mining exercise. Well, the hell with that. You’re not going to mine my data. Here’s your stinking $6.95, cash.


Yuppie demography on the uptick?      Defying that famous intro to the movie Idiocracy, yuppie demography may be showing hopeful signs, though my evidence here is just sketchily anecdotal.

Early in the month, we visited some friends in Battery Park City, way downtown at the southwestern tip of Manhattan. How much more urban can you get? The stretch our friends live in is all new high-rise apartment blocks built on land reclaimed from the Hudson River with landfill from the original excavations for the World Trade Center.

To our astonishment, the whole area is teeming with kids. There are playgrounds, basketball courts, jungle gyms, and bike paths. The pleasant little park spaces are full of nannies pushing strollers. (If you have the low-minded, mean-spirited observational habits that I have, you can’t help noticing a certain outstanding statistical fact about the relative demographics of nannies and kids#...#but fortunately most of you do not share my debased mentality.) The window display in the local chain drugstore, which anywhere else in Manhattan would offer Spandex jogging suits, surgical appliances, vegan cookbooks, and Fix-O-Dent, featured board games, crib mobiles, Elmo dolls, and breast pumps. Right under our friends’ apartment building a big new elementary school is nearing completion. “It’s fully booked already,” they told us.



What’s going on? We thought it was a law of nature that you lived in the city only when young, carefree, and childless. (There’s a pleonasm in there somewhere#...#) Then when you decide to have kids, you sell your city apartment and move to the ’burbs. Who do these yuppies think they are, bucking the laws of nature?

Is the return to the cities, and the corresponding decline of the suburbs, at last under way? Well, among yuppies it is. This is a high-upper percentile even of the yuppie population, though. A two-bedroom condo in Battery Park City won’t leave you much change out of a million bucks.


Full circle      Our friends’ apartment looks out over the harbor -- Lady Liberty and Ellis Island. The husband, a 60-something retired academic, remarked as we enjoyed the view: “My grandfather arrived at Ellis Island from Poland in 1904. He didn’t have two nickels to rub together. Here am I, a hundred years and less than a mile away.” America, America.


A celebration of heritage?      Six dead bodies were found in a cave near Cancún, Mexico. All had been murdered. Three, in a gruesome (though, I’ll allow, not necessarily intentional) tribute to ancient Mexican religious practice, had had their hearts cut out.

Evidence strongly suggests that the victims were casualties in Mexico’s drug wars. A few days earlier, the mayor of Cancún had been arrested by federal police on drug-trafficking charges. That followed the arrest last year of Francisco Velasco, Cancún’s police chief; and that followed the February 2009 murder of Mauro Enrique Tello, one of the country’s highest-ranking military officers, recruited by the Cancún mayor to head up an anti-drug SWAT team.

His recent insults to our nation notwithstanding, I’m willing to believe that President Calderón is doing his honest best against the drug barons, but he has taken on a very formidable, very ruthless opponent.


I’ll have what she’s having      Did you read about this “female Viagra”? It opens up for discussion the whole fraught business of how much sexual desire women have, and to what degree this is a culture-specific variable.

Many societies, for quite long periods, have claimed that the answer to the first of those questions is “none.” The Victorian British are only the best-known example. Bill Bryson gives the topic an airing in Chapter 15 of his latest book.

What did these people think was motivating Messalina, Catherine the Great, Lola Montez, and the other great nymphomaniacs of history? I suppose the idea was that they were in the grip of some pathology.



The zero option was at any rate widely accepted as true among the Victorians. My maternal grandmother, born in 1875, had 13 children, but she made sure to tell her daughters, as soon as they were old enough to comprehend, that “we never did it for pleasure.” A mere two generations later we’re fretting about “female hypoactive sexual-desire disorder,” i.e. low sex drive. Well, they’ve got a pill for it now.


General reflections      Excursion of the month, on the month’s very last evening, was to the annual Mess Night held by the New York City Marine Corps Council. I posted a brief dispatch on the Corner.

General Gray was a real star turn, though I imagine working for him must have been#...#interesting.

I can never see a general without thinking of Siegfried Sassoon’s sour little WWI poem titled “The General”:

“Good-morning; good-morning!” the General said
When we met him last week on our way to the line.
Now the soldiers he smiled at are most of ’em dead,
And we’re cursing his staff for incompetent swine.
“He’s a cheery old card,” grunted Harry to Jack
As they slogged up to Arras with rifle and pack.

But he did for them both by his plan of attack.

Nobody much feels like that nowadays. It’s not the generals and their staff who bother us -- no, not even Stanley McChrystal and his staff. The generals of my extremely limited acquaintance seem to be, like General Gray, savvy, competent, and energetic. What bothers us is the civilian leadership.

Our politicians are very well-served by our military, who do what is asked of them with skill and vigor. Whether our military is equally well-served by the politicians -- I mean, whether the things the politicians ask them to do are worth soldiers’ dying for, or even relevant in any way to the security of our nation -- is another matter.

In a recent column I expressed vague hopes that my son (age 14) might take up a military career. That brought in several e-mails urging me to reconsider. None of the e-mailers denied that military service is useful and honorable. What bothered them was the possibility that my son might lose his life to no purpose in some fool war dreamed up by some crack-brained politician. A couple pointed me to one of Fred Reed’s classic pieces, though Fred, with his usual generous cynicism, includes career military men on the list of the accused.

Point taken. Like anyone else who pays attention, plan-of-attack-wise I’d trust the average general and his staff -- yes, even General George “Diversity trumps soldiers’ lives” Casey -- way more than I’d trust any of the last three commanders-in-chief and their staff. “War is too important to be left to the generals”? After the last few years’ fiascos, leaving war to the generals looks to me like the better option.




Grandad’s war      Danny Derbyshire, on my having mentioned my Dad’s military service: “The other kids in my class, their grandads fought in Vietnam. My grandad fought in World War I. [Sigh.]”

Me: “Them’s the breaks, kid. We Derbs marry late, that’s all. It’s the smart move. You’ll find out.”


Uruguay with no assets, aren’t you?      I’ve blogged before about Uruguay and my suspicion that it’s probably one of those happy-in-obscurity nations, like New Zealand or Slovenia.

One downside of the place at present, from a conservative’s point of view, is that it has a left-wing government and a president who was a Communist guerilla and admirer of Fidel Castro’s. I say “was” because President Mujica, now 75 years old, seems to have mellowed considerably.

And grant the guy this at least: He’s not one of those loathsome suit-and-tie radicals the U.S.A. seems to produce in such unholy numbers. Mujica paid a heavy price for his revolutionary activities. He was shot several times by the police and spent at least 14 years in jail -- including two years’ confinement at the bottom of a well, according to the BBC. His lifestyle is frugal: He drives a 1987 VW Beetle and has no other assets, not even a bank account.

If there must be leftists in the world, as history suggests there must, I much prefer the Mujica type to the over-educated, soft-handed, celebrity-hugging, jet-setter, high-maintenance, smirking hypocrite lefties the U.S.A. seems to engender. I’m not going to name any names; use your imagination.


People we’re not supposed to like      Those thoughts were inspired in part by an e-mailed question from a reader: Are there any people I like that I really shouldn’t like?

I guess I gave the answer away already. I have a soft spot for gritty old leftists. Don’t get me wrong: I’m fully aware of the horrors their beliefs and activities brought upon the world. It’s just that when I’ve met them in person, I’ve always found them likeable, even simpatico. Being right about politics is one thing; having personal qualities such as integrity, honor, and courage is another. These are, as we math geeks say, orthogonal variables. You can be dramatically wrong yet filled with admirable personal qualities. Contrariwise, you can be right (which is to say, Right) in your opinions while none the less being a repulsive creep.



I’ll certainly agree that in the present age, repulsive creepery seems to be much more common on the political left. This wasn’t always the case, though. I used to be acquainted with an elderly couple named Ruzicka, principals in the postwar Austrian Communist party. That was a pretty unpopular thing to be: Half of Austria was occupied by the U.S.S.R. until 1956, remember, and the Ruzickas lived in the other half. They’d done party work in the 1930s and 1940s, too, when it was seriously hazardous to your health. As wrong as it’s possible to be? Check. To some degree complicit in inhuman atrocities? Check. Courageous, dutiful, principled, selfless, indifferent to scorn and ostracism? Check.

Same with my late father-in-law, a lifelong member of the Chinese Communist party and Korean War vet (on the other side, of course). He was a thoughtful, well-read man, strong in his opinions but always willing to listen to the other guy’s. I liked and admired him. If I had to be stuck in a foxhole with someone, I’d far rather it were him than, say, Keith Olbermann, or even some of Olbermann’s conservative equivalents.


Bloody Sunday report      I note that in London, the Saville Inquiry on the 1972 “Bloody Sunday” shootings in Northern Ireland has at last delivered its report. Not everybody liked it.

I turned for commentary to Lord Tebbit, who knows a thing or two about terrorism. He was in a hotel blown up by the IRA in 1984, an event that left his wife permanently crippled. You can read Tebbit’s scathing commentary here. As an ex-Brit U.S. citizen, I especially got a chuckle out of this passage:

I share [blogger] alhamilton’s thought that the American revolution was a struggle between English gentleman and the German mercenaries of a German King. I have always thought that the great British mistake of that era was not to have created a United Kingdom Of Great Britain and America with its capital in New York. That could have changed the world!

Female curmudgeons      My “Five Curmudgeons” piece in the Wall Street Journal generated some e-mail. One correspondent said it was a shame I hadn’t included any females.

