Thursday, March 26, 2009

Always Interesting When The Former Socialists Criticize The New Socialists



EU leader condemns US ‘road to hell’
By Tony Barber in Brussels and Edward Luce in Washington
Published: March 25 2009 20:00
European Union hopes for a new era in relations with the US were thrown into chaos on Wednesday when the holder of the EU presidency condemned American remedies for the global recession as “the road to hell”.
Barely a week before Barack Obama is due to arrive in Europe on his first official visit as US president, Mirek Topolanek, the Czech Republic’s prime minister, put the 27-nation EU on a collision course with Washington.

His attack compounded the confusion that has engulfed EU policy after the Czech leader lost a no-confidence vote in the country’s parliament on Tuesday, forcing him to offer his government’s resignation midway through its six-month EU presidency.
Mr Topolanek said EU leaders had been disturbed at a summit in Brussels last week to hear calls from Tim Geithner, the US Treasury secretary, for more aggressive policies to fight the global downturn.
“The US Treasury secretary talks about permanent action and we, at our spring council, were quite alarmed at that . . . The US is repeating mistakes from the 1930s, such as wide-ranging stimuluses, protectionist tendencies and appeals, the Buy American campaign, and so on,” he told a European parliament session in Strasbourg. “All these steps, their combination and their permanency, are the road to hell.”
US officials made no comment on the remarks. But the Obama administration says it took great pains to ensure that the Buy American provisions in the $787bn (€579bn) stimulus that the president signed into law last month were consistent with World Trade Organisation rules. It followed, therefore, that any attempt to make them permanent would continue to be consistent with WTO rules.
EU diplomats said it was the most extraordinary outburst from a political leader in charge of running the EU’s affairs since Silvio Berlusconi, Italy’s prime minister, caused uproar in 2003 when he likened a German socialist member of the European parliament to a Nazi concentration camp guard.
Other leaders of EU member states, including Angela Merkel, Germany’s chancellor, disagree with US calls for big fiscal stimuli to battle the recession. But they have couched their opposition in more diplomatic language than Mr Topolanek’s.
The Czech leader was speaking eight days before Mr Obama was due to arrive in London for a G20 summit of the world’s developed and emerging economies.
After the summit and a Nato meeting in France and Germany, the US president is due to fly to Prague for an EU-US summit, at which the Czech Republic will represent all 27 member states.
Relations between the Obama administration and Mr Topolanek’s government have been delicate in recent weeks because of signals from Washington that Mr Obama may reassess plans to deploy parts of a US anti-missile shield in the Czech Republic, a project to which the Topolanek government has been committed.
Mr Obama has vigorously opposed the view that the Great Depression was caused by too much spending, rather than too little, a view held by a small handful of rightwing economists.

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

Against stupidity, the gods themselves are powerless. - Friedrich Schiller, 1801

Ron Paul Has Been Right About Everything So Far!


Ron Paul: Believer in small government predicts 15-year depression
By Phil DavisThe Financial TimesMarch 22, 2009
Pension trustees and insurance company portfolio managers look away now. Your increased commitment to government bond holdings in recent times is about to blow up spectacularly.
At least, that is the view of Ron Paul, the US congressman who ran against John McCain in last year's Republican Party presidential nomination.
His is a minority view. Yields on government bonds worldwide have been falling fast over the past few months and in the UK, the commencement of “quantitative easing” this month sent bond prices soaring.
But the credibility of both western governments and their currencies is waning, and has been ever since the gold standard was abandoned in 1971, says Mr Paul. And that means even “safe” investments are far from safe, he claims.
“People will start to abandon the dollar as current and past economic policies create a steep rise in interest rates,” Mr Paul says.
“If you are in Treasuries, you will need to be watchful and nimble to time your escape.”
Unfortunately, cashing out will not protect the value of investments, he insists, because “fiat” currencies will all decline over the coming years as measures to try to haul the world economy out of recession fail. “The current stimulus measures are making things a lot worse,” says Mr Paul.
“The US government just won't allow the correction the economy needs.” He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. “No one remembers that one. They'll remember this one, because it will last 15 years.”
At some stage – Mr Paul estimates it will be between one and four years – the dollar will implode. “The dollar as a reserve standard is done,” he says. He sees little hope for other currencies where central banks have also created too much liquidity dating right back to the early 1970s.
“Europe and the US will both have to fundamentally change their money systems,” he adds.
And don't even mention shares to Mr Paul: “The last place you want to be is in the stock market,” he says. “It may not bottom out for 10 years – just look at Japan.”
Of course, everyone has a view on the credit crisis, its causes and putative solutions. What differentiates Mr Paul is that he has been warning of the dangers to the world economy for nearly 40 years. “The breakdown of Bretton Woods was my motivation for running for Congress. I have been talking about the dangers ever since and warning that the control by central banks over the money supply would create an enormous bubble.”
A deep recession had only been avoided up until now because of the efforts of successive governments to reflate the economy. But there are no more policy levers left, says Mr Paul. “This is the big one.”
Unsurprisingly, Mr Paul has been viewed as a crank in Washington, dismissed as a doomsayer and a party-pooper. His bill early this year to abolish the Federal Reserve was largely ignored. And his adherence to the Austrian School of economics, which predicted that fiat currencies would destabilise the world economy, has won him few friends.
“People don't like the Austrians because they are against big government, against armies and against the welfare state. To accept Austrian economics, you have to accept limitations of credit expansion and that is what has kept the government and financial firms in business for so long.”
However, his views are, for the first time, being taken seriously in Washington. Like another politician who recently aimed for high office, Al Gore, Mr Paul's uncomfortable truths are starting to be deliberated at elevated political levels. “Before last summer, in meetings nobody really knew I was there. Now they often defer to me on economic matters. But you won't catch any of them admitting that publicly – not yet at least.”
He believes that markets will fall much further and inflation rise much higher before his fellow politicians recognise that the system has failed. “We are likely to see an inflation depression,” Mr Paul says.
“In the 1970s, we had stagflation, but not depression. Inflation depression is what you see in Zimbabwe.”
Even Nouriel Roubini, the renegade economist whose once “extreme” views are now mainstream, fights shy of this analysis. The investment options arising from the analysis are no more palatable. In fact, according to Mr Paul, there is only one: gold.
Such an unproductive asset (unless you are a jeweller) appears unattractive even with the gold price having risen three-fold during the Bush administration. But Mr Paul argues that the current price of about $900/ounce could look cheap in a few years.
“It is not so much that gold will go up but that fiat currencies will go down,” he says. He even advocates a return to the gold standard, which he says is not as difficult as it sounds to achieve.
Mr Paul, it should be noted, first invested in gold nearly 40 years ago when it was worth $35/ounce and holds a part of his wealth in the metal. But he is not alone: gold exchange traded commodities have seen record inflows in the past six months, most wealth managers now recommend a core holding and central banks are loath to sell their quotas. Indeed, Russia has even announced it is buying gold.
Nevertheless, most large institutions, including pension funds, have little or no gold holdings. Mr Paul argues this is a mistake and decries the widely held view that gold is an anachronism.
“Gold is natural money and has been for 6,000 years,” he says.
“You just can't repeal those laws. A scrap of paper, which the government can just add a nought to, will not do.” He does not, though, expect the mainstream investment industry and its advisers to rush to the bullion vaults.

Wednesday, March 25, 2009

Treasuries Ho!


