Thursday, May 31, 2007

Interesting Arguement About The Minimum Wage....What Do You Think?


Human Beings Are NOT Chess Pieces

Thursday, May 31, 2007
"Millions of employees are being paid far too little," argues the Union Organizer. "We need to raise the minimum wage to $7 or $8 an hour."
"Thousands of Americans are needlessly dying in traffic accidents because they aren't wearing their seat belts," saves the Safety Advocate. "We urgently need mandatory seat belt laws for all drivers and passengers."
"Millions of Americans do NOT have health care insurance," says the politician. "We must pass laws requiring employers to provide medical insurance for all employees."
This simplistic approach might work -- IF human beings were chess pieces.
It might work -- IF human beings were powerless, passive, obedient pieces who always do exactly what the great and wise government chess masters order them to do.
But human beings are NOT chess pieces. We can reason and choose. Each of us controls his own actions. Wisely or unwisely.
When government writes laws or regulations that compel this or forbid that, each of us can choose how to respond. Each human being can obey or rebel or ignore.
And that is the fatal flaw in the "pass a law to make things better" remedy. That is the missing factor in "political solutions" equation.
But how do we change the minds of those who are receptive to the belief that passing new laws will make things better? How do we persuade those who believe that wise or good behavior should be required by law?
With questions that undermine and expose the "human beings are chess pieces" fallacy. With questions that get people to explore and examine what individuals will do AFTER the law is passed. With questions that reveal how people will respond.
Pretend that government compels employers to pay employees a higher minimum wage.
* How will each employer respond to the law?
Will he pay the higher minimum wage and raise prices to cover the cost? If he does, how will customers respond to the higher prices? Will they buy less? Will they shop elsewhere -- say "Big Box" mega stores?
Will he convert some "hourly" employees to "salaried" -- to keep labor costs down? Instead of getting $8 an hour X 40 hours a week for a pre-tax income of $320, will the "salaried" employees be paid $350 a week -- and work 55 hours a week?
Will he reduce work hours for his least productive employees to 15 or 20 or 30 work hours each week, instead of 40 -- so they are not entitled to the new, higher minimum wage?
Will he lay off his least skilled, least productive employees? Will he reduce employee assistance to customers -- and move toward self-serve?
Will he outsource some of the work -- to reduce overhead costs?
How might some employers avoid or evade or get around the law?
* How will each current employee respond to the law?
Will she increase the quality or quantity of her work?
Will she do "off the clock, off the books" work -- so the small business owner can afford to keep her employed?
Will she ask her boss to reduce her weekly work hours -- so he can afford to keep her working?
Will she be laid off -- and collect unemployment insurance? -- or pound the pavement looking for a new job?
* How will each unemployed job-hunter respond?
Will he spend 5 weeks unemployed and looking for a job - instead of 2 weeks - because fewer hourly wage jobs are available?
Will he be limited to part-time hourly wage jobs -- because they are exempt from the higher minimum wage? Will he be underemployed? Or will he look for a second part-time hourly wage job -- that is also exempt from the minimum wage?
* How will customers respond to the new situation? To higher prices? To fewer clerks?
* Is this better or worse than things are today? For the small business owners? For the hourly employees? For entry level job hunters? For customers?
"How will each person respond to this?"
"What will each person do about it?"
"What are the consequences of their response to the law?"
"Is this better or worse than things are today?"
Ask these questions of those tempted by "laws passed for our own good by great and wise government chess masters."
Ask them of your family, friends, and co-workers.
Ask them of yourself.
Human beings are NOT chess pieces.

Wise Words For Investors


In Battle As In Investing

Thursday, May 31, 2007 - FreeMarketNews.com
Whether on the military battlefield or the market trading floor, the winners are usually those who have thought out their strategies beforehand and have then stayed with them in the heat of conflict – while remaining flexible in the process.The late Dwight David Eisenhower, Supreme Commander of Allied Forces for the Normandy landings in WW II, remarked accurately: "In planning for battle, I have always found that plans are useless, but planning is indispensable."Controversial George Soros, famous for his historic shorting strategy against the British Pound advised that “The market always destroys the weak."

Loonies, Loonies Everywhere!



Making ‘Cents’ of the Headlines: Get Ready for the Loonie to Rocket!

What Happened
Statistics Canada reported the country’s current account surplus grew in the first quarter by C$1.87 billion, to C$6.49 billion.
What Analysts Expected
Canada’s actual current account surplus in the first quarter fell short of analysts’ expectations set at C$7 billion.
How Markets Reacted
The Canadian dollar eventually moved higher on news that considerably more money is flowing into the country than out. Despite the good news, yesterday’s gains were eventually forfeited thanks to a surging U.S. dollar.
What I Say
The U.S. dollar is riding high on the horse lately, but that’s no reason for the Canadian dollar to hang its head. In concurrence with Tuesday’s headlines and fresh off 30-year highs, the loonie is getting even more support.
On Tuesday Canada’s central bank expressed intentions of boosting interest rates in the near-term. And then yesterday, more fuel was added when this current account report showed that foreign countries are importing a sizeable amount of Canada’s goods and services. In order to pay for such assets, these countries are demanding Canadian dollars.
Bottom line: Canada’s economy is in excellent shape -- which bodes well for the country’s currency. There’s no doubt that once the U.S. dollar runs out of pixie dust, the loonie could hit new highs.

{This is something that SOC (Sound Of Cannons) has been bullish on for awhile. Good to see a lot of the online prognosticators following our lead!}

Nicely Said................

“The [Bill] Moyers phraseology about liberty being meaningless without justice is typical of misery-breeding socialists perfectly willing to toss out liberty on behalf of a government utopia that never was and never will be.”
- Jay Ambrose, May 30, 2007

{Lets face it, Bill Moyers is a very sick man in need of severe help. Poor basterd thinks the answer to every problem is more government and more of your money to fund it. I wonder if he even realizes he's an asshole? ~ Ed.}

EU Engages In Customs Money Theft - Just Like The USA!



"Gotcha" -- Coming and Going
A new European Union (EU) law requiring travelers to declare cash comes into force on June 15th. This new law will supposedly combat that all-purpose prosecutor's crime, "money laundering." It seems the busybody EU bureaucrats have finally aped the greedy U.S. money-grabbing police.
Travelers either entering the EU, or traveling from the EU who carry the equivalent of 10,000 (US$13,461) or more will be required to declare the cash when departing from or arriving in the EU. Travelers could face a penalty of up to 5,000 (US$6730.00) if they fail to comply with the obligation to declare, or provide incorrect or incomplete information.
As if criminals really are going to declare they are transporting dirty cash, Dave Humphries, head of the U.K.'s Criminal and Enforcement Policy claimed: "The declaration system is one means of providing information to assist in targeting movements of criminal cash more effectively."
Cash not only means currency notes and coins, but also bankers' drafts and checks of any kind, including travelers' checks and negotiable instruments.
EU officials say they will not detain properly declared cash if they have no reason to doubt its legitimacy. However, cash may be seized if an officer has "reasonable grounds" to suspect that it is either the proceeds of, or is intended for use in, unlawful conduct.
In the United States, this has given the money police the right to seize a large amount of declared cash (US$10,000 or more). The owner then has to spend thousands in legal fees and months trying to get his or her money back -- if he ever does.
Under Draconian U.S. civil forfeiture laws, the police get to keep the cash if its hapless owner can't prove it to be legal money. In other words, money police have a special incentive to grab as much cash as they can.

Not Really News To Sound Of Cannons

Economy has worst growth since 2002
By JEANNINE AVERSA, AP Economics Writer 2 hours, 1 minute ago
WASHINGTON - The economy nearly stalled in the first quarter with growth slowing to a pace of just 0.6 percent. That was the worst three-month showing in over four years.
The new reading on the gross domestic product, released by the Commerce Department Thursday, showed that economic growth in the January-through-March quarter was much weaker. Government statisticians slashed by more than half their first estimate of a 1.3 percent growth rate for the quarter.
The main culprits for the downgrade: the bloated trade deficit and businesses cutting investment in supplies of the goods they hold in inventories.
"We are still keeping our head above water — barely," said economist Ken Mayland of ClearView Economics.
For nearly a year, the economy has been enduring a stretch of subpar economic growth due mostly to a sharp housing slump. That in turn has made some businesses act more cautiously in their spending and investing.
The economy's 0.6 percent growth rate in the opening quarter of this year marked a big loss of momentum from the 2.5 percent pace logged in the final quarter of last year.
Federal Reserve Chairman Ben Bernanke doesn't believe the economy will slide into recession this year, nor do Bush administration officials. But ex-Fed chief Alan Greenspan has put the odds at one in three.
On Wall Street, investors took the weak GDP showing in stride. The Dow Jones industrials were up 22 points and the Nasdaq gained 14 points in morning trading.
The first-quarter's performance was the weakest since the final quarter of 2002, when the economy was recovering from a recession. At that time, GDP eked out a 0.2 percent growth rate. Economists were predicting the first-quarter performance this year would be downgraded, but not as much as it did. They were calling for a 0.8 percent pace.
GDP measures the value of all goods and services produced in the United States. It is considered the best measure of the country's economic fitness.
In other economic news, the Labor Department reported that fewer people signed up for unemployment benefits last week. New filings dropped by 4,000 to 310,000. That suggests the employment climate is weathering well the economy's sluggish spell.
Another report showed that construction spending edged up by 0.1 percent in April, down from a 0.6 percent gain in the previous month. Spending by private builders on nonresidential projects and spending by the government on big projects each climbed to all time highs in April but that strength was tempered by continued weakness in residential construction.
In the GDP report, many economists believe the first quarter will be the low point for this year. They expect growth will improve but still be sluggish.
The National Association for Business Economics predicts the economy will expand at a 2.3 percent pace in the April-to-June quarter.
In the first quarter, there was a larger trade deficit than first thought. That ended up shaving a full percentage point from the GDP. Businesses cut back on inventory investment as they tried to make sure unsold stocks of goods didn't get out of whack with customer demand. That lopped off nearly a percentage point to first quarter GDP.
Those were the biggest factors behind the government slicing its initial GDP estimate released a month ago by as much as it did.
The sour housing market also restrained overall economic activity. Investment in home building was cut by 15.4 percent, on an annualized basis, in the first quarter. However, that wasn't as deep a cut as the 17 percent annualized drop initially estimated. And, it wasn't as severe as the 19.8 percent annualized drop seen in the final quarter of last year.
Even so, there is no doubt that troubled housing market is one of the biggest problems for the economy. Although some businesses tightened the belt in the first quarter, consumers did not. That helped to prevent the economy from stalling out altogether.
Consumers boosted their spending by a 4.4 percent growth rate in the first quarter, the most in a year. Consumer spending accounts for a major chunk of economic activity.
Some economists wonder how much interest consumers will have in continued brisk spending, however, given rising gasoline prices that have topped $3 a gallon in many markets. More money spent filling up the gas tank leaves less to spend on other things.
One of the reasons consumers have stayed so resilient even as the housing market has been stuck in a rut for a year is because the job market has been good. Employers — still enjoying profits — are keeping a close watch on spending but they are not drastically clamping down on hiring.
Companies profits gained a bit of ground in the first quarter. One measure showed after tax profits rising by 1 percent, up from 0.8 percent in the fourth quarter.
An inflation gauge tied to the GDP report and closely watched by the Fed showed that core prices — excluding food and energy — rose at a rate of 2.2 percent in the first quarter. That was unchanged from an initial estimate but up from a 1.8 percent pace in the fourth quarter.
The Federal Reserve's key interest rate has been at 5.25 percent for nearly a year. Many economists predict the rate probably will stay right where it is through the rest of this year.

