What Happened to Preserve, Protect, and Defend?

How does a president of the United States whose allegiance is to his country knowingly and in plain sight sabotage his nation's defenses?  Until recently, the discussions of severe military cuts remained in the appropriate realm of working groups, and few seriously considered Obama's radical campaign promises to eliminate nuclear weapons from the U.S. arsenal to be of any real validity.  After all, many Democrat presidential contenders before Obama had pandered to pacifists and the armies of the naïve swelling the Democratic base in order to get elected.  But none of these individuals actually took proactive steps to completely remove America's nuclear triad from the list of strategic options.  Our ability to instill fear in the hearts of our enemies, both current and future, was left unquestioned by all previous presidents, minor reductions in stockpiles notwithstanding.
Obama has done what no guardian of America would do: systematically tear down the most vital of America's defenses, all while America's enemies wait with bated breath for the nation that owes trillions in debt to be left standing defenseless.  What happens when America lays down its arms?  It seems Obama would like to find out.  Americans may be the unintended (intended?) victims of a perverse social experiment.
Leaks from high-level defense sources reveal that in addition to commitments under the New START agreement, which brings the total number of deliverable U.S. warheads to 1,000 -- an unacceptably low number that prevents the U.S. from being able to destroy the 3,000 priority strategic targets identified by the DoD -- Obama now plans to implement an 80-percent force reduction that will leave America with only 300 deliverable warheads.  Such a move is suicidal.  Such a low number is wholly insufficient to protect America from the growing list of dangerous and erratic nuclear regimes with global ambitions.  Even more crucial to understanding the risk inherent in such a decision is the role of U.S. nuclear weapons stockpiles as a deterrent. 
Americans have only been able to live the cushy, carefree existence of the last half-century -- now taken for granted by new generations of youngsters who have known only prosperity and for whom Cold War politics are moot -- because the U.S. possessed a credible nuclear arsenal capable of devastating any adversary.  It is because of, not in spite of, America's nuclear assets that America has survived multiple existential threats.
The danger of nuclear confrontation has increased, not decreased, since the end of the Cold War.  The likelihood of nuclear exchange has increased rapidly, mirroring the acquisition of nuclear weapons by small and medium-sized states, with multiple hostile nuclear powers now vying for global influence.  Obama is at best gravely naïve if he is pursuing drastic and suicidal cuts to our arsenal at the present time. 
 Obama has been busy gutting American conventional forces as well.
The Army and the Marines are to be significantly downsized, even as their global commitments expand.  Consequently, America can no longer simultaneously fight two major wars in two theaters of deployment, a capability deemed vital by defense insiders to ensuring America's defense against coalitions of aggressor states, and now a plausible scenario owing to the Russian military buildup in the Middle East and the increasingly belligerent actions of China on every front.  Both nations are in a Warsaw-Pact prototype alliance called the Shanghai Cooperation Organization that openly challenges U.S. leadership and engages in maneuvers in which the United States is the target.  Iran is also a member of this organization.  Eliminating the two-war capability would seem ill-advised.  But then, Obama probably knows this.
The Navy thinly escaped Obama's hacksaw.  Recent studies commissioned by DoD indicate that the present number of aircraft carrier battle groups is not sufficient to maintain an adequate defensive posture in the Pacific, where U.S.-Taiwanese forces are under constant threat of nuclear exchange with China.  Even though the number of carrier groups is already below normal, Obama had wanted to cut another carrier battle group from the fleet.  The Navy torpedoed the move, but not without cost.  Modernization efforts have been canned, and shipbuilding will be greatly slowed, which will cause the fleet to shrink by approximately 70 ships in the 2020s.
Enter and exit the U.S. Air Force.  The Air Force has been forced to lose several hundred planes, even though its present number is already below the threshold admittedly needed to carry out tactical bombing campaigns.  In Bosnia, when the Air Force was a few times larger than today, it took 40 percent of active aircraft to execute the campaign.  Can anyone seriously argue that the U.S. Air Force, which needed nearly half of its resources to prosecute Bosnia, can actually manage a conflict involving multiple major powers at one time, especially if cuts of the magnitude enacted go unchallenged? 
America's president has done more to harm American security than our greatest foes could ever dream of doing, and he has done it with both eyes wide open, willingly, with full knowledge of the implications, which raises the obvious question: what word describes a president who will do this to his own country?  The recent Medvedev revelations are a good indicator of Obama's interest in satisfying Russian demands  in ways that would be unpopular with the American people.
Obama admittedly seeks the eradication of American superpower status.  Even if a case can be made for a reduced U.S. footprint worldwide or for a less interventionist foreign policy, would a loyal American knowingly seek to undermine his or her nation's greatness merely to satisfy some philosophical pretense to equality with "everybody else"? 
The time for pretense is over.  Obama is no friend of America.

Our Associate Editor Ralph On The Obamacare debacle at the SCOTUS.

During an Obamacare litigation hearing this week, Sixth Circuit Court of Appeals Judge James L. Graham asked acting Solicitor General Neal Katyal, "Where ultimately is the limit on Congressional power?"  The question sounds rhetorical but is not.  The administration argues that Congress has Constitutional authority under the Article I Section 8 "commerce clause" to compel uninsured Americans to purchase health care insurance.
The logic goes back to the 1942 Supreme Court case "Wickard v. Filburn" in which Ohio farmer Roscoe Filburn was fined for growing wheat in excess of New Deal--era crop quotas. Mr. Filburn argued that the quotas did not apply to his particular circumstances because he was growing feed for his own chickens, not to sell.  But the Supreme Court disagreed, stating that "control of total supply... depends upon control of individual supply," and by growing his own chicken feed, Mr. Filburn was not buying it from others.  Also New Deal agricultural programs were so effective, according to the court, that Mr. Filburn should stop complaining about impositions on his freedom and show a little gratitude.
The Obama administration takes this pernicious logic a step further by compelling people to buy things they don't want.  Since there is no interstate commerce to regulate, the government mandates it. But Judge Graham's question can be answered by employing the same argument that Chief Justice John Marshall employed in the foundational case of Marbury v. Madison (1803).  If Congress can exercise powers that are in practice unlimited, then as Justice Marshall concluded, "written constitutions are absurd attempts, on the part of the people, to limit a power in its own nature illimitable." It is "a proposition too plain to be contested" that the Constitution cannot be used to justify an act that destroys the very limits on which constitutional government is founded.
In essence, Obamacare must be unconstitutional, because if it stands it would remove the limits to Congressional power that the Constitution was designed to impose.  The Constitution is not a suicide pact even if Obamacare is.

As The ECB Crosses The Inflationary Rubicon Has Mario Draghi Lost All Control?