Fed Begins Buying U.S. Treasuries
By Bill Bonner

03/25/09 London, England Write in your diary…save today’s newspapers…remember what you did today. Most historians won’t even notice, but today is a big, big day.
Today is the day the Fed begins buying U.S. Treasuries. Britain is doing it already. So is Japan. Why shouldn’t we? What’s a few trillion extra…just between friends?
The scope of the project is immense.
Do you remember how it works, dear reader? When you buy a U.S. Treasury bond, you pay for it with real money – or, at least as real as dollars get. Money changes hands. No net increase in the money supply. But when the Fed buys a Treasury bond it creates the money to buy it…and thus the money supply increases. It’s called “monetizing the debt” – or converting debt into currency. Given the size of upcoming Treasury purchases, the total size of the U.S. monetary base is expected to increase 500% in the months ahead.
Is there any doubt what this will mean to the dollar? To the price of gold?
Yes, there is…
Alas, the more we learn, the less we know. The more we find out; the more we find out what we haven’t found out yet.
But we’ll come back to that in a moment. Let’s first look at what happened on Wall Street yesterday.
Stocks went down – 115 points on the Dow. End of the rally? We keep wondering. Whatever can be said about it, it’s not the best rally we’ve ever seen. It seems to peter out every time it gets going. But we’ll wait a few days before pronouncing judgment.
Meanwhile, oil seems sluggish at $54. The euro, too, at $1.34. But gold at least showed some action – down $28 to $923.
What happened in the gold market? Didn’t investors notice that the Fed has begun almost literally “printing money?” Why didn’t the price go to $1,000?
But remember how we’ve worried that inflation was too obvious? You can see it coming a mile away. Which is why we say the United States can pay off its debts in a currency whose value it alone controls…
But what if it weren’t true? What if the feds couldn’t control the value of the dollar? What if inflation didn’t happen – at least, not the way we all expect?
Let us begin with something that is true: that which must happen will happen.
When you increase the money supply, ceteris paribus, the price of money must go down. That is why the price of gold is over $900 rather than, say, $750. Investors see the trillions going into the world’s money supply. They weren’t born yesterday. They know what happens next. It is just a matter of time before the price of gold doubles…and doubles again.
But just because you add to the money supply doesn’t mean prices MUST rise. Instead, it means only that that MAY rise…under certain conditions.
Ah…there’s the rub…there’s the crack in our little bell…there’s the little grain of sand in our shoe.
The Japanese have been monetizing their debt for a long time, writes our friend James Ferguson in MoneyWeek.
“First, the authorities ran a steady double-digit growth in the money supply for over a decade, while the Japanese banks were initially in denial, and then the government injected nearly 10% of GDP directly into the banks’ capital bases. Yet even after money as a proportion of GDP had doubled, Japan’s banks were still shrinking lending.
“The Bank of Japan, believing it had perhaps just lacked imagination, doubled M1 money supply again, this time over the much shorter period of two to three years from 2001.”
This is roughly equivalent to the Fed spending not $1 trillion to buy up Treasury paper, but $10 trillion.
“Yet the impact on Japanese bank lending was…nothing,” James continues. “Bank lending continued to fall by 5%-6% a year, as it had done for the prior three years.”
James lived in Japan for many years. He reports that when the Japanese economy finally began to pick up in 2006, the government became very concerned that all that money it had put into circulation would suddenly turn into consumer price inflation. But it didn’t happen. Instead, the little flower of growth was crushed in the downturn of ’07-’08…and now Japanese prices seem to be headed down again.
How come? Are the Japanese particularly incompetent? Or is it harder to weaken your currency than we thought?
We don’t know…so we will turn to Ian for further news while we think about it…
“The housing swan dive continues today,” writes Ian Mathias.
“U.S. home prices have been reduced to levels unseen since 2003, says the latest rendition of the S&P/Case Shiller Home Price Index. Yesterday’s printing capped off 2008 with another record decline.
“December data showed a 19.2% yearly fall for their 10 city composite and a 18.5% slump for the 20 city – both records. This index has now fallen every month for two straight years.
“‘The broad downturn in the residential real estate market continues,’ says David M. Blitzer of S&P. ‘There are very few, if any, pockets of turnaround that one can see in the data. Most of the nation appears to remain on a downward path…’
“We suspect this home price trend will continue in Case Shiller’s January and February reports,” continues Ian. “According the National Association of Realtors today, the median new home price fell to $200,900 in February. That’s a record 18% fall from the same time a year ago and the lowest level since 2003. Consider yesterday’s record fall in existing home prices, and it seems this trend is still alive and kicking.”


It would be much simpler for us if the world were set up in a more orderly and predictable way. But then, it wouldn’t be nearly as much fun. Even the feds could control a simpleton’s world. What a dreary place that would be!
Still, ships’ compasses don’t intentionally lead us onto the rocks. More money = more inflation; that’s the rule. Besides, it’s not just a matter of money. The feds are clearly sowing the wind with their quantitative easing. They deserve to reap the whirlwind.
But wait…it’s inflation they WANT. Nature, in her wisdom, rarely gives a rascal what he wants. Instead, she gives him what he deserves. What then, do the feds deserve? We know their crime…what will be their punishment?
Ah ha! Maybe they deserve the doldrums…locked in irons, with no wind at all!
They want to lower the debt burden by instigating inflation. They want to increase the velocity of money – by lightening it up a little so people are eager to get rid of it. They want to get lenders lending, and consumers consuming – all eager to turn over their dollars as fast as possible. They want to shift the burden of losses from the people who made them to the people who didn’t. Well, what if the dollar doesn’t cooperate? What if it grows heavier? What if it seems more solid? And what if dollar-denominated debts sticks like tar to the people who incurred it?
Seems impossible, doesn’t it? And yet, that is what happened in the Land of Rising Sun.
Our hypothesis seemed so sure…so airtight. The feds have no alternative but to try to inflate the currency. Because it will reduce the debt load on consumers…and, not coincidentally, on the government too. It will also induce people to spend money, rather than save it. This will increase the velocity of money, which will have a further inspiring effect on animal spirits.
If at first they don’t succeed, the feds will try, try again. And sooner or later, they’ll get the inflation they desire – first in moderation, then in exaggeration.
But what if it doesn’t happen that way? What if the feds – and the entire debtor class – were tortured before they were finally killed? And what if we – those who think we know what is going on…and who are stacking up gold coins in our home safes in anticipation – are driven mad by deep corrections in the gold market? What if gold sinks to $600…and stays there for years?
What if the markets stay irrational for longer than any of us can stay solvent…first wiping out the bulls in a major new break in the stock market…then wiping out the bears with a major new break in the gold market?
And then, when we have all given up hope…and sold all our stocks…and all our gold…and are curled up in a corner, whimpering, clutching a handful of crumpled dollar bills, maybe then Mr. Market will feel sorry for us. Maybe he’ll finally come over and put us out of our misery…delivering the coup de grace of blow out inflation…a la Weimar or Harare?
Anything is possible. But there are major differences between Japan and the United States – and reasons to think that the U.S. feds might succeed where the Japanese feds failed. For the moment…we’ll keep our Dollar Crash Alert flag flying…and wait until tomorrow for further insights.
“It comes as no great surprise,” comments colleague Chris Mayer, “that the value of our money has done nothing but depreciate over the years.”
“So what are investors to do?
“First off, buy things. In a world in which paper depreciates, tangible assets will hold their value better. Unlike with paper, we can’t create oil reserves or clear land or find water by pressing a few buttons at the Fed. Tangible assets take time and labor to create.
“Secondly,” Chris advises, “buy gold and gold stocks. Gold is a commodity, but it is unique in its monetary heritage. It was money – in the sense that you could buy groceries with it – not that long ago, in the grand scheme of things. People are again flocking back to gold as the dollar’s prospects turn uglier. This move has a long way to go.
“Gold stocks are a more leveraged and riskier way to play the rise in gold. This year, in particular, sets up as a good one for gold, thanks to lower energy prices and currency effects.
“And finally, buy the stronger currencies or assets in stronger currencies. All paper currencies are on the long road to zero. But some are on a faster road than others.”
The current actions by the feds have the Chinese are worried…but their worry is that the feds may succeed in debasing the dollar. Here, they’re proposing a new monetary system…based on Special Drawing Rights (on gold) administered by the IMF. The country’s central bank governor Zhou Xiaochuan said as much in an essay, published earlier this week:
“The outbreak of the current crisis and its spillover in the world confronted us with the long existing but still unanswered question i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above issue, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system.
“Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. The crisis called again for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability…”
Finally, so many sideshows… Madoff, AIG bonuses, Geithner…and tax havens. Here at The Daily Reckoning, we’ve never met a tax cut we didn’t like…or a tax haven where we didn’t want to have money.
But the world’s governments are cracking down. They don’t like it when people get away…so they’re raising the walls and electrifying the windows. Tax havens are for tax cheats, they say. Tax havens are being abused, they go on.
In a better world, of course, there would be no need for open doors. People would be happy where they were. They would stay put…and turn over however much of their money to the government as its functionaries requested. But occasionally, something goes wrong. Occasionally, people are unhappy – and with very good reason. So it was that German trade unionists and Jews turned to Swiss banks in the 1930s – to protect themselves from getting robbed by the Nazi regime. The Germans asked the Swiss to divulge the names of its account holders. The Swiss said they would not. Bank secrecy was introduced in Switzerland in 1934 so that Swiss bank managers would have to reply in the negative, and the law prohibited them from revealing their clients names.
Now, of course, everything is different. All the world’s governments are good. And they are all working for the benefit of their citizens…except AIG bosses, of course. Now that the rapture has arrived, we have no further need of open doors or secret bank accounts.

Liberty Gone


Save Free Markets, Ruin Liberties?
Remember when the former President Bush said in the fall of 2008 that he needed to suspend free market principles in order to save the free market system? Well, now Angela Merkel, the German chancellor has been quoted as saying, “The excesses of the market that triggered this crisis are forcing us to cross borders and do things we would not normally do.”

Sounds familiar, as does Germany’s new €50bn Keynesian-style stimulus package... as do lower approval ratings of the new U.S. administration and Merkel's own CDU party.

Governments enforce laws, regulate commerce and allocate taxpayer funds. They also force themselves on the markets, creating inefficiencies in the process (and the allocation process is the definition of inefficiency). But these days, deflation magnifies these inefficiencies into deficiencies – to the point where the declining social mood (deflation’s main driving force) and the subsequently falling market confidence lead to political pressure to “right the wrongs.”

However, government is ill-equipped to correct that which cannot be corrected via regulation and increased spending. Over the past decade, individuals and corporations spent too much, borrowed too much and then leveraged that debt – the same debt that is now being destroyed by deflation. Spending money on behalf of your citizens, inefficiently or otherwise, does nothing to stimulate the economy – when the economy remains buried under the debt from the previous cycle.