Dark Brotherhood

Bilderberg Club - the Mother of all Secret Societies

In 1954, the most powerful men in the world met for the first time under the auspices of the Dutch royal crown and the Rockefeller family in the luxurious Hotel Bilderberg of the small Dutch town of Oosterbeek. For an entire weekend, they debated the future of the world. When it was over, they decided to meet once every year to exchange ideas and analyze international affairs. They named themselves the Bilderberg Club. Since then, they have gathered yearly in a luxurious hotel somewhere in the world to decide the future of humanity. Among the select members of this club are Bill Clinton, Paul Wolfowitz, Henry Kissinger, David Rockefeller, Zbigniew Brzezinski, Toni Blair and many other heads of government, businessmen, politicians, bankers and journalists from all over the world.
Nevertheless, in the more than fifty years of their meetings, the press has never been allowed to attend, no statements have ever been released on the attendees’ conclusions, nor has any agenda for a Bilderberg meeting been made public. Leaders of the Bilderberg Club argue that this discretion is necessary to allow participants in the debates to speak freely without being on record or reported publicly. Otherwise, Bilderbergers claim, they would be forced to speak in the language of a press release. Doubtlessly, this discretion allows the Bilderberg Club to deliberate more freely, but that does not respond to the fundamental question: What do the world’s most powerful people talk about in these meetings?
Any modern democratic system protects the right to privacy, but doesn’t the public have a right to know what their political leaders are talking about when they meet the wealthiest business leaders of their respective countries? What guarantees do citizens have that the Bilderberg Club isn’t a centre for influence trafficking and lobbying if they aren’t allowed to know what their representatives talk about at the Club’s secret gatherings? Why are the Davos World Economic Forum and G8 meetings carried in every newspaper, given front page coverage, with thousands of journalists in attendance, while no one covers Bilderberg Club meetings even though they are annually attended by Presidents of the International Monetary Fund, The World Bank, Federal Reserve, chairmen of 100 most powerful corporations in the world such as DaimlerChrysler, Coca Cola, British Petroleum, Chase Manhattan Bank, American Express, Goldman Sachs, Microsoft, Vice Presidents of the United States, Directors of the CIA and the FBI, General Secretaries of NATO, American Senators and members of Congress, European Prime Ministers and leaders of opposition parties, top editors and CEOs of the leading newspapers in the world. It is surprising that no mainstream media outlets consider a gathering of such figures, whose wealth far exceeds the combined wealth of all United States citizens, to be newsworthy when a trip by any one of them on their own makes headline news on TV.
These are the questions I have asked myself. Fourteen years ago they set me on an investigative journey that has become my life’s work. Slowly, one by one, I have penetrated the layers of secrecy surrounding the Bilderberg Club, but I could not have done this without the help of “conscientious objectors” from inside as well as outside the club’s membership. To them, I extend my deepest gratitude, for their priceless intelligence has made this book possible. You can understand then, to protect them, I cannot mention these true heroes by name: Only thank them for helping me find out what was being said behind the closed doors of the opulent hotels where the Bilderbergers hold their annual meetings.
Before we enter the realm of this exclusive club, it is important to recognize that neither people nor organizations are absolutely “evil,” just as no one is absolutely “good.” There are powerful people in the world guided by higher ideals, principles and beliefs than the manipulative secret club and its spin offs I describe in this book. Even within it, the efforts of the original members to better our world were based on a “father-knows-best” autocracy similar to the Roman Catholic’s paternalistic control of Christianity. Their intent was noble, at first.
Unfortunately, the Bilderberg Club has grown beyond its idealistic beginnings to become a shadow world government, which decides in total secrecy at annual meetings how their plans are to be carried out. They threaten to take away our right to direct our own destinies. And it is becoming easier because the development of telecommunication technology, together with profound present-day knowledge and new methods of behaviour engineering to manipulate individual conduct convert what, at other epochs of history, were only evil intentions into a disturbing reality. Each new measure, viewed on its own, may seem an aberration, but a whole host of changes, as part of an ongoing continuum, constitutes a shift towards total enslavement.
In this uncertain near future, people feel there is something evil lurking in the darkness. Waiting to pounce. Biding its time. We can feel its chilling presence. Most people would like to ignore it, but they no longer can. This “something” has slowly and stealthily forced itself into our conscious awareness and our collective psyche. It is our job to show the reader what this “something” is and disclose its terrible apocalyptical plans.
However, on a world level, there is a general awakening taking place as people are beginning to hold mirrors up to their irrationality; this awakening is beginning to empower our collective learning and understanding. You see, we have been told that world events are too difficult to understand for a lay person. They lied! We have been told that national secrets must be zealously protected. Indeed, they must! No government wishes for its citizens to discover that its best and brightest deal drugs, participate in massive pillaging of the planet, kidnappings and assassinations. On the pages of danielestulin.com, we do it for them. But there is hope. In almost every corner of the planet, stress points are beginning to fracture. And people are beginning to take sides. Governments, from now on, better be afraid of their people.
This is why it is time to look behind the scenes and try to find the man behind the curtain. We are at a crossroads. And the roads we take from here will determine the very future of humanity. We have to wake up to the true objectives and actions of the Bilderberg Club and its parallel kin if we hope to retain the freedoms fought for by our grandfathers in the Second World War.
Finally, I would like to truly acknowledge the help of all those brave and wonderful people who over the years have given us so much for so little. The list of collaborators, independent researchers, in and out of government sources, private investigators, US Army, Navy and Air Force analysts, Spanish Generals, cooks, chefs, bellboys, cleaning persons, waiters and waitresses at Bilderberger hotels, who have full-heartedly given of their energies and time, overlooking the dangers that such meetings could cause them is simply too long to mention on these pages, or rather our pages, because I am the vehicle of the collective psyche of a society whose natural instinct spells FREEDOM.
I extend my sincerest and deeply felt gratitude to numerous members of international secret service agencies in Washington, London, Moscow, Madrid, Paris, Caracas and Ottawa, whose inside knowledge on intelligence issues and wisdom often kept my spirits up in the darkest of hours. Without their priceless intelligence gathering, this book would have forever remained an unrealisable dream.
Special thanks go out to Canada, my country, who gave our family home and hope for a better future without asking for anything in return. I have repaid that debt of gratitude in 1996 when I uncovered Bilderberger diabolical plans for Canada’s break up. My love goes out to Canada’s wonderful and decent and freedom loving people who that fateful year answered my desperate plea for help by taking to the streets en masse to resoundingly destroy Bilderberger hopes of silently breaking Canada up. When I need uplifting, I think of these people and in their faith in the goodness of Men.
I dedicate this book to all those who have never stopped searching for the truth, in the face of government lies, cheating, manipulation and deceit. To those who have intuitively felt that blasphemous lies we are told are but a vile whiff of hatred. All these people deserve to know the truth about our history and heritage.
History teaches by analogy, not identity. The historical experience is not one of staying in the present and looking back. Rather it is one of going back into the past and returning to the present with a wider and more intense consciousness of the restrictions of our former outlook.
This is far from over.
Mankind is yet to pass a final judgement. Miracles, as someone said, can happen without our permission. The fact that we are here, doing what we do, is a living proof of that.