Having been heralded around the world for solving Europe's crisis, ECB head Mario Draghi confidently states (as does every other central banker in the world) that "should the inflation outlook worsen, we would immediately take preventive steps". However, a recent analysis by Tornell and Westermann at VOX suggests the ECB has hit its limit with regard to its anti-inflationary fighting measures. The ECB appears to have lost control over standard measures of tightening: short-term interest rates (since short-term lending to banks has dropped to practically zero), increase in minimum reserve requirements (practically impossible withouit crushing the banks that they have propped up due to the sharp asymmetries - the recent cut from 2% to 1% minimum reserves saw a remarkable EUR104bn drop), and finally asset sales (the quantity of 'sensitive' or encumbered assets on the ECB's books has reached such a scale - due to LTRO, SMP, and ELA programs - leaving the 'sellable' non-sensitive assets at a level below excess deposits for the first time in ECB history). As the authors note, while this does not immediately produce an inflation flare, the lack of maneuvering space will induce an inflationary bias to ECB monetary policy as Draghi will find it increasingly expensive  at the margin to hit the anti-inflationary brakes. "This bias puts the Eurozone at risk of de-anchoring long-run inflationary expectations. The danger is not inflation today, but the de-anchoring of expectations about future inflation." As we have noted many times before, the ECB (and for that matter most central banks in the world) need Goldilocks.

Standard monetary 'instruments' to control inflationary concerns (or the ECB's ability to absorb an excessive increase in liquidity) have hit a limit:
Short-term interest rates will be ineffective since ECB lending to MFIs is now minimal:


Increasing the minimum reserve requirement will crush banks capital - especially damaging for low-excess deposit countries where systemic bank runs would likely occur:

And finally asset sales is very limited since the unencumbered (or non-sensitive) ECB assets - that are practically saleable - have crossed below the excess deposits level for the first time - standing at just 26% of the balance sheet (simply out the ECB would not have enough non-sensitive assets to sell in order to cover a withdrawal of excess deposits by banks):


In summary, the intersections in Figures 1 and 3 make clear that the ECB has lost its ability to implement standard anti-inflationary policies.

The Ascendence of Sociopaths in US Governance - [MUST READ ARTICLE FROM THE MASTERFUL DOUG CASEY!]

An International Man lives and does business wherever he finds conditions most advantageous, regardless of arbitrary borders. He's diversified globally, with passports from multiple countries, assets in several jurisdictions and his residence in yet another. He doesn't depend absolutely on any country and regards all of them as competitors for his capital and expertise.
Living as an international man used to be just an interesting possibility. But few Americans opted for it, since the US used to reward those who settled in and put down roots. In fact, it rewarded them better than any other country in the world, so there was nothing pressing about becoming an international man.

Things change, however, and being rooted like a plant, at least if you have a choice, is a suboptimal strategy for surviving and prospering. Throughout history, almost every place has at some point become dangerous for those who were stuck there. It may be America's turn.

For those who can take up the life of an international man, it's no longer just an interesting lifestyle decision. It has become, at a minimum, an asset saver, and it could be a life saver. That said, I understand the hesitation you may feel about taking action; pulling up one's roots (or at least grafting some of them to a new location) can be almost as traumatic to a man as to a vegetable.
As any intelligent observer surveys the world's economic and political landscape, he has to be disturbed – even dismayed and a bit frightened – by the gravity and number of problems that mark the horizon. We're confronted by economic depression, looming financial chaos, serious currency inflation, onerous taxation, crippling regulation, developing police states and, worst of all, the prospect of a major war. It seems almost unbelievable that we are talking of the US – which historically has been the land of the free.
How did we get here? An argument can be made that miscalculation, accident, inattention and the like are why things go bad. Those elements do have a role, but it is minor. Potential catastrophe across the board can't be the result of happenstance. When things go wrong on a grand scale, it's not just bad luck or inadvertence. It's because of serious character flaws in one or many – or even all – of the players.
So is there a root cause of all the problems I've cited? If we can find it, it may tell us how we personally can best respond to the problems.
In this article, I'm going to argue that the US government, in particular, is being overrun by the wrong kind of person. It's a trend that's been in motion for many years but has now reached a point of no return. In other words, a type of moral rot has become so prevalent that it's institutional in nature. There is not going to be, therefore, any serious change in the direction in which the US is headed until a genuine crisis topples the existing order. Until then, the trend will accelerate.
The reason is that a certain class of people – sociopaths – are now fully in control of major American institutions. Their beliefs and attitudes are insinuated throughout the economic, political, intellectual and psychological/spiritual fabric of the US.
What does this mean to the individual? It depends on your character. Are you the kind of person who supports "my country right or wrong," as did most Germans in the 1930s and 1940s, or the kind who dodges the duty to be a helpmate to murderers? The type of passenger who goes down with the ship or the type who puts on his vest and looks for a life boat? The type of individual who supports the merchants who offer the fairest deal or the type who is gulled by splashy TV commercials?
What the ascendancy of sociopaths means isn't an academic question. Throughout history, the question has been a matter of life and death. That's one reason America grew; every American (or any ex-colonial) has forebears who confronted the issue and decided to uproot themselves to go somewhere with better prospects. The losers were those who delayed thinking about the question until the last minute.
I have often described myself, and those I prefer to associate with, as gamma rats. You may recall the ethologist's characterization of the social interaction of rats as being between a few alpha rats and many beta rats, the alpha rats being dominant and the beta rats submissive. In addition, a small percentage are gamma rats that stake out prime territory and mates, like the alphas, but are not interested in dominating the betas. The people most inclined to leave for the wide world outside and seek fortune elsewhere are typically gamma personalities.
You may be thinking that what happened in places like Nazi Germany, the Soviet Union, Mao's China, Pol Pot's Cambodia and scores of other countries in recent history could not, for some reason, happen in the US. Actually, there's no reason it won't at this point. All the institutions that made America exceptional – including a belief in capitalism, individualism, self-reliance and the restraints of the Constitution – are now only historical artifacts.
On the other hand, the distribution of sociopaths is completely uniform across both space and time. Per capita, there were no more evil people in Stalin's Russia, Hitler's Germany, Mao's China, Amin's Uganda, Ceausescu's Romania or Pol Pot's Cambodia than there are today in the US. All you need is favorable conditions for them to bloom, much as mushrooms do after a rainstorm.
Conditions for them in the US are becoming quite favorable. Have you ever wondered where the 50,000 people employed by the TSA to inspect and degrade you came from? Most of them are middle-aged. Did they have jobs before they started doing something that any normal person would consider demeaning? Most did, but they were attracted to – not repelled by – a job where they wear a costume and abuse their fellow citizens all day.
Few of them can imagine that they're shepherding in a police state as they play their roles in security theater. (A reinforced door on the pilots' cabin is probably all that's actually needed, although the most effective solution would be to hold each airline responsible for its own security and for the harm done if it fails to protect passengers and third parties.) But the 50,000 newly employed are exactly the same type of people who joined the Gestapo – eager to help in the project of controlling everyone. Nobody was drafted into the Gestapo.
What's going on here is an instance of Pareto's Law. That's the 80-20 rule that tells us, for example, that 80% of your sales come from 20% of your salesmen or that 20% of the population are responsible for 80% of the crime.
As I see it, 80% of people are basically decent; their basic instincts are to live by the Boy Scout virtues. 20% of people, however, are what you might call potential trouble sources, inclined toward doing the wrong thing when the opportunity presents itself. They might now be shoe clerks, mailmen or waitresses – they seem perfectly benign in normal times. They play baseball on weekends and pet the family dog. However, given the chance, they will sign up for the Gestapo, the Stasi, the KGB, the TSA, Homeland Security or whatever. Many are well intentioned but likely to favor force as the solution to any problem.
But it doesn't end there, because 20% of that 20% are really bad actors. They are drawn to government and other positions where they can work their will on other people and, because they're enthusiastic about government, they rise to leadership positions. They remake the culture of the organizations they run in their own image. Gradually, non-sociopaths can no longer stand being there. They leave. Soon the whole barrel is full of bad apples. That's what's happening today in the US.
It's a pity that Bush, when he was in office, made such a big deal of evil. He discredited the concept. He made Boobus americanus think it only existed in a distant axis, in places like North Korea, Iraq and Iran – which were and still are irrelevant backwaters and arbitrarily chosen enemies. Bush trivialized the concept of evil and made it seem banal because he was such a fool. All the while real evil, very immediate and powerful, was growing right around him, and he lacked the awareness to see he was fertilizing it by turning the US into a national security state after 9/11.
Now, I believe, it's out of control. The US is already in a truly major depression and on the edge of financial chaos and a currency meltdown. The sociopaths in government will react by redoubling the pace toward a police state domestically and starting a major war abroad. To me, this is completely predictable. It's what sociopaths do.
There are seven characteristics I can think of that define a sociopath, although I'm sure the list could be extended.