Unemployment rises, incomes are lost, frozen or declining, and tax revenue diminishes as deficit spending increases. It becomes clear that governments do not have the way to ameliorate the situation, so the inevitable result is populism, protectionism and extremism. That’s why we are starting to see a number of political grandstanding measures designed to give the appearance of “doing something.”

In the U.S., it’s witch hunts on bonuses and the government’s push to increase its regulatory and confiscatory powers. In Europe, Albert Rupprecht, German parliamentary committee chairman, wants hearings on the causes and the individuals behind the financial crisis. He wants to pick the members of this council, he wants subpoena powers, and he wants any findings outside the legal framework to somehow gain evidentiary substance within criminal proceedings.

I would suggest that all this is dangerous extremism. While we seek those “responsible” for our financial problems, we find that our liberties are eroding as fast as our economies.

Sunday, March 22, 2009

We The People Stimulus Package

Good video and worth you time!

Bread Lines? Soup Kitchens Too!


Y'Know, I Need A Beer Right Now......


Liberty Under the (Wrong) Influence

by Jim Amrhein
“There can't be good living where there is not good drinking.”– Benjamin Franklin
“Good people drink good beer.”– Hunter S. Thompson
I’m writing this on St. Patrick’s Day, a day that’s been my own personal “first day of spring” every year since I turned 21.
And unlike some similar days in my youth, I’ll be in good enough shape to remember it all come Wednesday morning as you read this. Of course, this has more to do with having been born in the century of the automobile than having been installed myself with a large measure of temperance as original equipment…
If you didn’t turn every $1000 you invested last year into 113 GRAND, you really need to give me the next five minutes of your time...As the Dow lost 40% of its value in 2008, one unorthodox analyst steered his readers to optimized one-year gains of 6,635%, 10,838%, and 11,359%.Here’s how to get eight months worth of his biggest gainers for 2009 FREE...
I assure you: If I lived within walking distance of the ersatz Irish pub I’ll spend the better part of tonight in (or been born in horseback times, when I could travel at no one’s peril but my own), I’d likely remember very little of this year’s Hibernian high jinks. Also, what you’re reading now wood bee spelt sumpthing lyke dis — because I would have written it under the lingering enchantments of Harp lager and Powers whiskey, alternating between whichever eye was clearest at the moment.
But since I won’t ride a horse to the pub — nor have I any wish to put my fellow man at risk while behind the wheel of my Jeep — I’ll maintain relative clarity tonight as I raise a wee pint or two. And amid all the laughter and the clink of glasses, the posturing of men for women and the hair-tossing of women for men, the bustle of the barkeeps and the band’s Celtic rhythms, I’ll surely flash on the same lamentable realization I’ve had in many of the thousand or so evenings I’ve spent in taverns over the last 19 years:
Not nearly enough Americans can be charged with DWI nowadays.
Drinking While Informed: A 21st Century Crime
It used to be that taverns were the main venues of everyday political discourse in America. In the days before newspapers issued us our ideologies along with their spin on current events that supported it, the local watering hole was where folks gathered to figure out how to interpret the news of the day...
And decide what to do about it — whether to resist unfair taxation by an overseas monarch, whether to secede from the Union, whether to form a workers’ union, whether to build a bomb shelter or dodge the draft, whom to vote for, whom to give money to, or whom to tar and feather.
It used to be that a lot of people’s opinions about major forces affecting the country and community were formed, more or less, by two things: What newspapers reported, and what folks at the local tavern said about it. Taverns were where people went not just to unwind, play a game of darts or pool, catch up with friends, expand their dating options, or blow their paychecks...

They were places people went to make up their minds about the bigger things.
Taverns are microcosms of the free market — both of liberties and of ideas. And many a pivotal plan, innovative invention, or significant action in American history was launched over pints and drams at the local hooch joint. I don’t have a time machine or anything, but it wouldn’t take one for a person to conclude that the Boston Tea Party was hatched in the dark back corner of some Beantown pub...
And I’ll bet attendance boomed in New York taverns during the dissemination of the Federalist Papers. There was lots to talk about, mull over and decide. And the place to do it, no doubt, was the local pub.
One might not be too far off in saying that America owes its existence to the tavern.
Again, I’m no historian, but I’d bet anything I’ve got that without the proliferation of neighborhood watering holes in the colonies, the American Revolution would never have happened. Taverns were most certainly a place where resolves were stiffened, pacts were made between men to defend their land and neighbors, intelligences about British troop movements were whispered amongst the rebellious — and militias were recruited and organized.
And during Prohibition, I’m sure the main focus of a lot of speakeasy talk among the movers and shakers who still knew where to find a drink and a good time was centered on liberty — and what to do about the swing of America’s political pendulum toward the Puritanical...
But I’m here to tell you, as a habituĂ© of the modern incarnations of such places, the topics that dominate the nightly discourse in most bars today aren’t political anymore. They’re reality TV, sports, the latest electronics, who’s hot and who’s not, or the habits of the opposite sex. The late-night music of the tavern is no longer the spirited debate about where we’re headed, but the latest dance-mix of the latest rap star.
Even in the yearlong run-up to the election of Barack Obama, few bar-goers I encountered talked with much depth about the goings-on in D.C. — or even in the local legislature. This is mind-boggling, especially in the wake of the 2008 ban on smoking in bars here in Maryland, the recent hikes in sales, property and income taxes, and with decisions pending about key gambling legislation...
Sure, there were plenty of people this fall who voiced their support for one presidential candidate or another (especially Obama), but few could tell me why they were voting the way they were. Their decisions seemed knee-jerk or nose-led, rather than arrived at through reflective thought and deep debate.
And lately, though I do hear quite a bit of discussion about the stock market and real estate, I usually get little more than a few grunts or a headshake or two over things like the Madoff scam and the bailouts. Talk of central banking usually draws blank stares...
But bring up American Idol and whoa, Nelly — you’ll have hours of deep “discourse.”
I attribute the tendency among modern bar-goers away from political substance and toward the most vapid and mundane lowest-common-denominator topics to one of four things, or a mixture of them all:
1) People don’t know what’s going on, thus hindering cogent thought about it.
2) They know what’s going on, but believe that they can’t do anything about it.
3) They think the government will look after them, so they don’t care what’s going on.
4) They view the bar as a place to escape what’s going on, not figure it out or change it.
None of these things portend well for our republic, at least not as it was intended to be. This is a real shame, because Drinking While Informed — the combination of people, alcohol, discontent, passion and information — is historically a powerful catalyst for change in America.
And boy, are we ever going to need that now...

The Pint-and-Dram Union: An American Institution
My point with all this isn’t to romanticize drunken barroom debating. It’s to lament the decline of one of America’s most powerful (and unsung) institutions:
The tavern as a safeguard against the intrusions and abuses of government.
Believe me, the power of blogs and newspaper editorials and fringe-press loudmouths like me to protect freedom and sway political outcomes pales in comparison to the might of large numbers of outraged people assembled in one place and with the firm belief in their own righteousness — whether fueled by alcohol or not...
Seriously, a blog or chat room never tarred and feathered anybody.
And yes, I know, drunken mobs have done all manner of bad things.
All I’m saying is that there used to be things that politicians in this country feared. One of them was the archaic life-and-limb stuff that no one today would advocate (like tarring and feathering or being forced to drink hot tea)...
But the other is an informed, thoughtful, skeptical and united populace that sees through their BS and corruption and is determined to hold them to account, one way or another.
This is something Americans can still become — but not if they’re under the influence of the one-party media or cocooned up in their homes ranting in the vast, anonymous blogosphere. And certainly not if they’re obsessed with American Idol...
It takes people getting together, loosening their inhibitions, plainly stating what they know and believe — then building on this knowledge and testing these beliefs against the facts and feelings others bring to the free marketplace of ideas. This is the kind of “influence” that changes worlds for the better.
And it’s what usedto happen every night in American taverns. It still should...
I think it has to, if we want to survive this mess.
Thinking and imbibing,

Big Financial Waves! Surf's Up!


Huge Inflation
What an absurd old world we live in. The Bank of England is worried about deflation, but only so it can justify the massive inflation it’s cooking up. Barack Obama is outraged about US$165 million in bonuses at AIG and will use all legal means to stop them. Like he doesn’t have anything better to do. Here in Australia, local shares will probably follow New York’s lead and head down. Stocks on Wall Street finished up four days in a row, but couldn’t make it five. There was no Earth-shattering earnings news. That left plenty of room for grandstanding and other chicanery.
Before we get to the chicanery, what’s shaking in the local market? The banks were up. Australia’s banks never had the chance to gorge themselves on the stuff that’s choking their counterparts in Europe and North America. They were stuck, instead, with large portfolios of residential mortgages. Plus, you can’t short sell them anyway. So how low could they go?
Markets are still in a kind of suspended animation, waiting to see if there is any coherent, intelligent, effective response by the financial players or their regulators to...you know...solve the problems. It could be a long wait.