Well, I went for the big names. In curmudgeonry as in chess, the biggest names are male. That’s just a fact; it’s no use getting upset about it.

There certainly have been great female curmudgeons, though. If I’d been forced to include one, who would it have been? Probably Ivy Compton-Burnett.

I don’t know whether Compton-Burnett’s novels are much read over here (or even in the Mother Country any longer), but my private opinion is that everyone should tackle at least one of them. “Tackle” is the right word: You need to concentrate to follow the plots. Compton-Burnett employed an unusual style, almost all dialogue. Her books are more like play scripts than novels. Here’s Evelyn Waugh reviewing one of them in 1957:

Miss Compton-Burnett austerely restricts herself to the minimum of bare stage directions. She is the least sensuous of writers. There is no flavour of food or wine, no scene-painting of landscape or architecture, no costume, no visual image even of the characters; ages are stated; height, bulk, strength or infirmity gently suggested; sometimes a moustache or a beard is mentioned, but there is never anything approaching a portrait.

Compton-Burnett’s life was, as she kept telling people, eventless, but Hilary Spurling managed to make a very readable biography from it.

Ivy Compton-Burnett never married. She shared her London flat for 30-odd years with longtime companion Margaret Jourdain. No quotation marks are required there: The idea that any irregular intimacy was involved does not survive a reading of the biography. As I recall (can’t find my copy), when Ms. Jourdain died and the matter of clearing out her room came up, Compton-Burnett was asked whether there was anything particular in there she wanted as a memento. “How would I know?” she replied. “I have never been inside Margaret’s room.”


L.U.G.      Following on from that, very approximately, I had lunch with a lady friend whose 20-year-old daughter is studying at a good university. My friend introduced me to the expression “L.U.G.” It was new to me; but I am chronically hopeless at spotting the Zeitgeist as it zips past, so perhaps this is one of those things everyone else already knows.

“L.U.G.” stands for “Lesbian Until Graduation.” At many big colleges nowadays, female students outnumber males. Furthermore, heterosexual dating has become something of a chore, hedged around with more rules, protocols, and prohibitions than service at the medieval Japanese court, and more opportunities for bankrupting litigation and career self-destruction than a high-profile position in the federal executive branch.

Further-more, with the ever-intensifying competitiveness of the job market seeping backwards into college life, a wise student minimizes distractions. And further-yet-more, the milieu of well-educated young adults is well along the road described in that joke about the old guy saying: “In my grandfather’s time, homosexuality was a capital offense. When I was a young man you could get jail time for it. Now it’s accepted. I hope I die before they make it compulsory.”

The response of smart young women to all that is to go gay for the duration -- Lesbian Until Graduation. That college girls are taking this option while college guys -- as far as I can tell, and very much hope -- aren’t (“G.U.G”?), just goes to show that male sexual orientation is much more “fixed” than the female equivalent. Which I think we all kind of knew anyway.




Hearing what you want to hear      Public mockery of black Americans by white Americans has now been so thoroughly shamed out of existence that those determined to find it have to go to extraordinary lengths to uncover instances.

Here, for example, is the NAACP finding racism in a graduation card from Hallmark. The offending card has a narrative built around the notion that the recipient graduate has the power to take on the entire universe, including even black holes -- celestial objects possessed of such stupendous gravitational force that not even light can escape from them.

This narrative is both printed on the card and carried on one of those tinny sound chips that speak up when the card is opened. Leon Jenkins of the Los Angeles NAACP claims that he heard “black holes” as something slightly different, something “demeaning to African-American women.”

To imagine that a major U.S. corporation would commit such a gross offense against racial etiquette bespeaks a breathtaking detachment from current realities.

Still, given the poor quality of sound recording on those things, you can hear what you want to hear. Mr. Jenkins heard what he wanted -- what he was in fact determined -- to hear. What would be the point of his job otherwise?

Hallmark pulled the card, of course.


Math Corner      The solution to last month’s puzzle is here.

This month’s puzzle is from the May 24 issue of New Scientist:

Gary Foshee, a collector and designer of puzzles from Issaquah near Seattle walked to the lectern to present his talk. It consisted of the following three sentences: “I have two children. One is a boy born on a Tuesday. What is the probability I have two boys?”

The event was the Gathering for Gardner earlier this year, a convention held every two years in Atlanta, Georgia, uniting mathematicians, magicians and puzzle enthusiasts. The audience was silent as they pondered the question.

As might you be, gentle reader. It doesn’t help that the New Scientist site is subscription-only. Not to worry: Science/math/philosophy/hot-babes/infotech/awesomely-bodacious-weapons-systems blogger Andy Ross picked it up and chewed over it. (Scroll down to June 14; and yo, Andy, tag your darn posts so we don’t have to scroll.) So, more rigorously, did Decision Science News.

By all means ignore those links and tackle the puzzle yourself. The reams of commentary on this just go to show how even mathematically sophisticated types fall over their feet when confronted with questions about probability.

— John Derbyshire is an NRO columnist and author, most recently, of We Are Doomed: Reclaiming Conservative Pessimism.