Yup, It's The Left That Isn't That Smart

The Ignorance and Sheer Bigotry of Lefty Journalists
Thursday, May 31, 2007
Things just seem to get worse and worse. A university student told me that she had been advised to use Beyond Right and Left as a source for her assignment. Needless to say, the site is run by a lefty academic. (The student told me that her lecturer had never advised her to visit a conservative site). This lefty was whining that the "Right's dismissal of critics as 'elites' who are out of touch with 'the battlers'" is baseless. He then quotes Geoffrey Barker, a Sydney Morning Herald journalist, as saying that the Right's accusation is "an extraordinary charge coming from neo-liberal fundamentalists whose privileged lives rarely bring them close to anyone who has had to 'battle" for anything'."
Unfortunately Barker's counter charge contains a grain of truth. For the multimillionaire Hugh Morgan to go on Television and state that those on the minimum wage are making too much money is not only stupid it is also deeply offensive. Nevertheless, Barker is even worse: this is the same lefty journalist who accused his fellow Australians of "racism" and leading a "swinish life". (Katherine Betts, The Great Divide, Duffy & Snellgrove, 1999, p.186) In my opinion this exposed Barker as a bigoted smear-mongering liar.
The following article was written by me and was published in The New Australian in May 1999 with the title A socialist journalist bags laissez faire and calls for tax increases.
Geoffrey Barker has once again given us the benefit of his economic illiteracy. According to him "the old theory of laissez-faire economics" held that government should redistribute wealth to give "the affluent the spur of more money and the poor the lash of their own poverty (Following the GST Slaves").* This is a vicious libel. If it were otherwise Barker would have cheerfully named those classical economists who supported this view. Instead, he quoted the socialist Galbraith's** sarcastic comment about horses, oats and sparrows. Ascribing callous and even vicious views to the classical school is typical of fundamentalist leftists like Barker. Nevertheless, he has once again alerted us to his ideological bigotry and shocking ignorance of the history of economic thought.
The first thing one should realise is that in a free market one can only obtain wealth through voluntary exchange, either by earning it or inheriting it. No free marketeer, classical or otherwise, ever supported government action to take from the poor to give to the rich, despite the snide insinuations of the likes of Barker. As Professor Edwin Cannan said of Adam Smith: "[His] sympathies, indeed, seem to have been wholly with the industrial wage-earner, and especially with the poorest". (William H. Hutt, The Theory of Collective Bargaining 1930 -1975, Institute of Economic Affairs, 1975, p. 16).
The same applied to the other classical economists. For instance, Col. Robert Torrens who emphatically stat that "it is of paramount importance, that wages should be permanently high". (On Wages and Combination, Longman, Rees, Orme, Brown, Green, & Longman, 1834). Their sympathy for labourers was made clear by their concern that taxation could become oppressive, especially for the poor.
Unlike Barker they were acutely aware that taxation hinders capital accumulation and that beyond a certain point it will even lead to capital consumption and hence falling living standards. Mill put it very well when he wrote:
Over-taxation, carried to a sufficient extent, is quite capable of ruining the most industrious community, especially when it is in any degree arbitrary, so that the payer is never certain how much or how little he shall be allowed to keep; or when it is so laid on as to render industry and economy a bad calculation. (John Stuart Mill, Principles of Political Economy, University of Toronto Press 1965, pp. 822-23)
Barker gives every indication that he believes taxation has no effect on wealth creation and makes the preposterous assumption that taxation does not affect behaviour or growth. For example, the 1981 and 1986 Reagan tax cuts saw a significant increase in tax contributions from the top 0.5 per cent of taxpayers as they reported more income as their income rose. In other words, the tax cut made it worthwhile to report more income which in turn led to higher tax payments. However, the Reagan experience was not unique.
When Kennedy visited West Germany in 1961 Chancellor Ludwig Erhard impressed on him the need to avoid British-type tax rates that punished initiative and wealth creation. Preferring the advice of the very successful Erhard to that of the socialist Galbraith, the 1963-1965 Kennedy tax cuts were implemented and marginal rates cut by 23 per cent.
The result: personal savings which had been declining leapt from an annual rate of 2 per cent to 9 per cent, business investment rose significantly, per capita disposable-income jumped and the per centage of Americans living below the poverty line dropped from 22 per cent to 13 per cent by 1968. Perhaps more significantly, the tax take took off. This is what happens when you ignore the advice of socialists.
But there was nothing knew here. Between 1921 and 1925 the Secretary of the Treasury, Andrew Mellon, persuaded Harding, Coolidge and Congress to cut taxes four times from a top rate of 4 per cent to 70 per cent to a range of 1.5 per cent to 25 per cent. Despite dire predictions to the contrary by the then likes of Barker and Galbraith tax revenues rose, most of which came from the top income groups. The per centage of taxes paid by the $100,000 plus earners (an enormous amount in those days) rose from 28.8 per cent in 1921 to 48.8 per cent in 1925.*** But left-wing journalists like Barker are not interested in unearthing let alone discussing facts like these. To them taxation is a means to punish the 'rich' and the economically successful. Anyway, even if we assume that wage earners behaviour does not change with changes in tax rates it would still not support Barker's case for milking people who earn more than him to give to those who earn less so that he can feel better about himself.
Assuming entrepreneurs remained as diligent and as alert as before their activities would still be severely curbed by heavy taxes. What few realise is that such burdens are really taxes on capital accumulation. Curbing this process might not impoverish all entrepreneurs but it will make the masses much poorer. Genuine entrepreneurs are an economy's real driving force. But Barker's sneering response is to attack Smith's invisible hand, caustically referring to it as a "Utopian theory".
Smith's metaphor**** was based on observation, Mr Barker, not fantasy. It epitomises the market process that coordinates the hundreds of millions of decisions that are made in the market place each day; bringing together consistent plans while signalling the failure of others; coordinating an infinite amount of ever changing discrete and incomplete pieces of information conveying ideas about expectations, technical knowledge, changing tastes; using prices to transmit knowledge of shortages, surpluses, expected profits and losses, and to allocate factors to their most valued use.
Now Barker does not deny that the tax system needs reforming. But his idea of reform amounts to an envy-driven "soak-the-rich policy". (Mill called envy "that most anti-social and odious of all passions", On Liberty, Oxford University, 1984, p. 96). Quoting the leftish Bernie Fraser, former Reserve Bank Governor (the one who let the money supply explode in the 1980s) Barker tells us that "tax deductions, exemptions, rebates and concessions given to companies and mainly wealthy individuals" had a value of $21 billion. (Of course, we not given a definition of "wealthy individuals" nor did Fraser or Barker call for the abolition of the Churches tax-exempt status.)
This is class-war rhetoric dressed up as concern for the poor. Deductions, rebates, concessions, etc, are created by governments to change economic behaviour. For example, rebates on superannuation are designed to increase savings, while negative gearing is intended to expand the stock of rental accommodation. But you don't get a hint of this from Barker. Nor does he consider the possibility that eliminating these loopholes might actually see very little increase in tax revenues. In addition, it escaped his attention that loopholes come into existence to try and compensate for the effects of high tax rates. Moreover, politicians like loopholes because it allows them to buy votes from targeted groups.
What this boils down to is that left-wing ideologues like Barker have nothing to contribute to any economic debate.
1. The noted British socialist historian A. J. P. Taylor held similar views about economics, stating that: "This was the greatest revolutionary discovery of the twentieth century: that there are so-called natural economic laws; everything, even human beings, had to be subordinated to the 'price mechanism', that terrible Moloch to which old-fashioned economists still bow down" (The Listener, 20 March 1947). This was when socialist Britain was suffering an enormous range of government induced shortages and living standards had not even recovered to pre-war levels. At the same time, the Moloch-worshipping Americans were undergoing a boom and living standards were rising.
2. Galbraith is one of Barker's intellectual heroes. The same Galbraith who supported the Berlin Wall for its "contribution to world peace." The very same Galbraith who supported the murderous Mao Tse Tung. I reckon this in itself tells much about Barker. The same Barker who accused fellow Australians of "racism" and leading a "swinish life", of being "fatuously materialistic" and wallowing in "vulgarity". He obviously share's Galbraith's patrician-like contempt for the masses.
3. It might be objected by the better informed - of which Barker will never be a member - that monetary expansion could account for the increase in tax revenues etc. However, the results were too quick and the magnitudes too large. And it certainly could not account for the steep drop in the poverty level that took place in the 1960s.
4. It seems that the brilliant metaphor the invisible hand originated with the English author Joseph Granville in his The Vanity of Docmatising 1661.
Note: The valiant Mr Barker has ignored every request to defend his accusations. He, like the rest of his left-wing colleagues, clearly lacks the intellectual and moral courage to defend his ideological views.

Hey Vlad! STFU!!!!


Putin issues sharp warning to US, vows to counter 'imperialism'
Thu May 31, 10:31 AM ET
President Vladimir Putin issued an acerbic warning Thursday to the United States, saying the recent test of a new Russian missile was a direct response to US actions and condemning "imperialism" in world affairs.
"Our American partners have quit the ABM Treaty," Putin told reporters after meeting his Greek counterpart, referring to the landmark 1972 US-Soviet treaty limiting the missile defenses of the Cold War superpower foes.
"We warned them then that we would come out with a response to maintain the strategic balance in the world. Yesterday we conducted a test of a new strategic ballistic missile with multiple warheads, and of a new cruise missile, and will continue to improve our resources."
The United States informed Russia in 2001 that it was exercising its option to withdraw unilaterally from the Anti-Ballistic Missile (ABM) pact. It has since stepped up controversial plans, fiercely opposed by Russia, to deploy a missile defence shield in eastern Europe.
Putin warned Wednesday that the US missile defense plan would turn Europe into a "powder keg" and he repeated on Thursday previous assertions that the planned deployments would ignite a new Cold War-style arms buildup.
"We are not the initiators of this new round of the arms race," Putin said.
The Russian president's comments came a week before he meets US President George W. Bush and other leaders of the Group of Eight (G8) industrialised nations at a summit in Germany.
He is also scheduled to hold one-on-one talks with Bush in the United States at the beginning of July.
In a thinly disguised attack on US foreign policy in recent years, Putin warned there had been attempts by actors -- he did not name any country or bloc explicitly -- in international affairs to impose their will on others.
"In our view, it is nothing other than diktat, than imperialism," the Russian leader stated.
"Problems have arisen because the world changed and there was an attempt to make it unipolar. There was a desire among several international actors to dictate their will to each and everyone and to act not in accordance with the norms of international life and law," Putin said.
He added: "This is very dangerous and unhealthy. The norms of international law have been altered for political expediency. What is this political expediency and who defines it?"
Tensions between Russia and the United States have risen dramatically in the past year amid sharpening differences over the US missile plans, the state of democracy in Russia and concerns over energy supplies.
US Secretary of State Condoleezza Rice repeated on Wednesday the US assertion that the planned missile defense system in eastern Europe poses no threat to Russia and that Moscow's concern over it is "ludicrous."
Her Russian counterpart, Sergei Lavrov, countered at a meeting of G8 foreign ministers outside Berlin that "there is nothing ludicrous about this issue because the arms race is starting again."