All hole and no donut. That about sums up the response of the economists and officials trying to un-freeze credit markets and get the economy going. Why on Earth is the President of the United States taking time to sort out how much people at AIG get paid? Probably because he wants to distract attention away from how much money he plans to spend, and spend ineffectively.
Look, there’s Elvis! Hey king!
That’s what distractions are, attempts to change the subject or divert focus.
Distract from what? Huge inflation. Yes. Yes. We know. There is no huge inflation now. In fact, industrial production in the United States fell for the fourth month in a row. It hasn’t been this low since 2002. But then, why would output grow when demand is falling and credit remains tight?
Money supply is not falling. Yet the good people who write the Bank of England’s Quarterly Bulletin are still warning of a “debt deflation trap.” You’ll find all the good stuff beginning on page 39. The Bank warns that the cost of debts is rising relative to everything else, making it harder for heavily indebted Britons to pay off debts. Britons are, by the way, heavily indebted.
But are falling prices really so inherently evil? Really...whoever complained about a cheaper cheeseburger? When was the last time you bellyached about the ever-declining price of a pint of beer?
The Bank study resurrects the last period of sustained deflation and connects it with the economic misery of the times, in the 1930s. Then, too, output collapsed. The world’s productive capacity far exceeded its demand. And money supply, for a time, briefly shrank as banks (who create most of the money in the fiat system) went out of business.
But all of this talk about the evil of falling prices is just a ruse. Excess capacity exists because the preceding inflationary bubble helped build factories to produce goods sold to people who bought them with credit. The demand was illusory. Unfortunately, the factories were real...it took real labour, real energy, and real raw materials to build them. They remained idle and unproductive unstill something else came along (World War Two) to reignite demand and the need for wartime production.
Falling prices aren’t inherently evil. If prices fall low enough, low cost producers of a given good or service are driven out of business. Supply tightens. Prices rise.
No...what the BoE and the Fed are doing is evoking the nightmare of the Depression to justify the coming inflation. The fiat money system can’t function without just a little inflation. The gradual erosion of purchasing power is what makes it unnoticeable and thus tolerable to private citizens. They don’t really notice it 2-3% at a time.

The trouble for the global system now is the tower of debts looming over the public and private sector in many economies. It’s all well and good if the general price level falls. But it’s no good if, while asset values like stocks and homes fall, debts remain fixed. An increase in the preference for cash makes debts a lot harder to pay off.
Of course, as you know by now, the preferred government answer is to inflate. This is what made the Chinese nervous last week as they reviewed Obama’s budget. But the BoE and the Fed have been quite clear about their intentions. They will inflate as much as they need to in order to get nominal asset prices stable.
There are some investors who buy the Fed’s bogus line that it can withdraw liquidity and sterilize its money printing before it leads to inflation in the economy. Believing this is a serious mistake that could cost you a lot of money.
The hedge against these inflationary policies (including here in Australia) is to invest in assets priced in dollars which cannot be created by a printing press. That includes oil, precious metals, and other energy commodities. The nominal price of these assets should rise as the money supply rises.

Not That There's Any Good In It.....................



The Problem with Socialism
by Bill Jenkins
Havre de Grace, Maryland
As I read the headlines, I can't help but see the tendrils of socialism grasping more and more very day. And it always brings to mind my uncle, Wm. R. Duvall.
When I was a boy, my uncle was the richest man I knew. He was fond of saying, ""There are three things you need to get rich: time, leverage and other people's money." I didn't know what it meant at the time, but when I got older, I wanted to hear how he made it big
"I always knew I would be rich," he said. "Even when I didn't have two nickels to rub together."
He started out as a barber, renting a chair in another man's shop for $20 a week. "10 heads," he said, "that's all I needed. After that, every dollar was mine."
"At that point," he remarked, "all I had was time. I was making money, but I wasn't getting rich." It finally occurred to him that a real way to get ahead in barbering was to have his own shop and rent out his own chairs to other guys who were getting started in the barbering business.
So he looked high and low until he found a dumpy old place where he could afford the rent, then spent his nights and weekends fixing it up.
In a couple months, he had it ready and went to work. He rented out the five chairs in the shop while he still worked at the same chair he had rented for several years. "It seemed like a risky idea to leave the spot where my customers were used to coming," he told me.
Unfortunately, after a year, his landlord realized how good the business was and forced my uncle out. "What a setback," he said. "All these customers and nowhere to go."
His first thought was to look for a new place to rent. But then he was hit with a stroke of genius: "Own my own place, and I can't get kicked out again!" It only took him a handful of days to locate what would become his goldmine: 3 acres of land with a corner shop and two houses.
He set out his shingle in the shop, bought a trailer for $150 and moved it onto the back of the property, then rented the two little houses. He had talked the owners into selling him the whole ball of wax with 100% financing over 10 years. After he got his extra chairs rented out and moved another trailer onto the property, he was flush with cash. In the end, the property was paid off in eight years. But in the meantime he dabbled in other real estate, left the country and bought a house in Cancun where he lived as a tour guide. Years later he came back and bought a beachfront house on a local river, where he lived until just recently.
"Everybody gets the same amount of time, Billy," he would often say.
"But that's not enough to get you to the top of the heap." His experience with collecting the rent from four other barbers showed him the power of leverage. His no-money-down real estate deal taught him about other people's money. And I imagine he probably watched a boatload of late-night infomercials that helped formulate his "Wealth Outline."
I have come to find that what he said (even though it was completely borrowed and not original) held a great deal of truth.
But up to this point, you're probably wondering what in the world this has to do with socialism. Seems like a pretty entrepreneurial story.
Right? You are correct.
Seeing the proper working of a man and his wealth, well, that makes a counterfeit all the more easily spotted. But we could add to that story our own little adventure in currency options. The same three principles are at work. Time, leverage and other peoples' money.
But the path to wealth through socialism is not so clearly seen. As a matter of fact, it is more like a path to nowhere. Because socialism denies the capitalistic importance of these four pillars: wealth, time, leverage and other people's money. Instead, they corrupt them to their own destructive ends.
Any socialist will tell you wealth is important. As a matter of fact, that is the big carrot held out to entice people to follow such a muddleheaded plan. They will also tell you that time is important. Not because you need it to build wealth, but because you need it to spend wealth. In other words, the here-and-now is what is of the utmost importance. And you must be rich now, in order to enjoy what time you have here!
Leverage is also important to the socialist. As poor men manage their wealth very poorly (but seem to know instinctively how to manage their ballot), it is imperative to leverage out the efforts of the poor man into large voting blocks. One poor man cannot get a candidate into office. But 100,000 of them, that's a horse of a different color.
Finally, we have the socialist's take on other people's money. They love it. They covet it. And they'll do anything to get it. Obviously it is impossible to enrich the poor men who voted for them with the candidate's own money. This is why other people's money is so critically important. Unfortunately for them, they have forgotten the words of U.K. Prime Minister Margaret Thatcher, who said, "The problem with socialism is that you eventually run out of other people's money."
Whether she actually believed that or not is a question for another day. But it still has the ring of an eternal truth.
My uncle's understanding of other people's money was that it could be used to make money for himself. And he was right. But here is a key difference. The "other people" in my uncle's life lent him that money VOLUNTARILY, not because they were coerced. And they expected a real cash return on their funds, not just the "warm feeling" that comes from being forced to help an indolent person by way of government-run charity!
Because socialists reward those who treat money poorly and penalize those who treat money well, the system will never work. True, advocates of wealth redistribution can point to circumstances where it did "work," and where it does "work" from time to time (if only for a limited time). But I can also point to circumstances where the laws of gravity are temporarily suspended, such as when I get on a plane.
But even God will not help me if I just assume because I can fly for a few hours from here to there that I can fly forever. At some point my plane has to come back to the ground. At some point the laws of gravity will resume their authority, and I will realize that my flight and my violation of gravity's laws are coming to an end.
Capitalism is a law established by God, just like gravity. Its foundation is in the 9th Commandment, "Thou shalt not covet." I am never free to desire to take what is my neighbor's. Not his wife. Not his house. Not his lands. Not his possessions. I can trade him for them if I have something he wants more than what he has. (Except his wife, of course...) I can buy them from him if my offer is right. But I cannot steal (or vote) away his property into my account. That is not wealth creation; it is merely re-distribution. God condemns it, and He will not be mocked by those who think that they can make socialism "fly" forever.
Eventually, they will run out of other people's money. And when they do, their plane will come crashing to the ground.
One more thing. All around us, we see the widespread push toward more socialism, even when it hasn't yet worked. How could that be? To explain what we are seeing currently, we must acknowledge that if the socialists manage to escape complete annihilation in the plane that they wreck, they will begin a campaign of propaganda, reminding the people that if only the free market force of gravity hadn't gotten involved, they would have been successful. And that all they need is more fuel (other people's money) to get the thing going again.
And, of course, the people will see the wisdom of their case, and will vote for more fuel or parts or anything, just so long as we don't let those stupid Gravitarians have control of the cockpit.
More groundbreaking efforts will be tried, such as debasing the fuel, so that we have more of it. Sure, if you add five gallons of water to five gallons of gasoline you get 10 gallons... Certainly we can go further on twice as much fuel, right? Yeah, Right. Whatever you say, Comrade. Meanwhile, anybody who knows better had better be preparing a parachute.
As the major nations of the world move deeper and deeper into the "Pit of Despair" (to borrow a good term from The Princess Bride), their solutions will work less and less. Each effort will become more and more futile. Perhaps then we will learn our lessons. If not we will be doomed to repeat them.
All that being said, we did have a big news item from last week.
Chinese Premier Wen Jiabao fired a shot across the bow of the Good Ship USS Treasury.
It was not just a request, and it was not couched in the tactfulness of political diplomats.
China warned the United States to "Keep its word." Seems that the Moral Empire of America has a hard time with the bad habits of lying and stealing.
And now the rest of the world knows it.
And now we know that the Chinese know it.
And we know that we need their lending to keep up our little charade.
And they know we need their lending.
Now they are telling us, do not fool with our investments. China has options of where to put their money. What options do we have? How many nations can lend us the amounts we are consuming? China has options. We don't. "The borrower is servant to the lender."