---

---Quote--- *HOW TO BE A LEFTARD* In order to be a good liberal you have to believe... that there were no charities before welfare, that there was no art before federal funding, that taxes are too low, but ATM fees are too high, that the AIDS virus is spread by a lack of federal funding, that taxing the use of gasoline or other energy will reduce the use of gasoline or other energy, but taxing work and investment will not reduce work and investment, that the right to the pursuit of happiness is morally repugnant because it is selfish, that bigotry and prejudice are evil unless they're against selfish bastards, in which case they're good, that honest hard-working people who want to spend their money on their own damn families and businesses must be lumped-in with criminals so we can feel self-righteous about despising them as if they were the exact same kind of selfish bastards as criminals, that private property rights are also morally repugnant because they too are based on selfishness, that the best ideas are more government intervention in the economy, more aggressive confiscation of private property, more government funding of socially destructive behavior, and a foreign policy subordinated to world opinion, that a man's home is his castle only until the city condemns it so a politician's developer-crony can build a high tax-paying shopping mall there (which would be for "the public good"), that freedom of speech and of the press does NOT apply to TV, radio, cell phones, PDAs or the internet, all of which must be government- regulated to enforce OUR ideas -- oops, I mean our ideas of "access" and "fairness", that whenever there is a question about the purposes and motivations of the United States, one must assume -- no, make that believe -- the worst, that the United States must not make the decision to defend itself by itself; it must first get permission from the U.N., that the terrorist cells busted in Lackawanna, New York City, Miami, Chicago and London weren't a real threat, but a nondenominational prayer before a high school football game is, that the only people worthy of being a leader, especially president, are those who display our definition of intelligence, which is: showing signs of being an analytical, reflective, self-doubting, slow-acting intellectual who accepts, and adheres religiously to, modern liberal doctrines, including the following: that all generalizations are false, that there are absolutely no absolutes, that you can be sure that nothing is certain, that it's really bad, even evil, to make or pronounce moral judgments, that all cultures are equal, but ours stinks; that all truth is relative, except the unquestionable truth of "post-modernism", that no race, class or gender is superior, but middle class white males are clearly inferior, that no books are superior, except, of course, those by third-world authors, that it's good to support minority, homosexual and women's rights and simultaneously make common cause with Islamofacists, who would attack all of them, that identifying individuals by their uniqueness is "racist," but identifying them only as a member of a race is not, that those who oppose liberalism, nomatter how thoughtful or scholarly, can be dismissed out of hand simply by calling them "racist, sexist, fascist homophobes," because, after all, they have to be such, don't they? that the independent broadcasters who give us 500+ TV channels can't deliver the quality that PBS does, that good economies are caused by politicians and not by entrepreneurs, that businesses create oppression and governments create prosperity, that farmers, ranchers, hunters and fishermen don't care about nature and the long-term survival of species, but "animal rights" activists who've never been outside the city do, that global temperatures are less affected by cyclical, documented changes in the earth's climate and in the cycles of the sun, and more affected by yuppies driving SUVs, that people who drive cars are bad, but people who ride buses or trains are good, that people who live in single-family homes (or want to) are bad, but people who live in high-density apartments (or admit they ought to) are good, that the thinning of forests by lumber companies and forestry workers "destroys habitat," while burning them down in their entirety by allowing unhindered forest fires makes animals "thrive," that American corporations' drilling for oil in "environmentally sensitive" areas is bad, but paying billions of dollars to moslem countries for their oil is better, that the entire earth is an "environmentally sensitive" area, so no development, drilling, or building of any kind is justifiable ANYwhere, that limiting the supply of fur-bearing animal pelts will make their costs go up, but limiting the sources of gasoline and other petroleum products will not make their costs go up, that Betty Friedan and Gloria Steinem are more important to American history than Thomas Jefferson, George Washington Carver or Thomas Edison, that any person or any country which has a higher standard of living than any other must have achieved it as a matter of luck, not freedom, opportunity, foresight and work -- and must feel guilty about it -- but if they're not, they must be forced to "pay" for their good fortune in a manner which we (who feel guilty for them anyway) will decide is best, that there is only one moral code, and it is the pure altruism of the self-sacrifice: first-foremost-only-and-always kind, that the only people who should decide which sacrifices anyone must make are the ones in government and/or their sycophants in academe or the media, that the correct view of the state is one that sees citizens as children who need nurturing, and bureaucrats and politicians as the only adults who can do the nurturing, that private citizens should not be allowed to choose their doctors, their childrens' schools, where they live, what foods they eat, where and if they smoke, and when they speak or write: which "politically correct" words they may use and which "incorrect" ones they may not -- without your help, that there is no such thing as a "sovereign citizen." In fact, there is no such thing as "inalienable rights," only permissions from government, that everything not forbidden should be mandatory, and everything not mandatory should be forbidden, that trial lawyers are selfless heroes and doctors are overpaid, that Robin Hood should be remembered for "robbing the rich to give to the poor" (because that was "good"), even though it wasn't his motive, and not for "taking back from the taxors and giving back to the taxees" (because that's always bad), even though it was, that recessions and depressions are caused by businessmen, and not by politicians and bureaucrats, that it would be vastly preferably to risk destroying the economy of the United States even in wartime than to allow drilling in areas which might risk the well-being of wildlife, that FDR must be remembered for "ending the great depression," even though he didn't (in fact he made it worse), and for giving half the people "hope," even though he decimated the Constitution and gave the other half despair, that the explosions in medical and prescription drug costs since 1965 have been caused by greedy doctors and drug companies and not by medicare, HMO subsidies and labyrinthine government regulations, that you can acquire self-esteem without actually doing something to earn it or living up to a code of ethics, that public schools must be given ever-more money and protection from competition, no matter how poorly they perform, that intolerance may be horrible, but "zero tolerance" is wonderful, that social changes must be made by classroom propaganda and coercion, not by persuasion, and certainly NOT by example, that it is racist to be color-blind and that good policy is to be color conscious -- in fact to identify people ONLY as a member of a group, that all cultures are precious, must be preserved at all costs, and must all be treated as equal, not because of their outcomes, but because we say so, that the new ideal paradigm to be established is "multi-cultural diversity", which means making sure every organization has at least one black liberal, one militant-feminist liberal, one gay liberal, one Latino liberal, one transgender liberal, one Native American liberal, and so forth. The one kind of diversity NOT permitted is diversity of philosophy, politics, views or values (especially merit- or accomplishment-consciousness), that, since hatred is horrible, it's okay to hate haters. And independent people. And SUV-owners. And gun owners. And business people. And the merit-conscious. And other individualists. And any other politically incorrect policy advocates. And whoever else it's chic to hate today. In fact the new definition of "hater" is "anyone who disagrees with us." that if a private person or organization refuses to sponsor, finance, allow or provide a venue for, a speaker, movie maker or demonstration, then that's "censorship," and that's bad, but if a government or government-run enterprise does it, then that's quelling "hate speech,"and that's good, that it's shocking -- and worthy of detailed, damning and deliciously horrifying exposés -- to find that free-market scholars are actually able to fund their work with voluntary donations from wealthy individuals and businesses -- while it's pleasing to find that socialist scholars are able to fund their work "virtuously" with tax money (extracted from their opponents -- and victims -- by government coercion), that CHANGE is good -- but ONLY so long as it is change TO liberal values FROM other values, that people who resist your vision of social change should be jailed, that everyone who believes in free markets is a religious conservative (or if we know better, we pretend we don't -- since we don't want the general public to know about libertarians), that everyone who believes in civil liberties is a big-government liberal (or if we know better, we still don't want the general public to know about libertarians), that the ancient left-right political spectrum must be defended as the only yardstick for evaluating ideologies because (unlike the Nolan Chart, for example) the old left-right one conveniently implies that "the democratic ideal" is nothing more than a compromise between socialism and fascism, and so the ONLY question is "WHAT KIND of huge, powerful, all-pervasive government do you want?", that black people can't succeed without your help, but those who do, or tell others they can, must be vilified as "Uncle Toms," that the NRA is bad, because it supports certain parts of the Constitution, while the ACLU is good, because it supports certain parts of the Constitution, that guns in the hands of law-abiding Americans are more of a threat than U.S. nuclear weapons technology in the hands of Chinese communists, that more people are killed by guns than are saved by gun owners simply brandishing their weapons, that even though there are 54,000,000 children under 16 in the U.S., and you can never achieve "zero" accidental deaths from drowning, choking, fires, falls, poisoning, motor vehicles and medical mistakes, you can somehow achieve zero from firearm accidents (perhaps because there are always so many fewer such accidents every year), that it's possible to develop a system to identify and locate absolutely all random suicide bombers so they can be stopped before they strike, but it's impossible to develop a system to identify, locate and shoot down incoming missiles before they do, that corporations are more dangerous than governments -- even when they haven't been sold a government-protected monopoly and can't make you buy from them, and even though the federal government is hundreds of times the size of the largest corporations and has guns, jails, IRS kangaroo courts, and can and does make you buy from it or deal with it, that the quantity of natural resources in all of existence remains finite, and will always run out unless government controls its use and mandates horse-and-buggy "substitutes", that the quantity of wealth in all of existence remains fixed, and always has from time immemorial, so only people in government should decide how it's allocated, that any attempt to tax successful entrepreneurs at less than 100% of their incomes must be met with horrified screams of "giveaway! giveaway!! giveaway!!!" that businessmen are parasites, but politicians and bureaucrats are not, that people who work in the private sector are evil, but people who work in government are saints, that a contract can mean anything any time anybody wants it to, especially if it's named "The Constitution of the United States", that private citizens are too stupid to make their own decisions about anything, but people in government are too smart not to give them dictatorial powers over everything, that the only reason socialism hasn't worked anywhere it's been tried, is because "the right people" haven't been in charge, that the only answer to the millions of problems caused by government -- is always ... ("ta-da!") more government (of course!), that the only choices Americans are given by the Republicans and Democrats include having to choose between legal abortions and "overkill" security from international terrorists (ignoring the fact that Libertarians support BOTH Constitutional security measures and states' rights to legalize or outlaw abortions), that contributions to the Democratic Party by the Chinese Communists are in the best interests of the United States, that both "hard" and "soft"-money contributions to the campaigns of politicans by Americans are not in the best interests of the United States because they are always initiated by the donors as bribes and never by the politicians as a "protection racket," that people who get upset about the misuse of the FBI, the military, the BATF and the IRS belong in jail, but that the misusers, liars and Constitution- violators belong in the White House, that William J. Clinton, as a wonderful president, should not be remembered for any misdeeds at all, but if he is, it should be only for the sexual ones, and not for any of those other things,* that Hillary Clinton is normal and really a very nice person, that it would better to see civilization destroyed than to see your cherished beliefs in cultural equivalency and moral ambivalence dismissed, that you must be a knee-jerk "pass a law!" big-government control-freak in order to get any poor people or any "good" people -- especially the professionally unselfish "saintly" people -- to even like you, let alone to love you, and last, but definitely not least -- that good intentions are all that are needed to pave the way to utopia, especially if all your friends have the same good intentions. ---End Quote--- ---Quote--- "It has been well said that really up-to-date liberals do not care what people do, as long as it is compulsory." -- George Will "A liberal, in the current sense of the term, is a person who favors a massive welfare state, expansive and intrusive government, high taxation, preferential allocation of social goods to designated 'victim' groups, and deference to international bureaucracies in matters of foreign policy." -- John Derbyshire "Liberals aren't always so liberal when people disapprove of their point of view." -- Clint Eastwood "...frothing-at-the-mouth liberals venting their spleens made me chuckle. There's nobody more intolerant and narrow-minded than a tolerant and open-minded liberal, is there? -- Brian Francoeur "Liberals can't separate their emotions to take a look at the logic and facts." -- Chris Mulder "I've never quite been able to figure out why liberals self-identify with qualities such as 'bright', 'non-conforming', and 'hanging loose', then turn around and demand a system of government that represses creativity and initiative, stifles individuality, robs the productive to support the slothful, and demands a high degree of unthinking conformity. ... Liberals seem to think they are libertarians, but until they learn that economic freedom is more important to the health of a free society than sexual license, they will remain Stalinists in drag." -- Mr. Jeeves "Liberalism: the haunting fear that someone, somewhere, can help themselves" and "Annoy a Liberal: Work. Succeed. Be Happy" -- seen on bumper stickers "A fact to a liberal is like Kryptonite to Superman." -- Larry Elder "Remember, to a liberal, anyone who makes money in an endeavor frowned upon by liberals is 'greedy' and any person who expresses an idea contrary to basic liberal dogma is preaching 'hate.' How shallow these people are." -- Neal Boortz “The trouble with our liberal friends is not that they're ignorant; it's just that they know so much that isn't so.” – Ronald Reagan "Liberals fear Christians more than they fear Muslims. It is a sign of their insanity." -- KMR "Liberals in this country think the world is the UN and France. It isn’t." -- Alexander K. McClure "Only a liberal can see and hear a liberal and say, 'That's not liberal!' But there's a reason for that -- to a liberal, liberal is not liberal; it's mainstream." -- Robert Cooper "Liberals want a disarmed, docile, easily controlled and dependent on Government populace." -- Khankrum "There is nothing so pitiable as a liberal with no one to pity." -- Mr. Lizard "Liberals seem to assume that, if you don't believe in their particular political solutions, then you don't really care about the people that they claim to want to help." -- Dr. Thomas Sowell "Liberals live for the idea that they're saving the world from the racial, religious, and sexual bigotry of conservatives. Yet, looking at the conservative web, I am continually amazed at the fellowship across all of these potential divides." -- Stanley Kurtz "Liberals hold us individually responsible for nothing but collectively responsible for everything.” -- a reader of Thomas Sowell's, here "It is a standard tactic to take someone's proposal, misstate it and then disagree with it. It's very effective. I've used it myself." --Teddy Kennedy at the National Press Club, 2002 "Wealth may provoke envy, but it seldom provokes the truly venomous levels of resentment provoked by achievement. There is no surer way for a minority group to become hated than to enter a country as destitute immigrants and then, through long hours of hard work, rise to a level of prosperity above that of the indigenous population." -- Dr. Thomas Sowell "Asking liberals where wages and prices come from is like asking six-year-olds where babies come from." -- Dr. Thomas Sowell "People who are very aware that they have more knowledge than the average person are often very unaware that they do not have one-tenth of the knowledge of all of the average persons put together. In this situation, for the intelligentsia to impose their notions on ordinary people is essentially to impose ignorance on knowledge." -- Dr. Thomas Sowell "As with so many things that liberals believe, they feel no need to test their notions against reality." -- Dr. Thomas Sowell "Liberals are more and more becoming like the Crips, dangerous but stupid." -- DJ Drummond "The American people will never knowingly adopt Socialism. But under the name of 'liberalism' they will adopt every fragment of the Socialist program, until one day America will be a Socialist nation, without knowing how it happened." - Norman Thomas, Socialist Party Presidential Candidate 1940, 1944 and 1948 and co-founder of the American Civil Liberties Union "Big-government liberals don’t like people with a sense of independence … because independent people don’t need big government." -- Neal Boortz "Sen. Paul Simon is saying: 'I'm smart enough to handle this, you're not.' " -- Penn Gillette "The reason the liberal message is not being heard, despite liberal control of almost all public organs of communication, is that it is incoherent. The message, not a lack of messengers, is the contemporary liberal problem." -- Dennis Prager "Liberalism is not a political philosophy or coherent set of beliefs. It is a psychological strategy to avoid being envied." -- Jack Wheeler "Many of our fellow citizens no longer have the tolerant souls and morals of free men and women. They have the souls and morals of busybodies and petty tyrants who want to run their neighbors' lives." -- Edward L. Hudgins "What is it about control freaks that makes them so obsessed about butting into your life and planning it all for you whether you like it or not?" -- Bert Rand "With liberals, everything is eternally somebody else's fault. Facts to the contrary are irrelevant." -- Edward Britton "Liberals are like the monkeys in Rudyard Kipling's The Jungle Book who explain: 'We all say so, and so it must be true'." -- Ann Coulter "Whenever you come across a screw-up this big, you know the government is behind it." -- Ann Coulter "It's a little late for liberals to pretend they care about ethics in the White House or anyplace else." -- Ann Coulter "Ultimately, however, as the Austrian economist Joseph Schumpeter pointed out, a powerful bureaucratic class is in the same relation to commerce as was the scorpion in Aesop to the dog on whose back he crossed the river. They will destroy commerce and establish socialism, even if it kills them, because that is their nature." -- John Derbyshire "Socialism, like the ancient ideas from which it springs, confuses the distinction between government and society. As a result of this, every time we object to a thing being done by government, the socialists conclude that we object to its being done at all." -- Frederic Bastiat ---End Quote--- They got it right! :spit Leftards