1. Sociopaths completely lack a conscience or any capacity for real regret about hurting people. Although they pretend the opposite.
2. Sociopaths put their own desires and wants on a totally different level from those of other people. Their wants are incommensurate. They truly believe their ends justify their means. Although they pretend the opposite.
3. Sociopaths consider themselves superior to everyone else, because they aren't burdened by the emotions and ethics others have – they're above all that. They're arrogant. Although they pretend the opposite.
4. Sociopaths never accept the slightest responsibility for anything that goes wrong, even though they're responsible for almost everything that goes wrong. You'll never hear a sincere apology from them.
5. Sociopaths have a lopsided notion of property rights. What's theirs is theirs, and what's yours is theirs too. They therefore defend currency inflation and taxation as good things.
6. Sociopaths usually pick the wrong target to attack. If they lose their wallet, they kick the dog. If 16 Saudis fly planes into buildings, they attack Afghanistan.
7. Sociopaths traffic in disturbing news, they love to pass on destructive rumors and they'll falsify information to damage others.

The fact that they're chronic, extremely convincing and even enthusiastic liars, who often believe their own lies, means they aren't easy to spot, because normal people naturally assume another person is telling the truth. They rarely have handlebar mustaches or chortle like Snidely Whiplash. Instead, they cultivate a social veneer or a mask of sanity that diverts suspicion. You can rely on them to be "politically correct" in public. How could a congressman or senator who avidly supports charities possibly be a bad guy? They're expert at using facades to disguise reality, and they feel no guilt about it.
Political elites are primarily, and sometimes exclusively, composed of sociopaths. It's not just that they aren't normal human beings. They're barely even human, a separate subspecies, differentiated by their psychological qualities. A normal human can mate with them spiritually and psychologically about as fruitfully as a modern human could mate physically with a Neanderthal; it can be done, but the results won't be good.
It's a serious problem when a society becomes highly politicized, as is now the case in the US and Europe. In normal times, a sociopath stays under the radar. Perhaps he'll commit a common crime when he thinks he can get away with it, but social mores keep him reined in. However, once the government changes its emphasis from protecting citizens from force to initiating force with laws and taxes, those social mores break down. Peer pressure, social approbation and moral opprobrium, the forces that keep a healthy society orderly, are replaced by regulations enforced by cops and funded by taxes. Sociopaths sense this, start coming out of the woodwork and are drawn to the State and its bureaucracies and regulatory agencies, where they can get licensed and paid to do what they've always wanted to do.
It's very simple, really. There are two ways people can relate to each other: voluntarily or coercively. The government is pure coercion, and sociopaths are drawn to its power and force.
The majority of Americans will accept the situation for two reasons: One, they have no philosophical anchor to keep them from being washed up onto the rocks. They no longer have any real core beliefs, and most of their opinions – e.g., "We need national health care," "Our brave troops should fight evil over there so we don't have to fight it over here," "The rich should pay their fair share" – are reactive and comforting. The whole point of spin doctors is to produce comforting sound bites that elude testing against reality. And, two, they've become too pampered and comfortable, a nation of overfed losers, mooches and coasters who like the status quo without wondering how long it can possibly last.
It's nonsensical to blather about the Land of the Free and Home of the Brave when reality TV and Walmart riots are much closer to the truth. The majority of Americans are, of course, where the rot originates – the presidential candidates are spending millions taking their pulse in surveys and polls and then regurgitating to them what they seem to want to hear. Once a country buys into the idea that an above-average, privileged lifestyle is everyone's minimum due, when the fortunate few can lobby for special deals to rake something off the table as they squeeze wealth out of others by force, that country is on the decline. Lobbying and taxation rather than production and innovation have never been able to sustain prosperity. The wealth being squeezed took centuries to produce, but it is not inexhaustible.
In that light, it was interesting to hear Mitt Romney, the presumptive Republican nominee, speak about the lower, middle and upper classes recently. Romney is an empty suit, only marginally better than the last Republican nominee, the hostile and mildly demented John McCain. In any event, Romney is right about the poor, in a way – there is a "safety net," now holding 50 million people on Medicaid and 46 million on food stamps, among many other supposed benefits. And he's right about the rich; there's no need to worry about them at the moment – at least until the revolution starts. He claims to worry about the middle class, not that his worries will do anything to help them. But he's right that the middle class is where the problem lies. It's just a different kind of problem than he thinks.
People generally fall into an economic class because of their psychology and their values. Each of the three classes has a characteristic psychological profile. For the lower class, it's apathy. They have nothing, they're ground down and they don't really care. They're not in the game, and they aren't going to do anything; they're resigned to their fate. For the upper class, it's greed and arrogance. They have everything, and they think they deserve it – whether they do or not. The middle class – at least in today's world – is run by fear. Fear that they're only a paycheck away from falling into the lower class. Fear that they can't pay their debts or borrow more. Fear that they don't have a realistic prospect of improving themselves.
The problem is that fear is a negative, dangerous and potentially explosive emotion. It can easily morph into anger and violence. Exactly where it will lead is unpredictable, but it's not a good place. One thing that exacerbates the situation is that all three classes now rely on the government, albeit in different ways. Bankruptcy of the government will affect them all drastically.
With sociopaths in charge, we could very well see the Milgram experiment reenacted on a national scale. In the experiment, you may recall, researchers asked members of the public to torture subjects (who, unbeknownst to the people being recruited, were paid actors) with electric shocks, all the way up to what they believed were lethal doses. Most of them did as asked, after being assured that it was "alright" and "necessary" by men in authority. The men in authority today are mostly sociopaths.
WHAT TO DO
One practical issue worth thinking about is how you, as someone with libertarian values, will manage in a future increasingly controlled by sociopaths. My guess is poorly, unless you take action to insulate yourself. That's because of the way almost all creatures are programmed by nature. There's one imperative common to all of them: Survive! People obviously want to do that as individuals. And as families. In fact, they want all the groups that they're members of to survive, simply because (everything else being equal) it should help them to survive as individuals. So individual Marines want the Marine Corps to survive. Individual Rotarians want the Rotary Club to prosper. Individual Catholics leap to the defense of the Church of Rome.
That's why individual Germans during World War II were, as has been asserted, "willing executioners" – they were supporting the Reich for the same reasons the Marines, the Rotarians and the Catholics support their groups. Except more so, because the Reich was under attack from all sides. So of course they followed orders and turned in their neighbors who seemed less than enthusiastic. Failing to support the Reich – even if they knew it had some rather unsavory aspects – seemed an invitation to invading armies to come and rape their daughters, steal their property and probably kill them. So of course the Germans closed ranks around their leaders, even though everyone at the top was a sociopath. You can expect Americans to do the same.
Americans have done so before, when the country was far less degraded. During the War Between the States, even saying something against the war was a criminal offense. The same was true during World War I. In World War II, the Japanese were all put in concentration camps on groundless, racially based suspicions of disloyalty. During the early years of the Cold War, McCarthyism was rampant. The examples are legion among humans, and the US was never an exception. It's even true among chickens. If a bird has a feather out of place, the others will peck at it, eventually killing it. That out-of-place feather is deemed a badge of otherness announcing that its owner isn't part of the group. Chicken Autre must die.
Libertarians, who tend to be more intelligent, better informed and very definitely more independent than average, are going to be in a touchy situation as the crisis deepens. Most aren't going to buy into the groupthink that inevitably accompanies war and other major crises. As such, they'll be seen as unreliable, even traitors. As Bush said, "If you're not with us, you're against us." And, he might have added, "the Constitution be damned." But of course that document is no longer even given lip service; it's now a completely dead letter.
It's very hard for an individualist to keep his mouth shut when he sees these things going on. But he'd better keep quiet, as even HL Mencken wisely did during both world wars. In today's world, just keeping quiet won't be enough; the national security state has an extensive, and growing, file on everybody. They believe they know exactly what your beliefs, desires, fears and associations are, or may be. What we're now facing is likely to be more dangerous than past crises. If you're wise, you'll relocate someplace where you're something of an outsider and, by virtue of that fact, are allowed a measure of eccentric opinion. That's why I spend an increasing amount of time in Latin America. In truth, however, security is going to be hard to find anywhere in the years to come. The most you can hope for is to tilt the odds in your favor.
The best way to do that is by diversifying your assets internationally. Allocating your wealth into real assets. Linking up with sound, like-minded people who share your values. And staying alert for the high-potential speculations that inevitably arise during chaotic times.
[Another puzzle piece that sadly fits in place for the fall of the US is its astounding debt crisis. Those with the foresight to take advantage of the shifting trends it triggers can not just survive, but thrive during the challenging times ahead.]