No Tequila???? JFC!!


“Forget the tortilla crisis… no agave, no tequila... mucho problemo!” continued our Maniac Trader. Many Mexican farmers are literally igniting their blue agave fields and sowing the land for corn. U.S. demand has pushed prices high enough to pull agave farmers right out of the industry. “The switch to corn will contribute to an expected scarcity of agave in coming years, with officials predicting that farmers will plant between 25-35% less agave this year to turn the land over to corn,” reported Reuters.
And we’ve heard rumors that barley growers in Germany have switched to rapeseed -- or canola, if you prefer its more hygienic moniker -- for use in biodiesel. The knock-on effect is rising beer prices, which is practically a sin in that country.
No tequila in Mexico… beer prices skyrocketing in Germany… oh la la, this is getting serious.

On The Road To Serfdom

We reported the average working stiff’s share of the U.S. public debt has reached $516,348. “Put that together with his spiffy new mortgage,” comments Bill Bonner, “and he's more than $1 million in debt. He has taken what Friedrich Hayek called 'The Road to Serfdom.’ He is becoming a slave… to his credit cards, to his government, to his mortgage, to his nation's foreign meddling and domestic commitments; and the poor man has no way out.”
After adjusting for inflation, the average 30-year-old man today makes $35,000, while his father brought him $40,000 in 1974. These paltry numbers were released by Pew Charitable Trusts yesterday.

Wednesday, May 30, 2007

Sad But True........

“If the Democrats can’t win the Presidency in 2008, they’ll never win the Presidency.”
- David Keene

{I'd Like To See America Embrace A Path Towards Conservatism And Freedom, But Unfortunately Dumb People Are Still Allowed To Vote ~Ed.}

My Own Therapy

“If I don't write to empty my mind, I go mad.” -- Lord Byron

I Wonder What they're Going To Talk About


THE NEW WORLD DISORDER

Secretive Bilderberg meeting set for Turkey

Kissinger, Rockefeller, media moguls among those scheduled to attend
Posted: May 30, 20071:00 a.m. Eastern
© 2000 WorldNetDaily.com-->© 2007 WorldNetDaily.com

The super-secret Bilderberg Group, an organization of powerful international elites, is set to meet this week somewhere in Turkey – but even the precise location is a mystery.
The meeting begins Thursday and continues through Sunday.
Those expected to attend include Donald Graham, chairman and chief executive officer of the Washington Post, Richard N. Haass, president of the Council on Foreign Relations, Henry Kissinger, David Rockefeller, John Vinocur, senior correspondent of the International Herald Tribune, Paul Gigot, editor of the editorial page of the Wall Street Journal, Nicholas Beytout, editor-in-chief of Le Figaro, George David, chairman of Coca-Cola, Martin Feldstein, president and chief executive officer of the National Bureau of Economic Research, Timothy F. Geithner, president and chief executive officer of the Federal Reserve Bank of New York, Vernon Jordan, senior managing director of Lazard Freres & Co., Anatole Kaletsky, editor at large of the Times of London and General William Luti, the new "war czar."
According to reports from Turkey, Iran's nuclear weapons ambitions and global energy issues will be on the agenda – but only invitees know for sure.
Welcome to the mysterious world of secret societies.
Did someone say "secret societies"?
(Story continues below)
"Most people don't realize they exist because their minds have been conditioned to reject any thought of such organizations," explains Dr. Stanley Monteith, a medical doctor by training, who set out on a mission to research groups like the Bilderbergers 40 years ago.
The results of his startling research is a little book called "Brotherhood of Darkness," in which he exposes the global agenda of organizations such as the Council on Foreign Relations and the Trilateral Commission.
How important are events like this weekend's Bilderberg conference?
It may not make any difference now, but in 2004, according to the New York Times, it was the standout "performance" of Sen. John Edwards at the super-secret Bilderberg meeting in Italy that sealed the deal on his nomination as John Kerry's vice presidential running mate.
Since 1954, the Bilderberg group has convened government, business, academic and journalistic representatives from the U.S., Canada and Europe with the express purpose of exploring the future of the North Atlantic community. The first meeting was held at the Hotel de Bilderberg in the Netherlands – thus the name.
According to sources that have penetrated the high-security meetings in the past, the Bilderberg meetings emphasize a globalist agenda and promote the idea that the notion of national sovereignty is antiquated and regressive.
"It's officially described as a private gathering," noted a BBC report in 2003, "but with a guest list including the heads of European and American corporations, political leaders and a few intellectuals, it's one of the most influential organizations on the planet."
And according to a BBC report on 2004's conference in Stresa: "Not a word of what is said at Bilderberg meetings can be breathed outside. No reporters are invited in and while confidential minutes of meetings are taken, names are not noted. The shadowy aura extends further – the anonymous answerphone message, for example; the fact that conference venues are kept secret. The group, which includes luminaries such as Henry Kissinger and former UK chancellor Kenneth Clarke, does not even have a website."
But, counter participants, the secrecy is not evidence of a grand conspiracy, but only an opportunity to speak frankly with other world leaders out of the limelight of press coverage and its inevitable repercussions.
"There's absolutely nothing in it," argues the UK's Lord Denis Healey, one of the four founders of Bilderberg. "We never sought to reach a consensus on the big issues at Bilderberg," he told the BBC. "It's simply a place for discussion."

I'm Still Trying To Figure Out Why It's My Liability

What a load of financing that is, too. “Taxpayers are now on the hook for a record $59.1 trillion in liabilities,” reported USA Today yesterday.
That’s about $516,000 for every U.S. household. After doing the books the way all corporations are required to by law, USA Today found that the federal government lost $1.3 trillion last year -- far more than the “official” $248 billion deficit.

Gulp!

80% of Treasuries due in 3 to 10 years are owned by foreigners -- a record high. “The media do a fine job letting us know what kind of dependence we have on foreign oil,” writes EverBank’s Chuck Butler “But they fail miserably at letting us know what kind of dependence we have on foreign financing.”

Nicely said..........

"It is all right with me if they want to disguise themselves as Karl Marx or Lenin or any of the rest of that bunch, but I won't stand for . . . allowing them to march under the banner of Jackson or Cleveland." -Al Smith
(Gee, who do you think he's talking about?~Ed.)

Food For Thought

I don't agree with everything I post, but this article poses a few thoughts that need attention. Considering that there were no differences in the Kerry/Bush election for Prez, I believe elections are rigged contests of little choice. I still vote, but I vote Libertarian whenever possible.
Incredibly Stupid Statement of the Day
Wednesday, May 30, 2007
Wow. Just ... wow.
Voting is the ultimate exercise of personal freedom.
WTF? When you vote, it's usually over one of three things:
- Who is going to govern you (and everyone else). Now, perhaps you think that you (and/or others) need to be governed ... but even stipulating, for the sake of argument, to that proposition, necessity doesn't magically turn an exercise in submission into an exercise of personal freedom.

- What rules you (and everyone else) are going to be bound by. Once again, it's possible that you think there should be limits to freedom, and that the best way to decide what those limits are is a referendum ... but once again, we're talking about an exercise in reciprocal restraint, not an exercise of personal freedom.

- Who's going to pay for all this governing nonsense and how (i.e. taxes, bond issues and such). I suppose that voting "yes" on a measure to repeal a tax or "no" on a new tax or a tax increase might resemble an exercise in personal freedom (setting aside the question of whether or not the voting implies consent to the tax if the election doesn't go your way, and what that says about your mindset) ... but it really seems a lot more like a mass dine-and-dash episode in which everyone tries to stick everyone else with the check.
"Ultimate exercise in personal freedom?"
Making love with someone similarly inclined would certainly make my short list.
Taking my money to any store I choose and buying whatever I want there would too.
Voting? Um, no. Hell no, not even if I get to dip my finger in purple ink and ululate for the camera afterward.

Another Trumpet Of Financial Doom


The U.S. Dollar is Moving Rapidly

Wednesday, May 30, 2007 - FreeMarketNews.com
Investor letter writer Doug Casey likes to say, not with a smile on his face, that all paper currencies eventually decline in value to their intrinsic worth - zero. And history certainly backs him up.Of Americans' predicament today, Donn Stott writing on gold-eagle.com states:"Dollars? Uh uh. Just pieces of paper fluttering in the breeze. When Saddam was captured, he had $175,000 in hundred dollar bills in his hole with him. Two 53 foot long trailers chock full of hundred dollar bills were found when we invaded Iraq. Counterfeit? Who knows? They're all counterfeit, no matter who prints them. Thanks for trying JFK, if you are somewhere and can read this. Protect yourself."The late Bernard Shaw would no doubt have agreed fully. He once remarked:"You have a choice between the natural stability of gold and the honesty and intelligence of the members of government. And with all due respect for those gentlemen, I advise you, as long as the capitalist system lasts, vote for gold." Staff Reports - Free-Market News Network

Sub 60 IQ's Guarding The Nation


Homeland Sec. Guards Untrained

Wednesday, May 30, 2007 - FreeMarketNews.com
Private security guards paid little more than janitors and restaurant cooks are guarding many of the critical security sites in the United States, usually with minimal or no anti-terrorist training, an Associated Press investigation found. The nation's security industry found itself involuntarily transformed after Sept. 11, 2001, from an army of "rent-a-cops" to protectors of the homeland. But cutthroat competition by security firms trying to win contracts with low bids has kept wages low and high-level training non-existent. -AP

People Hoarding Gold? Why On Earth Would They Do That?