Here are my Top 10 links from around the Internet at 10 past 12pm. I welcome your additions and comments below or please send suggestions for Wednesday's Top 10 at 10 via email to bernard.hickey@interest.co.nz

 

1. The negative gearing issue - Leith van Onselen at Unconventional Economist has a close look at the history and impact of negative gearing in Australia and comes up with some fascinating conclusions (and charts). It is a must read I reckons. Here's a taste below. Big HT to Darryl Best via email.

 

There is clearly little merit in Australia's tax concessions for property investment. Negative gearing and the CGT concession do not provided any incentive to invest in new housing because they are available for both existing homes as well as new ones. And since these concessions do not increase housing supply, they also do not put downward pressure on rents.

Rather, the increase of investment in existing dwellings has merely significantly added to housing demand, reduced housing affordability, and displaced potential owner-occupiers, forcing them onto the rental market.

While the cost to the taxpayer is immense, the costs to younger Australians, in particular, from reduced housing affordability and increased debt levels is even greater. The situation that has arisen in Australia, where a substantial part of the population never own their own home or have to go deep into debt to achieve home ownership, makes a complete mockery of claims about 'rising living standards' and Australia having a 'strong economy'.

Successive governments have allowed an appalling situation to develop in Australian society, and new approaches are desperately needed. despite the Government and many mainstream economists arguing that Australia's high house prices have been caused by a 'lack of supply' (housing shortages), the truth is that prices have risen largely because of speculation from housing investors combined with easy credit from Australia's lenders.

And no government wants to spoil the party or have the bubble burst on their watch, despite pretending to be concerned about housing affordability. Instead, I am left wishing that I could buy a time machine, travel back in time, and reverse those two fateful policy blunders - the reintroduction of negative gearing in 1987 and the CGT reduction in 1999. Then, maybe, Australia's house prices would still be affordable, households would be less indebted, and a large chunk of the population currently stuck in rental accommodation would be home owners instead. If only...

2. Chinese buying Treasuries again - Bloomberg reports China has started buying US Treasuries again, despite criticising America's fiscal profligacy less than a year ago. No worries then...

“If history’s any guide they will keep buying,” Nomura’s George Goncalves said. “Global imbalances don’t turn on a dime. We don’t know how robust this recovery is. There are only so many places China can put its money.” In five of the last six years, China has made its largest purchases of U.S. debt in June, Treasury data show. The Treasury is selling $108 billion in two-, five- and seven-year notes over three days starting tomorrow.

“I don’t think it’s really in China’s economic interest to distance itself from its economic ties with the U.S.,” said Carl Lantz, head of interest-rate strategy in New York at primary dealer Credit Suisse Group AG. “We borrow pretty cheaply from them, we buy their goods. Our country, despite some of the turmoil, still offers deep and liquid capital markets.”

3. Vee haf zee vays of making you cut your deficit - European Central Bank President Jean Claude Trichet has suggested governments that breach the European Union's fiscal rules be stripped of their votes in the European Union, Bloomberg reported. Sounds like a German idea to me...even though Trichet is French.

“A wider spectrum of financial sanctions needs to be considered, along with non-financial and procedural sanctions, such as more stringent reporting requirements or even a limitation or suspension of voting rights,” Trichet told lawmakers in Brussels today.

The ECB’s chief also said that governments could consider changing the euro’s founding treaty. EU officials are devising new fiscal rules to prevent a repeat of the European sovereign debt crisis, which was sparked when Greece’s budget spiraled out of control and forced it to seek an EU-led bailout. European leaders plan to outline the strengthened enforcement system by October after hammering out a $929 billion rescue program last month.

4. Germany vs US - The Americans want everyone else to print and spend too. The Germans can't forget the hyperinflation of the Weimar Republic which led to the election of a short Austrian with a small moustache. Some bad stuff happened after that. Germany is rejecting Barack Obama's calls ahead of the G20 meeting to forget about fiscal restraint for a teeny weeny year or two, Bloomberg reports. Obama talks about the 'medium term' a lot. Everything will be fine in the medium term.

“Nobody can seriously dispute that excessive public debts, not only in Europe, are one of the main causes of this crisis,” Finance Minister Wolfgang Schaeuble told reporters in Berlin today alongside Merkel. “That’s why they have to be reduced.”

Germany is holding to G-20 commitments on exit strategies from fiscal stimulus, and “not violating international requirements for a coordinated strategy for sustainable growth,” Schaeuble said. “We will face up to the international debate and I think we can do that with a great deal of self- confidence,” he said.

Five days before G-20 leaders meet in Toronto, the economic-policy divide between Europe and the U.S. is hardening. President Barack Obama, in a letter to his G-20 counterparts dated June 16, urged a focus on economic growth, saying order to public finances should be restored in the “medium term.”

5. Do as I say, not as I do - The New York Federal Reserve has produced a comic book about the evils of inflation, Zero Hedge points out. The cartoon is embedded below. HT Gertraud via email. Oh, the irony.

The FRBNY has published a comic book, full of the misadventures of the infamous Darth Inflation. With such zingers as "By discouraging saving, inflation can harm the US economy. That's because the economy needs a supply of savings to provide the funds for people and business to borrow so that they can invest in the things that help the US economy grow"

It is now clear that the entire FRBNY Board is comprised of lunatics, as apparently these people have not heard of ZIRP, QE, 0% interest on money markets and savings accounts, and must have Apple gizmos.

Comic Inflation[1]

6. A cliffhanger - America's economic problems just won't go away, as seen by the action overnight on the stock market, where an initial surge was followed by doubts. Here Karen Maley at BusinessSpectator puts her finger on the issues. HT Rob via email.

John Hussman of Hussman Funds says that the US economy is in a real “cliff-hanger” situation. In fact, if this were an action novel, we’d be at the point where our hero – the US economy – was hanging over a steep precipice, clutching onto a rock of uncertain strength. We readers would be hoping that things would turn out well for our hero, but we’d be fearing the worst.

As Hussman notes, “it's possible that things will resolve sufficiently well, but we have to consider the possibility that they will not”. Hussman says the latest reading from the Economic Cycle Research Institute (ECRI) reinforces this uncertainty. The ECRI weekly leading index – which points to where the economy is heading – fell last week to a -5.7 per cent annual growth rate. The decline in the ECRI index is worrying, because it suggests the economy is rolling over.

7. 'A Golden era is ending' - Richard Gluyas at The Australian has a great story about Australian bank profits and the end of a very profitable era, according to National Australia Bank's (BNZ) chief financial officer Mark Joiner. He is essentially pointing out how reliant the banks are now on a bloated Australian housing market. I bet this creates some debate around a board bank board room tables.