Recovery? Housing says it’s a Hoax

Watching the financial channels yesterday, I could not tell you how many times the word “recovery” was used.   Sure, the stock market is up, but that is compliments of the Federal Reserve.  Since the 2008 financial meltdown, we’ve had a money printing extravaganza.  There was QE1, QE2, Operation Twist, dollar swaps with Europe and 0% interest rates (on a key rate) through 2014.  Of course the stock market is up, it loves free money.  Wall Street may have recovered, but Main Street is still in the dumper.   (Actually, Wall Street has just broken even since the 57% plunge it took up to March of 2009.)  Professional commodities trader Dan Norcini said, this week, on his blog, “. . . the FED IS TERRIFIED OF RISING INTEREST RATES.”  Norcini explains, “. . . the US federal debt is at banana republic levels and any, I repeat, any rise in interest rates, will suck more of the incoming federal revenue into servicing the cost of this debt (paying the interest on it), leaving less for the spendthrift class to buy votes with.  Bernanke and company cannot afford to have a stock market that stops moving higher because if and when it did, the entire facade of an economy on the mend would come crashing down with it.”  (Click here to read the complete Trader Dan post.) 

The Fed may have juiced the stock market with cheap money and ultra-low interest rates, but the housing market is dead.  According to the latest Case-Shiller Home Index, prices are down—again.  The latest data, released yesterday, reveals prices in 17 of 20 cities surveyed were down.  Atlanta home prices plunged by a whopping 14.8% year-over-year.  The best year-over-year increase was turned in by Detroit, with a paltry 1.7% increase.  According to the Case-Shiller report, “As of January 2012, average home prices across the United States are back to the levels where they were nearly a decade ago – in early 2003. Measured from their June/July 2006 peaks through January 2012, the peak-to-current decline for both the 10-City Composite and 20-City Composite is 34.4%. January’s levels are new lows for both Composites in the current housing cycle.”  (Click here for the complete Case-Shiller press release.)    
I see no recovery for people on Main Street as far as housing is concerned, and neither does economist John Williams of Shadowstats.com.  His latest report, last week, focused solely on housing and construction.  The first line in his report says it all, “The construction industry remains distressed in the extreme, clobbered by collapsing broad economic activity from 2006 into 2009 and by three subsequent years (and counting) of no recovery—just economic stagnation.”  (Click here to go to the shadowstats.com home page.)  You want to see what construction spending on payrolls looks like on a chart?  Here’s the ugly picture, compliments of Shadowstats.com.  
Williams says construction payrolls haven’t been this depressed since “June of 1996.”  That’s nearly a 16 year low!  It’s not just construction jobs that have taken a hit, even Fed Chief Ben Bernanke admitted the job market in general is weak.  Monday, USA Today reported Bernanke said, “Despite the recent improvement, the job market remains far from normal,” Bernanke said.  “The number of people working and total hours worked are still significantly below pre-crisis peaks.” (Click here for more from USA Today.)  If unemployment were calculated the way Bureau of Labor Statistics did it in 1994 and earlier, the true unemployment/underemployment rate would top 22% according to Shadowstats.com.
Bernanke said, last night, he’s now worried about fuel prices slowing the so-called recovery.  He told ABC News, “They’re obviously a hardship for lots of people. It must be awfully frustrating to get a small raise at work and then have it all eaten by a higher cost of commuting,” he said. Bernanke said higher gas prices may cause inflation to be “a little bit higher” in the next few months and take a bite out of consumer spending, leading to “a hit on growth.”  (Click here for the complete ABC story.) 
Bernanke thinks gas prices may fuel inflation?  Silly me, I thought it was all the money printing to prop up the banks and stock market that caused inflation.  At any rate, Dr. Bernanke better hope IMF Chief Christine Lagarde’s warning, last week, of a possible 30% spike in oil prices doesn’t come true.  Lagarde was lamenting the standoff with the West over Iran’s nuclear program when she said, “A sudden and brutal rise in the price of oil from Brent crude’s current levels of $125 a barrel would have serious consequences on the global economy until other oil-exporting nations were able to bridge the gap.”  (Click here for more from France24.com.)  
If gasoline prices did spike 30%, that would put the national average well above $5 for a gallon of gas.  Even if war with Iran is averted, many experts think gas prices will rise anyway, right along with the summer driving season.  But don’t worry, Bernanke doesn’t see “anything that’s going to stall the recovery,” even though housing says it’s a hoax.