The Art Of Finance


Taipan Daily: China, the Fed and Financial MADness Revisited

by Justice Litle

Well, they did it. They pulled out the big guns – and caught the world by surprise.
The Financial Times called it “shock and awe,” further adding that “Federal Reserve plan stuns investors.”
A Seeking Alpha contributor suggested that “Helicopter Ben” (as in Ben Bernanke, the Chairman of the Federal Reserve) should have his nickname changed to “ICBM Ben,” as in Inter-Continental Ballistic Missile.
MarketWatch elected to play it straight in their headlines: “Treasury yields drop most since 1987,” they said, following that up with “Dollar plunges after Fed says it will buy Treasuries.”
Not only did the dollar plunge, but gold moved sharply higher at the same time on Wednesday – thus breaking the remarkably odd coupling that had persisted these past few months.
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In addition to its role as an inflation barometer, gold is a form of crisis insurance. Meanwhile U.S. government bonds (which one must pay for with dollars) are a form of deflation insurance.
And so, when gold and the dollar are rising simultaneously, the global economy is in a world of hurt. To see gold and the greenback break apart now – like two temporarily fused magnets returning to opposite polarity – thus might well note the end of the global deflation trade.
A week ago, we noted that something like this could happen. Those who expected deflation to persist had forgotten that “the Fed has not gone crazy yet” (See March 13 piece, Is Gold on “Deflationary Death Watch”? ).
We can also dial back a little further, to the January 7 Taipan Daily titled, “Don’t Stay Short Treasuries – Short the Dollar Instead,” and find this little nugget:
If the Fed intervenes to support treasuries (in order to keep interest rates low), they will do so at the expense of the greenback. The Fed has to print dollars, or otherwise release dollars, in order to buy USTs in the open market.
And so they did. As bonds soared, the dollar crashed. To defeat the deflationary Mothra once and for all, Ben Bernanke has sounded the Godzilla call.
Solving a Mystery
I’ll admit, Bernanke had me fooled for a bit. He fooled a lot of people with his dormancy. Though the Fed hinted at buying treasuries in December of 2008, enough time had passed that it looked like they wouldn’t do it after all.
In Macro Trader (my trading service), the Fed’s bold move caught us by surprise – as it caught most everyone by surprise – but fortunately we were already short the dollar and long hard assets (including oil and gold) via various instruments when the big announcement went down. (We are still making hay from those positions, and just yesterday booked 92% half profits on our bearish dollar play.)
So why did the Fed decide to go for the gusto (and trash the dollar in the process)? Why now, this week? What follows is an excerpt from the “Weekly Briefing” I send out on Thursdays to Macro Trader members:
Let’s be clear, this move was a total shock. “Nobody expected such explicit stuff,” portfolio manager Joseph Balestrino said. “It’s good news for markets but bad news because it means the other stuff isn’t working. Things are terrible by the Fed’s own admission.”
But if things were terrible, why had stocks been rallying? After all, markets had seemed to be improving on their own before the Fed’s big move.
INVESTMENT RESOURCES
The banks had already rallied hard... stocks were already going back up... and the Consumer Price Index rose in February by the highest amount in seven months.
So it was exceedingly strange for the Fed to engage in this “shock and awe” treasury buying exercise after so many signs of improvement had already been coming in.
There are a few theories as to why the Fed acted out of the blue, stunning investors the way they did:
1) Ben Bernanke knows something truly awful about the banks that no one else does... yet... and decided to get ahead of the curve by buying up USTs now.
2) The Fed was afraid that public outrage at the AIG bonuses had become so strong that no more bailout money would be forthcoming from Congress. Buying treasuries thus became the alternative.
3) Foreign purchases of U.S. Treasuries were starting to dry up, and the lack of buyers for future treasury issues looked ominous.
Of those three options, we can only guess which is right of course... but my vote is for number three.
Debt watchers who pay attention to the supply and demand flow for treasuries note that recent numbers looked “horrible.” Economist and blogger Brad Setser further noted this week that “foreign demand for long-term Treasuries has faded.”
This makes sense. The global exporters no longer have huge trade surpluses to recycle back into U.S. Treasury bonds. Newly optimistic investors are buying fewer Treasury bonds. China is electing to spend its cash horde in different spots around the globe, going on a natural resource buying spree, and has less money for Treasury bonds anyway now that it isn’t exporting as much.
And so, the Fed may well have felt the need to preemptively position itself as a buyer of last resort for treasuries BEFORE something really ugly happened.
Financial MADness
So that’s my guess... the Fed chose to act aggressively, at what seemed to be an odd time, because they feared the bottom was about to fall of the U.S. government bond market.
Sort of a perverse logic, really. Things were looking so weak in Treasury land, emergency actions led to a short-term boost of colossal strength.
China may have had a role to play in the Fed’s actions too. Is it a coincidence that just last week, Chinese Premier Wen Jiabao voiced that he was “very worried” about the safety of China’s UST holdings?
To explore that angle, let’s go way, WAY back now – all the way to May 2005.
Nearly four years ago, I wrote a piece for the Daily Reckoning called “Financial MADness.” (You can still pull that piece up here.) What follows is the relevant excerpt. (Note too that four years on, the $600 billion figure has morphed into $1.9 trillion or so, an estimated two-thirds of that being U.S. treasuries.)
As of year-end 2004, China had more than $600 billion in U.S. dollar reserves. That is a sum that could effectively tear the financial plumbing system apart if it were unceremoniously dumped on the markets. With such massive pressure, in a compressed period of time, the pipes would surely burst. Of course, this would be fiscal suicide for the dumpers as well, which is precisely why such a move is not feared. China’s own economy would be sucked into the vortex too, so why would the Chinese put a gun to their own heads?
The theme that applies here is the doctrine of mutually assured destruction, or MAD – but of the financial sort, rather than the nuclear.
A product of the 1950s, the doctrine of MAD essentially states that two parties with the capacity to destroy each other will recognize the folly of hostilities. We liquidate the Soviet Union, they liquidate us and nobody wins. So peace is assured, right? Wrong. The flaw in the theory comes in the form of a question: What happens if one side or the other is thrown into political turmoil, or if the reins are taken over by madmen with nothing to lose?
A Communist Party leadership on the edge of collapse would make a last-ditch bid for stability by any means necessary, which in turn would make it willing to contemplate the financial-Armageddon option, as a form of extreme blackmail, if its hand were forced. If the mandarins feared implosion, they would have the means to not just ask for extraordinary coordination from the United States and Japan, but to demand it… on pain of catastrophic consequences if they were allowed to fall.
But is this a point in favor of the optimists or the pessimists? Obviously, it’s not a pleasant thought to imagine a breakdown in China’s economy sparking massive civil unrest, in turn leading to a “hot war” with Taiwan as a means of distraction and a catalyst for unifying nationalism, which by extension draws in the United States and sets the stage for the grand finale: the financial equivalent of a hydrogen bomb going off as hostilities escalate out of control.
Fun stuff eh? That whole line of thought was basically back-burnered for four years, as the good times rolled on and China’s economy powered along with it.
But now, the seats at the top of China’s leadership pyramid are starting to look shaky again. The doctrine of Financial MADness has become newly relevant – as the Fed’s unprecedented intervention in the treasury market may have shown.
Bicycles and Tables
Meanwhile, global markets are showing clear signs of recovery – for now – but China’s ability to maintain stability and growth has become an open question. Minxin Pei, an associate with the Carnegie Endowment for International Peace, wonders openly whether China’s Communist Party will “survive” the crisis.
Until recently, most leading China watchers thought the Chinese Communist Party (CCP) had become remarkably resilient... Because of the global economic crisis, however, Beijing is in trouble. The problems are numerous: China's exports are plummeting, tens of millions of migrant laborers have lost their jobs, millions of college graduates cannot find employment, industrial overcapacity is threatening deflation, and the once red-hot real estate sector has nose-dived. The country's faltering growth is posing the hardest test yet to the CCP's resilience.
As financial blogger David Merkel has observed, there is a difference between “table stability” and “bicycle stability.” Table stability implies a solid situation in the absence of change. Bicycle stability implies that things have to keep moving forward.
A table, in other words, can just sit there. But as soon as the bicycle stops, it falls over. In China’s case, one might say it’s the bicycle factories that have to keep moving forward... lest the whole social order fall over as millions of angry Chinese protest against the permanent disappearance of their jobs.
Why the U.S. government is ready to hand you a check for $62,881…On January 15th, Congress revealed the contents of a highly secret document that’s about to change the face of American energy.Page 88 of this 258-page draft gives the details of a $160 billion mega-deal that looks to launch a wave of payouts for as much as $62,881.The problem is… almost no one knows how to collect the payments.
Intriguing Maneuvers
Make no mistake – Beijing still sits on a mountain of cash. More than half a trillion bucks’ worth of stimulus is wending its way into the system, and there is plenty more dough where that came from in the form of Chinese reserves.
Whether those cash reserves will be enough to keep China growing is the real question. The possibility that it won’t be enough is what keeps the mandarins awake at night... and possibly leaning hard on the Fed.
Your humble editor wonders, too, whether China’s recent commodity-buying spree and the Fed’s treasury-buying binge could have a secret hidden connection. Consider this nugget from The Washington Post:
Chinese companies have been on a shopping spree in the past month, snapping up tens of billions of dollars' worth of key assets in Iran, Brazil, Russia, Venezuela, Australia and France in a global fire sale set off by the financial crisis.
The deals have allowed China to lock up supplies of oil, minerals, metals and other strategic natural resources it needs to continue to fuel its growth.
Could it be that China knew in advance the Fed was going to step in and buy Treasuries – a friendly “heads up” from one government to another, or even a negotiated arrangement of sorts?
Could it further be that Chinese officials knew the dollar would crash on such Fed actions... a crash telegraphed to them but few others... and thus decided to step up their hard asset buying BEFORE the big event, with the foreknowledge that commodities were set to catch a bid?
Hmm...
However complex this web of intrigue might be, the charts at least are fairly straightforward. With the dollar folding like a cheap tent, China writing fat checks around the globe, and major commodities like oil and copper working out a clear bottoming process, hard assets look like an easy buy.