Gold Vanishing Into Private Hoards


Wednesday, May 30, 2007
Introduction. While doing research in the Library of the University of Chicago in the early 1980's I came across the unfinished manuscript of a book with the title: The Dollar: An Agonizing Reappraisal. It was written in the year 1965. It has never been published (although it has received private circulation). The author, monetary scientist Melchior Palyi, a native of Hungary, died before he could finish it. Monetary events started to spin out of control in 1965, culminating in the default on the international gold obligations of the United States of America six years later in August,1971. Palyi had correctly prophesied that event which occurred after he died. He had also correctly diagnosed the malady and prescribed the remedy that could have arrested the train of events that would in all likelihood cause a crash further down the road. As part of the offering of Gold Standard University, I shall publish the manuscript serially in the form of excerpts, along with with my commentary, concentrating on parts that are still timely.
That the title is more timely than ever is a fact that nobody can deny.
Biographical remark. Melchior Palyi (1892-1970), the internationally recognized educator, author, and economist was born and got his early education in Hungary. He was Professor Emeritus of the University of Berlin and also taught at the Universities of Munich, Göttingen, and Kiel. He was the chief economist of the Deutsche Bank of Berlin, the largest on the European continent at the time, and was adviser to the Reichsbank, the central bank of Germany, from 1931 to 1933. He was then guest of the Midland Bank, Ltd., in London, and visiting lecturer of the University College of Oxford.
Palyi moved to the United States in 1933. He was visiting professor and research economist at the University of Chicago, Northwestern University, the University of Wisconsin, and the University of Southern California. He was involved in broad literary and lecture platform activities. The bibliography of his literary output is extensive; let it suffice to mention the titles of some of his books: Compulsory Medical Care and the Welfare State (1949; he is credited with the saying "where the Welfare State is on the march, the Police State is not far behind"), Managed Money at the Crossroads (1958), A Lesson in French: Inflation (1959), and his swan song: The Twilight of Gold (1970). Change of font to bold face type indicates quotations from the manuscript.
The Gold Paradox
Nineteen sixty five will be remembered in the modern history of money. For the first time, private buyers absorbed almost the entire supply of new gold coming on the market. "Newly mined gold plus Russian sales amounted to approximately $1.9 billion", reported the First National City Bank of New York, but "only some $250 million worth is believed to have reached officially recorded monetary stocks" (all quantities are stated in gold dollars, reckoned at the gold price of $35 per Troy oz.) And none whatsoever accrued to U.S. monetary reserves - which has actually declined by a near record amount of $1.66 billion.
What is happening to all that disappearing gold? Why does it refuse to go to official gold reserves? Why, in particular, is the U.S. Treasury on the losing side year after year, with no sign of terminating this process? And, above all, what does it say about the stability of the dollar, the economic health of the nation, and the future prospects of the Western World?
The central problem is the actual maintenance of the parity. The U.S. Treasury is under obligation, in effect, to assure that on the world's markets 35 dollar means the same value as one ounce of gold. Thereby the value of the dollar is anchored to the solid rock of a fixed quantity of gold. As long as this external convertibility of the dollar appears to be guaranteed, world public opinion will not question the equivalence between the currency unit and a set amount of the yellow metal. That is why to the world at large the dollar is "as good as gold". In the words of President J. F. Kennedy, speaking in September, 1963, "We are determined… to maintain the firm relationship of gold and the dollar at the present price of $35 an ounce, and I can assure you we will do just that."
Gold vanishing into private hoards
1950 is the watershed year marking the start of a new era in the relationship between gold and paper money. In the twelve-year period ending in 1964 the Western World's gold mines and Russian gold sales (about $1 billion in 1963-64) combined, produced $16 billion worth of gold, but official gold reserves have grown only by $7 billion. More than 50 percent, on average, of the new gold bypassed official reserves and vanished in private hoards. On the top of that the prime reserve currency, the U.S. dollar (that is backing many other currencies) had lost close to one-half of its gold reserves. By the end of 1965 our reserves have declined from a peak of $24.7 billion in September, 1949, to less than $14 billion - of which $835 million is a sight deposit of the International Monetary Fund. Not only has the richest country failed to attract any part of the new gold supply; it has actually lost more than $10 billion's worth. If continued, this process would herald the breakdown of the entire gold-based monetary setup of the West, with incalculable consequences.
To have some idea of the order of magnitude of gold vanishing into private hoards during the period from 1950 through 2007, let us recall some facts and figures.
Output from Western mines plus Russian gold sales before the collapse of the Soviet Union (approximate quantities in gold dollars at $35/Troy oz.):
1950-51: $ 2,000m; 1952-65: $ 21,000m; 1966-68: $ 3,400m; 1969-2006: $ 77,500m.
Absorption into private hoards from mine output, gold pool sales plus US/IMF/central bank gold auctions (approximate quantities in gold dollars at $35/Troy oz.):
1950-51: $ 100m; 1952-65: $ 9,000m; 1966-68: $ 3,200m; 1969-2006: $ 80,000m.
The crescendo of gold disappearing in private hoards is crying out for an explanation. Gold absorption into private hoards for the 20-year period from 1950 through 1970 was of the same order of magnitude as the entire U.S. gold reserve at its peak in 1949, the largest gold concentration ever in history: just short of $ 25 billion. It was followed by the greatest dissipation of gold ever. This private absorption of gold is unprecedented, both as to its magnitude and its speed. The total amount of gold absorption for the entire 56-year period 1950-2007 was approximately $ 90,000m, an amount greater than all the gold produced in history before 1950.
Clearly, something ominous is happening to the dollar. Vanishing gold is trying to tell us something, that is, if we have ears for hearing. More remarkable still than these extraordinary quantities of wealth shifted out of paper assets into phyisical gold, worth about $ 1,8 trillion at today's gold price, a process that is still continuing at an accelerating rate, is the fact that mainstream economists and their paymasters in government are not asking questions about, nor offering explanations for this incredible movement of wealth going into hiding. The apparent lack of interest about the identity and intentions of the owners of this wealth on the part of the economists' profession is in itself a worthy subject to investigate.
Put it differently, paper wealth in the world is presently being destroyed at the rate greater than that of the annual gold production, approx. $2.8 billion gold dollars (equivalent to about $55 billion paper dollars at today's gold price), but this earthquake-style destruction is allowed to go unnoticed by academia and the financial media. They are satisfied that paper wealth so destroyed will not be missed. The U.S. Federal Reserve banks are dutifully replacing these real assets, and more, by printing paper assets. "See no evil, hear no evil." "What you can't see won't hurt you." Nobody is pointing out that this newly created paper wealth facing, as it is, an equivalent amount of wealth in solid gold, is quite hollow. Nobody asks whether the large quantities of gold vanishing into private hoards could cause a crisis when its size reaches and exceeds critical mass. Be that as it may, thinking people ought to realize that, the official 'propaganda of silence' notwithstanding, the disappearance of such inordinate quantities of gold cannot help but, in the fullness of time, have an untoward effect on their lives, and on their children's lives.
Fifty percent of all the gold in existence has been produced since 1960. The same fifty percent has been withdrawn from the public domain during the same period of time and disappeared in private hoards. There is no way to account for this gold. We do not know the location, the identity of owners, nor their intentions what they wanted to do with it. This is a sea change portending a still greater sea change to come. This is a situation comparable to the disappearance of the gold and silver coinage of ancient Rome portending the fall of the Empire. For this sea change the public is totally unprepared. It is left in complete ignorance, due to the deep silence of the media and academia.

"The most uneconomical medium of circulation"