Gov't decides where free Speech Can Happen.....

   No doubt these flash points also figure in to the new Federal Restricted Buildings and Grounds Improvement Act.

“This law,” writes Fox News judicial analyst Andrew Napolitano, “permits Secret Service agents to designate any place they wish as a place where free speech, association and petition of the government are prohibited. And it permits the Secret Service to make these determinations based on the content of speech.”

“Thus, federal agents whose work is to protect public officials and their friends may prohibit the speech and the gatherings of folks who disagree with those officials or permit the speech and the gatherings of those who would praise them, even though the First Amendment condemns content-based speech discrimination by the government.”

Even worse, Napolitano points out, “The new law also provides that anyone who gathers in a ‘restricted’ area may be prosecuted. And because the statute does not require the government to prove intent, a person accidentally in a restricted area can be charged and prosecuted, as well.”

So... you can run afoul of this law even if you’re a “law-abiding” Tea Partier.

Doug Casey on Obamacare and Bioethicists - The TSA of the Intellectual World

(Interviewed by Louis James, Editor, International Speculator)

L: So, what's on your mind this week, Doug? The coup in Mali? The black comedy provided by the US election circus? The latest market-moving pronouncements of The Beard?

Doug: No, I've never been to Mali, and I prefer to comment based on firsthand experience, not just parsing what some journalist writing from New York puts in his article on the place.

L: I thought you had been... You should have gone with me.

Doug: Next time. And the election is too pathetic to comment on at this time - a pox on both their houses. Maybe after the GOP selects its candidate for Clown in Chief. And there's nothing new in Bernanke's blatherings. Though I do have to say that link you sent around, regarding this complete moron who is Argentina's central banker saying that printing money does not lead to inflation just goes to show what a disaster in the making Cristina is, and how hopeless the political situation in Argentina is. But I shouldn't be to o hard on Argentina; every country in the world is headed in the wrong direction.

L: Isn't that a bit redundant, saying the central banker is a moron?

Doug: My apologies; you're quite right. As a class, central bankers are morons in $1,000 suits who've gone to prestigious universities and then play big shot at outrageously expensive international conferences. Cristina is completely off the deep end - it'll be interesting to see how this place evolves over the near term. The head of her central bank is only slightly better than Zimbabwe's Gideon Gono and only a bit worse than Bernanke, in terms of foolishness.

L: Since speculators like to take advantage of predictable trends, and nothing is more predictable than government stupidity, is this an Argentinean buying opportunity in the making?

Doug: Yes; I think the cost of living in this place is about to get much lower. But, notwithstanding the antics of Cristina, we've already talked about why I like Argentina so much. What I want to talk about today is the dangerous absurdity of so-called "bioethics." For years, every time I've read anything by a self-appointed bioethics pundit, it has made my skin crawl. Stupidity is bad enough, but aggressive, self-righteous, corrupt, and manifestly destructive stupidity just makes me want to scream.

L: Ah. You saw that pompous pile of buffalo chips in support of Obamacare?

Doug: Yes, and with The Supremes about to take up the constitutionality of that particularly counterproductive piece of legislation, it's worth calling attention to this particularly despicable cadre of self-proclaimed experts on ethical matters. But, as always, we should start with a definition.

L: Here's what Wikipedia says:

Bioethics is the study of controversial ethics brought about by advances in biology and medicine. Bioethicists are concerned with the ethical questions that arise in the relationships among life sciences, biotechnology, medicine, politics, law, and philosophy. It also includes the study of the more commonplace questions of values ("the ethics of the ordinary") which arise in primary care and other branches of medicine.

Doug: It's all high-sounding hogwash. Bioethics is a phony science, recently concocted by busybodies working for pharmaceutical companies, governments, and medical institutions looking for excuses to justify what they have already decided to do. That's dangerous enough, but these are not just fools sowing confusion, they are mostly of a particular mindset - that is to say, they are a bunch of collectivists and statists - who pretend to be objective. Worse, they espouse policies with wide-reaching implications, almost universally wrong-headed and disastrous, which are a reeking part of the rotting fabric of what was once American society.

I don't know where they dig up these people - how can anyone be so corrupt, blind, and stupid at the same time, and still manage to tie his shoes in the morning? These people are like the TSA of the intellectual world. They are worse than useless; they are counterproductive, making people more confused on ethical matters, thereby making the world more dangerous. They hide under rocks and in sub-cellars in stable and happy times. But given an opening, they come out, and you have an infestation that's extremely hard to expunge. The kind of people who join the TSA are one species, but bioethicists are even worse.

L: I really wish you'd stop beating around the bush and let us know what you really think.

Doug: [Chuckles] I guess I'll never be a diplomat - partly because it's against my nature, and partly because I'd then have to associate with other diplomats. We're dealing with fundamental issues of good and evil here; I urge everyone to read my article on the ascendancy of sociopaths in US governance. Essentially, the powers of darkness have gotten the upper hand almost everywhere, and we're looking at a dystopian future, where 1984 might be used as an instructional manual.

But what really gets me about these bioethicists is that they are not technical experts contributing to debates among scientists - they're just a bunch of busybodies who want to tell everyone else what to do, based on their own opinions of morality and notions of political correctness. This is especially dangerous, because people make decisions and act based on their ideas of what is right and wrong - on moral grounds. By setting themselves up as the great determiners of what is ethically correct, these supposed experts become a sort of new secular priesthood to guide us all. They're worse than run-of-the-mill busybodies, however; they want to play the role of Gr�ma Wormtongue in counseling rulers. They are generally sociopaths who want us to accept their statist, collectivist ethics, and thereby exert control ov er the direction of society, taking it down paths they deem best.

L: But even if this is all true, are these people really that dangerous? I mean, does the average guy switch the TV from Monday Night Football to watch a bioethicist deliver techno-drivel on C-SPAN?

Doug: Fortunately, few people listen to bioethicists. But unfortunately, those who do tend to be among those battling for control of public policy. These so-called ethical experts insinuate themselves into the bureaucratic machinery of the state, into the flow of intellectual and academic debate, into the course material taught at universities, and they exert influence.

It's especially dangerous because when people read about a consensus of Ph.D.s agreeing that X or Y is ethical, they may be seduced into letting these others do their ethical thinking for them, instead of holding on to the vital responsibility of thinking through ethical matters for themselves.