The Power to Tax is the Power to Destroy



We watched in dismay as the unemployment numbers soared again last Friday — a massive loss of 651,000 jobs in February. Thank God it was a short month...
But let’s put this into perspective. In December, the non-farm payroll (NFP) figure was 577,000 jobs lost. In January, the NFP figure was a worsening 598,000 jobs lost. Then in February, 651,000 jobs lost. But that incredible decline is not the whole story.

The December numbers were revised to 684,000 — an additional 107,000 jobs lost. January’s number was also revised, up to 655,00 — an additional 57,000 jobs lost. What are the odds that the brutal February numbers are going to stand pat or get better? As I have said many times, some people have a vested interest in controlling (manipulating) these report numbers. A certain amount of fear is useful among the populace in the midst of a crisis.
White House Chief of Staff Rahm Emmanuel said, “You never want a serious crisis go to waste. This crisis [the economic turndown] provides the opportunity for us to do things that you could not do before.”
Secretary of State Hillary Clinton echoed that thought by saying “never waste a good crisis” in Brussels as she droned on about climate change.
Just before his election, Barack Obama proclaimed, “We are five days away from fundamentally transforming the United States of America.” Sadly, the fundamental change has already begun.
A New York Times reporter asked the president if he was a socialist. Obama dismissed it as a joke, but just a few hours earlier, Hugo Chavez, socialist president of Venezuela, invited Obama to, “Come with us on the road to socialism. This is the only path. Imagine a socialist revolution in the United States.”
Disgusting. Unnerving. Scary.
While a certain amount of fear may be helpful, panic and pandemonium would be absolutely counterproductive. I think it is in the government’s best interest at this point not to release the full damage in the employment market. Frankly, I am taking bets that the next set of jobless numbers will include a revision for this month that will put the February numbers at 725,000 jobs lost. That would put the official unemployment rate at just over 9%.
Of course, as it stands, we need to understand that the unemployment rate in and of itself is an average. The average figure is mitigated by categories on the lower end of the spectrum. For February, the lower categories of unemployment were Managerial and Professional Positions at 4.5% and 3.5% respectively. Not too disturbing...
But when we look at the other pieces of the puzzle, we see double-digit unemployment among Hispanics (10.9%), and African Americans (13.4%).
By broad category, we see the following unemployment news:
Construction workers — 22.0%
Farm and Forestry — 22.0%
Production — 13.7%
Transportation — 12.5%
These sectors will only continue to worsen, and they may in fact be worse already.
“So why,” do you ask, “are you going to such lengths to describe the gloominess of the situation?”
Today, it serves as the springboard for the commentary, and the lesson of the week.
John Marshall, Supreme Court Justice from 1801-35, left us this memorable quote: “The power to tax is the power to destroy.” It is well worth memorizing. But we are watching it at work all around us. Here is what it has to do with you and me.
When governments levy taxes, and there is some need to do so, they act as a parasite. Their modus operandi is to take, but never to create. The State’s real role is to be a negative influence, not a positive one. They are to inhibit evil on a personal level by constricting crimes against citizens. They are to inhibit evil on a federal level by acting against powers that would attack us.
Beyond there, expansions become positivistic. They become world improvements. Better roads. Better schools. Better commerce. Better parks. Better art. Better money. Better housing. Better health. Ad infinitum. Ad nauseam.
The Biblical story of the Tower of Babel relates the efforts of the first State to improve its lot in life. “The people are one (of one mind — Ed.). And now nothing will be withheld from them which they have imagined to do.”

This is the State mantra: “Yes, we can!” And States imagine that they can do anything. All they need is a few more bucks and a few more taxpayers who think that what they want to do next is just the best idea since sliced bread. But what they (the taxpayers) forget is that the government is a net destroyer of wealth. In order to “create” anything, they must take wealth from whoever is currently holding it.
In our day we are seeing the net effects of taxing everything in sight...
When you tax a man’s income, his income goes down. The power to tax is the power to destroy.
When you tax a man’s income, you are taxing his employment. So unemployment rises and employment goes down. The power to tax is the power to destroy.
When you tax a man’s ability to work, he works less. True productivity goes down. The power to tax is the power to destroy.
When you tax a man’s work, you tax the chief source of his freedom. “Six days thou shalt labor...” The power to tax is the power to destroy.
You see, a government can tax all kinds of income for all kinds of reasons.
But not Liberty.
Freedom is beyond a government’s ability to control (although they will try!). Freedom comes from God. Our Creator endows men with certain unalienable rights. Among them is Liberty. When a government tries to tax Freedom, it moves to different shores. It packs up all its inestimable benefits and heads to lands where it will be treated better. Where it will get a better reception. Where people who have been enslaved too long hunger and yearn for its gifts. To citizens who are willing to lay down their lives to secure it and fight back the forces of bondage to keep it.
But we have forgotten such things. We are not the noble people we once were. Much of our citizenry is infected with indolence. Multitudes look to the State as the supplier of everything from soup to nuts, cradle to grave, and womb to tomb. You can see it in the faces of ordinary Joes when they light up at getting their “tax refund.” Forgetting the tremendous sum of money the state has already taken, they are just glad to “get something back.”
We have become a nation of slaves. Bound to the idea that the government will provide.
As we come up on the Easter season, it is customary in many homes to watch Cecil B. DeMile’s The Ten Commandments, his depiction of the freeing of God’s children from bondage and slavery. What he doesn’t show is how the people complained shortly after being freed that their lives were too hard. (Because living free isn’t easy.) They said to Moses that they would rather go back to Egypt. They’d rather be slaves.
Hunting for food. Finding water. All this was too much responsibility.
In Egypt, life was simple. Their taskmaster’s brought them food. Their slave-drivers brought them water. Their lords told them how many bricks to make. (And they were happy to have 100% employment!)
But the rigors of living free were just too much for them.
So it has become in our own day. Men would rather live in servitude to an all-providing State, reveling in their own laziness, than to take up the mantle of responsibility and live free.
That is true of many. But it is not true of all.
It is not true of me. I hope it is not true of you. And I suspect it isn’t. Otherwise we would never have found each other here.

But for the long run, the excessive taxing of wealth and the attempted taxing of Liberty does not bode well for our Motherland. A man reaps what he sows. So does the country in which he lives.
Days to come will find wealth following in the wake of Liberty — shifting to other quarters. We will begin looking for other opportunities in places where freedom reigns supreme. But for now we will have to work with what we have. Money will continue to flow into and out of the major currencies for a while yet.