"I find the national sport of bank bashing a bit ironic because it tends to focus on fees and the passing on of higher funding costs, when the real windfall relates to neither of those issues," Mr Joiner told The Australian.

Mr Joiner said adoption of the Basel II accord in 2008 had doubled the industry's average return on equity (ROE) for a home loan from about 22 per cent to a stunning 45 per cent. "There are super profits in mortgage lending because the banks, with the transition to Basel II, took more than half the capital off the table and the margins never adjusted down to reflect that."

But he predicted home lending ROEs would revert to past levels, helped by planned federal government reforms to cut expensive mortgage exit fees, making it easier for clients to switch banks. NAB, unlike the massive home lending books of CBA and Westpac following their acquisitions of Bankwest and St George Bank respectively, is relatively overweight in business lending. It is trying to change the dynamics of retail banking and home lending by slashing fees, and discounting its standard variable rate well below those of its rivals.

"If you get a 45 per cent ROE in home lending, why would you do anything else, particularly when the industry is looking at a period of constrained balance sheet growth?" Mr Joiner said. "Australia should have a balanced economy; not a big skew to mortgage or business lending."

8. Totally relevant video - John Clarke and Bryan Dawes do their thing with the BP oil spill. Hilarious in a Fred Dagg impersonating a BP executive sort of way.

9. Dead on arrival - Simon Johnson from Baseline Scenario has been watching the banking reforms grinding their way through the US Congress as close as anyone. He now reckons they are dead on arrival. If anyone wonders why I (and many others) describe Obama as a liar and a fool then have a look at this. 

Simply claiming that the president is “tough” on big banks simply will not wash. There are too many facts, too much accumulated evidence, pointing exactly the other way. The president signed off on the most generous and least conditional bailout in world financial history. This is now widely understood. The administration has scrambled to create some political cover in terms of “reform” – but the lack of substance here is already clear to people who follow it closely and public perceptions will shift quickly.

The financial crisis of fall 2008 revealed serious dangers have developed in the heart of the world’s financial system. The Bush-Obama bailouts of 2008-09 confirmed that our biggest banks are “too big to fail” and the left, center, and right can agree with Gene Fama when he says: “too big to fail” is perverting activities and incentives. This is not a leftist message, although you hear people on the left make the point.

But people on the right also increasingly understand what is going on – there is excessive and abusive power at the heart of our financial system that completely distorts markets (and really amounts to a hidden, unfair and dangerous taxpayer subsidy). This administration and this Congress had ample opportunity to confront this problem and at least wrestle hard with it. Some senators and representatives worked long and hard on precisely this issue. But the White House punted, repeatedly, and elected instead for a veneer of superficial tweaking.

Welcome to the next global credit cycle – with too big to fail banks at center stage.

10. Totally irrelevant video - Here's some clandestine footage taken of the Italian Football Team's training camp. This explains why they are they are the world champions.

According to the article linked below, Austria's Provenance Commission has recommended the return of artwork stolen by the Nazis, but then blocked in Austria by a post-War export ban.  After World War II, Austrian museums used the export ban to systematically extort Jews of their property.

Today, American museums that hold property stolen from Jews systematically extort them in one-sided "settlements" wrapped in great confidentiality, and bury the research to conceal the wrongdoing of the museum's former trustees and employees.   History will view this practice of systematic extortion by the members of the American Association of Museums with the same horror that we view the post-War extortion practices of the Austrian museums.

Austria also let the Leopold Museum keep an extorted work on the false pretext that the government of Austria doesn't own the Leopold Museum, so a law covering "federal museums" doesn't cover it.   This is a scandalous lie, since the government of Austria purchased Leopold's collection and will assume complete control of it on the death of Leopold and his wife.

Leopold brought the stolen Schiele Portrait of Wally into the United States and is supposed to stand trial this summer on the issue of whether or not he knew it was stolen when he brought it here.

Austria Urges Return of Altar Panels to Jewish Heir (Update1)

Purchase Copyright Litigation Handbook from West here

(This feature originally appeared in the author's newsletter.)

One of the most famous quotations of Austrian economist Ludwig von Mises is that “There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency involved.” 

In fact, the US economy is in a downward spiral of debt deflation despite the bold actions of the federal government and of the US Federal Reserve taken in response to the financial crisis that began in 2008 and the associated recession.  Although the vicious circle of debt deflation is not widely recognized, precisely what von Mises described is happening before our eyes.

At first, it looks like there is good news.

A variety of positive economic data has been reported in recent months.  Retail sales rose 0.4% in April 2010 as consumer spending rose and the US gross domestic product (GDP) grew at a rate of 3%. In May 2010, home sales rose to a five-month high and consumer confidence rose 17% (from 57.7 to 63.3).  Industrial production rose 0.8% and durable goods orders rose 2.9%, more than had been forecast.  However, the modest gains reported represent the continuing adaptation of economic activity at dramatically lower levels compared to the pre-recession period and most of the reported gains have been substantially manufactured by massive government deficit spending.

But there are ominous signs already brewing...

Despite the widely reported green shoots, in May, the unemployment rate rose to 9.9% while paychecks in the private sector shrank to historic lows as a percentage of personal income, and personal bankruptcies rose.  Roughly 14% of US mortgages are delinquent or in foreclosure, credit card defaults are rising and consumer spending hit 7 month lows.  To make matters worse, the reported increase in consumer credit, in fact, points to a further deterioration because consumers appear to be borrowing to service existing debt.  Outside of the federal government, which is borrowing at record levels and expanding as a percentage of GDP, and outside of the bailed out financial sector, debt deflation has continued unabated since 2008.

Money Supply vs. Debt Service

A contraction of the broad money supply is taking place because the influx of money into the US economy, i.e., lending to consumers and non financial businesses, has fallen below the rate at which money is flowing out of general circulation as a function of debt service (interest and principle payments on existing debt), thus a net drain of money from the broad US economy is taking place.  As a result, additional borrowing, as consumer spending falls, appears to be servicing existing debt in a pattern that is clearly unsustainable and that signals a further rise in debt defaults in coming months.

Chart courtesy of Shadow Government Statistics

The estimate of the broad money supply (the Federal Reserve’s M3 monetary aggregate) is crashing and the Federal Reserve’s M1 Money Multiplier, a measure of how much new money is created through lending activity, fell off of a cliff in 2008, and remains practically flat-lined.

Chart courtesy of the Federal Bank of St. Louis

The contraction of the broad money supply points to a potential slowing of economic activity and indicates that consumers and non financial businesses will be less able to service existing debt.  Despite easing somewhat in March 2010, credit card losses are expected to remain near 10% over the next year and mortgage delinquencies, are currently at a record highs, and these dismal predictions implicitly assume a stable or growing money supply.

A tsunami of eventual mortgage defaults seems to be building and loan modifications have been a failure thus far.  There have been only a small number of permanent loan modifications (295,348) under the Home Affordable Modification Program (HAMP) in 2009, out of 3.3 million eligible (60 days delinquent) loans and more than half of modified loans default.

Chart courtesy of Calculated Risk

Although it has been reported that American consumers are saving at a rate of 3.4%, the contraction of the broad money supply suggests savings liquidation.  Given a contracting money supply, ongoing debt defaults and declining consumer spending, the increase in non-mortgage consumer loans indicates that consumers are borrowing where possible to consolidate debts, cover debt service, or borrowing to continue operating financially as their total debt grows, thus as they approach insolvency.

Chart courtesy of the Federal Reserve Bank of St. Louis

The increase in non-mortgage consumer loans has not prevented an overall decline in total household debt attributed to ongoing deleveraging by consumers.  While deleveraging (paying down debt) has been interpreted as caution on the part of consumers, or as low consumer confidence, the decline in outstanding credit reflects a reduced ability to borrow, i.e., to service additional debt.  This suggests that the recovery of the US economy may be illusory and that the economy is likely to contract further in coming months.

Chart courtesy of the Federal Reserve Bank of St. Louis

Commercial borrowing has declined more sharply than household debt suggesting that the nominal return to growth estimated at 3% has not been matched by debt financed expansion in the private sector.

The broad US money supply is no longer being maintained or expanded by normal lending activity.  If federal government deficit spending ($1.5 trillion annually), debt monetization and emergency actions by the Federal Reserve (totaling an estimated $1.5 trillion since 2008) to recapitalize banks are considered separately, there remains a net drain effect on the broad money supply.  The scarcity of money hampers economic activity, i.e., money is less available for investment, and directly exacerbates debt defaults as consumers and businesses experience cash shortfalls, while at the same time being less able to borrow.  Since unemployment is a key indicator of recession, then if the US economy were contracting, it would be evident in unemployment statistics.

Chart courtesy of the Federal Reserve Bank of St. Louis

Structural Unemployment

Unemployment and labor force data suggest that the US labor market is in a structural decline, i.e., millions of jobs have been and are being permanently eliminated, perhaps as a long term consequence of offshoring, outsourcing to other countries and the ongoing deindustrialization of the United States.  However, the immediate meaning of the term “structural” has to with the fact that jobs created or sustained during the unprecedented expansion of debt leading to the financial crisis that began in 2008, e.g., a substantial portion of service sector jobs created in the past two decades now appear not to be viable outside of a credit expansion.

Officially, the US unemployment rate rose to 9.9% in April 2010, which represents the percentage of workers claiming unemployment benefits.  However, the total number of unemployed or underemployed persons, including so-called “discouraged workers” (Bureau of Labor Statistics U-6), rose to 17.1%.  Using the same methods that the BLS had used prior to the Clinton administration, U-6 would be approximately 22%, rather than the official 17.1% statistic.