At this point the reader may raise some pertinent questions. Why is gold essential for a healthy monetary system? Why should anyone want to hoard it? Is it not a useless gadget, good only for jewelry and dentistry? Why base the currency on such an odd commodity, or on any commodity for that matter? We have eliminated gold from hand-to-hand circulation; why not finish the job and dethrone the "barbarous relic", as Lord Keynes called it?
Indeed, we seem to be on the way to wipe all traces of gold out of the monetary system. The first (1915) Annual Report of the New York Federal Reserve bank argued that "gold is the most uneconomical medium of hand-to-hand circulation since, when held in bank reserves, it will support a volume of credit equal to four or five times its own volume". (That was an unintended admission of the inflationary bias indigenous to American money-management.)
Twenty years later, in 1934, we proceeded to 'demonetize' gold, forcibly taking it out of circulation. This was followed, in 1945, by the reduction of the Federal Reserve banks' gold reserve requirements to 25 percent of total liabilities. By 1965 we had abolished gold as a mandatory backing of the deposit liabilities of the Federal Reserve banks altogether.
Rationale of gold
The first thing to know about gold is that there is no alternative to it. Gold is the one and only commodity that has no marketing problem. There is no sales resistance and no competition to overcome. A gold reserve is as important for the nation as a bank account for the firm or individual. You keep part of your funds in idle bank balances in order to be 'liquid' - to be able to pay your bills. Gold is the ultimate and unquestioned world-wide 'liquidity'. It is accepted in payment of claims. Hence it is imperative that a country should possess gold, or to have access to gold, in order to take care of an unfavorable balance of foreign payments that arises when it has to purchase abroad more goods, services, and assets than other countries buy from it. This has been the chronic case for the United States in the post-World War II era, resulting in gold losses and in a huge volume of short-term debt to foreigners.
The gold reserve inspires confidence in the currency at home and abroad. "Even the most prejudiced managed-money advocate cannot deny that no form of paper or arrangement can ever command the confidence and trust inspired by gold, a store of value in itself" (The Statist, London, December 25, 1964.)
In addition to the monetary there is also a non-monetary demand for gold. The very promising metallurgical and medical applications of gold are still in their infancy. Its use in the arts is ancient history. In any case, the non-monetary demand provides a substantial part of the value of the yellow metal, and is the root-cause of its use as the Number One store of value. This function loses its importance when the national currency is safely anchored in gold. But it is promptly revived and expanded whenever convertibility comes under a cloud.
Paper money can be multiplied sine fine, virtually at no cost. Gold is available only in limited quantity and at a substantial cost of production. This fact is not a negative but a highly positive factor for determining gold's monetary fitness. Gold derives further strength from another circumstance. The annual new production is a very small part of the accumulated total supply, hardly ever more than 3 percent at any given time. In 1965, for example, the $1.9 billion new gold reaching the market was less than 3 percent of the total supply of over $60 billion accumulated in the central banks of the West and in private hoards. (The latter has been 'guesstimated' at $17 billion.)
No commodity known to man combines as gold does the qualities of durability, unlimited marketability, portability, homogeneity, steady demand, stability of supply growth, fitness for being stored, low cost of storage per unit of value and, last but not least, independence from authoritarian manipulation of the total supply. This is why totalitarians (and their dedicated or subconscious fellow-travellers) are violently opposed to its private ownership that provides the citizen with a large measure of freedom. By having gold he can hedge against arbitrary policies of the Omnipotent State, or even slip out from its clutches.
Explanation of the gold paradox
The paradox of a chronic flight into gold, and out of the U.S. dollar which is tied to gold, is the outstanding symptom of the present critical situation. The pat explanation for the paradox is to blame the recurrent runs on the 'speculators'. This is a characteristic throwback to medieval economics, confusing symptom and cause. In truth, responsibility belongs to the authorities who create opportunities to induce speculators to go short on the dollar or to buy gold on margin. A far more important factor may be the maneuvering of the cautious who do the exact opposite of 'speculating': they are trying to protect their assets and incomes by hedging against a possible devaluation…
Another pat explanation relegates the problem to the fringes of the global economy. In areas where political, legal, or monetary insecurity prevails, there is a compulsive instinct to seek security in hoarding gold. No country can beat India in this regard. The hidden gold of her population has been estimated by India's Reserve Bank at some $6.4 billion (!), built up over a period of 100 years or longer.
But the less developed economies are altogether too poor to absorb each year the huge amount of vanishing gold. And why would they not hoard convertible currencies instead of gold, as they did in the past? Actually, an appreciable fraction of foreign aid dollars has been used by the recipients to acquire gold - another vote of no-confidence for the dollar, as well as for the respective local governments.
Even more significant is the fact that leading European central banks display definite signs of impatience with the dollar. Given the $13.7 billion holdings of dollar claims by monetary authorities, not counting some $6 billion held by international organizations, the danger this implies for the American gold reserve and the maintenance of the dollar's convertibility can scarcely be overestimated.
It is more than a problem in monetary management. Our very prosperity, and the integrity of our economic system is at stake!
Explanation, forty years later
In forthcoming parts of this series I shall take the analysis of the gold paradox beyond the point to which Palyi has taken it. I shall ask the question who the hoarders are and what motivates their gold hoarding. My thesis is that gold hoarding is a win-win strategy, the only valid one as such. (All other win-win strategies are Ponzi schemes.) However, there is a strict condition, one that disqualifies most would-be beneficiaries. The gold hoarder must be prepared to, and mentally capable of, using gold exclusively as his numeraire in calculating asset values as well as pofit and loss. He must understand that profit/loss accounting in terms of the paper dollar is tantamount to trying to measure length with an elastic measuring-tape. The obvious result is a cover-up for the deficiency of length, akin to the cover-up for the deficiency of wealth and to making losses parade as profit. Watch for the day when people wake up from their delusion.
Admittedly, very few people are able to adapt their thinking to the demand that the dollar be discarded as numeraire of wealth. The dollar is far too deeply ingrained in their psyche for that. As a result, very few people see the fragility of wealth under the regime of irredeemable currency. Those who can are not tempted by the spectacular profit opportunities in stock, bond, and real estate speculation. They know full well that yielding to the temptation would be tantamount to be seated in the middle of a crowded auditorium just before the fire alarm was ready to sound. Their chance to reach the fire exit alive would be practically nil.
Apparently, more and more people do accept gold as a valid numeraire replacing the dollar, since they have seen the writing on the wall warning about the dollar: "Mene tekel, upharsin" (you have been weighed and found wanting).
We can understand the little guy's agonizing watch on a hesitant gold price to go up. He is conditioned by a host of cheerleaders of get-rich-quick schemes. However, the more enlightened hoarders of gold (whom in another paper I have called 'bulls in bear skin') - admittedly a tiny minority - are in no hurry to see the dollar to bite the dust, or the price of gold to go to outer space. They do have the philosopher's stone, gold, well in hand. More importantly they also have the matching wisdom, without which gold is just another dead asset. They know that the most productive use of gold is not to sit on it waiting for the miracle of a gold price in five digits to spring upon the world. They want to derive maximum advantage from their possession of the metal. In particular, they know how to make gold beget gold, something even Aristotle believed was impossible. Most importantly, they need not release control over their gold while deriving an income from it. Mark that, in all other cases, deriving income from an asset involves putting the latter to risk. The fact that gold income is an exception to that rule, in that it can be harvested risk free even while the gold is locked up in one's own vault, is due to the idiosyncracies of irredeemable currency. It is the paradox that, while the irredeemable dollar is gold's sworn enemy, it lends gold the unbeatable advantage whereby it can generate an income risk free.
The 'enlightened hoarders of gold' prefer the security of a gold income, that they can enjoy in relative peace, to the insecurity of an exploding gold price. They understand that they could not enjoy their exploding wealth once the gold price escaped from the earth's gravitation, because blood would flow in the streets where the 'have-nots' gave battle to the 'haves' over the only bone of contention that mattered: gold.
The common perception is that commercial traders are selling gold short naked in order to drive down the gold price where they can cover their short positions at a huge profit. In this view the bears are sucking the blood of the bulls. This, of course, is a myth. It is a simplistic explanation for a complex puzzle, the gold paradox. In reality commercial traders are mere agents. If they trade for their own account, the amounts are paltry in comparison. Commercial traders act on behalf of principals who do hold the gold and are set upon deriving an income from their holdings. It is understandable that these principals wish to stay anonymous and, in an unexpected reversal of Andersen's tale The Emperor's Clothes, they foster the misperception that they are naked!
Historical precedence: vanishing gold in ancient Rome (This Is Wild~Ed.)
The last time in history when huge quantities of gold were going into hiding occured during the twilight of the Roman Empire. It was an ominous portent of bad tidings. People were withdrawing gold coins from circulation. They declined to spend them hoping that saner and safer times would come. As a rule people do not spend their gold coins unless they see that they will be able to get them back on the same terms. As saner and safer times did never come, these ancient hoards were forgotten and remained buried in the ground throughout the Dark Ages. Present day archeologists still keep finding them fifteen hundred years later.
The owners of those ancient gold hoards were helpless. They could not enjoy their gold as they were unable to retard the coming of the evil day when the Roman monetary unit would become worthless, and the Empire would fall. In this respect latter day gold hoarders appear to be better off. They seem to be able to retard the fall of the dollar towards worthlessness and, in the meantime, they could enjoy a gold income in relative security. Of course, this will not ward off the ultimate collapse of the American Empire, although it may materially postpone it. The fortunes of empires tend to be predicated by the fortunes of their currencies.
The present episode of gold vanishing into private hoards is no less ominous than the previous one that was followed by the collapse of the Roman Empire, and the lights going out in the civilized world.
As this "agonizing reappraisal" shows, the days of the dollar are numbered. Whether it be a large number or small, the coming Dark Age looms large on the horizon.

Economics 101 Never Covered This


I love financial history. here's a good take (but not wholly logical) on a rough timer in American history.