Bill Bonner With A Gem



Yes We Can't!
By Bill Bonner
Paris, France

Free market capitalism is the "god that failed," writes Martin Wolf.
Thus does Financial Times lead off a feeble chorus of lament in its "Future of Capitalism" series. What do we do now? is the question. Can capitalism be tamed? Can it be harnessed? "Yes we can!" says America's president.
Richard Layard from the London School of Economics, offered a way
forward:
"We should stop the worship of money and create a more human society,"
he writes. "Happiness has not risen since the 1950s in the US or Britain," he points out, despite big increases in wealth. "Modern happiness research can help find answers," he believes.
"Old fashioned socialist planning is the only coherent alternative to a collapsing capitalist economy," an alert FT reader added.
Given the depth of these insights, we decided not to dive into this discussion headfirst. Instead, we will simply mock the swimmers from the bank. Brazil's president, Lula da Silva, for example, could only come up with a campaign slogan: "The future of human beings is what really matters." But who can blame them? They want a capitalism that makes people happy...fairer, gentler, greener... they want to reform it...to housebreak it...to cut its balls off so they can safely put it on a leash and introduce it to their daughters.
But they miss the point of it altogether: we can't reform capitalism; it reforms us. Capitalism punishes mistakes and rewards virtue (or good
luck) - not necessarily quickly or gently...but roughly and imperfectly, like a hanging judge in a frontier town. On paper, of course, we can do better. Imagine a world where public employees are saints and geniuses who do such a swell job of allocating capital we want for nothing. But then, when we get a chance to see them in action, we find that they are bigger rascals than the capitalists themselves.
This week, under pressure from its new proprietor - the U.S. government
- AIG released a list showing who had gotten more than $100 billion of its bailout money. At the top of the list of recipients was a familiar name - Goldman Sachs. In a truly astonishing co-incidence, Goldman is the firm that had been run by the very person who headed up the AIG rescue - former Treasury Secretary Hank Paulson. And what serendipity!
Lloyd Bankfein - Goldman's top man now - was actually in the room with the feds when the AIG rescue plan was put together.
In the room; in the deal. But the big scalawags ducked out of the press almost immediately. Instead, the headlines focused on the small fry.
AIG paid bonuses of $450 million - some charged it was $1 billion - to its executives. These guys shouldn't get bonuses, came the popular outcry; they should get a firing squad.
You'll recall the story. The insurance giant AIG lost money on a series of gambles. For example, it gambled that it could insure the mortgage payments of people who couldn't afford to buy a house. During the bubble years, people bought houses at outrageous prices. They could borrow 80% of the purchase price from government-backed debt mongers Fannie Mae and Freddie Mac. Buyers were supposed to put up the other 20% themselves, giving lenders a margin of safety in case the transactions didn't work out as planned. But, if an insurance company would guarantee the other 20%, Fannie could cover 100% of this "enhanced" mortgage loan. AIG found that insuring this part of the loan was profitable - as long as nobody asked questions. But then the market price for the collateral dropped - by as much as 50% in some areas.
Suddenly, people were walking away from their houses. Defaults on these "enhanced" loans ran at 5 times the rates on normal Fannie-backed mortgages.
An ordinary person would look at these facts and pronounce the same judgment as the capitalist market: AIG and Fannie both deserve to go broke. But give him enough higher education in the economics department, or a job in government, and the fool rushes in --with someone else's money.
In the theory of bailouts, an ailing firm is given a helping hand when it needs it. This gives it time to get back on its feet, and prevents it from dragging down its employees, lenders, investors and counterparties. But what actually happens is much simpler. Money is goes from the pocket of the person who earned it...to the pocket of someone who didn't...from the innocent bystander to the fellow who caused the accident. Capitalism takes money away from erring capitalists; the capitalism improvers give it back to them.
And who decides who gets the loot? Ah...as soon as you hold them up to the light, the angels' wings fall off. By and large, these are the same cherubim and seraphim - such as Hank Paulson - who were supposed to be leading...regulating...and controlling capitalism when it ran into a ditch. Not a single one raised a warning. Instead, they whooped for the free market and passed the whiskey bottle to the driver! And now, thanks to their bailouts, AIG continues writing insurance against mortgage loans. Seventy-three AIG executives continue getting $1 million bonuses. A long line of reckless counterparties goes unpunished. And Hank Paulson offers advice to Financial Times readers on how to make capitalism work better.
But that is always the problem with improving capitalism...even in the slapstick American way. The reformers promise a 'new deal,' but they've always got an ace up their sleeve somewhere.

The Crisis Is Getting Notice In The Mainstream Now



Bank crisis spawns new kind of gold rush
2009 recession and banking crisis has set off a rush to invest in gold and other precious metals at unprecedented levels


DAVID PARKINSON
From Friday's Globe and Mail
March 20, 2009 at 1:00 AM EDT
In 1897, at the height of a major U.S. recession and banking crisis, a gold discovery on the Klondike River in Yukon Territory triggered one of the biggest gold rushes ever seen. Now, more than a century later, history is – sort of – repeating itself.
No, the world's downtrodden aren't beating a frenzied path to a harsh, remote swath of the Canadian north this time around. But the 2009 recession and banking crisis has set off a rush to invest in gold and other precious metals at unprecedented levels – a move that has tightened the global supply/demand picture and helped push prices to record highs. And increasingly, they are opting for the tangible comfort of physical gold – actual gold bars and coins that they can cling to in troubled times.
“When the banking crisis hit [last fall], we saw an avalanche of demand,” said James DiGeorgia, a Florida-based coin and precious metals dealer and editor of the Gold & Energy Advisor newsletter. “People are scared to death that all this debt [being taken on by governments] is going to debase the [U.S.] dollar and other currencies around the world.”
Data from the World Gold Council show that while demand for gold for industrial, dental and jewellery purposes fell 10 per cent in 2008, net purchases of physical gold for investment purposes jumped 64 per cent to 1,091 tonnes. In the fourth quarter – as the U.S. banking crisis reached new depths – net gold investment volumes surged 182 per cent from a year earlier. As a result of the boom in investment demand, overall gold demand rose 4 per cent last year, further widening the annual supply shortfall in the gold market.
“These dramatic retail investment inflows reflect the extreme uncertainty that surrounds the global economy and financial system,” the World Gold Council said. “In an environment where investors are more concerned about the loss of capital than they are about the return on capital, the absence of default risk or counterparty risk has been a key attraction for gold.”
Experts say the soaring price for gold – up 30 per cent since the end of October, at the same time the MSCI World stock index has lost almost 20 per cent – has created a bandwagon effect for investment in precious metals. But behind that have been some legitimate concerns – about global economic and financial market instability, and the possible inflationary ramifications of the rising government debts being incurred to rescue the world economy – that have sent investors to gold as a stable safe haven for their money, and a way to diversify their portfolios away from other more risky asset classes.
Yesterday, gold for April delivery surged $69.70 (U.S.) to settle at $958.80 an ounce on the New York Mercantile Exchange.
Gold-backed exchange-traded funds – an increasingly popular vehicle for gold exposure among retail investors – increased their net purchases of gold by 27 per cent in 2008. But the most startling demand growth came from direct purchases of gold bars and coins by retail investors, especially in Europe and North America, where holding physical gold has never been nearly as popular as it is in many Eastern cultures and developing economies.
Western net retail gold purchases totalled 133 tonnes last year – a sharp reversal from the moderate net sales of gold by Western retail investors in recent years. Meanwhile, gold hoarding among non-Western investors and gold coin purchases from government mints surged 60 per cent and 44 per cent, respectively, in the year.
“Especially in the industrialized countries, people are now buying precious metals for portfolio diversification,” said Barry Wainstein, vice-chairman and global head of foreign exchange and precious metals at Scotia Capital Inc., a long-time provider of precious metals products to Canadian investors.
Canadian banks have long offered retail clients exposure to gold through gold-backed certificates, whose value is based on the spot price of gold (minus administrative fees) and can be exchanged by their holders for either cash or physical gold. The advantage is that investors don't need to worry about transport, storage and insurance of physical precious metals.
Russell Browne, director of retail precious metals products at Scotia Capital, said volumes of RRSP-eligible gold-backed certificates have “more than doubled” in the past 18 months.
But in the past year, many clients have been opting against certificates, in favour of the real thing. Some investors are even loading up on gold-industry-standard gold bars – 400-ounce blocks valued at about $400,000 at today's prices.
“We now have retail investors buying multiple bars,” Mr. Browne said. (Scotia sells gold bars ranging from one ounce to the 400-ounce standard.)
The rising demand for bars has prompted Scotia's precious metals arm, ScotiaMocatta, to ramp up its offerings of physical precious metals. In addition to its gold and silver products, ScotiaMocatta earlier this month introduced one-ounce platinum and palladium bars for retail clients.
“In some cases, investors are more comfortable with owning physical precious metals than other financial instruments,” Mr. Wainstein said.
The growing desire to hold precious metals in their physical form may be another side effect of investor distrust in the crisis-riddled global banking sector. Newsletter editor Mr. DiGeorgia suggested investors in the United States have become increasingly nervous about gold-backed investment certificates and even gold storage services at their banks, for fear their assets may not be entirely safe in the case of a bank failure.
“I always tell people to take physical possession of their gold,” he said.

Here At Sound Of Cannons, We've Been Asking Ourselves This Very Question. Very Poignant.