Chart courtesy of Shadow Government Statistics

With official U-6 unemployment of 17.1% and a workforce of 154.1 million there are roughly 26,197,000 people officially out of work.  Using the pre-Clinton U-6 unemployment calculation of approximately 22%, there would be 33.9 million unemployed.  If the average US household consists of 2.6 persons and if 33% of the unemployed are sole wage earners, then 55.5 million US citizens currently have no means of financial support (17.9% of the population).

Chart courtesy of Calculated Risk

While it has been reported that the labor force is shrinking, the characterization of workers permanently exiting the workforce by choice may be inaccurate.  While a shrinking workforce could reflect demographic changes, the rate of change suggests that tens of millions of Americans are simply unemployed.

Setting aside the question of whether or not those “not in the workforce” are, in fact, permanently unemployed, the workforce, as a percentage of the total US population, is currently at 1970s levels.  Since many more households today depend on two incomes to meet their obligations, compared to the 1970s, a marked drop in the percentage of the population in the workforce points to a decline in the labor market more significant than official unemployment statistics suggest.  What is more important, however, is that structural unemployment suggests structural government deficits, e.g., unemployment benefits, welfare, food stamps, etc.  Since more than 2/3 of US GDP (roughly 70%) consists of consumer spending, a sustainable recovery from recession seems improbable if unemployment is worsening or if the labor force is in a structural decline, since that would imply unsustainable government deficits, whether or not they are masked by nominal GDP gains thanks to economic stimulus measures.

Chart courtesy of the Federal Reserve Bank of St. Louis

Government and GDP Growth

The US federal government is a growing portion of GDP, thus reported GDP growth is largely a byproduct of government deficit spending and stimulus measures, i.e., reported GDP growth is unsustainable.  Total government spending at the local, state and federal levels accounts for as much as 45% of GDP, thus nominal gains would be expected when government deficit spending increases.  According to some measures, reported gains in GDP are a byproduct of relatively new statistical methods and, using earlier methods of calculation, GDP remains negative.

Chart courtesy of Shadow Government Statistics

Government borrowing and spending may have offset declines in the private sector but only to a degree and only temporarily.  The resulting growth in US public debt has an eventual mathematical limit: insolvency.  Of course, the actual limit to US borrowing remains unknown.  The continuing solvency of the US depends on the ability and willingness of governments, banks and investors around the world to lend to the US, which in turn depends on the tolerance of lenders for the US government’s profligacy and money printing by the Federal Reserve, e.g., quantitative easing and exchanging new cash for worthless bank assets.  US Treasury bond auctions will fail if lenders conclude that a sufficiently large portion of their investment will be diluted into oblivion by proverbial money printing.  In that event, the US dollar will surely plummet, despite deflationary pressures within the domestic US economy, and the cost of foreign goods, e.g., oil, will rise causing high inflation or triggering hyperinflation.

Chart courtesy of the Federal Reserve Bank of St. Louis

According to the Bank for International Settlements (BIS), the federal budget deficit increased from 3.1% of GDP in 2007 to 9.2% in 2010. Rather than being the result of one-time expenses, such as temporary stimulus measures, much of the deficit represents permanent increases in government spending, e.g., due to the growing number of federal employees.  If increased government spending is removed, GDP appears to be declining significantly.

Of course, sustainability has more to do with total debt than with deficit spending because a deficit assumes that there is an underlying capacity to service additional debt.

Chart courtesy of Karl Denninger

Unsustainable Debt

While asset prices have declined, e.g., real estate and equities, debt levels have remained high due to the federal government’s policy of preserving bank balance sheets, which had ballooned prior to the financial crisis to the point that overall debt in the US economy reached unsustainable levels.

Chart courtesy of Karl Denninger

The absolute debt to GDP ratio of the US economy peaked in 2007 when debt levels exceeded the ability of the economy to service debt from income based on production, even at low interest rates.  Although US GDP began to decline prior to the advent of the global financial crisis, debt coverage had been in decline approximately since the 1970s, coincidentally, around the time that the US dollar was decoupled from gold.

Chart courtesy of Karl Denninger

Government deficit spending cannot correct the situation because, for every dollar of new borrowing, the gain in GDP is negligible and some have argued that the US economy has passed the point of “debt saturation.”

In a growing economy, additional debt can result in a net gain in GDP because the money supply grows and economic activity is stimulated by transactions that flow through the economy as a result.  The debt saturation hypothesis is that, as debt levels rise, additional debt has less impact on GDP until a point is reached where new debt causes GDP to decline, i.e., the capacity of the economy to service debt has been exceeded and, not only is it impossible for the economy to grow at a rate sufficient to service existing debt (since interest compounds), but economic activity actually declines further as a function of additional debt.

Chart courtesy of Nathan A. Martin

A Downward Spiral

The process of debt deflation is straightforward.  New lending at levels that would maintain or expand the broad money supply is impossible for two reasons: (1) asset values and incomes have fallen and millions remain unemployed; and (2) debt levels remain excessive compared to GDP, i.e., real economic activity (outside of the government and financial services industry) cannot service additional debt.  The inability to lend, actually the result of prior excess lending, results in a net drain of money from the economy.  The drain effect, in turn, leads to further defaults as cash strapped consumers and businesses fail to service existing debt, and as debt defaults impact bank balance sheets, putting a damper on new lending and completing the cycle of debt deflation.

Keynesian economic policies, i.e., government deficit spending, are irrelevant vis-à-vis excessive debt levels in the economy and bailing out banks is not a solution since it cannot stop the deterioration of their balance sheets.  The process is self-perpetuating and cannot be stopped by any government or monetary policy because it is not a matter of policy, but rather one of mathematics.

Since the presence of excess debt (beyond what can be supported by a stable GDP, or by sustainable GDP growth) impacts the broad money supply, efforts to preserve bank balance sheets, i.e., to keep otherwise bad loans on the books of banks at full value, will ultimately cause bank balance sheets to deteriorate more than they would have otherwise.  The fact that US banks issued trillions in bad loans cannot be corrected by changing accounting rules, nor can the consequences be avoided by government deficit spending or by unlimited bailouts, and the problem cannot be papered over by dropping freshly printed money from helicopters flying over Wall Street.  The major problems facing the US economy today—a tsunami or debt defaults, structural unemployment, massive government budget deficits, a contraction of the broad money supply outside of the federal government and the financial system, and a lack of sustainable growth—cannot be addressed as long as excess debt levels are maintained.  As von Mises clearly understood, sound economic conditions cannot be restored unless and until the excess debt, which resulted from a boom brought about by credit expansion, is purged from the system.  The alternative, and the current policy of the United States, is a downward spiral into a bottomless economic abyss.

Now Check Out These 12 Charts That Show The Real State Of Unemployment In America

All the gory details, right here >

Join the conversation about this story »

In the summer of 2004, two years and four months before she was gunned down in the entrance to her Moscow apartment, Russian journalist Anna Politkovskaya made a bold visit to Chechnya to interview 27-year-old Ramzan Kadyrov, who had recently become (with the Kremlin’s blessing) the republic’s de-facto leader. It proved to be a harrowing experience. When they met face to face, Kadyrov could not contain his rage at Politkovskaya for reporting on his brutal rise to power, even threatening to have her shot. Politkovskaya concluded later that “a little dragon has been raised by the Kremlin. Now they need to feed it. Otherwise it will spit fire.”

Politkovskaya was all too right. Since becoming president of Chechnya in 2007, Kadyrov has made the republic into his own fiefdom, which he rules by violence and terror. He has also, apparently, had his gunmen carry out a series of brazen killings of his perceived enemies in Moscow, Dubai, Istanbul and the North Caucasus.

Until recently, the Kremlin, which has provided military and economic support to Kadyrov’s regime, consistently brushed off the murder allegations against him. Since April, prosecutors in two separate cases—a murder in Vienna and a murder attempt in Moscow—have for the first time implicated Kadyrov directly. And in the weeks since those revelations, the Kremlin leadership appears to be showing misgivings about its unconditional support for Kadyrov. How these cases play out could have profound effects on the future of Moscow’s Chechen policy.

It has long been known that Moscow has allowed Kadyrov to run the Chechen Republic with ruthless force, facilitating his extensive cult of personality and funding his lavish lifestyle while ignoring the alarmingly frequent kidnappings, disappearances, and torture of those suspected of opposing his rule. But Kadyrov’s bloody vendettas have not been limited to rival Chechen clans. Indeed, it now appears that he has been going after anyone who draws attention to the shocking human rights abuses in Chechnya committed under his auspices—and that Politkovskaya herself may have been one of his first targets.

The list of likely victims is chilling: In January 2009, there was the Moscow shooting of human rights lawyer Stanislav Markelov (together with a journalist friend) who had pursued legal cases against Kadyrov. That same month Umar Israilov, a former member of Kadyrov’s security team who was granted asylum in Austria and subsequently made shocking allegations of human rights abuses against Kadyrov, was killed by Chechen gunmen in Vienna. And in July 2009 came the murder of Politkovskaya’s close colleague, Natalia Estemirova, who had been documenting the widespread abductions and extra-judicial executions by Kadyrov’s counter-insurgency forces for Novaya gazeta, Human Rights Watch, and Memorial. Estemirova was kidnapped by four men in broad daylight as she left her Grozny apartment. Hours later, her body, riddled with bullets, was found in a ditch in the neighboring republic of Ingushetia.