The "Mysterious" Great Depression

Wednesday, May 30, 2007
Economists like to pose and solve puzzles. In fact, they like it so much that they manage to detect puzzles where no one else ever suspected their presence.
The depression that began, by most accounts, with the stock-market crash of 1929, is regarded by many economists as the biggest puzzle of all, or at least as a giant treasure-trove of smaller puzzles awaiting economists' brilliant (or at least clever) solutions.
Of course any economic event of such tremendous scope and magnitude-the Great Depression lasted over a decade (by some accounts, closer to two decades), and eventually embraced all of the world's industrialized nations-is bound to keep researchers busy sifting for evidence and discovering new insights, for many decades if not forever. Still, many economists seem determined to exaggerate the extent to which this particular episode-and its American manifestation in particular-challenges economic orthodoxy. To read what some economists, and especially those writing for professional journals, have to say about the 1930s cataclysm, you would think that they are just beginning to locate loose strands in a previously impenetrable, giant knot.
Which is rubbish-and self-serving rubbish at that. The rubbish is self-serving because it exaggerates the novelty of the economists' discoveries, thus helping to clear a path toward publication, and also because, in many instances, it supplies an excuse for what might otherwise look like economic obtuseness. Of course, the excuse only works if one overlooks those economists who got things right long ago, whose works are systematically overlooked by their modern counterparts, who instead of referring to them have the brass to claim credit for their recent "discovery" that the National Recovery Administration (to give just one example) may not have been all that it's been cracked up to be. Well, give them credit for progress, if not for scholarship: it hasn't been all that long, after all, since their likes unhesitatingly held up the Great Depression as proof of the inherent instability of capitalism, while entirely ignoring the many ways in which interventionist policies both created and prolonged it.
In truth, while old-fashioned economic theory may not explain every facet of the depression, it explains the major features: the oft-repeated claim that "classical" economics could offer no explanation for what happened (see, for example, Paul Krugman, http://www.nybooks.com/articles/19857) is not even fully valid for the genuinely "classical" economics of the years prior to the marginalist revolution of the 1870s. As a statement meant to refer as well to the neo-classical economics of Knut Wicksell, Ludwig von Mises, Ralph Hawtrey, Dennis Robertson, and a host of other post-1870 but pre-Keynesian thinkers, the claim is a bald-faced lie.
Thanks in part to the contributions of those neo-classical thinkers we know, for example, that a restoration of the international gold standard, following the massive monetary expansions that took place during and after World War I, could only be lastingly secured by means of aggressive devaluation or deflation or a combination of both. We know this from the rudimentary theory of international exchange.
We also know that the post-WWI attempt to limit the need for deflation or devaluation, by erecting a "cheap" gold exchange standard, was fraught with danger, because a crisis in any of the participant countries could cause the entire house-of-cards to come tumbling down, spreading the crisis worldwide. We know this from the elementary theory of cartels, which tells how they are bound to collapse if any participant decides to cheat.
We know that a fragmented, unit banking system increases the risk of bank failures owing to sector-specific or regional shocks. We know this from the first principles of finance.
We know that widespread bank failures can cause a run into currency, which must lead, ceteris paribus, to monetary contraction. We know this from old-fashioned banking theory. We know that state-declared bank "holidays" will only cause more people to withdraw their deposits. We know this by a simple appeal to common sense.
We know that a central bank, faced with a monetary crisis, can avert it only by means of generous issues of base money, and not by stubbornly refusing to sanction a reduction in its own ratio of gold reserves. We know this from reading Walter Bagehot's famous Victorian-era manifesto, Lombard Street.
We know that a massive reduction in a nation's money stock must result either in a deflation of like magnitude or in a "general glut" of goods and general unemployment. We know this from the elementary workings of supply and demand.
We know that recovery from a general glut is impossible to the extent that policies stand in the way of downward price adjustment. We know this also from the elementary theories of supply and demand. (Of course we also know that attempts to raise prices of goods that are in excess supply, or to raise the price of labor when there's already massive unemployment, are bound to make things worse.)
We know that price controls, besides preventing the price level from adjusting in such a manner as to eliminate general gluts or general shortages of goods, also distort the structure of relative prices, thereby undermining efficiency and productivity. We know this from observations of the effects of price controls going back to ancient times.
We know that high tariffs also undermine productivity and economic prosperity. We know this from the most orthodox theories of international trade.
We know, in short, many things that together allow us to go a long way in "unraveling" the knottiest of all economic crises-and we can learn most of these things without having to look beyond the most basic economics textbooks, including textbooks dating from before the 1930s.
Paradoxically, perhaps, the fact that orthodox economics has a good deal to say about how the Great Depression happened itself suggests that there is after all something puzzling about the Great Depression. What's puzzling is not that the depression happened, given policies that were resorted to, but that such destructive policies secured wide support despite their often readily-predictable, adverse consequences. But to call even such perversity a "mystery" is to be guilty of hyperbole. After all, politicians are rewarded for appearing to "do something," and not for their command of "abstract" theories.
And here, perhaps, is the key to modern economists' tendency to exaggerate the mysteriousness of the Great Depression. Look closely at their theories, and chances are you will find that they hold the Great Depression to be mysterious only in a very special sense, to wit: the sense that the events that unfolded cannot be replicated using models populated solely by well-informed and well-meaning, utility-maximizing agents. The problem, in short, isn't a lack of theories capable of explaining how particular government policies went wrong. It is the lack of a sound theory of government itself-a theory of the actions of politicians, whose behavior is often far removed from that of the "representative agents" that populate most macro-economic models. To understand political behavior one must turn, not to self-styled experts on macroeconomists and business cycles, who apparently entertain extremely naïve opinions concerning how governments work, but to specialists of the public-choice school, if not to political scientists and philosophers working outside of the economics profession.

Do You Hear Hooves Coming?


SOC has foretold This as well. The storm clouds are very visible on the financial horizon.
Japanese Export Report Holds Clues to Slower U.S. Growth
In the early hours of the morning, I stumbled upon a juicy tidbit that seems to shed a bright light on the status of the U.S. economy.
Oddly enough it's a Japanese economic report that tells the story of slumping U.S. growth. A Bloomberg article points out that Japan's export economy slowed dramatically. The U.S. just happens to be the largest buyer of Japanese goods, and recently exports to the U.S. declined for the first time in two years.
This is big news, because it highlights something analysts and investors alike have been asking themselves for many months now: Is the U.S. economy slowing even more?
The answer to this question has been clouded by a surprisingly stable U.S. consumer. All eyes have turned to U.S. consumption for an indication of more weakness or welcomed stabilization.
Now, data from a country across the ocean is telling us that maybe, just maybe, the future ain't so rosy for the U.S. economy.
What's interesting to note in this same report is that demand for Japanese exports from Europe and Asia (mainly China) are picking up much of the slack left behind by the weakening U.S. economy. So while the U.S. struggles to keep the gears cranking, the global economy doesn't seem to be missing a beat.
We recommend you keep a close watch on consumer patterns -- they may prove a very prescient indicator down the road.
Should more signs of a U.S. consumer slowdown surface, it's a high probability bet that the dollar walks the plank... yet again.

Got To Start Working Harder on Investments

I have to agree with this. The move in silver from $4/ounce to $13/ounce was the easy money. From here on out, it's going to be real work to get those type of returns in commodities. One thing I do watch is the growing water availability problem. Good money to be made when the crops fail from drought.
A Bad Omen Foretells the End of the Easy Money in Commodities
Every bull market spawns the creation and introduction of new investment products, and the ongoing boom in raw materials is no exception.
Wall Street and other financial product innovators always launch new instruments after a bull market takes off for that respective asset class or sector. As prices rally, investor demand rises. And sometimes, investors become almost hysterical, throwing money into a particular asset class. Case in point: the late 1990s bull market in technology stocks, which resulted in the worst crash for tech stocks in history. Seven years after the NASDAQ imploded, the index remains almost 50% below its all-time high.
Commodities, which bottomed in late 2001, have enjoyed big gains over the last six years. There's only been one losing calendar year for performance logged in 2006, and that was mainly due to declining energy prices.
This year, commodities are soaring. Prices for many industrial commodities have hit all-time highs over the last 12 months. Precious metals hover near multi-decade highs and the grains at their highest level in years. Energy prices now trade at their highest levels, in nominal terms, in history, excluding natural gas.
But the danger signs are starting to emerge for commodities. Investments in exchange-traded funds (ETFs) tied to commodities might double to over US$40 billion dollars in two years, according to London-based ETF Securities, a leading commodity ETF sponsor. And in the United States, a blizzard of new commodity ETFs have hit the market over the past 12 months, including ETFs tracking oil, natural gas, water stocks, base metals and even an ETF betting on declining oil prices. Three years ago, only three ETFs traded in commodities, mainly in gold.
The bull market in raw materials is not over. But to be sure, the easy money for most investors is now behind us, unless you know where to trade.

You're at Risk from the Jack Asses of the World


"There's no such thing as a frivolous lawsuit."
I couldn't believe my ears when I heard a classmate say this at my last high school reunion. This particular classmate had spent his adult years as a trial lawyer. He made his very comfortable multi-million dollar living suing physicians.
Ever since, I've made a hobby out of collecting the most insane, outrageous, or simply silly lawsuits I can find -- just to prove this statement wrong. And, despite the "tort reform" efforts in many states, I add to my "collection" of stupid lawsuits almost daily.
One recent study estimates that 50,000 new lawsuits are filed every day in U.S. state and federal courts. At that rate, the odds are that every one of the more than 300 million residents of the United States will be sued sometime in the next 16 1/2 years!
No more frivolous lawsuits? Consider this: a study published in March, 2007, entitled "Jackpot Justice," estimates that lawsuits cost the U.S. economy US$865 billion annually. This figure represents a yearly "lawsuit tax" of US$9,827 for a family of four.
To put this figure in perspective, the average American household pays more annually in 'lawsuit taxes' than in federal income taxes!
Why Lawsuit Taxes are So High in the U.S.
Unlike most other countries, U.S. lawyers can take cases on contingency. That means attorneys receive no fees unless money is recovered from the defendant. As a result, there's very little to prevent individuals with a chip on their shoulder from suing you --even if they don't have the money to hire an attorney.
For an attorney to take a case, he or she just has to believe there's a good chance that the case will be settled in their favor. And most importantly, the attorney must ensure you're "worth" suing -- meaning you have sufficient assets to collect.
To encourage even more lawsuits, companies have now been formed to invest in selected personal injury lawsuits by buying a share of the settlement. A recent search on Google revealed a total of 1.6 million hits under the term "lawsuit funding."
No more frivolous lawsuits? Well, like I said, I collect lawsuit stories the way that other people collect stamps or coins. Here are a few of my favorites:
A Montana man named "Jack Ass" sued media giant Viacom, saying the MTV show Jackass plagiarized his name, infringed on the trademark and copyright to his name and defamed his good character. Sounds as if the name accurately reflects his character...
A judge in Washington, D.C. named Roy Pearson is suing a dry cleaning serving for US$67 million for losing a pair of pants. The ABC News Law & Justice Unit has calculated that for that amount of money, Pearson could buy 84,115 new pairs of pants at the US$800 value he placed on the missing trousers in court documents.
Naturally, these examples are just the tip of the iceberg. You've surely heard of the woman who sued McDonald's for serving her hot coffee, which she spilled on herself. But you may not have heard about the sue-happy high school baton twirlers, who were cut from the majorettes program at their high school. These baton hopefuls are now suing the coach, the athletic director and the high school principal, for violating their civil rights.
So the question is: Could you be the target of such a jackass lawsuit?
It's hard to say. But I can tell you high income individuals are prime targets, especially those who display their wealth openly are often subject to unwanted litigation. Also, professionals -- doctors, lawyers, engineers, etc. -- are also frequent targets. Disputes among relatives also often lead to unwanted litigation, particularly after the death of a wealthy family member.
You Feel Exposed Now? Just Wait Until You Get Sued!
If you're sued, any information that's revealed about you during the legal process is usually a matter of public record. That means information that was once private is now available over the Internet to private investigators, tax authorities and anyone else who's curious and has some free time on their hands.
And throughout the judicial process, a plaintiff (the person suing) can use a subpoena to obtain your books, records and other documents. That includes your records held by accountants, banks, brokers, etc.
This process is called discovery. If you refuse to cooperate, the court can compel discovery with fines and even arrest. If you lie, and are later found out, you may be charged with perjury, a criminal offense. You may not refuse to answer the questions, unless there is a possibility of criminal prosecution.
Six Remedies to Protect Your Wealth and Privacyfrom Stupid Lawsuits
1. My top lawsuit remedy is to keep your mouth shut, especially among people you don't get along with.
2. Never make promises you can't keep.
3. Avoid people you don't get along with, remembering rules #1 and #2 while you're doing so.
The most important element of this game plan is to make yourself look like an unattractive lawsuit target. Here are a few ideas:
4. Avoid having too much equity in your home, unless you live in a state with an unlimited homestead exemption, or if the equity in your home doesn't exceed whatever homestead limit is in effect. Real property owned in your own name is a "sitting duck" if you lose a lawsuit!
5. Use offshore business entities -- especially limited liability companies -- to hold title to business assets, brokerage accounts, etc. LLCs aren't asset protection panaceas, but are far more resilient against lawsuits than holdings in your own name.
6. Keep a prudent amount of money offshore, in countries like Switzerland and Liechtenstein that are unfriendly to frivolous litigation. Contracts such as life insurance, annuities and asset protection trusts are particularly well protected.
Even with these precautions, you may not be immune from attacks by the "Jack Asses" of the world. But you will have come a long way in the right direction!