Terence Corcoran: Is this the end of America?
Posted: March 19, 2009, 7:38 PM by NP Editor
, , U.S. law-making is riddled with slapdash, incompetence and gamesmanship
By Terence Corcoran
Helicopter Ben Bernanke’s Federal Reserve is dropping trillions of fresh paper dollars on the world economy, the President of the United States is cracking jokes on late night comedy shows, his energy minister is threatening a trade war over carbon emissions, his treasury secretary is dithering over a banking reform program amid rising concerns over his competence and a monumentally dysfunctional U.S. Congress is launching another public jihad against corporations and bankers.As an aghast world — from China to Chicago and Chihuahua — watches, the circus-like U.S. political system seems to be declining into near chaos. Through it all, stock and financial markets are paralyzed. The more the policy regime does, the worse the outlook gets. The multi-ringed spectacle raises a disturbing question in many minds: Is this the end of America?Probably not, if only because there are good reasons for optimism. The U.S. economy has pulled out of self-destructive political spirals in the past, spurred on by its business class and corporate leaders, the profit-making and market-creating people who rose above the political turmoil to once again lift the world out of financial crisis. It’s happened many times before, except for once, when it took 20 years to rise out of the Great Depression.Past success, however, is no guarantee of future recovery, especially now when there are daily disasters and new indicators of political breakdown. All developments are not disasters in themselves. The AIG bonus firestorm is a diversion from real issues , but it puts the ghastly political classes who make U.S. law on display for what they are: ageing self-serving demagogues who have spent decades warping the U.S. political system for their own ends. We see the system up close, law-making that is riddled with slapdash, incompetence and gamesmanship.One test of whether we are witnessing the end of America is how many more times Americans put up with congressional show trials of individual business people and their employees, slandering and vilifying them for their actions and motives. And for how long will they tolerate a President who berates business and corporations as dens of crime and malfeasance? If the majority of Americans come to accept the caricatures of business as true, then America is closer to the end of its life as a global leader, as a champion of markets and individualism.But America is at risk in other ways, especially in the technical business of setting and executing policy. The presidency of Barack Obama has set out on a course that has no precedent in U.S. history. Franklin D. Roosevelt, whose New Deal transformed the U.S. economy during the Great Depression, pushed America off on a sharply different political and ideological course. The Obama administration is different in many ways, not least in its supreme self-confidence in its methods and objectives.Reform of health care, environmental policy, education, energy, banking, regulation — every nook and cranny of the U.S. economy has been put on alert for major change. Expansion of government spending, plunging the U.S. into unprecedented deficits, is without parallel. In economic policy, through regulation and control of energy output, financial services and monetary expansion, the U.S. government has embarked on a fundamental reshaping of America. It is designed, in short, to bring on the end of America.The spillover effect of all this on the rest of the world promises to be dramatically disruptive. The greatest global risk is in monetary and currency policy. Below is a chart that graphically demonstrates the sharp deviation in monetary policy from past norms. Under the chairmanship of Ben Bernanke, the Federal Reserve is in the midst of a giant economic experiment, flooding the world with U.S. dollars, hoping that flood will stimulate economic activity.The total monetary base, already at astronomical levels, is now expected to take another big hit with the new Fed policy of buying up U.S. longer-term treasury bills in a bid to drive down long-term interest rates.Mr. Bernanke is sometimes known as “Helicopter Ben” because he once in an academic paper referred to the use of “helicopters” full of money to rescue an economy from deflation. In comments Wednesday to explain the Fed’s new policy of buying $300-billion in U.S. treasury bills, Mr. Bernanke noted that the Fed is now more worried about inflation being too low than about it getting too high in the future.For the rest of the world, however, the worry is that America is at risk of becoming the fountainhead of a new inflationary outburst. The U.S. dollar is now in decline, gold is moving sharply higher, and new global currency turmoil is on the horizon. It may not happen. A paper just published by the Federal Reserve Bank of St. Louis, source of the chart above, says that the Fed will have to be prepared to absorb all the excess money it has poured into the U.S. economy. It will be a technical and political challenge unlike any central bank has ever undertaken. The future of America is at stake.

Friday, March 20, 2009

Obama's Tax Plan>U


Mint suspends production (again) of gold and silver coins, claiming that the demand is too great. Or they don't Got Enough!


Mint Suspends Production of More Gold and Silver Coins

March 14, 2009 Filed Under US Mint
The United States Mint has officially announced the suspension of another slate of gold and silver products. The affected products are 2009 dated American Gold and Silver Eagle coins produced for collectors. These coins are considered collectible versions of the bullion coins.
Although these are collectible coins, they represent a sizable amount of precious metals sales and represent a method of gold and silver investment for many individuals. Last year, the US Mint sold 1,157,911 ounces of silver in the form of Silver Eagle coins minted for collectors. They also sold 155,740 ounces of gold in the form of Gold Eagle and Gold Buffalo coins minted for collectors.
The following message was posted on the US Mint's website in the space where the collectible Gold Eagle coins typically appear. The proof coins has been offered uninterrupted since 1986. The uncirculated version has been offered since 2006.
Production of United States Mint American Eagle Gold Proof and Uncirculated Coins has been temporarily suspended because of unprecedented demand for American Eagle Gold Bullion Coins. Currently, all available 22-karat gold blanks are being allocated to the American Eagle Gold Bullion Coin Program, as the United States Mint is required by Public Law 99-185 to produce these coins “in quantities sufficient to meet public demand . . . .”
The United States Mint will resume the American Eagle Gold Proof and Uncirculated Coin Programs once sufficient inventories of gold bullion blanks can be acquired to meet market demand for all three American Eagle Gold Coin products. Additionally, as a result of the recent numismatic product portfolio analysis, fractional sizes of American Eagle Gold Uncirculated Coins will no longer be produced.
A similar message is posted in the section where collectible American Silver Eagle coins would typically appear. The proof coins have also been offered uninterrupted since 1986 and the uncirculated coins since 2006.
Production of United States Mint American Eagle Silver Proof and Uncirculated Coins has been temporarily suspended because of unprecedented demand for American Eagle Silver Bullion Coins. Currently, all available silver bullion blanks are being allocated to the American Eagle Silver Bullion Coin Program, as the United States Mint is required by Public Law 99-61 to produce these coins “in quantities sufficient to meet public demand . . . .”
The United States Mint will resume the American Eagle Silver Proof and Uncirculated Coin Programs once sufficient inventories of silver bullion blanks can be acquired to meet market demand for all three American Eagle Silver Coin products.
This adds to the lengthy list of 2009 dated precious metals products that have been "temporarily delayed" or suspended by the US Mint. In my previous post Actions of the US Mint Discourage Gold Ownership, I mentioned the delayed release of 2009 Gold Eagle fractional coins, 2009 Gold Buffalo coins, and all 2009 Platinum Eagle coins. The delay, which was first announced in November 2008, continues with no further explanation provided.
For those keeping track, here is a list of the US Mint's 2009 precious metals products that have been "temporarily delayed" or suspended:
2009 American Gold Eagle 1/2 oz. (bullion)
2009 American Gold Eagle 1/4 oz. (bullion)
2009 American Gold Eagle 1/10 oz. (bullion)
2009 American Platinum Eagle 1 oz. (bullion)
2009 American Platinum Eagle 1/2 oz. (bullion)
2009 American Platinum Eagle 1/4 oz. (bullion)
2009 American Platinum Eagle 1/10 oz. (bullion)
2009 American Gold Buffalo 1 oz. (bullion)
2009-W Proof American Gold Eagle 1 oz. (collector)
2009-W Proof American Gold Eagle 1/2 oz. (collector)
2009-W Proof American Gold Eagle 1/4 oz. (collector)
2009-W Proof American Gold Eagle 1/10 oz. (collector)
2009-W Proof American Gold Eagle 4 Coin Set (collector)
2009-W Uncirculated American Gold Eagle 1 oz. (collector)
2009-W Proof American Silver Eagle (collector)
2009-W Uncirculated American Silver Eagle (collector)
In addition, the following precious metals related products were discontinued by the US Mint for 2009. These discontinuations were announced in November 2008. Amidst the environment of unprecedented demand for precious metals, the US Mint determined that these products were "unpopular."
Uncirculated American Gold Eagle 1/2 oz. (collector)
Uncirculated American Gold Eagle 1/4 oz. (collector)
Uncirculated American Gold Eagle 1/10 oz. (collector)
Unriculated American Gold Eagle 4 Coin Set (collector)
Uncirculated American Gold Buffalo 1 oz. (collector)
Uncirculated American Gold Buffalo 1/2 oz. (collector)
Uncirculated American Gold Buffalo 1/4 oz. (collector)
Uncirculated American Gold Buffalo 1/10 oz. (collector)
Unriculated American Gold Buffalo 4 Coin Set (collector)
Proof American Gold Buffalo 1/2 oz. (collector)
Proof American Gold Buffalo 1/4 oz. (collector)
Proof American Gold Buffalo 1/10 oz. (collector)
Proof American Gold Buffalo 4 Coin Set (collector)
Uncircualted American Platinum Eagle 1 oz. (collector)
Uncircualted American Platinum Eagle 1/2 oz. (collector)
Uncircualted American Platinum Eagle 1/4 oz. (collector)
Uncircualted American Platinum Eagle 1/10 oz. (collector)
Uncircualted American Platinum Eagle 4 Coin Set (collector)
Proof American Platinum Eagle 1/2 oz. (collector)
Proof American Platinum Eagle 1/4 oz. (collector)
Proof American Platinum Eagle 1/10 oz. (collector)
Proof American Platinum Eagle 4 Coin Set (collector)
That makes a total of 38 precious metals products which have been delayed, suspended, or discontinued by the US Mint.
As it currently stands, investors or collectors looking to purchase newly minted American Eagle or American Buffalo precious metals products have only two options available. These are the 2009 1 oz. American Gold Eagle and the 2009 1 oz. American Silver Eagle. Both of these products continue to be subject to rationing.