From the beginning of the Dark Ages up until the early 1500s, the Church of Rome was the arbiter of morality in the West; that was highly problematical, because it substituted the judgment of some priest for that of each individual. It's one reason that the medieval era was so backward. Individual responsibility to understand ethics and act accordingly is a cornerstone of Western civilization, going all the way back to the Greeks. It's what the play Antigone is all about. This is one reason that Islamic countries are basket cases - they're at the same stage of philosophical evolution as the West was in the medieval era.

Anyway, the decline of religion in the West over the last century - a trend I applaud for many reasons, but won't go into now - has left something of a moral vacuum. It's been partially filled by secular religions like Marxism, but Marxism has been debunked everywhere but on college campuses... so the bioethicists are the latest fad trying to fill the space.

Individual responsibility, rather than diffuse responsibility among classes of people, is a major reason for the individual accomplishments and innovations that led the West to global eminence. Bioethicists are trying to set themselves up as a new priesthood. If they succeed, it would reverse an essential element of Western thought. These people are termites eating at the foundations of Western civilization and are contributing to the West's fall from eminence.

Bioethicists are irksome because they're a visible cutting edge of the knife destroying our social fabric, and yet they are given unearned respect and material prosperity.

L: For example?

Doug: I was reading an article by an alleged bioethical expert, spewing about medical advances, and the man, one Dan Callahan, Ph.D., actually said that one of the problems with medicine is technology.

L: What?! Medicine is technology.

Doug: Yes, you're exactly right. Needless to say, he conflates healthcare with medical care, which are two totally different things. But beyond that, this luminary actually says that technology "is one of the barriers to an equitable and sustainable healthcare system." Why? It "drives up costs with little return on investment."

L: Tell that to the people who are alive because of technology breakthroughs.

Doug: You have to see clearly what he's saying. He didn't say technology was a barrier to effective medical treatment, he said it's a barrier to an "equitable and sustainable healthcare system." He doesn't give a fig if you or I live or die, it's the system - the collective - that matters most to him and all his socialist ilk. This is classic. These frauds are not experts in ethics at all, but socialists using big words that sound scientific and objective to con people into buying their collectivist values.

The collectivist mindset is a pathology. The socialists have been discredited with the collapse of the USSR and the economic boom in China - which is now socialist in name only. So, they've migrated from economics to "ecology," where they have become "watermelons" - green on the outside, red on the inside. And they've redoubled their efforts to capture the legal and academic arenas. Bioethics offers a chance to do that, plus corrupt science, plus gain the high moral ground. It's a wonderful scam. And if these people are good at anything - actually it's the only thing they're good at - it's perpetrating a scam.

L: I have a friend who lives in a country with socialized medical care. His family ate some poisonous mushrooms several years ago. He ate few and lived. His wife and son ate many. His son went to a children's hospital, where they routinely pump the stomachs of children who swallow things that are not good for them, and the son lived. His wife went to a normal hospital, where the doctors didn't bother pumping her stomach, saying it had been too long already. She died. It also turned out later that there was a new medicine the doctors did not try - did not even mention - because it was very expensive and not covered. This is what you get when you place greater value on an "equitable and sustainable healthcare system" than on the individual's right to pursue the best health care possible.

Doug: That would be your friend, Virgis, in Lithuania?

L: Yes.

Doug: I remember - I'm sorry for your friend... but you're exactly right. These lickspittle pseudointellectuals are on their way to becoming a leading cause of death in the US and elsewhere. They are metastasizing into a giant force for government control of science and suppression of "unsustainable" research not aligned with the goals of those in power. Instead of allowing innovators to create new treatments wherever new ideas take them, we could end up with pseudoscience following a course of research set by the dominant political agenda of the day.

It should not be up to lunatic busybodies like this Callahan to tell people how much they can spend trying to keep themselves alive; it should be up to individuals. If some people can afford expensive new treatments, bully for them. If some people can't, they are no worse off than they were before the new treatment was invented. Nobody gets out of here alive. But of course, to a socialist this is a big problem, because in that view, everyone should have equal and unlimited access to all treatments. In this perverted view of things, it doesn't matter if an expensive treatment is better, it doesn't matter that rich people who pay for new treatments open the path for less expensive and better treatments in the future - it matters only that the system cannot afford to provide something for everyone now. This only shows that the man is not an expert in medical technology, nor economics, and especially not ethics.

L: An example of subservience to political agendas being the Johns Hopkins bioethicists' article in support of the so-called Affordable Care Act (ACA) we started with?

Doug: Yes. The op-ed's authors argue that since medical companies can avoid state regulation by basing operations in other states, the "interstate commerce clause" of the Constitution gives the federal government the authority to regulate medicine. Of course what's going to happen is that medical entrepreneurs will not just locate to a different state but to a different country, where they can develop products freely and cheaply. And more and more Americans will go elsewhere for medical care. Even more will renounce their citizenships and go elsewhere to avoid everything from being forced to buy medical insurance to being forced to support the Welfare-Warfare State in general.

L: People are already voting with their feet. But anyone who's actually read the Constitution knows that the mention of interstate commerce is in the preamble to the Constitution, in which the authors explain why the document is necessary. Regulation of interstate commerce is not among the enumerated powers given to the federal government, and the tenth amendment clearly states in plain English that "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

Doug: I know that. You know that. So does any intellectually honest person who reads the Constitution, but we also know that there's a huge body of legal precedent and subsequent legislation that uses the interstate commerce clause to justify all sorts of federal intervention into the economy, and has done so for decades. I'd argue that the distortion of the interstate commerce clause into a carte-blanche excuse for everything the federal government wants to do but is not given the power to do in the Constitution was, in fact, the end of the rule of law in what was once America. Of course, the whole Constitution is really a dead letter. It's been selectively interpreted out of existence and is now simply disregarded whenever it suits our ruling cadres.

But we digress. These bioethical maroons actually argue that the interstate commerce clause gives the federal government the right to force individuals to buy medical insurance they don't want - the "individual mandate" part of Obamacare:

Striking down the individual mandate would introduce a new and deeply problematic chapter in the history of the Commerce Clause. For the first time since the New Deal, Congress would no longer hold a vital power of national concern, namely, the authority to regulate all economic subject matter substantially affecting commerce.

Before the government became involved in medical care - first because of Roosevelt and then especially under Johnson - medical insurance wasn't even necessary. But this guy enthusiastically wants more state intervention, not less.

L: It's hard to imagine anyone using the interstate commerce clause in this way with a straight face. The Bill of Rights is all about protecting individual human rights. That's what once made America great; it was set up with a focus on the well-being of the people, not the state. To use a blurb from the preamble to ride roughshod over the actual provisions of the Constitution is an Orwellian nightmare.

Doug: A nightmare we've been living for decades - and a nightmare that will lead to its lamentable, but inescapable conclusion - in the not-too-distant future, I believe. At any rate, the Congress has no business regulating interstate commerce - or any economic activity. That's what's taking what's left of America down the path of Mugabe and into depression. There should be separation of economy and state for basically the same reasons we have separation of church and state.

L: Sure, but you think there should be a separation between all human activity and state, since you don't think the state should exist.