After the Politkovskaya killing, then-Russian President Vladimir Putin went out of his way to point out that the murder hurt Kadyrov “much more than any newspaper article [i.e. those written by Politkovskaya] could do.” Last summer, when Estemirova’s family, friends, and colleagues gathered in Grozny to mourn her on the 40th day of her death (a Russian orthodox tradition), Putin flew to the Chechen capitol to attend a state ceremony with Kadyrov by his side. Significantly, Kadyrov was allowed to take personal control of the investigation into Estemirova’s murder and there have been no arrests.

Moscow has also rejected demands by the Dubai government for the extradition of Kadyrov’s cousin Adam Delimkhanov, a member of the Russian parliament and Putin’s United Russia Party, who they accuse of having organized the March 2009 murder of yet another Kadyrov opponent, Sulim Yamadayev, who was a member of a rival Chechen clan. (On April 12, a Dubai court sentenced two men of Central Asian origin to life imprisonment for the killing.)

But how long can Moscow ignore the mounting evidence against its Chechen puppet? In April the counter-terrorism department of the Vienna police handed over a confidential 214-page report to Austrian prosecutors in which they named Kadyrov and his top aide, Shaa Turlayev, as the “principal offenders” in the January 2009 murder of Israilov, the former member of Kadyrov’s security guard. According to Israilov’s widow, Turlayev appeared in Vienna shortly before the murder and tried unsuccessfully to meet with her husband. In addition, the man charged with organizing the killing locally, a Chechen refugee who now calls himself Otto Kaltenbrunner, placed a call to Turlayev immediately after the murder. Moreover, a copy of Turlayev’s passport was found in the getaway car, along with an electronic airline ticket that he used to travel to Austria. As a representative of Human Rights Watch puts it: “the conclusions reached by the Austrian Prosecutor’s Office about Ramzan Kadyrov…should prompt the Russian government to finally take the necessary steps to restore the rule of law in Chechnya.”

Meanwhile, Kadyrov’s Kremlin backers have also been facing pressure from a Moscow investigation into an attempted murder in June 2009. The victim of the failed attempt was Isa Yamadayev, the brother of Salim Yamadayev, the murder victim in Dubai, and of Ruslan Yamadayev, a State Duma Deputy who was killed in Moscow in 2008. In April of this year the Moscow District Court began holding secret hearings about the case. Incredibly, a transcript and video of the interrogation of the accused would-be killer ended up in the hands of the intended victim, Yamadayev, who leaked it to a major Russian paper, Moskovskii Komsomolets. During his questioning, the accused, Khavash Yusupov, confessed to the crime and claimed that he was hired by none other than Shaa Turlayev. Yusupov said that Turlayev took him for a meeting with Kadyrov, who ordered the killing.

It remains to be seen whether Austria will indict Kadyrov when it issues formal charges in the Vienna murder in a few weeks, and what the Moscow Court will decide to do about Kadyrov. But the fact that, in the Moscow case, highly damaging testimony about the Chechen president and his top advisor was allowed to appear in the Russian media suggests that some members of the Kremlin elite may have decided that Kadyrov needs to be reined in. Could Russian President Dmitry Medvedev be among them? In contrast to Putin, Medvedev has expressed strong concerns about the unsolved murders and the problem of human rights abuses in the Caucasus. Responding to the Estemirova case last summer, Medvedev said it was “obvious” that she was killed because of her human rights work and expressed his personal condolences to her family and friends.

In January, Medvedev appointed a presidential envoy, Alexander Khloponin, to a newly formed North Caucasus Federal District, which some observers interpreted as an effort to exert Moscow’s control over the region, especially Chechnya. More recently, on May 19, Medvedev invited human rights activists to a two and a half –hour meeting in Moscow, in which Estemirova’s murder was discussed. It was not the first time the Kremlin has met with human rights advocates. But it was a departure for Medvedev because the meeting was devoted entirely to the situation in the troubled North Caucasus. With Khloponin at his side, Medvedev listened to grim details of the abuses attributed to Kadyrov’s counter-insurgency forces in Chechnya and to the concerns that surround unsolved murders like Estemirova’s.

“If you think I don’t know some of the facts,” Medvedev told the participants in the meeting, “well, that’s not the case. I know more than anyone else here because it is my job to know. Have no doubt. I know some very sad things.” In what seemed to be a reference to Kadyrov, who routinely ridicules the efforts of human rights workers, Medvedev also said that political leaders in the Caucasus who do not engage in a dialogue with non-governmental organizations in the region “must ultimately leave.”

However sincere Medvedev might be (and there are many skeptics), at the moment he is not in a position to topple Kadyrov without the concurrence of Putin and members of his powerful Federal Security Service, who installed Kadyrov as the leader of Chechnya. And it appears that the Putin has been unwilling to rein in Kadyrov in part because he fears that doing so would create even more instability in the North Caucasus region (and possibly more terrorist bombings in places like Moscow).

As Lyudmila Alexeyeva, head of the Moscow Helsinki Group, observed: “The impunity and omnipotence of Ramzan Kadyrov depends on the support of…Putin. As long as Putin supports him nobody will touch a hair on Kadyrov’s head, even if he kills us all.” Perhaps the recent revelations about Kadyrov will finally convince Putin and his colleagues that it is time for Kadyrov to go.

LTC (ret.) Allen West is currently running for Congress in Florida’s 22nd District. One would expect his campaign to be a fairly parochial affair, without much resonance outside of his own district, or at most the state of Florida.

Col. West’s fame, however, has spread virally via YouTube and other online video sites. His eloquence and knowledge of the issues — which include the blatant socialism of our federal government, the menace of illegal immigration, the fiscal profligacy of our leadership, and the growing danger from Islam — have made people throughout the country wish they could vote for him.


And not just in the United States. Allen West’s reputation has drawn attention abroad, especially in the most Islamized areas of Europe. For a couple of months after his February appearance at FDI, videos of his inspirational speech with foreign-language subtitles were available, and viewers from Portugal to Russia became aware of his staunch position vis-à-vis Islam.

Now we can be certain that the Danes were paying attention: a prominent Danish writer has written a tribute to Col. West.

Our Danish correspondent TB has kindly translated the piece for Gates of Vienna, and includes this introduction:

Morten U. Jensen’s post about Col. Allen West was published in Jyllands-Posten, Denmark’s biggest newspaper, on May 20. Mr. Jensen writes a lot of commentary, and is a well known debater in Denmark. His latest book was about the influence of Muslim immigration on the free Danish society. It was called A Divided People, referring to the devastating influence of the Islamic influx in Denmark. The book has been read by many high-ranking politicians and leaders.

And the translated article:

Allen B. West

By Morten Uhrskov Jensen

If you are lucky enough to be an American citizen and at the same time a resident of the 22nd District in Florida, then you have a unique opportunity at the midterm elections for the American Congress in November to vote for a politician who belongs in a class of his own.

Allen B. West served the U.S. Army for 22 years, but after having treated an Iraqi terrorist — who withheld information that could save the lives of his fellow troopers — a little hard, he had to submit his resignation. Allen B. West supports the American Tea Party Movement, which aims to protect the American Constitution and the principles upon which it is built; namely a nation of patriotic citizens who want to defend their country and the free society they have achieved.

With his African-American background it probably carries a special weight when Allen B. West states that the accusations of racism in the Tea Party Movement have been constructed by the liberal critics and the mainstream media.

Why should we support him?

We should because this man has everything that almost all of our European politicians lack; namely the sense of history. Just read what he said recently about a thwarted terrorism attempt in New York:

“You want to dig up Charles Martel and ask him why he was fighting the Muslim army at the Battle of Tours in 732? You want to ask the Venetian fleet at Lepanto why they were fighting a Muslim fleet in 1571? You want to ask…the Germanic and Austrian knights why they were fighting at the gates of Vienna in 1683? You want to ask people what happened at Constantinople and why today it is called Istanbul because they lost that fight in 1453?

- - - - - - - - -

“You need to get into the Koran…and understand their precepts. This is not a perversion. They are doing exactly what this book says. Until you get principled leadership in the United States of America that is willing to say that, we will continue to chase our tail, because we will never clearly define who this enemy is, and then understand their goals and objectives-which (are) on any jihadist website-and then come up with the right (and) proper objectives to not only secure our Republic but secure Western civilization.”

Leadership

That’s the way a politician speaks when he does not think about the next election but about the next generation. That’s the way an honest man talks when he knows that history and culture mean something, and that it matters who gets to define reality.

Oh my, could our petite-politicians learn something from Allen B. West.