Tuesday, May 29, 2007

And Now A Word About Derivatives

This isn't the usual subject matter for SOC, but is relevant in today's turbulent times.
I have just been reading a very good book, which I recommend. It is called The Final Crash and is written by Hugo Bouleau, the pseudonym of an experienced investment banker who works in the Channel Islands. The argument will be a familiar one that supports views often expressed in contrarian publications. Bouleau gives the book the subtitle Addictive Debt and the Deformation of the World Economy.
The book covers a lot of relatively familiar areas, including gold, oil, raw materials, inflation, U.S. debt, and so on. I note the figures the author gives on the growth of derivatives: “In 2004, the market in credit derivatives increased by 123%, creating an exposure of $8.4 trillion to these instruments of insurance. In 2005, they grew by 105%, such that their so-called notional value stood at $17.3 trillion, which is the excess of all outstanding corporate debt on the planet. The total derivatives market across all sectors is worth an incredible $298 trillion. To put this into context, the value of such instruments was equivalent to less than a third of the world economy in 1990 but equates to nearly 800% of global GDP in 2006. Much like Lloyd’s re-insurers, someone somewhere must be exposing themselves to these credit risks.”
What is certain is that nobody has any real understanding of these risks, either in detail or globally. Their ultimate base, like that of any bookmaker, must be that the banks that issue derivatives keep their books balanced. In theory, as in other forms of banking, every liability is balanced against an asset. But -- as we all know -- bookmakers can go bust, and so can bankers. If the counterparty responsible for matching the risk becomes illiquid, then the whole system can be put at risk.
There were plenty of years in the first half of the 20th century when events were so overwhelming that it seems unlikely that this derivatives system could have survived. 1914, 1917, 1923, 1925, 1929-31, and 1939 all produced events that caused major global financial shocks. We cannot calculate the risk of similar events in the future, but they would include revolutions, global wars, hyperinflations, and slumps.
Warren Buffett says that he cannot get his head around derivatives. So the rest of us can excuse ourselves for being in the same situation. I cannot envisage how one could unwind $298 trillion, if it had to be unwound. But I look at the Middle East and reflect that major wars, revolutions, inflations, and slumps have not permanently disappeared from the modern world.

We Don't Steer The Ship As Much As We Used To.............


With each passing year, international financial markets become less dependent on U.S. markets. The old catchphrase “When the U.S. economy sneezes, the world catches cold” is gradually losing relevance.
2007 is shaping up to be a lot different than 1997, a year when currency crises spread like wildfire throughout emerging markets. In just 10 short years, a scenario resembling the Asian financial crisis has little chance of repeating. Asian central banks -- along with those of most other emerging economies -- have been steadily building the international currency reserves necessary to weather a panic out of their local currencies. They’ve learned the lesson of avoiding a situation in which their currencies become hostage to the whims of traders like George Soros.
“Everyone on Wall Street is fighting the last war. In the 1990s, virtually all emerging economies were deficit countries addicted to IMF loans. But since the 1997-1998 crises, they’ve gotten their fiscal houses in order. The U.S. is not the driver anymore. The U.S. economy is already in a major slowdown. If not for this, I’d expect oil to be in the mid-$70s.”
“I don’t think Russia wants to drive out Western investors. The government just wants control of strategic industries like oil. Russia is interested in attracting Western capital to industries like banking and consumer products.”
These are the views of Harvey Sawikin, portfolio manager at Firebird Management. Sawikin and his team understand Russian and Eastern European markets better than anyone else on Wall Street. Firebird’s 10-year performance record is stellar.
Sawikin spoke at last week’s luncheon hosted by the Baltimore CFA Society. This organization of financial professionals regularly invites great investors to share their experience and ideas.
Chris Mayer was also a guest at this luncheon and wrote about Sawikin in his latest Capital & Crisis update. Sawikin “believes business and growth in overseas markets are robust enough that they are not as dependent on the U.S.,” writes Chris. “He gave some interesting insight into Russian oil production. Sawikin says the Russians want to increase production, but not at these prices. ‘They don’t want dollars at the current valuation,’ Sawikin notes. ‘Officials have said so explicitly.’”
Awareness of the U.S. dollar’s inflationary endgame is growing. “Place yourself in the shoes of a Saudi or Russian oil minister. Why trade your increasingly scarce oil for a limitless future stream of paper money? This paper money only has value to the extent that it can buy scarce goods and services.”
This weekend’s Barron’s ran a piece on central banks’ rush to get into riskier asset classes -- and out of dollars:
“Russia, which was nearly bankrupt a decade ago, is planning to put a chunk of its $357 billion of official reserves into a Future Generations Fund that will invest beyond government securities. That fund could be staked with about $30 billion. South Korea has formed the Korea Investment Corp. with $20 billion, and Australia has launched a $40 billion Australian Future Fund.”
The same piece addresses China, the 800-pound gorilla of the currency reserve surplus game:
“The new Chinese fund investing in Blackstone, to be called the State Investment Co., could get $200-300 billion of capital and expand rapidly from that base because China’s currency reserves are growing by more than $200 billion annually. The Chinese government is thought to believe it needs no more than $1 trillion of reserves [emphasis added] to combat potential pressure on its currency or deal with domestic financial crises.”
The Blackstone investment marks a major turning point in Chinese currency strategy. Maybe the Chinese are realizing that perpetually financing U.S. deficits is a losing proposition -- as I wrote in your June issue. Under the current system, it’s better to be an equity holder than a debt holder. For those with an investing horizon stretching beyond a decade, this sentiment is shared by Warren Buffett. A worldwide portfolio shift away from U.S. Treasuries would exert even more upward pressure on rates, which have already spiked in recent weeks:
Another Barron’s piece quotes Ray Dalio, chief investment officer of Bridgewater Associates. His view clearly echoes Sawikin’s:
“Liquidity will tighten, credit spreads will widen, risk premiums will increase. In that regard, it will be the same. But unlike a decade ago, when emerging market currencies fell and the U.S. dollar rose, it will be accompanied by the U.S. dollar going down and those currencies rising. The positions of the emerging markets have shifted as dramatically as I have ever seen. There is usually a boom leading to increases in their current account deficits because they become a very popular place for foreigners to invest, and their currencies and their assets and their economies strengthen at the same time they have a deterioration in their balance of payments. Now they are having a boom, but they are running current account surpluses and paying down their debts. The emerging countries today are the lenders to the rest of the world, particularly the U.S.”
After Sawikin’s talk, the representative from the Baltimore CFA Society mentioned the fact that there are now more Asian than American CFA candidates. This news even reached the pages of the Financial Times last week. Considering its inflating equity bubble, China will need more CFA charter holders to develop mature equity markets. There ought to be quite a few cheap stocks to analyze after the Shanghai stock market bubble pops.
According to The Wall Street Journal, “In China, individuals, often with little understanding of financial concepts, make up 60-80% of trading, unlike U.S. markets dominated by financial giants such as Goldman Sachs Group Inc.” Apparently, many Chinese are day trading stocks on the basis of superstitions and “lucky numbers,,” rather than fundamentals. “They often make do with folksy trading tips, such as those now circulating among investors advising people to wear red clothes, which are representative of a ‘hot’ market, and to eat beef to sustain the ‘bull’ run…” Watch out if Chinese traders start wearing blue.
When this bubble pops, it will not be pretty. But it won’t end China’s long-term economic growth story; a possible Shanghai Composite crash is one of the many reasons the People’s Bank of China has been beefing up its foreign currency reserves. The 1997 Asian currency crisis taught the Chinese -- along with the Koreans, Malaysians, Thais, Russians, etc. -- that a pile of foreign currency can shore up public confidence during financial panics.