Doug: [Chuckles] But that's a conversation we've already had. Maybe the advent of these bioethicists is a sign that the ascendancy of state power has reach a peak, and things have gotten so bad that they have to get better going forward.

L: Nah - things can get worse. They can always get worse.

Doug: Well... you're right. But I'm a perpetual optimist. The fact is that the trend is accelerating - not reversing or even slowing - toward total state control of everything in the US. Back to bioethics: Far be it from me to defend a Republican argument, but there's something to what they say about "death panels." If you socialize medicine, who will determine what treatments are allowed? What treatments are within budget? There will have to be panels of supposed experts - like these bioethicists - who will literally have the power of life and death in their hands. As you pointed out with your friend's experience in Lithuania, people may be denied treatment simply because it's not routine or because it's not in the system's best interests because it's too expensive. There are two ways you can allocate scarce resources: economically or politically.

L: "Economically" meaning based on what individuals can afford, or find support to pay for. "Politically" meaning based on what the day's rules deem fit. The former may seem unfair to some, but the latter is a disaster for almost everyone but those in power - and even them, eventually, when they run the system down.

But okay, I think we've made our case. Investment implications?

Doug: Just another sign of the times - the decay of Western civilization, the continuing decline and transformation of America into the United States. This supports everything we've been saying in The Casey Report, and other conversations we've had: rig for stormy weather, because we're going through the wringer.

L: All right, then. Thanks, and 'til next week.

Will Helicopter Bernanke Become 'Hurricane Ben'?

This report will deal with quantitative easing (QE). To prepare you for this report, I ask you to watch a short video. It is under 3 minutes. This video is the best thing I have seen on quantitative easing. I wish Bernanke would be this forthright, but I suppose this will never happen.The problem with the video is this: the economics profession, the financial services industry, the financial media, and Paul Krugman have not been able intellectually to make the connection that the interviewer did. He did it effortlessly, but the professionals who are paid to explain things to the public are on the payrolls of special-interest groups that have a direct financial stake in the continuation of the present system. When men are paid very well to see things in a particular way, they become impervious to alternative explanations of causes and effects.
FROM HELICOPTER TO HURRICANE
Bernanke became famous in 2002 because of a line in a speech that he delivered in late 2002. It was on combating price deflation. He described policies that in fact were being implemented as he spoke: Bush's huge (in those days) Keynesian deficit and Greenspan's monetary expansion.

In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.

The line led to his description as Helicopter Ben. There are cartoons and Photoshopped images all over the Web that use this as their theme.. He will always be known by these images. No other Federal Reserve Board chairman has achieved such poster-child status.
The problem with the helicopter image is that it does not convey the serious nature of the threat. Picturing a bearded man tossing bills out of a helicopter is amusing.
Of course, the image itself is incorrect. The commercial banks are the source of the money, not the Bureau of Engraving and Printing. Dollars are mostly digital. The mental image of German wives in 1923 with wheelbarrows full of paper bills applies to hyperinflations, but it does not apply well to monetary creation in a digital world.
The conceptual difficulty with digital money is that it is lent into circulation at specific points. It can be lent as credit card money or as bank credit. Credit card money is used by card-holders to buy things. Bank commercial credit money is used by entrepreneurs to purchase goods and services used in production.
When central banks buy government IOUs, governments send out welfare checks and pay other special-interest groups. The recipients spend money. This sends a signal to entrepreneurs: demand is increasing. They begin to respond by expanding their facilities to increase output. They go to banks to borrow the money.
There has been no increase in saving. There has merely been a central bank purchase of government-issued IOUs. But businessmen begin to bid up the prices of factors of production. If they are willing to borrow, and if bankers are willing to lend, this creates competition for resources. Customers want finished goods and services immediately. Businessmen want factors of production, in order to produce goods for sale later. Businessmen initially win this competition. They can outbid customers.
Of course, if businessmen are not persuaded that the flow of new digital money will continue, or if they are already deep in debt, commercial banks will lend to governments, or to consumers, or just hand over the money to the central bank as excess reserves. The banks have been building excess reserves ever since 2008. This has kept prices from climbing to match the increase in central bank purchases of government IOUs.
If the American economy begins to recover to the degree that businessmen are willing to borrow and bankers are willing to lend to them, the monetary base that the FED holds will at long last push up consumer spending by the employees of businesses. The M1 money multiplier statistic will increase as people spend this money on customer goods.
At that point, the FED will have to decide how to offset this in order to head off major price inflation. If it does not sell assets, mainly Treasury bonds and Fannie Mae and Freddie Mac mortgage bonds, it will face mass inflation (15% to 25%). If commercial banks still lend, the near tripling of the monetary base in 2008-10 will produce a near tripling of consumer prices. That will be the hurricane.
THE MOMENT OF DECISION
At some point, all central bankers will face this decision. They can continue to buy assets, thereby increasing the monetary base. But this increase will produce hyperinflation. This has happened after major wars among the losers. The German and Austrian inflations after World War I are legendary. Even worse was the hyperinflation of Hungary after World War II. In our day, Zimbabwe's hyperinflation early in this century became the worst since Hungary's.
No major West European government has experienced this. The German economy from 1945 until June of 1948 was a ration-based economy. It had repressed inflation. The Allies printed paper money. Then they imposed price and wage controls to hold down inflation. Production then shifted to the black markets. This ended the day after Ludwig Erhard unilaterally abolished the price controls and shrank bank money by 90%. General Clay, who was in charge, backed him. The German economy revived. That was the basis of the "economic miracle" – a miracle only in the eyes of the price controllers.
If Bernanke decides to stop buying U.S. government debt and all other forms of debt, and the FED ceases to create new reserves, there will be a recession. If the FED sticks to its guns, the fractionally reserved banks – very large banks – will fail. That will shrink the money supply. That is what happened in the United States from 1930 to March 1933. About 9,000 banks failed. The FED bailed out the biggest ones.
The problem next time will be this: the biggest banks are leveraged 33 to one. This meets the "stress test" which the FED conducted earlier this year. This is twice as high as the former head of the FDIC says it should be. She thinks big banks will be under great stress in the next financial crisis. She wants a more bare-bones banking system.