The title of this essay may be a play on words but the facts are nothing of the sort.  Indeed, the facts suggest that the financial position of the U.S. government may not be all that much better than the financial position of the governments of Portugal, Italy, Ireland, Greece or Spain, the so-called PIIGS.  In fact, given the agenda the Obama administration has set for America, one so far distinguished by ever larger government spending programs being financed by ever larger amounts of debt, the U.S. government may be well on its way to becoming PIIGS “R” Us. Sensationalism this is not. Food for thought for holders of U.S. Treasury bonds?  You bet. To see why, let’s start with a snapshot of the sovereign debt risk metrics of the U.S. government versus the PIIGS on fiscal year 2009 financials: Sovereign Debt Risk Metrics United States versus the PIIGS, Fiscal Year 2009 [1]The PIIGS are looking at some huge financial imbalances, that much is for sure.  But I ask you, do the debt risk metrics of the U.S. government look that much different?  Is the debt of the U.S. government, as S&P’s triple-A credit rating suggests, that much more credit worthy than the debt of say Spain, Ireland or even Greece? Let’s have a look at each risk metric, the way a sovereign debt investor might, ranking the countries on those metrics from “bad” to “worse.” Economic Burden Metrics The ability of a government to pay its bills ultimately comes down to the ability of its citizenry to produce income high enough to pay those bills.  On this score, America is not a country that many would want to emulate, showing Deficit to GDP and Debt to GDP ratios no better than the average PIIG: [2]Coverage Ratio Metrics Financial analysts measure an entity’s ability to pay its obligations in several ways.  One popular way is through a metric known as a coverage ratio.  In this sovereign risk study, I offer up two coverage ratios: Receipts to Outlays, measuring a government’s ability to fund its spending needs via current tax receipts, with a ratio of less than one meaning that that spending is being financed by deferring the costs of that spending into the future via the issuance of debt, and Gross Debt to Receipts, representing the number of years it will take a government to repay its debt obligations at its current level of tax receipts, debt obligations incurred as result of years of opting to finance its spending the easy way - via debt issuance instead of via current tax receipts. On both these risk metrics, the U.S. is at the bottom of the list by a “country” mile: [3] Size of Government America has one big thing going for it - the size of its government relative to the size of its economy is, on a comparative basis, relatively small, taking  some 25% of the economy versus the roughly 50% taken by the PIIGS.  That implies that America’s ability to grow its income and pay its bills is better than that of the countries of the PIIGS.  Have a look at the numbers: [4]At first glance, and as a holder of U.S. Treasury bonds, perhaps this is reason for hope, and reason for that triple-A rating.  But a deeper dive into the particulars suggests something quite different. Since 2000, the U.S. government’s spending bill has been growing at an annual rate of about 8%, more than double the rate seen in the 1990s, and a trend that has taken government spending from about 18% of GDP in 2000 to today’s 25%. Add $100 trillion plus and counting in unfunded-liabilities-come-spending into the mix, as well as a host of economically debilitating tax rate hikes beginning as soon as 2011, and you have the makings of an economy that will be increasingly burdened by the government, making it harder and harder for the government to pay it’s bills.  And may I say, all this without the U.S. Congress creating even one more government program. Maybe not today’s problem, but looking forward, a bad omen for all holders of U.S. Treasury bonds, especially given the debt hole America has already dug for itself. Debt Risk Metric Scorecard Borrowing a tool used by baseball, let’s recap by constructing a Sovereign Debt Risk Scorecard.  Again, going from bad to worse, America on this metric is near the bottom of the list: [5]Granted, these are but a few summary metrics. Granted, the average risk metric so computed is a simple, unweighted arithmetic average.  But if these numbers don’t make you think, think that America’s triple-A status may be a bit too “generous,” then may I suggest you could be guilty of not thinking.  Not something I would recommend if you are, or plan to be an investor in U.S. government debt obligations. IMF Looks Ahead and It Doesn’t Like What It Sees Either In its April 20th 2010 Global Financial Stability Report, the International Monetary Fund (IMF) warned that government risk in the advanced economies is now the biggest threat to the world economy.  These governments, the IMF correctly observes, not only took on many of the bad debts incurred by private institutions these past several years, but due to the economic fallout of the crisis, and the existence of a plethora of government social nets, these governments face continuing heavy borrowing needs for at least the next few years.  An ugly situation for sure, and one the IMF said could get out of hand, and fast, if not addressed. In conjunction with the release of the report, José Viñals, Financial Counselor and Director of the IMF’s Monetary and Capital Markets Department, said: In spite of recent improvements in the outlook and the health of the global financial system, stability is not yet assured.… If the legacy of the present crisis and emerging sovereign risks are not addressed, we run the very real risk of undermining the recovery and extending the financial crisis into a new phase. This author couldn’t have said it better. Yet, in 2010, the U.S. Congress passed the largest government spending initiative in history in Obamacare [6].  Now, those same politicians are talking about cap and trade, not to mention even more stimulus programs.  This on top of those already horrible 2009 debt risk metrics. Clearly, America is not addressing the seriousness of its financial state. Indeed, the IMF put pen to paper, suggesting the very same thing about America.  This, taken from the IMF’s World Economic Outlook Database: [7]America, on the basis of these metrics says the IMF, is a nation going in the wrong direction.  With an estimated Deficit to GDP ratio of 10.97% in 2010, only Ireland is expected to show a ratio worse than the U.S. America is NOT a PIIG? Surely, you say, America is not a Greece, an Ireland or even a Spain.  And in a sense you would be correct.  Just not in the way you think.  For in one very important respect, America is potentially worse, a lot worse. You see, America has the Federal Reserve’s printing press.  Steward of the world’s reserve currency, America issues debt in a currency it alone can print.  America can in no uncertain terms inflate its debt away, without limitation, with a few taps on a computer. Portugal, Italy, Ireland, Greece and Spain, members of the Euro-zone are countries without a printing press.  They can’t bail themselves out by printing money to pay for their debts.  No, as we are witnessing in this, the latest financial crisis, they have to show at least some manner of fiscal austerity before they can get access to the printing press of the European Central Bank. Can the same be said about America? In essence, the Federal Reserve’s printing press is buying time for America.  It allows America to kick the debt-can down the road a bit longer, no holes barred, an option not available to the PIIGS.  The result, the appearance that America is in control, its finances manageable, nothing at all like the finances of the PIIGS. The problem is that same printing press eventually makes matters worse, because it fosters even more irresponsibility on the part of politicians, allowing them to hand out economic goodies without thought, without ever having to ask a single voter to pay for them.  And as a result, the debt-can gets ever bigger, while the urge to inflate it away gets ever stronger. Isn't this exactly what we say happening in America, right now? One day this debt-can, and perhaps by that time the mother of all cans, will have to be paid in full.  The only question will be whether that payment will be via fiscal austerity or via the debasement of the currency in which that can is priced. One thing is for sure.  If you want to wreck a country’s economy, and its sovereign credit risk to boot, you do it with a printing press. And if it comes to this, you can be equally sure that U.S. Treasury bond investors will be all over it, because at that point it will be clear to all that the last investor out is going to be an investor holding a can with nothing in it but worthless pieces of paper. Final Thoughts Right now, U.S. Treasury bonds are in rally mode, as aghast over the crisis in Europe is chasing both hot and scared money into the U.S. Treasury market.  The reason, the U.S., home to the largest government fixed income market in the world and owner of the world’s reserve currency, is still viewed by many as the safe haven of choice.  At the very least, the best of the worst, on the the belief that America will not go down, at least not yet. And you know what, as negative as this author is on America’s sovereign credit, that assessment is largely correct, for now. But in my book, and I think in the books of a growing number of U.S. Treasury bond investors the world over, it’s rent-a-bond, not buy-a-bond when it comes to Americas sovereign debt.  Indeed, for the reasons discussed in this essay, and explored in depth in this series [8], America’s increasingly ugly sovereign risk metrics will not go unnoticed by forever.  They can’t, for the path America is on is simply unsustainable.  In fact, if America does not heed the advice of the IMF, it may one day end up just like lowly Greece. U.S. Treasury bond holders will see to it. A full accounting of the U.S. government’s financial condition, updated monthly courtesy of THE CONTRARIAN TAKE [9], can be found here [10]. THE CONTRARIAN TAKE [9] tracks several other economic data series, tables and charts with an Austrian slant, all of which can be found here [12]. [1] http://trueslant.com/michaelpollaro/files/2010/05/Slide1.gif [2] http://trueslant.com/michaelpollaro/files/2010/05/Slide3.gif [3] http://trueslant.com/michaelpollaro/files/2010/05/Slide5.gif [4] http://trueslant.com/michaelpollaro/files/2010/05/Slide6.gif [5] http://trueslant.com/michaelpollaro/files/2010/05/Slide71.gif [6] http://trueslant.com/michaelpollaro/2010/03/24/don%E2%80%99t-believe-the-numbers-obamacare-is-a-financial-disaster/ [7] http://trueslant.com/michaelpollaro/files/2010/05/Slide8.gif [8] http://trueslant.com/michaelpollaro/2010/03/07/tracking-the-u-s-governments-journey-towards-bankruptcy/ [9] http://trueslant.com/michaelpollaro/ [10] http://trueslant.com/michaelpollaro/u-s-government-financials/ [11] http://trueslant.com/michaelpollaro/ [12] http://trueslant.com/michaelpollaro/economic-data-charts-with-an-austrian-slant/

The Tea Party has successfully replaced Maine's GOP party platform with their own.

An overwhelming majority of delegates to the Maine Republican convention tonight voted to scrap the the proposed party platform and replace it with a document created by a group of Tea Party activists. The official platform for the Republican Party of Maine is now a mix of right-wing fringe policies, libertarian buzzwords and outright conspiracy theories. The document calls for the elimination of the Department of Education and the Federal Reserve, demands an investigation of "collusion between government and industry in the global warming myth," suggests the adoption of "Austrian Economics," declares that "'Freedom of Religion' does not mean 'freedom from religion'" (which I guess makes atheism illegal), insists that "healthcare is not a right," calls for the abrogation of the "UN Treaty on Rights of the Child" and the "Law Of The Sea Treaty" and declares that we must resist "efforts to create a one world government." It also contains favorable mentions of both the Tea Party and Ron Paul. You can read the whole thing here. Dan Billings, who has served as an attorney for the Maine GOP, called the new platform "wack job pablum" and "nutcase stuff."