Financial institutions fail when they cannot meet their debt obligations. Equity can absorb losses. In contrast, debt is a fixed legal obligation. When you have unexpected losses, as is the case in a financial crisis, you need a significant cushion of equity to absorb the losses. The more debt an institution has in comparison to its equity, the more likely it is that the institution will fail. Short-term investors will pull their loans quickly from a highly leveraged institution, even when it is still solvent. Insured deposits and long-term debt are more stable. That is why it is important to stress liquidity as well as capital to make sure financial institutions can survive a highly stressed environment. (http://bit.ly/BairBones)

She went through the 2008-9 crisis as FDIC chairman. She watched hundreds of banks fail. She watched Wachovia go under. So, she is alert to the risk.
So is Bernanke. If the FED puts on the brakes at any point and keeps them on, the contracting leverage will topple some very large banks. If the FED doesn't put on the brakes, there will be hyperinflation, which will lead the commercial banks to use their leverage for even more pyramiding of credit. Then what? Breakdown. Hyperinflation destroys traditional capital markets.
Bernanke is stuck with the helicopter image. The only way that he can escape this image is through a switch to Hurricane Ben. He does not want this.
If it comes down to making digital money available to big banks to bail them out vs. buying the government's debt, the Federal Reserve will side with the banks. That will tempt Congress to nationalize the FED. It legally can do this. Then monetary inflation will continue under the new, improved FED. At that point, Ben will bow out if he is still chairman at the time. He can live with Helicopter Ben. He can't live with Hurricane Ben.
No one at the FED will want to preside over the destruction of the dollar. The effects would be disastrous. The person in charge of a legally independent central bank will be on the hook. So will the members of the Federal Open Market Committee (FOMC), which sets policy. If Congress mandates the purchase of T-debt, someone will be hired to do the government's will. His excuse will be this: "I was just following orders."
We speak of the boom-bust cycle. The good times are followed by the bad times. But we can as accurately call it the bust-boom cycle. The boom in America has never become what Mises called the crack-up boom: the destruction of the dollar. It also has never become the market-clearing bust, when all insolvent banks are allowed to fail, and the money supply is allowed to contract accordingly. That would end the leverage once and for all.
We never get to once and for all. The government never releases the monetary ratchet.
FOREIGN CENTRAL BANKS
The magnitude of the federal deficits is concealed by purchases of T-debt by the central banks of China and Japan. But the main cause of low interest rates and rapid purchases of the debts is not Asia. It is the investing public in the United States. Foreign central banks purchase less than half of the $1.3 trillion a year that the government is forced to sell by the deficit.
China has bought no Treasury debt since July 2011. It has allowed $140 billion to lapse. It did not roll over these debts. Japan did keep buying. The Bank of Japan bought almost $200 billion. The increase from all foreign sources has been from $4.66 trillion to about $5.1 trillion. (http://bit.ly/TICreport) This is close to $400 billion. That is about half the deficit that is owned by the public. About $6.5t is held by the Federal Reserve and various U.S. government retirement trust funds. Check "Ownership of Federal Securities".
In the meantime, the total on-budget debt grew from about $14.3t in June 2011 to $15.6t.

The U.S. Treasury would be paying far above one-tenth of one percent on 90-day T-bills if the foreign purchasers were to decide to stop buying. If central banks just allowed their T-debt holdings to mature and then refused to roll them over, there would be a funding crisis at the Treasury. Rates would rise as the Treasury scrambled for lenders. But that would create a recession. Americans would stop buying as many foreign goods. Foreign governments don't want that. So, they keep inflating to buy dollars to buy T-bills to hold down Treasury debt rates.

If the FED ever stops buying U.S. government assets, there will be price deflation and a depression. If it never buys again, there will be a Great Default: federal bankruptcy. Bernanke will not preside over that, either.

But at some point, it will have to be one scenario or the other. The endless can-kicking will end. There will be too much federal debt to service. Rates will rise. The depression will hit.
The government dares not default on its short-term debt. It must roll it over to stay in business. So, it will have to find ways to cut off other outlays. It will have to abandon Keynesianism. It will have to balance the budget.
OXEN TO GORE

That will mean deciding whose oxen will get gored by default. The military budget is a sure loser. But that will not be enough. Means-testing for oldsters will be imposed: Medicare and Social Security. "Stiff the rich!" Politically, that will play in Peoria.

Medicare will cut payments to physicians and hospitals. Physicians will begin to stop treating Medicare patients. They will not be allowed to refuse. So, older physicians will retire. We can see where this is headed: real socialized medicine, not mere Obamacare. But that will not cut costs, either. Costs will rise.
In a full-scale depression, these measures will not be enough. The government will have to cut back on Medicare. That will be the day of generational reckoning. Who will pay granny's medical bills?

The assumption is that a hurricane will never come – not a deflationary hurricane or a hyperinflation hurricane. So far, this has proven to be the case. But the deficit rises relentlessly. The can-kicking continues. The bills will come due. The numbers do not lie. The bills will come due almost overnight, when central banks refuse to buy more Treasury debt at low rates, followed by the Federal Reserve, followed by the pension funds.

Keynesianism teaches that the day of reckoning need not come. Chicago School economists say it need not come. We will figure something out. Supply-siders say the same. Only Austrian School economists say that the can cannot be kicked forever, and that the day of reckoning will come.

It is getting close in Greece. Greece is the early warning signal to the whole world.
CONCLUSION

It is wise to begin to prepare for a hurricane. The problem is, which kind? Hyperinflation? Deflationary depression and default? Mass inflation followed by depression followed by another round of inflation?

The mainstream media do not discuss this. They all think we can muddle through. I don't think we can.

The timing of the hurricane's arrival is a matter of conjecture. But be prepared to batten down the hatches before it comes.

I will assume from this point on that you have seen the video. If you deal with colleagues who have been confused about what QE really means, forward it to them.

Nicely Said......

"It is painfully difficult to decide whether to abandon some of one's core values when they seem to be becoming incompatible with survival.  At what point do we as individuals prefer to die than to compromise and live?  Millions of people in modern time have indeed faced the decision whether, to save their own life, they would be willing to betray friends or relatives, acquiesce in a vile dictatorship, live as virtual slaves, or flee their country.  Nations and societies sometimes have to make similar decisions collectively." - Jared M. Diamond, Collapse: How Societies Choose to Fail or Succeed, 2005

$175k to cheer up Department of Energy and Climate Change staff

THEY are responsible for some of the government's most important policies - but staff at the Department of Energy and Climate Change are too ashamed to admit where they work.
Staff morale is so low the government has spent almost $175,000 on consultants to lift staff's flagging spirits.
A negative public image of the department, changing environmental policies and lack of internal support had left them feeling miserable and disengaged, an internal report has found.
The report was conducted by consultants Right Management in July 2010 when the department was under the responsibility of Finance and Deregulation Minister Penny Wong.
The portfolio has since been taken over by Greg Combet.
The department is responsible for carrying out some of the government's most critical and controversial policies, including those relating to global warming, carbon emission reduction and promoting energy efficiency.

The findings of the report are so damning the government only released it nine months after it was first requested by the Opposition under Freedom of Information laws.
The report, which also includes a survey of 788 people, found the department to have "low levels" of employee engagement. Staff held a poor view of the department, felt a lack of purpose, were uninformed about changes to policies and procedures, and worried about their future employment.
"Many reported having to think about whether they would tell people where they worked because of the department's negative image," the report said.
Opposition Climate Action, Environment and Heritage spokesman Greg Hunt said the report exposed the level of incompetence within the department.
"I think most taxpayers would be staggered to know that more than $250,000 has been spent to fix up the internal mismanagement of a department under the stewardship of now Finance Minister Penny Wong," he said.
A letter to the Opposition attached to the documents said the identified issues had been addressed and initiatives introduced to improve staff engagement within the department.